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USDA / Rural Development March / April 2011

R

u

r

a

l COOPERATIVES

Growing toward

‘Independence Day’
By Dallas Tonsager, Under Secretary

USDA Rural Development

peaking at the annual Commodity Classic

farm conference in Tampa, Fla., in early

March, Agriculture Secretary Tom Vilsack

took a strong stand in support of our nation’s

biofuels industry. He said American

agriculture can produce enough crops to supply both our

food and biofuel needs.

“Don’t bet against the American Farmer,” Sec. Vilsack

said. “If you do, it’s a losing bet.”

The Secretary’s words resonate deeply as Americans are

once again watching, with that all-too-familiar feeling of

helplessness, as gas prices soar in the wake of

the political turmoil in North Africa and the

Middle East.

According to one estimate, each penny

increase at the gas pump sucks $1 billion out

of the U.S. economy. Petroleum imports

account for 50 percent of our nation’s trade

deficit.

American farmers and their co-ops are not

the types to just wring their hands over the

situation; they have stepped up to the plate

and are trying their best to do something

about it.

To help our nation progress further along

the road to energy independence, Arkansas farmer Joey

Massey and his fellow board members of MFA Oil are

supporting an ambitious plan under which its farmermembers would plant a special grass crop (Miscanthus x

giganteus) on nonproductive farmland in Missouri and

Arkansas as a feedstock for biomass fuel. As you can read on

page 4 of this issue, the co-op would then process the grass

into biomass pellets, which will be marketed to power plants

and the poultry industry (for heating poultry barns). At a

later date, the grass could also be used to produce ethanol.

Massey looks forward to the day when he will not only

help feed the nation and world with his rice, wheat and

soybean crops, but will also run a farming operation that

produces all of its own energy needs. MFA Oil CEO Jerry

Taylor cites a study that shows that the project could create

2,700 new jobs and have a $150 million impact on the region.

Those who attended a session on biomass power that I

moderated at the recent USDA Ag Outlook Forum heard

about the Tennessee Biomass Innovation Park, where a

demonstration cellulosic ethanol plant is producing fuel from

switchgrass supplied by a farmer co-op (this project will be

featured in an upcoming issue of Rural Cooperatives).

Meanwhile, in Iowa and elsewhere, progress is being made

by ethanol processors developing technologies to use crop

residues — such as corn stover — as a source for ethanol.

All of this underscores that there will probably be a

number of different sources for biomass fuel — including

dedicated energy crops (such as Miscanthus and switchgrass),

crop wastes and waste woods.

As readers of this publication know, livestock wastes can

also be used for energy production. More dairy farmers are

turning manure into methane gas energy.

It’s not just what farmers can grow on the

land that produces renewable energy. On the

high plains of the Dakotas, the nation’s largest

co-op wind farm is being developed (see page

10). With 108 wind turbines that can generate

150 megawatts of electricity, the Crow Lake

Wind Project — backed with a loan guarantee

from the Rural Utilities Service of USDA

Rural Development — is a joint effort of the

Basin Electric Cooperative, a local association

of landowners (which owns seven of the

turbines) and a technical college (which owns

one turbine that will be used to help train

future turbine technicians).

When fully operational, the new turbines will mean that

the Bismarck, N.D.-based co-op will be producing 12 percent

of its total power capacity from renewable resources. From

the vantage point of just 10 years ago, that is an amazing

accomplishment. Basin Electric is also recovering heat from

the exhaust of the compressor pumps on gas pipelines.

These projects represent just a small fraction of the

renewable energy projects ongoing, or being planned, across

the nation. Ultimately, rural America’s greatest source of

power is the ingenuity and drive of our people. If we can help

nuture their ideas and determination, I have no doubt that

someday this nation will achieve energy independence.

As Secretary Vilsack indicated, never under estimate the

American farmer. And if I may add to that: never under

estimate what our farmer and utility co-ops are capable of

when the power of one is multiplied by the many. ■

2 March/April 2011 / Rural Cooperatives

Commentary

Don’t Bet Against the American Farmer

Miscanthus x giganteus.
Features

Rural Cooperatives / March/April 2011 3

Volume 78, Number 2

March/April 2011

Rural Cooperatives (1088-8845) is

published bimonthly by USDA Rural

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SW, Stop 0705, Washington, DC. 20250-

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Unless otherwise stated, articles in this

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be reprinted freely. Any opinions expressed are those of the writers, and do not

necessarily reflect those of USDA or its

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To file a complaint of discrimination, write

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USDA is an equal opportunity provider

and employer.

Tom Vilsack, Secretary of Agriculture

Dallas Tonsager, Under Secretary,

USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or email:

coopinfo@wdc.usda.gov

This publication was printed with vegetable oil-based ink.

p.4

04 Growing Toward ‘Independence Day’ MFA Oil pursuing next-generation biofuel project to reap energy from non-productive land

By Dan Campbell

10 Crow Lake Wind Powers Up

Nation’s largest co-op wind farm includes community- and college-owned turbines

By Stephen A. Thompson

14 A Convergence of Interests

From forestry to local foods, multi-stakeholder co-ops gaining in popularity

By Margaret Lund

18 Dairy Co-ops: What They Are and What They Do

By Charles Ling

26 New Study Gauges Outlook for California Dairy Co-ops

By Justin Ellerby

30 Welcome to the Caves of Faribault

Historic sandstone caves home to Swiss Valley’s blue cheese

By Nancy Feeney

33 Why Do Co-op Boards Sometimes Micromanage?

By Jean Freeman

Departments

2 COMMENTARY

29 MANAGEMENT TIP

34 NEWSLINE

p. 10 p. 18

ON THE COVER: MFA Oil has formed a new subsidiary to help its

members grow Miscanthus x giganteus on marginal farmland in

Missouri and Arkansas. This hybrid grass, seen here in autumn on the

University of Illinois Experimental Station, would initially be processed

into biomass fuel pellets, but could also be used as a feedstock for

ethanol. Photo by Don Hamerman, courtesy Institute for Genomic

Biology/University of Illinois

p. 33
GrowingToward‘Independence Day

’
By Dan Campbell, editor

o seed would ever be planted if a

farmer didn’t first have a vision of ripe

fields of grain or other crops at

harvest time. Nor would any orchard

be planted or pruned without the

image of all those bushels of fruit or nuts to come.

But Joey Massey has a vision for his Arkansas

farm that goes beyond the bounty of his rice,

soybean and wheat crops.

“My vision is that someday I will grow all my

own energy — that this operation will become

completely energy independent,” says Massey, who

farms about 1,000 acres in northeast Arkansas. The

key to this vision lies not amid his most productive

farmland. Rather, his renewable energy goal is

rooted in 80 acres of non-productive cropland that

surrounds the rural airport that serves his county.

This airport land was growing nothing but weeds

when Massey, who is also a licensed pilot, took it on

a few years ago as something of a community

service project. The idea was to spruce things up a

bit — hopefully to even pull a crop from it to cover

the expense of caring for the land.

Massey cut down the weeds and has tried his best

Rural Cooperatives / March/April 2011 5

N

MFA Oil pursuing next-generation

biofuel project to reap energy from

non-productive land

The University of Illinois was the first to conduct replicated trials of

Miscanthus x giganteus in the United States, starting in 2002. In Illinois,

the crop (seen here in the fall, just prior to harvest) provides annual dry

matter yields of 14-17 tons per acre, which could produce 1,500 gallons

of ethanol. MFA Oil’s initial plan is to process the grass into biomass fuel

pellets. Photo by Steve Long, courtesy University of Illinois
to grow soybeans and wheat on the

airport tract. But the fertility of the land

is just too marginal to produce a decent

crop, he says.

However, studies and experience

have shown that marginal land such as

this can produce a good stand of

Miscanthus x giganteus (Miscanthus), a

towering ornamental grass that has

been grown profitably in Europe for the

past decade as a bio-energy crop (see

sidebar). Multiply this 80 acres of

marginal land by tens of thousands of

similar acres across Missouri and

Arkansas, and the potential for a major

new biofuel industry becomes apparent,

Massey says.

Avoiding ‘food

vs. fuel’ debate

At this point in the conversation,

Massey doffs his farmer’s hat and

(figuratively speaking) puts on his hat as

a director of MFA Oil Company. The

fuel co-op has been hard at work for a

number of years developing a plan to

take on a larger role in the renewable

fuels sector.

Representing the co-op’s Mid-South

Region, Massey went to his first MFA

Oil board meeting in Columbia, Mo.,

about four years ago, eager to raise the

issue of getting the co-op more

involved in biomass fuel. He even

brought with him a copy of an editorial

that aired on a local TV station that

urged the state’s agriculture industry to

more aggressively pursue biomass to

help the nation grow its way toward a

renewable energy future.

“The ‘food vs. fuel’ debate was really

heating up that point,” Massey recalls,

referring to critics of corn ethanol, who

see an ethical dilemma in diverting food

crops for energy use. At his first MFA

Oil board meeting, Massey was happy

to learn that the co-op had been

studying the renewable fuel market for

several years.

“At that time, we were primarily

looking at switchgrass as a dedicated

energy crop. But we soon changed our

focus to Miscanthus, for a number of

reasons,” Massey says. Unlike

switchgrass, Miscanthus is non-invasive,

so there should be no concerns about it

escaping plots and “taking over the

countryside,” he notes. Miscanthus

thrives on marginal land that will not

support traditional crops, and will do so

with only 20 inches of rain per year and

very little fertilizer once established.

“I keep looking for a negative aspect

of Miscanthus, but I can’t find one,”

says Massey. “It won’t displace any food

crops, so we avoid the food vs. fuel

debate. And we can harvest two to three

tons more per acre than with switchgrass.” [Proponents of switchgrass

counter that its big advantage is that it

is much less expensive to establish].

“Bottom line, I am really excited

about this project and what it could

mean to farmers in this region.”

Time to gear up biomass

At MFA Oil headquarters in

Columbia, co-op CEO Jerry Taylor

shares Massey’s excitement for the

Miscanthus/biomass energy project.

“The nation has to get the biomass

industry growing, and we think this

project represents a big step in that

direction,” Taylor says. He cites a study

that shows the project could have a

$150 million economic impact and

create 2,700 new jobs, with 1,700 family

farmers growing the crop.

The fear that Miscanthus would be

planted on productive cropland is not a

real concern, Taylor says. “Frankly, it

will not compete against $7 [per bushel]

corn or $14 [per bushel] soybeans. And

when you are talking about $100 [per

barrel] oil, biomass can compete with

petroleum.”

MFA Oil has established three

separate project areas, each of which

has at least 50,000 acres of marginal

farmland suitable for growing

Miscanthus. The projects areas are:

Central Missouri (with Columbia being

roughly in the center); Southwest

Missouri and Northeast Arkansas. To

sign up for the program, a farm needs

to have at least 40 acres of marginal

farmland that can be devoted to

Miscanthus. If the 50,000 acres per

project area is achieved, it should yield

about 600,000 tons of biomass per year,

per project area.

The co-op’s plan calls for each of

6 March/April 2011 / Rural Cooperatives

These half-acre plots at the University of Illinois Experimental Station at Champaign, Ill., are used to compare yields of Miscanthus x giganteus,

switchgrass and corn/soybeans. Photo by Andrew Leakey.
these project areas to have its own

processing plant, where the grass would

be turned into biomass fuel pellets. The

pellets would then be burned in

powerplants, or burned to heat poultry

houses. “The technology for processing

pellets has been around for a long time;

it is not complex,” Taylor says, adding

that each of the plants would be

“scalable,” so that they could be

expanded as the number of acres in

each project areas grows.

Each of the three project areas is a

little different, Taylor explains. “In the

Central Missouri project area, things

are really being driven by the end

market.” Both the city of Columbia and

the University of Missouri have their

own power plants that are facing

mandates to use more biomass.

In the Northeast Arkansas project

area, there is a great deal of marginal

farmland along Crowley’s Ridge, Taylor

says. “Today’s inputs are just too

expensive to make a lot of that land

viable for crop production. But it

should do well growing Miscanthus.”

Bordering this hilly ridge are large

areas of flat, productive rice and cotton

country. But rice and cotton are

“thirsty” crops, and a big concern is the

falling level of the water table, which

could threaten the future of irrigated

agriculture in the area.

The fact that Miscanthus should get

by with just normal rain levels in most

years is another big plus for it. The

only irrigation water it would likely

need might be in the first year or two

when the crop is being established,

Taylor says. Indeed, Miscanthus can

actually help capture excess rain water

and sequester it back into the aquifer.

Poultry producers could benefit

In the Southwest Missouri project

area, there is both a great deal of

marginal farmland and a large poultry

industry which is a ready-made market

for the biomass fuel pellets.

One such poultry grower is Rusty

Mulford, who raises 139,000 chickens

annually. Mulford, an MFA Oil delegate

(the co-op’s advisory body, just one step

down from the board), has six poultry

barns and 80 acres in the Ozarks, 60

acres of which he is ready to sign up to

grow Miscanthus on.

He already burns biomass pellets to

help heat his poultry houses. He figures

his own farm will burn the equivalent of

20 acres of Miscanthus pellets each

winter, leaving an additional 40 acres to

generate a cash return.

When Rural Cooperatives spoke with

Mulford in February, Missouri had just

been through a prolonged, recordRural Cooperatives / March/April 2011 7

Miscanthus facts

The following information was provided by MFA Oil Biomass LLC.

What is Miscanthus x giganteus? There are several varieties of

Miscanthus commonly used in landscape design as an ornamental

grass. Although it is from the grass family, like corn, it originated in Asia,

like soybeans. It can grow in temperatures as low as 43 degrees and is

estimated to last 20 years or more after the initial planting.

How is it planted and how does it grow? Miscanthus can be planted

with a vegetable planter or a rhizome harvester. Land needs to be

prepared prior to planting to reduce weeds. Fertilizer is optional in the

first year, and is needed about once every three years. Weed control is

needed the first two years, but in the third year and beyond, Miscanthus

crowds out the weeds, eliminating the need for treatments.

Does it require irrigation? Usually not, once established. But in a dry

season, it could need irrigation. MFA Oil Biomass says it will have

irrigation equipment available and will work with member-farmers

needing irrigation assistance.

How much tonnage does Miscanthus get? Farmers should consider

10‐15 tons per acre a reasonable goal.

Above right: the grass at the tassel stage. Photo by L. Brian Stauffer. Photos courtesy University of Illinois
8 March/April 2011 / Rural Cooperatives

breaking cold spell. Frigid temperatures

have a huge impact on the profitability

of poultry production. Indeed, propane

expense for winter heating is his largest

single cost of production, Mulford says.

Luckily, he installed biomass fuel

heaters in 2008 as a supplemental

source of heat. He has been buying fuel

pellets made from waste wood. During

three weeks of intense cold, he

calculates that those biomass pellet

burners saved him $2,500 to $3,000 in

propane bills.

Mulford is firmly behind MFA Oil’s

biomass project. “As a farmer-owned

energy co-op, MFA Oil has the

connections to farmers and is well

positioned to develop the additional

infrastructure needed,” he says.

There is a great deal of land suitable

for Miscanthus production in his

region, Mulford says, including

relatively small blocks of land broken

up by vacation home developments.

“That land just isn’t suitable for

traditional crop production; but we

believe it could grow Miscanthus.”

Co-op forms subsidiary

and partnership

MFA Oil has created a subsidiary to

pursue the project: MFA Oil Biomass, a

limited liability corporation that

operates on new-generation co-op

principles (the same business model

used by most other grower-owned

ethanol and biodiesel plants around the

nation).

MFA Oil is partnering with Aloterra

Energy LLC to undertake the project.

Taylor says the co-op has a longstanding working relationship with the

principals of Aloterra, a company which

was formed last year to work on biofuel

marketing, distribution and logistics

issues. Aloterra will supply the

rhizomes, or the bulb-like roots, from

which the crop sprouts.

At some future date, the Miscanthus

pellets might even be processed into

ethanol. Miscanthus can yield three

times more ethanol per acre than corn,

according to Scott Coye-Huhn, director

of business development for Aloterra

Energy.

Processing Miscanthus into liquid

ethanol is more complex than

producing fuel pellets, but Taylor says

ethanol could be “a huge market” for

Miscanthus. Existing corn ethanol

plants could be modified to use the

Energy mandates underlie push

for new energy crops

These state and federal legislative mandates are among the key “drivers”

MFA Oil cites in pursuing a biomass energy program:

• Federal Fuel Standards — Passage of the Renewable Fuel Standard 2 (RFS2)

mandates that U.S. refineries must produce 36 billion gallons of renewable

fuels each year by 2022. Of that amount, 16 billion gallons must come from

cellulosic products (like Miscanthus).

• Missouri Law — This law mandates that by 2021, Missouri must generate 15

percent of all electricity it produces from alternative energy sources, which

include biomass (like Miscanthus), wind and solar.

• U.S. Environmental Protection Agency Transport Rule — This rule mandates

that power plants in 31 states (including Missouri) reduce their sulfur dioxide

(SO2) and Nitrogen Oxides (NOx) dramatically. By 2014, they must reduce SO2

by 71 percent and NOx by 51 percent. Biomass is a key product to burn with

coal to reduce those emissions.

• Feed-in Tariffs — Ontario, Canada, has initiated a “feed‐in” tariff that

provides significant economic incentives to burn biomass by guaranteeing

13.8 cents per kilowatt-hour. European biomass markets are growing to meet

alternative energy goals; the United Kingdom recently announced the implementation of a feed‐in tariff that gives a subsidy to burn biomass for heat.

Crops like Miscanthus also have a high value when used to replace

petroleum‐based plastics and other polymer products. Beyond plastics, many

companies that currently use fibers and paper are researching replacing the

materials with Miscanthus.

Miscanthus can be harvested almost any time after the first frost of the year through

February, as long as there isn’t much snow on the ground. Photo courtesy MFA Oil
Rural Cooperatives / March/April 2011 9

pellets to supplement corn.

“Our strategy would be to not

duplicate assets that already exist,”

Taylor explains. “If the highest use of

our members’ crop is to sell it to

existing plants, that is what we will be

doing. If the highest return for our

growers is to invest in an additional

ethanol plant, that is what we would do.”

Taylor notes that POET

corporation, the nation’s second biggest

ethanol processor, is currently

experimenting with the use of corn

stover (corn cobs and husks) to make

cellulosic ethanol. MFA Oil does not

see biomass as being a one fuel industry,

hence Taylor does not view corn stover

ethanol as a threat or competition to

Miscanthus. “We hope they will make a

commercial breakthrough for secondgeneration biofuel.”

For farmers, the biggest drawback of

Miscanthus is the expense — about

$600 per acre — to establish the crop,

and then the three-year wait for full

production. However, once established,

the crop is basically self-sustaining for

20 years or more, Taylor says.

Planting and propagating the

rhizomes requires special equipment,

which the co-op is procuring so that it

can perform these tasks for co-op

members. The bamboo-like stalks of

fully mature Miscanthus could prove

hard to handle for average harvesting

equipment, although some farmers

might want to modify their existing

gear to do it themselves. However,

MFA Oil Biomass will have equipment

available for specialty harvesting for

members.

Since Miscanthus is harvested in the

winter after the grass has gone dormant

(following the first frost of the year), it

would not compete for harvesting

equipment in the same time window as

other crops.

“It can be harvested just about any

time from December through February,

just as long there is not a lot of snow on

the ground,” Taylor says. “Once the

grass goes dormant, the nutrients go

back into the rhizomes, which is the

main reason it rarely needs to be

fertilized.”

University supports project

As the vice provost for economic

development at the University of

Missouri in Columbia, Steve Wyatt’s

job is to link the resources of the

university with the private sector to

improve the state’s economy. He has

thus been very interested in working

with MFA Oil on its Miscanthus

biomass project. The university could

be both a customer for the Miscanthus

biofuel and a source for technological

help to make the project happen, he

says.

Another beneficial aspect of

Miscanthus is that it helps to sequester

carbon in the ground, Wyatt says.

Promoting biomass energy meets two

of the university’s five overall strategic

goals: promoting food for the future

and sustainable energy, he notes.

The university currently uses a 5-

percent biomass mix with the coal that

fuels its campus power plant in

Columbia. That biomass supply comes

in the form of 6,000 tons of waste wood

products annually, including sawdust,

old shipping pallets and brush.

But the school’s appetite for biomass

will be soaring with the installation of a

new furnace that will require 100,000

tons of biomass each year.

Wyatt anticipates that about onethird of the expanded biomass supply

will continue to come from waste wood,

another third from forest thinnings and

one-third from special energy crops,

such as Miscanthus. The university is

seeking bids from potential biomass

suppliers for the new broiler, which is

expected to be operating by the end of

2012.

The University of Missouri is

especially interested in helping to solve

distribution and other logistical

challenges facing the emerging biomass

industry, Wyatt says.

USDA program could help

offset planting costs

The co-op’s biomass plan calls for

use of USDA’s Biomass Crop Assistance

Program (BCAP) to help farmers offset

the cost of planting Miscanthus. Under

BCAP rules, USDA can help farmers

offset as much as 75 percent of the

initial cost of planting a biomass crop

and for land rent while the crop is

brought into production. Once the crop

matures, farmers would be eligible for

two years of matching payments, up to

$45 per ton beyond the selling price.

(For more information on the program,

visit: www.usda.gov/documents/

11DLeyUSDAFSA.pdf.

Land in USDA’s Conservation

Reserve Program (CRP) is not allowed

in the BCAP program.

When interviewed in late February,

Taylor was keeping a close eye on some

efforts that could result in reduced

funding for BCAP, or even its

elimination. If that happens, he said the

co-op would likely have to scale back

the scope of the project. “Truthfully, we

are concentrating on our ‘A’ plan right

now, and it is based on successfully

qualifying for BCAP.”

This situation raises the larger

concern often heard among those in

renewable energy that the U.S. needs to

make a commitment to a long-term

renewable energy program — one

lasting 10 to 20 years. This type of firm

policy foundation is needed if the

private sector is to get behind secondgeneration biofuel the same way it

rallied to corn ethanol, Taylor says.

“Right now, the country really just

has energy programs, not a long-range

energy policy, and those programs can

change from administration to

administration,” Taylor says. “What we

are talking about here is displacing oil,

two-thirds of which is imported and

accounts for half of the nation’s trade

deficit. These renewable energy

programs are part of the solution, not

the problem. All of the dollars

generated by renewable energy projects

like this stay local.

“When you add in doing a project

like this with a cooperative business

model, then all the dividends from

profits also stay home when they are

redistributed to the growers. That’s why

this project has so much potential.” ■
By Stephen A. Thompson, Assistant Editor

Stephena.thompson@wdc.usda.gov

t’s billed as the largest co-op-owned wind-generation project in the

country, with 108 turbines and more than 150 megawatts of generating

capacity. Everything about it seems to be big.

The Crow Lake Wind Project is a venture of Basin Electric Power

Cooperative, a large generation and transmission co-op headquartered in

Bismarck, N.D. Its members are 135 power distribution co-ops that serve 2.8 million

customers in nine Midwestern states.

Crow Lake represents only part of Basin Electric’s initiative to draw 10 percent of its

generating capacity from renewable sources. The effort also includes purchasing power

from outside wind farms and building facilities that generate power by recovering waste

heat produced by gas pipeline pumps. When the project is fully operational this spring,

the co-op will have more than 700 megawatts of renewable generating capacity —

about 12 percent of total capacity.

10 March/April 2011 / Rural Cooperatives

I

Crow LakeWindPowers Up

When in full production this spring, the Crow Lake Wind project will boost

Basin Electric Cooperative’s renewable energy generating capacity to more than 700 megawatts,

or about 12 percent of its total capacity. All photos courtesy Basin Electric Cooperative
Nation’s largest co-op wind farm includes

community- and college-owned turbines
12 March/April 2011 / Rural Cooperatives

The project is a shared endeavor

which includes the co-op’s 100 wind

turbines and seven turbines that belong

to a community-based, limited-liability

corporation (LLC). One additional

turbine is owned by a local technical

school, which will use it for training

turbine technicians. Basin Electric’s

wholly owned subsidiary, PrairieWind

SD 1 Inc., will operate and use the

power of all 108 turbines.

Effort launched in ‘05

The impetus for the project came

from a resolution passed by the

cooperative’s members in 2005, which

set the 10-percent renewable source

goal for the year 2010. With the

availability of local member systems and

other facilities in an area with excellent

wind resources, wind turbines were the

natural way to go, says Basin Electric

spokesman Daryl Hill.

Basin had been using wind-generated

power prior to the Prairie Winds

project. Its first wind project included a

pair of 1.3-megawatt turbines in

Chamberlain, S.D., about 40 miles west

of Crow Lake, which were built in

2001. They were followed by two more

turbines in Minot, N.D., and by a

number of wind farms owned by

developers from which the cooperative

purchases power. In many cases, local

member-distribution cooperatives act in

partnership with Basin to provide

transmission facilities.

In 2009, Basin completed the first

phase of the Prairie Winds initiative, a

120-megawatt wind farm south of

Minot. That project is owned by

another Basin Electric subsidiary,

PrairieWinds ND 1 Inc.

The site selected for the South

Dakota project was chosen from among

suitable areas not already claimed by

competing wind developers. Computer

models were used to select the most

suitable locations for the towers, taking

into consideration such factors as

zoning requirements, local wind

characteristics, elevation, etc. The

selection process included consultations

with local landowners, federal agencies

and 14 Native American tribes. The

entire area encompasses about 38,000

acres.

The Rural Utilities Service of USDA

Rural Development is funding 60

percent of the $340 million project cost

with a loan guarantee for $204 million.

Jim Headley, a local rancher, says

that landowners in the area were, for

the most part, eager to sign up to

participate. Headley is a board member

of Central Electric Cooperative, his

local distribution co-op. He became a

supporter of the project after learning

about it from an acquaintance at Basin

Electric. He then helped get the word

out to his fellow landowners.

Those who chose to participate in

the project agreed to a lease on their

property for whatever number of

turbines the project chose to install.

Each of them initially received the same

nominal fee in return for the lease, until

the towers were built.

Landowner payments

The compensation each participant

ultimately receives depends on the

number of towers operating on his or

her land. Comparative performance of

the generators is not used in calculating

payments. The compensation

agreement and the leases are for 50

years, or until the towers are taken out

of service and dismantled.

Some potential turbine sites, says

Headley, turned out to have problems

because construction might disturb

potential archaeological sites or artifacts. That required some adjustments

of the computer model for the project.

Some participants were disappointed

not to have more turbines installed on

their property. But overall, he says, the

towers have been well received by

residents.

“They do totally change the

landscape,” Headley says. “At first,

you’re not sure about it, because it’s

such a difference. After a while, though,

you get used to them, just like anything

else.” Although some have said that the

noise of wind turbines makes them

undesirable, Headley finds the sound

they make is hardly noticeable.

“If you get close enough, you can

hear them,” he says. “But it’s a very low

sound, maybe like a distant jet or a train

far away.” Headley says that when

winds are high, the sound of the

turbines is masked by the wind itself.

“You’re more likely to hear them when

the wind is low,” he says.

The positives, Headley believes, far

outweigh the negatives. “Out of 38,000

acres, they’re really only disrupting

about 110 acres,” he says. “Overall, I

think it’s a positive thing for the

grasslands here. It’s good for people’s

income and offers something down the

road for future generations.”

College training turbine techs

With a growing number of wind

turbines in the area, the demand for

trained technicians is growing as well.

To meet that demand, Mitchell

Technical Institute, a two-year college

located in nearby Mitchell, S.D., started

a training course in the fall of 2009.

The college already offered courses

in powerline construction and

maintenance, among other utilityrelated fields. It wanted to expand its

offerings in the area of wind power, says

spokesperson Julie Brookbank. With

Basin Electric’s help, the school now

has its own turbine as part of the Crow

Lake project.

The college obtained $1.16 million

in grant assistance from the Economic

Development Administration of the

U.S. Department of Commerce. It

received further help from the South

Dakota state government and

cooperation with Basin Electric for

construction. The remaining $1.72

million of the $3.2 million total cost of

the turbine was financed with a bond,

which it expects to pay off in 17 years

from the proceeds of power sales.

Owning the turbine means that the

college has unrestricted rights to it for

training purposes. The school can shut

down the unit whenever it chooses to

allow students access to it. Liability

insurance issues caused by using

someone else’s turbine for training are

also eliminated.

The first group of students in the

program will have access to the turbine
Rural Cooperatives / March/April 2011 13

after the handover this March.

Another seven turbines are owned by

South Dakota Wind Partners LLC, a

community-based cooperative effort to

give wind power investment

opportunities to local residents. It was

organized by four local organizations:

East River Electric Co-op, the South

Dakota Corn Utilization Council, the

South Dakota Farmers Union and the

South Dakota Farm Bureau.

Investors must be residents of South

Dakota. They receive tax advantages as

well as dividends and interest income.

More than 600 investors are

participating.

The drawback to power generated

from wind, aside from higher costs, is

one it shares with solar power: it cannot

be used as a baseload power source

because of its unreliability.

“You can’t count on wind to be there

when you want it,” is the way Hill puts

it. What wind generators can do is

reduce the amount of fuel burned in

conventional power plants when the

wind is blowing.

Pipeline heat recovery

There are also ways to improve the

cleanliness and efficiency of baseload

generating capacity. The gas pipeline

heat recovery units from which the coop purchases power are one example.

While relatively small — eight units

generate a total of 44 megawatts — the

units provide a reliable, round-theclock source of power while burning no

fuel at all.

The energy they use comes from the

exhaust of natural gas-fueled turbines

driving compressor pumps on a gas

pipeline. It’s heat that otherwise would

have been vented to the atmosphere,

but in the recovery units it is used to

transform a fluid into vapor that drives

a turbine powering a generator. It’s

both elegant and efficient.

More conventional power sources

are continually improving in efficiency

as well. Construction is underway on

the cooperative’s new Deer Creek

Station, a 300-megawatt natural gasfired “combined-cycle” generating plant

that also uses recovered heat. The

primary generator is driven by a turbine

that burns natural gas, while its exhaust

heat is used to produce steam to drive a

second turbine-generator set.

The water used to generate the

steam is also recovered and used again.

The plant is to be used as an

“intermediate” supply source — as

opposed to either a “peak load”

generator, which is kept in reserve to

handle extraordinary power demands,

or a baseload source, which operates

more or less continually.

The system design allows it to be

started and stopped economically. It

starts operating to supply power during

periods of higher demand, then shuts

down when the load tapers off. The

plant is scheduled to go into service in

June of 2012.

The most inexpensive way to

generate baseload power remains

burning coal, especially when the power

plant is located near the source of fuel.

Dry Fork Station is Basin Electric’s

newest coal-fired plant, currently under

construction near Gillette, Wyo. It’s coowned with the Wyoming Municipal

Power Agency and will be maintained

and operated by the co-op. The facility

is being built next to its fuel source —

the Dry Fork Mine.

The 385-megawatt plant uses the

latest clean-burning, high-temperature

boiler design and scrubber technology

to minimize emissions. The Germandesigned reflux circulating fluid bed dry

scrubber is described by Basin as “stateof-the-art” in removing sulfur dioxide

from the exhaust while using a minimal

amount of water.

The new-design temperaturecontrolled boiler and catalytic

converters also reduce nitrous oxides.

The plant uses air cooling to condense

steam for reuse, instead of the more

widely used water-cooled cooling

towers — important because the plant

is not located close to a large water

source and has to pump its water from

deep wells.

The cooperative says that a quarter

of the plant’s cost is for emissions

controls, and that the site is designed to

allow the adoption of carbon-recapture

technology, if it becomes necessary.

Experimental carbon-sequestration

technology is also being explored by the

cooperative at its Antelope Valley

Station in North Dakota. One of the

co-op’s subsidiaries, Dakota Gasification

Co., recaptures and sequesters some of

the carbon dioxide produced by

converting coal to gas.

When all the current energy

expansion plans are finished, the

cooperative projects its total generating

capacity — both owned and purchased

— will be 5,004 megawatts. Of that

amount, about 750 megawatts will come

from renewable sources. With its

aggressive approach to clean power

production, Basin Electric illustrates the

co-op sector’s dedication to the

communities it serves. ■

Basin Electric’s Dry Fork Station near Gillette, Wyo., is the co-op’s newest power plant.

Above right: a gas pipeline heat-recovery station near St. Anthony, N.D.
By Margaret Lund

e-mail: lundsteller@iphouse.com

Editor’s note: Margaret Lund is a consultant with the Cooperative

Development Center at Kent State University in Ohio, which recently

published a new manual on multi-stakeholder cooperatives: Solidarity as a

Business Model: A Multi-stakeholder Cooperative Manual. USDA

Rural Development’s Rural Cooperative Development Grant program

helped provide support for the project. The manual can be downloaded from

the Center’s website at: http://oeockent.org/index.php/

library/category/46/cooperatives.

wenty-five years ago, the town of Sacre-Coeur in

Quebec faced a daunting situation familiar to many

rural communities. Located far away from major

population centers, this community of 2,000 people

thrived or declined based on the tumultuous fortunes

of its single industry: forestry.

In 1984, the forestry industry was in a deep slump. The local

sawmill, the town’s major employer, was facing its third bankruptcy

under as many management teams. It appeared the mill would soon

be permanently closed. The bank that held the sawmill’s mortgage

couldn’t even find a buyer for the assets.

But local community members then came forward with a different

plan. Banding together under the banner of the Sacre-Coeur

Development Corporation, they secured the assistance of their local

credit union (itself another cooperative success story) as well as a

14 March/April 2011 / Rural Cooperatives

T

From forestry

to local foods,

multi-stakeholder

co-ops gaining in

popularity

AConvergenceof Interests
Rural Cooperatives / March/April 2011 15

grant from the provincial government to help buy the sawmill for the

liquidation value of its assets.

After considering several options, the development corporation

decided to reincorporate the mill as a single company owned in three

equal parts by a cooperative of millworkers, a cooperative of loggers

and a consortium of local businesses and other community members.

The resulting company — Boisaco Inc. (“bois” means wood, or

timber, in French) — has been successful beyond anyone’s

expectations.

Three months after reopening in 1985, with the benefit of new

management and a recovering lumber market, the company had

earned enough revenue to retire its modest debts.

Three-way split for profits

Company profits are divided among the producers, workers and

community members. An unusually high share (more than 50

percent) of profits is directed for research and development, or kept

as reserves. This practice of investing heavily for its long-term future

has allowed Boisaco to expand its economic base beyond the original

sawmill operation. It has begun to acquire other local businesses, a

strategy that has helped it weather the boom-and-bust world of the

lumber industry much more successfully than its predecessor

companies had.

These businesses include:

• Graniber, which extracts and processes granite for tile;

• Sacopan, which manufactures doors;

• Ripco, which uses sawdust to make bedding for horse stables;

• Bersaco, which manufactures wooden pallets, and

• Granulco, which manufactures wood pellets for energy.

Today, Boisaco directly employs 200 people, with another 400

working in other forestry-sector jobs nearby. It is a source of local

pride that the company has achieved its economic success without

resorting either to high levels of debt or periodic layoffs caused by

intermittent shut-downs that are common in the lumber industry

A multi-stakeholder co-op formed to save

the local sawmill in the small town of

Sacre-Coeur, Quebec, has now expanded

into other businesses, including the

manufacture of tiles, doors and shipping

pallets. Photos courtesy Boisaco Inc.

Mary Anderson works with a nonprofit

that is that is helping to ensure that

local farmers and institutional food

buyers of the Producers & Buyers Co-op

in Eau Claire, Wis., are meeting each

other’s needs. Photos by Gregg Blesch,

courtesy Modern Healthcare
16 March/April 2011 / Rural Cooperatives

when demand tapers off.

A key ingredient of the remarkable success of the

Boisaco venture is the strength of its ownership

structure. The uniting of producers, workers and

community members — forced by dire circumstances

to put aside their differences and work together —

helped to ensure the survival of their community when

its future seemed much in doubt.

Such multi-stakeholder cooperatives (or, as they are

known locally, solidarity cooperatives) have been

popular in Quebec for a decade or more. This co-op

model is also finding increasing favor in the United

States — especially in smaller communities struggling

to find new ways to survive and thrive in difficult

economic times.

Co-op joins farmers with healthcare sector

In Canada, the majority of multi-stakeholder

cooperatives are involved in the healthcare or social

service sector. In the United States, most of the

interest to date has been in the local foods and

alternative agriculture sectors. A case that has received

national attention for its innovative business model is

the Producers & Buyers Co-op of Eau Claire, Wis.

Unlike Boisaco, Producers & Buyers was not born

in an environment of crisis, but rather from a

conviction that “there has got to be a better way.”

Sacred Heart Hospital in Eau Claire was used to

ordering pretty much any food item it wanted, in

quantities large or small, and having the food delivered

directly to the hospital door within 24 hours.

The convenience of such a system was

unquestionable, but some felt it was not without its

costs. There was a desire to secure fresher, healthier

foods for patients. In some dire situations — such as an

outbreak of salmonella food poisoning — it can take

weeks or months to track down the offending produce,

which may come from thousands of miles away.

What might be an inconvenience to some could be

a life-threatening issue for vulnerable hospital patients,

as Sacred Heart CEO Stephen Ronstrom viewed the

situation. He felt more freshly picked or packaged local

food could benefit patients. Despite being located in

one of the nation’s most productive farming areas, it

was not always easy to buy food being grown just down

the road.

With a “directive from the boss” to start buying

local, Sacred Heart’s food service director Rick Beckler

in January 2008 challenged attendees of a local food

and agriculture conference to help him spend $200,000

a year on local foods. That was about 10 percent of

Sacred Heart’s annual food budget.

The offer sparked a partnership with a local

nonprofit, which helped the hospital staff connect with

local producers. A series of meetings were held that

eventually resulted in the formation of the Producers

& Buyers Co-op. Interested parties met for more than

a year to build a shared vision and overcome distrust

from earlier unsuccessful attempts at local food

sourcing. USDA Rural Development’s Margaret Bau,

cooperative development specialist for Wisconsin,

offered valuable advice to the group.

Membership class expands

The membership of the multi-stakeholder

cooperative that eventually evolved from these

meetings includes not only institutional buyers, such as

Sacred Heart, and local farmers, but also other key

stakeholders in the local food system, including meat

processors and distributors. The co-op also includes a

membership category for local community supporters

who are neither institutional food buyers nor

producers, but are still interested in contributing to an

effort to rebuild their local food system.

Working together on a common enterprise has been

an education for all concerned, as producers working

through the co-op sought to match as much as possible

the convenience that institutional buyers were

accustomed to. At the same

time, buyers came to better

understand and acknowledge

the constraints under which

small-scale producers must

operate.

Producers and processors

who sign up for the co-op

must agree to abide by

growing and animal

husbandry practices that are

healthy for the land, the

animals and the people eating

the food. Buyers must agree to pay the real

costs of having such standards in place, plus

cover a small profit for producers. Buyers must

also agree to exhibit flexibility when it is not

possible to meet every production goal.

Producers agree to participate in, and maintain,

a system in which each meal can be traced back

to the farm, and even the cow it came from, if

necessary.

While there have been some bumps and a lot of

learning along the way, Producers & Buyers has now

expanded to include two other hospitals as institutional

buyers, which are supplied by 20 local farmers and

processors. The co-op has provided a boost to the local

economy, food quality has never been better at the

hospital and co-op leaders are being sought by other

groups across the country to share their expertise in rebuilding local food systems.
Rural Cooperatives / March/April 2011 17

Co-op practices can be complex

Unlike traditional cooperatives —

made up exclusively of buyers or

producers or workers — multistakeholder cooperatives can be made up

of any of these groups, or combinations

of them. They may also include new

categories of membership, such as

“community supporters.” The simplicity

of the definition of “multi-stakeholder”

— i.e., two or more groups of different

types of members coming together to

pursue a common goal — belies the complexity of the

practice.

Consciously choosing to focus on commonalities,

rather than differences, does not always come naturally

to people. As the members of Boisaco and Producers &

Buyers Co-op soon found, there are few high-profile

role models for this approach.

Replacing animosity or indifference with

understanding and common purpose requires a set of

communication and interpersonal skills that not

everyone may naturally possess. It also generally

requires that members adhere to a timeline that is

longer than a single transaction, or even season of

transactions, and that they commit to a vision that is

broader than the success of one’s own family or farm.

Multi-stakeholder co-ops require all members to

look beyond their immediate short-term interests and

join with their business and community partners to

envision a system where everyone’s interests will be

met in different ways over the short-term as well as the

long.

This may seem like a daunting order — so much so

that some co-op observers have predicted failure for

the multi-stakeholder approach. Interestingly, however,

recent research from Canada suggests that such

conclusions are not supported by empirical evidence.

Multi-stakeholder cooperatives are now the fastest

growing class of cooperatives in Quebec, itself a

bastion of innovative and successful cooperative

practice. What little cross-sector research as has been

done has found that multi-stakeholder cooperatives are

succeeding at rates that are at least equal to that of

traditional cooperatives.

Whatever inefficiencies or difficulties are presented

by the time and effort required to build relationships

and understand alternate perspectives, is made up for

in practice by the high quality of products or services

produced. There are also benefits from reduced

transaction costs, made possible by increased trust

between parties and a high degree of local knowledge

and commitment.

It should also be noted that even a singleconstituency cooperative may very well mask major

differences between members of a common class.

Large and small producers, for example, often have

very different needs from their cooperative. In worker

or producer cooperatives, younger members may have

different, even opposing, interests than do those who

are nearing retirement age. Credit unions, one of the

largest and strongest cooperative sectors worldwide,

must embrace the conflicting interests of borrowermembers who desire low interest rates and depositormembers who favor higher rates.

Key governance issues

In addition to deciding which classes of members

should be included in the co-op governance structure

(consumers, producers, workers, community supporters

or other important players), multi-stakeholder

organizers also face important decisions regarding:

• Allocation of governance rights;

• Distribution of surplus;

• Transfer rights, and

continued on page 39

Top two photos: Sacred Heart Hospital’s kitchen also

supplies food scraps to farmers for livestock feed. Seen

here with some leftovers are Chef Randy Lanthrop, Sue

Smith, owner of Eagle Haven Ranch, and Director of

Hospitality Services Rick Beckler. The hospital’s

decision to purchase at least 10 percent of its food from

local farmers was the impetus for the Buyers &

Producers Co-op. Photos courtesy Sacred Heart

Hospital. Bottom photos: Indee Meat Locker Service is

the smallest of seven meat processors that belong to

the co-op. Pigs raised on the Deutsch Family Farm will

eventually be sold as pork through the co-op. Photos by

Gregg Blesch, courtesy Modern Healthcare
Whatthey are andwhatthey do
By Charles Ling, Ag Economist

Co-op Programs/ USDA Rural Development

e-mail: charles.ling@wdc.usda.gov

Editor’s note: Two previous articles in Rural Cooperatives —

“What Cooperatives Are (and Aren’t)” (Nov./Dec. 2009) and

“What Cooperatives Do,” (March/April 2010) — explain the

economic structure of cooperatives and their role in the

marketplace. Together, these two narratives examine the

economic theory of cooperation as advanced, respectively, by

Ivan V. Emelianoff and Edwin G. Nourse. These writings

constitute a comprehensive framework for understanding

cooperatives (summarized in tables 1 and 2, left column). This

third article examines dairy cooperative practices to illustrate

how well the theory fits the reality, and vice versa. It is

excerpted from the author’s forthcoming research report: “Coop Theory, Practice and Financing,” which will be available

from USDA.

airy cooperatives, as a group, represent

the most prominent of all agricultural

marketing co-op sectors. Co-op milk and

dairy product sales represented 42

percent of total commodity marketing by

all U.S. agricultural cooperatives in 2007 (Deville, et al.).

Dairy cooperatives account for a majority of milk sold in

the United States, especially at the first-handler level and

in the manufacture of “hard” dairy products (butter,

cheese and milk powders).

In 2007, there were 155 dairy cooperatives in the

nation owned by 49,675 member-producers, or 84

percent of the nation’s licensed dairy farms. They

delivered 152.5 billion pounds of milk, or 83 percent of

all milk marketed (Ling).

Cooperatives marketed 71 percent of the nation’s

butter, 96 percent of nonfat and skim milk powders, 26

percent of natural cheese and 42 percent of dry whey

products. Their shares of “soft” and cultured products

were less significant: 4 percent of ice cream, 13 percent

of ice cream mix, 11 percent of yogurt and 14 percent of

sour cream. Co-ops processed 7 percent of the nation’s

packaged fluid milk products in 2007.

Mission and functions

There is no mystery as to why so many dairy farmers

organize in cooperatives: they seek to jointly and

efficiently market their milk far better than they could as

individuals. Milk is a “flow” product (cows are milked

twice or thrice daily) and is highly perishable; it must be

picked up from the farm and delivered to the market

(milk plants) soon after it is produced. By working

together through their cooperatives, farmers strive for

better control over the movement of the milk through

the marketing channel and to attain higher value for

their milk.

The functions and services the farmers demand of

their respective cooperatives vary, depending on the

specific market situation the members of a cooperative

face and their particular needs. Dairy cooperatives may

be charged by members with the responsibility of

performing one or more (or all) of the following

marketing functions:

• Provide an assured market; typically there is a written,

or tacit, agreement between a member and the

cooperative that the cooperative is the exclusive

marketing agent of the member’s milk.

• Negotiate milk pay price and terms of trade with milk

buyers (investors-owned processors).

• Collect and ensure payment from milk buyers.

• Check weights and tests; this helps to ensure that the

milk payment a member receives is accurate and

commensurate with the quantity and quality of the

milk delivered to milk buyers.

• Arrange for milk hauling; milk obviously must be

picked up from the farm in a timely fashion and

delivered to the plant of first-receipt. This can be

performed by the cooperative’s own haulers, by

contract haulers or by haulers retained by members.

The cooperative may also be responsible for setting or

negotiating hauling rates.

• Provide field services; cooperatives typically have field

service personnel to assist with on-farm production

problems and regulatory and inspection issues for the

farm to achieve quality-milk production.

• Disseminate market information about the situation

and outlook of the milk market; this is provided to

members for use in making dairy farming business

decisions.

• Other marketing-related services that help members

deal with all the minutiae related to producing and

marketing quality milk.

In addition, dairy farmers may ask their cooperative to

leverage its group strength to procure various other

services to help sustain their farming operations and farm

life. Some of the services may include providing:

• Insurance products, such as disaster insurance for the

Rural Cooperatives / March/April 2011 19

D

These MMPA family farm members were featured in a “June Is Dairy Month” ad produced with Kroger grocery stores,

one of the co-op’s major customers. Kroger wanted to emphasize to shoppers that milk in the dairy case came from

home-state farms. Photo courtesy Kroger and MMPA
farm, health and/or life insurance (for farmers and their

families and farm employees) and farm workers’

compensation.

• Retirement programs.

• Risk management services to deal with market

uncertainties.

• Farm business consulting services, such as farm expansion

feasibility studies and business plans.

• Operating capital and facility capital financing.

• Financial planning services.

• Livestock marketing services (mainly for culled cows and

calves).

• Other services that may help members’ farming operations.

Organization

Dairy cooperatives can be of any size (and can be local,

regional or national in scope), depending on whatever scale

the membership considers to be the most appropriate for

marketing their milk.

A small local cooperative may have a few member-farms

and market less than 1 million pounds of milk a year. A

regional co-op may have hundreds or thousands of members

in more than one state and handle millions, or even billions,

of pounds of milk. The nation’s largest dairy cooperative has

about 10,000 member-farms in all of the 48 contiguous states

who deliver tens of billions of pounds of milk annually to

their co-op.

All dairy cooperatives are known to be centralized

organizations with direct membership. A limited number may

have other dairy cooperatives as association members, but the

practice is usually for accommodating the fact that the

cooperative is the marketing agent of all or part of the milk,

dairy products or services of these association members.

Dairy cooperatives operating in the same market may

form marketing agencies in-common to rationalize milk

hauling and shipment for reducing transportation costs, to

share market information, or to collectively bargain with

buyers for higher prices for milk or dairy products marketed.

Governance

Members of dairy cooperatives exercise ownership and

business controls through a board of directors that is elected

from among member-farmers. Candidates for the board are

typically nominated by a committee of elected members who

are not directors. Elections of the directors are usually done

at the annual membership meeting.

If a cooperative is large, in terms of membership or

geographical area, members may be grouped into districts (or

areas/regions/divisions/locals). Directors then may be

nominated from the district and elected at the cooperative’s

annual meeting. Districts are usually drawn such that

members in the same district are more or less homogeneous.

Voting at the district level is typically by one member/one

vote. The number of directors each district is entitled to may

be different due to proportionality considerations based on

milk volume. Some boards may have at-large members.

In a large cooperative, a delegate body elected by members

may be needed to channel information and make decisions on

behalf of the membership. The delegate body may be

empowered to represent the membership in all decisions,

except for matters that specifically require votes by the entire

membership.

A limited number of dairy cooperatives have non-member

directors, typically in the states where they are required by

law. Non-member directors usually play an advisory, nonvoting role on the board.

An executive committee of elected officers and selected

board members may be constituted to facilitate decisionmaking when the board is not in session. The board may also

appoint several committees to carry out specific board

functions, such as audit, finance, membership and marketing

committees.

The board controls the cooperative’s business on behalf of

members and makes major decisions; it also sets the policy

and determines the overall direction of the cooperative.

Management carries out the co-op’s day-to-day operations.

Another very important function of cooperative board

members is serving as a conduit of communication between

the management and the rank-and-file members.

Operations

Dairy cooperatives perform various marketing functions to

carry out the most important task of providing an assured

market for members’ milk. They may engage in one or more

of these activities:

• Bargaining — Find a market for members’ milk and

bargain/negotiate with milk buyers for milk prices and

terms of trade.

• Fluid processing — Own or retain plant capacity to

process some or all member milk into fluid products. Fluid

plants may also process soft and cultured products.

• Niche marketing — Own or retain plant capacity to

process some or all member milk into specialty (niche)

products.

• Making hard products — Own or retain plant capacity to

manufacture hard dairy products (such as cheese).

Manufacturing plants also provide a home for milk when it

is in excess of market demand and transform the milk into

storable products for further processing or later

distribution.

Of the 155 U.S. dairy cooperatives, 108 may be classified

as bargaining cooperatives because bargaining is their only, or

main, marketing activity. Four co-ops are fluid processing

operations that do business primarily in processing and

distributing fluid products. Another 19 of these businesses are

niche marketing cooperatives. The remaining 24 may be

called diversified cooperatives, having bargaining and one or

more processing/manufacturing functions as their main

operations.

Besides assuring a market for members’ milk, dairy

20 March/April 2011 / Rural Cooperatives
cooperatives may also perform some or all of the other milk

marketing functions listed in the mission and functions

section above. In addition, they may procure farm supplies or

provide other services for members.

Dairy cooperatives also provide services to milk buyers in

accordance with the terms of trade negotiated, such as

delivering milk on schedule, maintaining quality control and

related laboratory services, preconditioning or standardizing

milk and/or fulfilling full-supply contracts.

Market performance

A cooperative affords dairy farmers the organizational size

that is necessary for exercising countervailing power to

effectively bargain and deal with milk buyers and other

market participants.

The dairy industry has evolved in a way that dairy

cooperatives and processors have developed into what may be

characterized as symbiotic relationships with a high degree of

“division of labor.”

Because dairy cooperatives are organizations of farmers,

they have the comparative advantages of working closely with

members for assembling milk, providing field services and

performing farm-related functions. It is these advantages that

accord them the predominant market share at the firsthandler level.

In additon to this dominance in milk procurement, co-ops

have the responsibility of balancing milk supply. Many dairy

cooperatives maintain plant capacity to manufacture reserve

and surplus milk into storable products such as butter, milk

powders and cheese. Consequently, they have major market

shares of these hard products. Like a reservoir, these

cooperative plants absorb milk in excess of demand and

provide supplemental milk to the market when it is needed.

Many processors rely on dairy cooperatives for milk

supplies that are tailored to their requirements for volume,

quality, composition and delivery schedule. They tend to

enter into what are called “full-supply contracts” with co-ops

so that they can focus their attention on the sectors where

they are dominant: making fluid, cultured and soft products

(and lately cheese) and further processing and packaging

dairy products for the consumer market. These sectors tend

to be capital-, technology- and service-intensive and are

exposed to high product and market risks.

Farmers, who are generally risk-averse and have many

Rural Cooperatives / March/April 2011 21

Table 1 — Comparison of Theory and Dairy Cooperative Practice: What Cooperatives Are

Theory: Economic Structure of Cooperatives

Cooperative organizations represent the aggregates of economic

units.

A cooperative is an agency owned and controlled by members

through which they conduct their business.

Each member-farm fully retains its economic individuality and

independence.

The board of directors is elected from among member-farmers.

Proportionality and service at-cost are two basic principles.

Members provide advances (i.e., equity capital) for financing the

cooperative.

Patronage refunds are returned to members who have been

underpaid or overcharged.

Dividend on capital, if any, is interest payment for using members’

capital.

Being an aggregate of member-farms, the cooperative is neither a

horizontal integration of its members nor a vertical integration

between the cooperative and its members. It is a third mode of

organizing coordination.

Economic Structure of Dairy Cooperatives

A dairy cooperative is the aggregate of dairy member-farms.

A dairy cooperative is owned, controlled and used by members as

the milk marketing arm of their dairy farming business.

Member dairy farms are independent economic units, each making

its own business decisions.

Directors are members; they may have non-member directors who

usually are non-voting advisors and may be mandated by state laws.

These principles are applied in every facet of operations that relate

to member business.

Almost all equities are member capital; ownership of a fraction (a

portion of preferred stock) is not discernable from the financial

statements.

Patronage refunds are net savings returned to members.

Dividends, if paid, are usually on preferred stock, and typically at less

than 8 percent.

There may be some degree of coordination among members as they

voluntarily and collectively adapt to market situations. However, this

is not the same as vertical or horizontal integration.
demands on their financial resources on the farm, probably

prefer to stay out of these sectors rather than compete headon with processors (their milk customers), as long as the

market performs well and their farming business can be

sustained.

Still, there are a substantial number of dairy cooperatives

operating in these sectors, although as a whole their market

share is not high. The upshot is that though dairy

cooperatives are generally less active in these sectors, they

have the size, organization and wherewithal to enter the

market if the situation calls for it.

Financing

Based on the complete financial data of 94 dairy

cooperatives for the fiscal year ending in 2007, total assets of

these cooperatives were $12 billion (or $8.41 per

hundredweight/cwt of milk). Current assets accounted for

60.4 percent ($7.3 billion or $5.08/cwt) and fixed and other

assets accounted for the other 39.6 percent ($4.8 billion or

$3.34/cwt). These 94 businesses represented 61 percent of all

dairy cooperatives and marketed 142.9 billion pounds of

milk, or 94 percent of cooperative milk volume (Ling, table

12).

Total liabilities of these co-ops were $8.7 billion. Of this

amount, 72.3 percent were current liabilities ($6.3 billion or

$4.40/cwt) while 27.7 percent ($2.4 billion or $1.69/cwt)

were long-term debts. Equities, the balance of assets and

liabilities, were $3.3 billion ($2.32/cwt).

Dairy cooperatives typically pay members for their milk

twice a month. A large proportion of the current assets and

the current liabilities are for such pending periodic cash

payments to members.

This is a unique characteristic of the balance sheet of dairy

cooperatives. Therefore, it is important to focus on the ratio

of long-term debts to equity in evaluating financial strength,

which was 72.6 percent for the 94 cooperatives.

Equities can be grouped into four categories: common

stock, preferred stock, retained earnings and allocated

equities.

Common stock — In 2007, common stock only

accounted for 0.1 percent of total equities. This is because

common stock of cooperatives is usually issued for witnessing

membership and carries minimal nominal value.

Preferred stock — Preferred stock, as reported, was 7

percent of total equities. A substantial portion of the

preferred stock was issued by some cooperatives to members

for witnessing retained patronage refunds or for witnessing

members’ additional investment in the cooperative and may

be considered as allocated equities. It is not clear who holds

the remaining preferred stock (probably representing less

than 5 percent of total equities); the holders could be nonmembers as well as members.

Retained earnings — Retained earnings could be

earnings derived from non-member businesses, but may also

include allocated equities that some cooperatives choose not

to separately specify in the financial reports, retained net

savings that are going to be allocated later, or earnings that

are difficult to attribute to specific member transactions.

Therefore, retained earnings that are not likely to be

subject to allocations (or considered by some to be

“permanent” equity) should be less than the reported 10.8

percent of total equities. In any case, retained earnings

belong to the cooperative and therefore are owned by

members.

In most cases, non-member businesses of dairy cooperatives are incidental to the dairy operation. These may include:

• Processing into storable products other firms’ surplus

(distressed) milk that needs to find a home.

• Sales of goods sourced from other firms in dairy stores or

other sales outlets.

• Sales of dairy or farm supplies that may include customers

who are non-members.

In a limited number of cases, retained earnings are profits

from investment activities that may or may not be related to

the core business of serving members’ marketing and farming

needs.

Allocated equities — The 94 cooperatives reported that

82.1 percent of their equities ($1.91/cwt) were allocated to

members. Allocated equities are members’ capital from one

or more of these sources:

Retained patronage refunds — Retained patronage refunds

are net savings that are allocated to members based on

patronage but are retained to finance the cooperative’s

operations after a cash portion has been paid to members.

Members must treat the entire patronage refund (retained as

well as cash payment) as income for tax purposes.

Cooperatives usually revolve retained patronage back to

members after a certain period of time.

Capital retains — Some cooperatives use capital retains to

finance the operations or, more often, for special projects

such as building new plants. Money is withheld from milk

payment at a certain rate per hundredweight of milk.

Members must treat capital retains as income for tax

purposes. Capital retains are also revolved back to members

after a certain period of time.

Base capital plan — Some larger diversified dairy

cooperatives have adopted base capital plans to establish a

more stable equity pool. Under such a plan, a target base

capital level is established at a rate per hundredweight of milk

marketed during a representative period. The base capital

may be funded by retained patronage and/or capital retains,

or by other means of member contribution. Once a member

attains the prescribed base capital level, future patronage

earnings allocated to the member are paid in cash.

Members provide almost all equity capital. Counting

common stock, preferred stock (that are issued to members),

retained earnings and allocated equities, almost all equities

(probably more than 95 percent) of dairy cooperatives are

supplied and owned by members.

22 March/April 2011 / Rural Cooperatives
Rural Cooperatives / March/April 2011 23

Table 2 — Comparison of Theory and Dairy Cooperative Practice: What Cooperatives Do

Market Performance of Dairy Cooperatives

49,675 dairy farmers in 155 cooperatives marketed 83 percent of U.S.

milk in 2007.

The smallest local cooperative has a few members marketing less

than 1 million pounds of milk per year; the largest one has about

10,000 members in the 48 contiguous states and markets tens of

billions of pounds of milk.

Dairy cooperatives may grow, or have grown, to the size necessary

for effectively bargaining with milk buyers for better prices and terms

of trade.

Dairy cooperatives and their member-farmers are subject to the

disciplines of the market in a free economy.

To be competitive, processors must match the effectiveness and

efficiency of dairy cooperatives.

Dairy cooperatives have comparative advantages in procuring milk

and have major shares in making hard products (71 percent of butter,

96 percent of nonfat and skim milk powder, and 26 percent of cheese,

although the latter decreased from 34 percent in 2002). Their shares

are less significant in sectors that are capital-, technology- and

service-intensive and that carry high product and market risks (7

percent of fluid milk, 4 percent of ice cream, 11 percent of yogurt, 14

percent of sour cream. Their share of cheese has also declined in

recent years). However, dairy cooperatives have the wherewithal to

take up the slack if the market fails to perform well.

Theory: Market Performance of Cooperatives

Cooperatives are organized for efficiently carrying out specific

business functions.

Cooperatives can be of any size (and can be local, regional or

national in scope) that allows them to function efficiently in the

marketplace.

Cooperatives afford farmers the organizational size for exercising

countervailing power.

Cooperatives are pro-market; they let the market supply-and-demand

price be the guidance for producers.

Cooperatives are a means for farmers to promote and maintain

competition; they serve as a “competitive yardstick.”

In those fields where the market has become truly competitive and

farmers can be well served by other firms, cooperatives may want to

cede the field and assume only a stand-by position (to preserve

members’ capital, time and efforts for use on the farm), while

maintaining the legal institutions and organizational capacity to step

in if there is a relapse of market inadequacy.

Theory and reality fit

Considering all of the above, it is clear that the economic

structure and market performance of dairy cooperatives are

in full accord with the economic theory of cooperation as

expounded by Emelianoff and Nourse. Dairy cooperatives’

mission, functions, organization, governance, operations,

market performance, financing, etc., all conform to the

theoretical prescriptions, as tables 1 and 2 show. Cooperation

as practiced by dairy farmers in marketing milk is an

enduring business model that is in full agreement with the

economic theory of what cooperatives are and what

cooperatives do.

The dairy market has seen some extreme highs and lows in

the past few years. While co-ops tend to be a stabilizing

influence on ag markets, they cannot prevent such market

shifts. Still, the cooperative form of a business remains the

overwhelming choice of dairy farmers for marketing,

processing and many related services. ■

References

• DeVille, Katherine C., Jacqueline E. Penn, and E. Eldon

Eversull. Cooperative Statistics, 2008, U.S. Department of

Agriculture, Rural Development, Service Report 69,

November 2009.

• Emelianoff, Ivan V. Economic Theory of Cooperation: Economic

Structure of Cooperative Organizations, Washington, D.C.

1942 (litho-printed by Edwards Brothers., Inc., Ann Arbor,

Michigan), 269 pages. (A reprint by the Center for

Cooperatives, University of California, 1995, may be

accessed at: http://cooperatives.ucdavis.edu/reports/

index.htm.)

• Ling, K. Charles. Marketing Operations of Dairy Cooperatives,

2007, USDA Rural Development, Research Report 218,

July 2009.

• Nourse, Edwin G. “The Economic Philosophy of CoOperation,” American Economic Review, Volume XII, No. 4,

December 1922, pp. 577-597.

• Nourse, Edwin G. “The Place of the Cooperative in Our

National Economy,” American Cooperation 1942 to 1945,

American Institute of Cooperation, 1945, pp. 33-39.

• Rural Cooperatives, USDA Rural Development, Volume 76,

Number 6, November/December 2009 and Volume 77,

Number 2, March/April 2010.


26 March/April 2011 / Rural Cooperatives

Justin Ellerby, Cooperative Specialist

California Center for Cooperative

Development

Editor’s note: This article is adapted from

a new report produced by the California

Center for Cooperative Development:

Challenges and Opportunities for

California’s Dairy Economy, available

for download at: http:\\cccd.coop/events/

DairyOpportunities.

airy producers

nationwide faced a

major economic crisis

from mid 2008 through

2009 as on-farm milk

prices plunged below production costs.

Operating at a net loss drained farm

equity from tens of thousands of dairy

farms. Many farms were pushed into

foreclosure.

Since early 2010, milk prices have

generally stayed close to producers’

break-even point, but there has been

little chance for a recovery of the

massive losses suffered. While milk

prices may enjoy modest growth in

2011, the medium-term outlook is still

uncertain. During the past 15 years,

there have been five national boombust cycles in milk prices, each of

increasing severity. Further, the

fundamental causes of this cyclical

volatility have not been resolved by the

industry, nor by public policy.

In order to address the ongoing

challenges faced by America’s dairies

and the rural economies that depend

upon them, the California Center for

D

New study

gaugesoutlook

forCalifornia

dairy co-ops
Rural Cooperatives / March/April 2011 27

Cooperative Development (CCCD)

embarked on a research and outreach

project to examine causes and solutions

for some of the long-standing economic

challenges facing dairy producers. The

project was funded with a Rural

Business Enterprise Grant from USDA

Rural Development, awarded to the

Center in 2009.

Although CCCD’s work focused on

California, many of the findings apply

to the entire U.S. dairy sector. By

interviewing stakeholders throughout

the dairy economy and reviewing reams

of literature, CCCD staff identified a

variety of subjects for further

investigation.

Supply/demand balance

There is a seasonal imbalance in the

supply/demand situation for milk, a

perishable product. There tends to be

too much milk in the summer and too

little in the winter. Therefore, this

seasonal oversupply of milk is

manufactured into various lessperishable dairy products, particularly

butter and milk powders.

However, these products are less

valuable than processed fluid milk and

return substantially lower profits to

dairies producing milk for those uses.

To equalize profitability among

producers of milk sold for the fluid

market and producers of milk used for

other dairy products, California uses a

Milk Marketing Order to create a single

statewide pool of prices paid by

processors to producers. Producers in

the pool then enjoy the same price for

their milk, irrespective of the end-use of

the milk each producer has supplied.

In past decades, USDA has also

purchased large volumes of lower value

dairy products (including milk powders

and butter) to support the national

price of milk. California became the

largest milk-producing state in the

nation, in part, by building much of its

dairy industry to supply the federal

program. Therefore, state milk pooling

— exacerbated by a major market

intervention — has had the unintended

consequence of incentivizing the overproduction of both lower value dairy

products and the milk supply used to

create them. That infrastructure has

remained in place long after federal

price-support levels were greatly

reduced in the late 1980s, which

removed a major support for the state’s

total milk pool.

California’s dairy cooperatives

account for a large share of the nation’s

manufacture of these products. These

same dairy products also make up most

of U.S. dairy exports, and so are more

vulnerable to the higher volatility of

global markets than is domestically

consumed fluid milk.

Besides the need to manage the

state’s milk supply, several other areas

for reform and improvement have been

identified by dairy industry experts and

stakeholders in recent years. The

California Milk Advisory Board

commissioned consultants McKinsey

and Company in 2007 to conduct a

widely disseminated study of the

California dairy industry. Currently, a

package of fundamental industry

reforms, “Foundation for the Future,”

is being promoted by the National Milk

Producers Federation (NMPF), a trade

association representing the majority of

America’s dairy marketing cooperatives.

Supply management efforts

Supply management programs

encompass a wide variety of possible

methods and stakeholder roles aimed at

reducing the amount of surplus milk on

the domestic market. Although

individual dairy cooperatives instituted

caps on the amount of milk they would

accept from their members in the most

recent dairy crisis, those reductions

were not large or coordinated enough

to sufficiently impact nationwide milk

supplies, which would probably require

a nationwide program including all, or

most, U.S. producers.

The most recent large-scale effort to

reduce national milk supply has been

NMPF’s Cooperatives Working

Together (CWT) program, which

collects a 10-cent per hundredweight

assessment from its producer-members,

who collectively represent two-thirds of

the U.S. milk supply. From 2004 to

2010, CWT operated a herd retirement

program, which bought out some of its

members’ entire dairy herds and sent

them to slaughter, thus reducing the

national milk supply.

A NMPF-commissioned study of the

program found that it had increased

milk prices by many times over its

initial cost, until reaching a point of

diminishing returns in 2010. The

second function of CWT is its stillactive Export Assistance Program,

which subsidizes exports of dairy

products. One of the program’s main

goals is to stabilize the volume of U.S.

dairy exports, which some believe has

otherwise been so sensitive to price as

to disrupt sustainable trade channels.

Indeed, NMPF points to this

disruption of exports as a prime factor

Photo courtesy DairyCares
28 March/April 2011 / Rural Cooperatives

in the 2009 dairy crisis. When the

willingness of global dairy importers to

pay for dairy products fell in the global

recession, major exporters, including

New Zealand and Australia, reacted by

dropping prices. Essentially, the Export

Assistance Program succeeds when the

cost of short-term export incentives are

exceeded by the value of the long-term

trade channels they maintain.

However, “supply management” has

been more closely associated in the

dairy industry with several proposed

programs that would use various

mechanisms to establish a limit for

producers’ milk production. The

essential idea of these plans is to

provide incentives for producers to keep

their milk production within the

amount of supply that is expected to

return an acceptable profit margin to all

producers. There remain, however,

significant practical and ideological

concerns about these kinds of supply

management programs.

Price-risk management

strategies

Price-risk management (PRM)

strategies allow dairy producers to

moderate the volatility of their milk

and/or feed prices by paying some sort

of service cost to a third party in order

to limit their exposure to the risk of

unfavorable price changes. Although

producers hate having to forego some

of the value of unexpectedly high milk

prices (or low feed prices), many have

found it worthwhile to do so if it

protects them from the perils of price

volatility: disrupted production plans,

dangerous financial squeezes and wasted

management resources.

Purely market-based PRM strategies

include locking-in prices through

forward contracts or hedging price risk

through futures contracts or options.

These tools incur brokerage fees and

other transaction costs. They are

available through commodities

brokerages and some dairy cooperatives,

which operate these PRM tools as a

member service.

Forward contracts and futures have

been widely used by producers of grains

and other commodities for more than a

century, but have not been as widely

adopted by dairy producers. However,

the continuously increasing volatility of

milk and feed prices has led some

agricultural lenders to ask, or even

require, their producer-borrowers to

manage long-term profitability through

PRM tools.

Besides a general tolerance for risk

and initial unfamiliarity with PRM

tools, dairy producers have been

dissuaded from using the PRM tools

described above for a variety of

practical reasons. However, many of

these issues are specifically addressed

through the USDA Risk Management

Agency’s Livestock Gross Margin-Dairy

(LGM-D) insurance program. Made

available nationally last year, LGM-D is

being promoted as a means to address

some of producers’ issues in using other

PRM tools.

The volume of milk insured under

the program tripled last year. In

February, an additional $15 million was

made available to fund the program.

Lastly, the National Milk Producers

Federation’s “Foundation for the

Future” reform proposals include

another federally implemented PRM

program designed to complement

LGM-D.

Finding value in wastes

Dairy biogas systems process manure

into energy (usually natural gas or

electricity) and other products, such as

compost and liquid fertilizer. Many

public organizations and private

businesses throughout the nation

support and service the dairy biogas

sector, including some federal financing

programs.

However, the adoption of dairy

biogas systems by producers has been

hampered by problematic regulations,

lack of access to capital, disparate

technical information and difficulties in

securing financial arrangements and

physical inter-connections with energy

utilities.

Developing dairy biogas systems that

incorporate waste sources from outside

of the system owner’s dairy can achieve

beneficial economies of scale, but these

“co-digestion” facilities face challenges

regarding particular environmental

regulations and operational constraints.

Nonetheless, the success of certain

dairy biogas systems throughout the

nation proves that this sector has the

potential to reduce environmental

impacts while generating energy and/or

income for dairies. Use of the

cooperative business model and other

forms of collaboration have achieved

many different kinds of economies of

scale in dairy biogas systems, and might

do so further.

This developing sector could bridge

the needs of producers, regulators,

environmentalists and the public good.

If so, it will require consistent public

financing, improved access to

information, effective financial and legal

model agreements, streamlining of

regulations to maximize net

environmental benefit, political support

from the general public and further

collaboration among stakeholders.

Role of cooperatives

Dairy cooperatives are a major player

in California’s dairy industry, as they are

nationally. Their role in aggregating

producers’ bargaining power with

processors and in processing members’

milk themselves has long been

important to producers’ profitability. In

California, cooperatives such as

California Dairies Inc., Dairy Farmers

of America and Land O’ Lakes all have

substantial membership, processing

facilities and economic impact.

As the agribusiness and food

industries have continued to consolidate

over the past decades, dairy

cooperatives have merged, grown and

adapted their business strategies to keep

pace with their peers. In doing so,

however, they have risked losing their

distinction from proprietary businesses,

as perceived by some of their members,

antitrust regulators and other dairy

stakeholders.

Relations between dairy cooperatives

and their members can sometimes be

adversely affected both by food sector

continued on page 32
Rural Cooperatives / March/April 2011 29

By Bill Davisson

Editor’s note: Bill Davisson is the recently

retired CEO of GROWMARK Inc.

was asked to discuss

the differences between

managing a co-op and

an investor-owned

company, from the

vantage point of my 40-year career with

GROWMARK Inc., including the last

12 serving as the co-op’s chief executive

officer.

While I have not had any experience

in managing in a publicly traded

corporation, I do serve as a director of

one, which gives me some insight into

the differences and similarities between

cooperatives and their publicly traded

counterparts.

Both types of entities are in business

to make money and provide a return to

the owner. Both understand it is all

about the customer, and if you don’t

have the right product or service at the

right price, at the right time, they are

likely to take their business elsewhere.

One often hears that cooperatives are

in business to provide an assured source

of supply or an assured market for

products — but not at any price or any

cost. Both types of entities evaluate the

market and attempt to sell their

products and services at a price that will

cover costs and provide a return to the

shareholder.

Both cooperatives and publicly

traded companies understand the

importance of communication, ethics

and disclosure to the shareholder.

Publicly traded entities are somewhat

more formal in their disclosure because

of Securities and Exchange Commission

requirements. But each type of business

is required to have a formal audit

performed annually, with related

disclosures under generally accepted

auditing standards.

Each type of business spends a great

I

Management Tip

How managing a co-op differs

from running an investor-owned firm

Davisson oversaw major expansion of co-op

When Bill Davisson joined FS Services Inc. in 1970 as a newly minted

University of Iowa graduate, he had no idea where his career path would

take him. During the next 40 years,

Davisson held positions with GROWMARK

that included transportation accountant at

the Kingston Mines (Illinois) terminal,

financial analyst, controller, vice president

of finance and vice president of member

services before being named CEO in 1998.

He earned his CPA designation in 1985.

In his 12 years as CEO, Davisson

oversaw the expansion and development

of GROWMARK from a three-state

organization to an expansive system doing

business in 23 states and Ontario, Canada.

Sales have grown to $6 billion, with $70

million in patronage returned to members

in 2010.

Co-op leaders say the growth and expansion of the GROWMARK

system has been fueled by Davisson’s vision for growing from the

cooperative’s core businesses, as well as pursuing mergers, acquisitions

and joint ventures. These two strategic directions have enhanced the coop’s energy, agronomy and grain businesses.

Davisson also focused on creating a strong member system. During

the last six years of his tenure as CEO, the GROWMARK system achieved

its six highest years of profitability. Through patronage, partnership and

participation, the current strength of the system is a large part of his

legacy.

He served on several boards of directors, including National

Cooperative Refinery Association, maltaCleyton, MID-CO COMMODITIES

INC., GROWMARK FS LLC and Seedway LLC. He will continue to serve on

the board of CF Industries Holdings Inc.

Davisson also served on the board of trustees and executive

committee of the Graduate Institute of Cooperative Leadership. He was a

member of the National Council of Farmer Cooperatives executive

council, which he chaired for two years.

Bill Davisson

continued on page 39
By Nancy Feeney

Editor’s note: this article is reprinted from Dairyman

magazine, the member publication of Swiss Valley Farms, a

dairy cooperative based in Davenport, Iowa. Nancy Feeney is

editor and member relations manager for Swiss Valley Farms.

hen Swiss Valley Farms purchased The

Caves of Faribault in August [2010], all of

the co-op’s dairy producer members

acquired a piece of American

cheesemaking history. Jeff Jirik, the

former owner of Faribault Dairy, and now vice president

of the co-op’s Blue Cheese Division, proudly recounts a

rich history embedded deep within the caves’ sandstone

walls.

The history of the caves begins in 1854, when Gottfried

Fleckenstein, a German immigrant on a brief boat trip

stopover in Faribault, Minn., discovered natural St. Peter

sandstone caves along the Straight River. Carved out of

the sandstone by the receding glaciers thousands of years

ago, the caves extended back into the bluffs.

Fleckenstein knew they would be the perfect place for

brewing and storing beer. He never got back on the boat!

He opened a German brewery inside the caves and

became a prosperous Faribault resident.

In 1936, the caves were taken over by Felix

Frederickson and soon became the site of the first blue

cheese plant in America. Frederickson enlarged the main

cave and began making cave-aged blue cheese.

St. Peter sandstone, found only in Minnesota, Iowa,

Illinois and northern Missouri, is ideally suited for aging

W

30 March/April 2011 / Rural Cooperatives

WELCOME TO THE CAVES OF FARIBAULT

cheeses because of its slightly acidic nature, architectural

integrity, the perfect humidity and temperature conditions

(53 degrees year around), and the unique properties that

allow water to move both vertically and horizontally, never

dripping.

In 1938, entirely new caves were hand hewn from the

sandstone rock to accommodate expansion for cheese

curing.

Down through the decades, the caves changed hands a

few more times, until Faribault Dairy took ownership of

the caves in 2001. It continued the legend by

manufacturing and curing America’s original blue cheese.

“We named our blue cheese AmaBlu,” Jirik says.

“‘Ama,’ which is Latin for ‘I love,’ and ‘blu,’ which stands

for the cheese variation we make.”
Rural Cooperatives / March/April 2011 31

Today, the caves are part of Swiss Valley’s history.

There are 13 caves used to cure more than 1 million

pounds of award-winning American Blue and Gorgonzola

cheeses, among other varieties.

Just across from the caves sits the cheese plant, where

cheesemakers faithfully follow Frederickson’s original

recipe, crafting the cheeses by hand using no artificial

ingredients, then hand-salting them before they make

their way into the caves.

It is the time spent in the caves that determines the

cheeses’ flavor profile. AmaBlu blue cheese is aged 75

days to create a tangy, yet not-too-sharp flavor. Its cohort,

AmaGorg Gorgonzola cheese, is aged 90 days and

displays more sharpness, in addition to being sweeter and

drier than the blue cheese. AmaBlu St. Pete’s Select Blue

From left: The co-op’s various blue cheeses are among the gourmet products

sold at The Cheese Cave in Fairbault, Minn. AmaBlu cheese is coated in wax to

seal in the fresh flavor. The sandstone caves where the cheeses are aged

seem to stretch forever. Photos courtesy Swiss Valley Farms

Faribault cheese brands include:

AmaBlu Blue Cheese

AmaGorg Gorgonzola Cheese

St. Pete’s Select Blue Cheese

Verdant Grass Fed Blue - Spring/Summer Milk

Buck Hill Grass Fed Blue - Winter Milk

Blues and Brews - OktoberFest Blau

Blues and Brews - Winter Blues

Blues and Brews - Summertime Blues

Cheese Cave Cheese Curds

Fini Cave Aged Cheddar

Jeff’s Select Cave Aged Gouda

St. Mary’s Grass Fed Gouda

Historic sandstone caves

home to Swiss Valley’s

blue cheese

Cheese is a premium variety of blue cheese, aged more than

100 days in the caves it was named after. It exhibits a creamy,

complex flavor worthy of its signature status.

Faribault Dairy remains the only U.S. cheesemaker to still

cure and age its blue cheese exclusively in rock caves. Jirik

never tires of describing what it is like to walk into a cave

where the blue cheeses are curing.

“The cave-aged, ‘naked cheeses’ evoke the aroma of a

freshly tilled garden in spring,” he says. “The sweet fragrance

of butterfat breaking down into floral notes permeates the

air.”

With such pride and enthusiasm for his cave-aged blue

cheeses, it is no surprise Deli Business magazine called Jirik

the most innovative cheesemaker in America. This year, he

won a best of class award for his Gorgonzola at the World

Championship Cheese Contest.

Not to be forgotten is another cave located just up the

street from the plant. Although it’s not made of sandstone, it

plays just as valuable a role as the real caves themselves. The

Cheese Cave, created in 2009 by Jirik with business associates

Jeff LaBeau and Bob Foley, is the retail outlet for the cheeses

from The Caves of Faribault, and a mecca for cheese lovers

and culinary connoisseurs.

The quaint store located in the downtown Faribault

shopping district carries specialty cheeses, dry goods and

spreads and is always bustling with tastings, cooking

demonstrations and other gourmet events. A small vat of

fresh cheese curds is made there twice a week. It also markets

over the Internet.

To view a Food Network interview with Jirik about the

Caves of Faribault, visit: http://www.foodnetwork.com/

videos/select-blue-cheese/27470.html. ■
32 March/April 2011 / Rural Cooperatives

dynamics beyond the co-ops’ control

and by the particular business practices

of each co-op. Members, directors and

management all have their own

positions and responsibilities which

should be mutually understood if the

cooperative is to remain a cohesive and

effective organization.

There are other dairy cooperatives

that differ markedly from the three coops mentioned above. CROPP/Organic

Valley — a marketing-only co-op —

differs in that it typically does not invest

in processing capacity and emphasizes

returning value to members in the form

of higher regular pay prices, instead of

year-end patronage refunds.

Fonterra Co-operative Group has

leveraged New Zealand’s unmatched

advantage in low-cost milk production

into dominance in the global dairy trade

through strong emphasis on product

innovation, adaptation to local markets

and extensive collaborations with other

dairy firms, including several in the

United States.

Value-added opportunities

Value-added opportunities for the

California dairy industry are an

important topic for large cooperative

processors in expanding their product

mixes into new product categories, such

as probiotics and pharmaceutical

ingredients, and adapting to national

demographics and lifestyle trends.

However, producers working as

individuals or in small-group

collaborations also have opportunities

to develop value-added products from

their own milk supply, and thus diversify their revenue streams away from the

volatility of commodity milk markets.

Strong consumer interest in local

foods has created opportunities for such

products and in marketing channels that

connect consumers to producers and

processors within a region. In

particular, specialty cheese has enjoyed

substantial research and development

supports in California, which has been

building a national presence in this

product category in recent years.

However, prospective new entrants

to California’s specialty cheese sector

face significant challenges. These

challenges include:

• Generally higher costs of doing

business, compared to other states;

• Distance from out-of-state domestic

markets;

• A highly competitive cheese market,

in which foreign imports are a factor;

• Fewer resources supporting the sector

than in other major specialty cheese

states;

• Economies of scale that may require

large size operations.

The last two challenges could be met

by specialty dairy businesses sharing

resources in training, trial-run

production, promotion, sales and/or

manufacturing. While these

collaborative functions have been

explored in a variety of ways in the

state, their further development could

be a major asset for new small specialty

dairy businesses.

As part of its research, CCCD

conducted a survey that explored

challenges and opportunities in valueadded dairy product markets. It

targeted prospective and current

specialty dairy businesses, including

processors, producers and others. The

survey found that financing was lacking

among prospective new businesses. This

situation could be addressed by

improved access to traditional USDA

funding.

Other financing solutions may be

offered by innovative hybrid business

models, such as the L3C (low-profit,

limited liability company) model or

through use of mission-based venture

capital. These business models are

intended to provide profits while also

serving a public good by helping to

preserve family dairies and local food

systems.

Some support was found among

survey respondents for business

incubation models, such as the shared

use of a mobile processing facility or

arranging the use of excess dairy

processing capacity.

Of the dairy products considered in

this survey, specialty cheeses enjoyed

both the most knowledge and interest

among respondents. Organic producers

expressed strong interest in developing

dedicated processing capacity for

organic fluid milk and cheese. They

showed less interest in other emerging

product categories, with middling

interest in sharing promotional efforts.

Overall, California’s dairy industry

maintains strength in its competitive

cost of milk production, economies of

size and general quality of infrastructure. The recent dairy price crisis

and ongoing concerns about producer

profitability underscore that individual

producers, as do producers nationally,

face important decisions.

National milk supply management

programs probably could stabilize the

industry against future milk price

volatility, but would require broad

industry consensus and careful

implementation. Various price risk

management strategies are available to

producers but are probably underutilized. Newer programs, such as

USDA’s Livestock Gross Margin-Dairy

insurance program, deserve continued

attention.

In California, the costs of meeting

the state’s substantial environmental

regulations are not likely to lessen in

the future, but may be addressed in part

by creative, effective implementation of

dairy biogas systems. While some of

these efforts are beyond the direct

control of individual producers, they

can still make themselves heard through

their representation in trade

associations and their cooperatives.

Lastly, policymakers and staff at state

and federal public agencies have various

capacities to assist the dairy industry in

all of the major subject areas described

above. With this support, and with

consensus within the industry on its

needs and goals, California can

overcome the substantial challenges

facing it and expand upon its decades of

success in feeding the world and our

nation’s economy. ■

New study gauges outlook

for California dairy co-ops

continued from page 28
Rural Cooperatives / March/April 2011 33

By Jean Freeman, President

Jean Freeman & Associates, LLC

Editor’s note: The author is a Fairfax, Va.-based consultant who

has experience working with cooperatives and nonprofits on

governance and other issues.

f you’ve ever served on a board of directors

or worked for a cooperative with a board of

directors, you have probably noticed there

are times when board members tend to move

away from the lofty role of oversight and into

the operational side of the organization. It happens. But why?

I believe one key reason is that the generous volunteers

who agree to serve on a co-op board often come from

successfully managing a farm or other business. These board

candidates are often identified because of their success in

business. They may have gone to school to learn how to

operate a business and they have likely spent years honing

those management skills.

But very few of us ever get any formal education in the art

of governance. Even when someone is elected or appointed

to a board, he or she is not likely to receive adequate training

in board governance. Most of us have learned good

governance through trial and error, and reading the

occasional book on the topic.

A board member’s “comfort zone” usually lies within the

world of operations and administration. A friend of mine who

has served on a cooperative board for a few years, recently

said: “Ask me to discuss the merits of purchasing a new

digital copier and I can weigh in pretty quickly. But if you

expect me to engage in a meaningful discussion about

changing the organization’s mission, I’ll have to get outside of

my comfort zone and think strategically. I certainly can’t rely

on my past experiences. It’s tough work!”

Another reason board members micromanage could be

that governance requires, by its very nature, a long-range

focus. Operational issues are frequently resolved quickly and

results can be realized right away.

But strategic issues can only be realized over time. Most

strategic plans are designed to be measured over two, three

or more years. There just isn’t the immediate gratification we

desire.

There are two extremes every board must avoid becoming:

(1) The Rubber Stamp Board and (2) The Managing Board.

If a CEO is unsure of his or her actions and frequently brings

operational issues to the board table for affirmation, the

board might find itself “forced” into managing. The opposite

can occur when a CEO moves beyond management and

begins to direct the organization, taking on the role of the

board. At this point, some boards — unsure of their own role

— begin to put their stamp of approval on whatever is

brought to the table by the CEO. Obviously, neither of these

extremes is going to be in the best interest of the co-op.

A board is micromanaging if it:

• Approves individual salaries;

• Is present for staff meetings;

• Approves the organization’s monthly checks (quite

common!);

• Decides which vendor to use;

• Contacts staff members for information (when not

specifically asked to do so) or “pumps” the staff for an

assessment of the CEO’s effectiveness.

These are just a few examples. Do any of them sound

familiar?

So, what can go wrong if the co-op board engages in

micromanaging, or managing at all?

One pitfall is that board members will use up valuable

time and energy on management and not have enough left to

do the critical job of governing. In terms of time, if your

board meets for three hours each month, that’s a total of 36

hours for the entire year. If even a few hours are misspent,

there aren’t many left to do the lofty work a co-op board

must do for its members.

A CEO who recognizes this kind of overstepping should

discuss it with the board chair in hopes that, together, a

solution will be found. If you are a board member and some

of this sounds familiar, it’s time to bring the topic of

board/staff roles to the table. It is helpful if board and staff

are regularly reminded of their roles and how to effectively

communicate with one another. ■

I

Why do co-op

boards sometimes

micromanage?
Clinton presents PCCA

subsidiary with ACE Award

Plains Cotton Cooperative

Association's (PCCA) Denimatrix

subsidiary has received the U.S. State

Department’s prestigious 2010 Award

for Corporate Excellence (ACE) in the

small-to-medium enterprise category.

The award was presented by U.S.

Secretary of State Hillary Rodham

Clinton to PCCA President and CEO

Wally Darneille at a ceremony in

Washington, D.C.

Denimatrix, located in Guatemala

City, Guatemala, is PCCA’s denim

apparel production company. Founded

in 2009, it has the capacity to produce

about 150,000 pairs of high-fashion

denim jeans per week. It is part of

PCCA’s vertically integrated “from field

to fashion” business model, which also

includes the American Cotton Growers

denim mill in Littlefield, Texas.

The award recognizes Denimatrix

for contributing to the development of

the local economy, for reaching out to

the community to help disadvantaged

youth and the homeless in Guatemala

City and for environmental

stewardship.

The ACE award was established in

1999 to recognize the important role

U.S. companies play abroad as good

corporate citizens. The award also is a

signal of the State Department's

commitment to further corporate social

responsibility, innovation, exemplary

practices and democratic values

worldwide. Past recipients of the ACE

award include Cargill, General Motors,

Motorola, Chevron/Texaco and Ford

Motor Co.

Denimatrix was nominated by U.S.

Ambassador to Guatemala Stephen

McFarland. A record 78 American

companies doing business in other

countries were nominated by U.S.

Ambassadors around the world.

Denimatrix was one of 12 finalists.

“By providing a stable and desirable

workplace, we can attract employees

whose productivity will make them

competitive in a global economy,”

Darneille said. “This award means a

great deal to us about the future as well

as the past. It is a recognition of the

dedication of several generations of

PCCA stockholders to doing the right

thing for present and future

generations.”

Headquartered in Lubbock, Texas,

PCCA is the largest originator of U.S.

cotton for textile mills around the

world.

CHS returns $231 million to

owners; Building shuttle-train

loading elevators

CHS Inc. owners in all 50 states will

share in an estimated $231 million

disbursement during 2011 as a result of

the energy- and grain-based food

company’s strong fiscal 2010 earnings.

The distribution maintains a period of

five consecutive years of significant cash

returns to owners. Since its creation in

1998, CHS has returned more than $2

billion in cash to its agricultural

producer and member cooperative

owners.

The $141 million distribution to

34 March/April 2011 / Rural Cooperatives

Newsline

Send co-op news items to: dan.campbell@wdc.USDA.gov

Co-op developments, coast to coast

The U.S. State Department recently presented Plains Cotton Co-op Association (PCCA)

with its Award for Corporate Excellence. The award recognizes the work of PCCA’s

denim apparel subsidiary in Guatemala (above) for helping to promote economic

development and its efforts to help disadvantaged youth and the homeless in that

nation. Photo courtesy PCCA
member-owners consisted of cash

patronage paid on fiscal 2010 business

and retirement of previously earned

CHS equity. Additional retirements of

equity and dividends paid on preferred

stock made throughout the year are

expected to bring fiscal 2011 cash

return total to about $231 million.

“In making this distribution, CHS

has demonstrated one of the most

important ways we can deliver on our

mission of adding value for all of our

stakeholders,” says Michael Toelle,

CHS board chairman and a Browns

Valley, Minn., farmer. “Strong financial

performance also allows CHS to meet

our member-owners’ needs on a daily

basis and to fulfill a long-term strategic

direction as a successful energy- and

grain-based foods company.”

CHS net income for its fiscal year

ending Aug. 31, 2010, was $502.2

million.

During 2011, distributions are being

made to nearly 1,100 member

companies and more than 45,000

individuals and other businesses.

Patronage is based on business done

with CHS by member cooperatives and

individual farmers and ranchers during

fiscal 2010, while equity redemptions

and preferred stock distributions

represent retirement of ownership in

CHS earned in past years.

In other CHS news, the has co-op

announced its intent to join with some

local grain partners to build state-ofthe-art shuttle train loading elevators in

Montana, Nebraska and North Dakota.

Work is to be completed during the

next 12 to 18 months.

“The CHS commitment to growers

includes endeavors like this, where we

reinvest back into our communities,”

says John McEnroe, senior vice

president for the Country Operations

division of CHS. “It’s a very tangible

way CHS returns value to its memberowners,” he adds.

CHS Country Operations has a

preliminary agreement for construction

in place with Farmers Union Elevator

Co., New Salem, N.D. There is also an

agreement between All Points

Cooperative, Gothenburg, Neb.;

Farmers Cooperative Grain Co.,

Merna, Neb.; and the CHS AgriService Center, Holdrege, Neb., for a

facility in the Custer County area. In

addition, CHS has expansion plans to

accommodate 110-car trains at its

Kershaw, Mont., location as well as its

facility in Lakota, N.D., operating

under Lake Region Grain.

All facilities will be located on a

BNSF rail line. Construction could

start as early as May 2011, CHS

reports.

Wickham to lead NCFC

Gregory Wickham, CEO of Dairylea

Cooperative Inc., was recently selected

chairman of the National Council of

Farmer Cooperatives at its 82nd annual

meeting in San Antonio, Texas. He had

been NCFC vice chairman and was a

board member for five years.

Succeeding Wickham as vice chairman

is Bob Engel, president and CEO of

CoBank.

Wickham and Engel will lead a

board comprised of 22 presidents and

CEOs from cooperatives across the

country as they strive to “to tell the

story of farmer cooperatives and ensure

that the interests of all co-op memberowners are protected.”

“I learned at a young age the value

of farmers working together, and I am

excited to have a role doing so through

NCFC,” Wickham says.

Wickham has worked for agricultural

cooperatives his entire career. Prior to

joining Dairylea in 1997, Wickham

worked for the Farm Credit Bank of

Springfield (CoBank's predecessor)

from 1978 to 1987. He then joined the

agricultural division of Agway Inc. from

1988 to 1995, moving to CoBank in the

fall of 1995.

Wickham acknowledges the

importance of agricultural cooperatives,

both to their farmers and to their

respective industries. Dairylea has

worked closely with NCFC over the

years, “to grow success and support of

cooperatives across the country,” he

notes. In 1929, when Dairylea was still

called the Dairymen’s League, several

cooperative employees were

instrumental in helping to from NCFC.

“Greg brings experience, knowledge

and leadership to NCFC, all of which

will be valuable as we seek to continue

to tell the co-op story to policymakers,

opinion leaders and the American

public,” NCFC President and CEO

Chuck Conner says.

Wickham received a degree in ag

economics from Cornell University and

earned his MBA in ag economics from

the University of Hartford.

CoBank earnings

climb 8.6 percent

CoBank, a leading cooperative bank

serving agribusinesses and rural

infrastructure providers throughout the

United States, has reported record high

earnings and net interest income. Its

loan quality also continued to improve

throughout the year, the bank reported.

“Despite an economic environment

that remains challenging and highly

volatile, the bank continued to serve as

a dependable source of credit for vital

industries across rural America,” says

Robert B. Engel, president and chief

executive officer.

Net income was a record $613.8

million, up 8.6 percent from $565.4

million in 2009. Net income reflected

the benefit of refunds of Farm Credit

insurance premiums paid in prior years,

Rural Cooperatives / March/April 2011 35

Gregory Wickham
a lower premium in the current year, a

lower provision for loan losses and

greater fee income. Those positive

earnings drivers were partially offset by

impairment losses in the bank’s

investment portfolio and some other

factors.

Average loan volume during 2010

was $45.5 billion, up 2.3 percent from

the prior year. A key driver was higher

seasonal financing requirements from

agribusiness customers due to the sharp

increase in prices for grains and other

agricultural commodities that occurred

in the latter part of 2010. The bank also

increased its lending to rural electric

distribution cooperatives around the

country. Those increases were partially

offset by lower levels of borrowing from

customers in the rural communications

industry, where overall demand for debt

capital remained weak.

Average loans to other banks and

associations in the Farm Credit System

were essentially unchanged, reflecting

relatively flat loan demand at the

producer level of the U.S. farm

economy. Total loan volume for the

bank at Dec. 31, 2010, was $50 billion,

compared with $44.2 billion at the end

of 2009.

Net interest income for CoBank rose

0.5 percent, to $950.8 million, up from

$946 million in 2009. Engel noted that

CoBank has returned more than $1.3

billion in patronage to customer-owners

around the country during the past five

years.

New Zealand co-ops

aiding earthquake victims

Co-ops have been rallying to offer

support following the Feb. 22

earthquake that devastated Christchurch, New Zealand. As of early

March, the death toll stood at 166, but

many people were still missing and

feared dead. Ramsey Margolis,

executive director of the New Zealand

Cooperatives Association, says some coops were also directly impacted by the

earthquake.

To help concerned co-ops at home

and around the world follow the

situation, he has created a blog at:

www.s.coop/nzquake. A couple of

recent postings (as of early March)

included:

March 4 — “Silver Fern Farms

announced that it will be making

donations based on all sheep, beef and

deer processed during the week of

March 14 to the New Zealand Red

Cross 2011 Earthquake Appeal. The

cooperative had already put in place a

number of initiatives to support the

relief effort in the wake of the tragedy,

including providing access to fresh

water and equipment from its

processing sites, as well as donating

meat supplies to the Farmy Army and

the Salvation Army.

Chief Executive Keith Cooper said

that the cooperative had been

overwhelmed by messages of concern

from its members and wanted to step

up the company’s response on their

behalf. In addition, Silver Fern Farms

has received commitment from offshore

customers to match the company’s

contributions.

March 3 — “No one was hurt at

either the CRT Cooperative Farm

Centre on Waterloo Road,

Christchurch, or in its offices in Sir

William Pickering Drive. But the

offices had a good shake,” General

Manager/Marketing Nigel Riley

reports. “Ceiling panels fell down,

everything was all over the place

upstairs at Sir William Pickering Drive.

It looked like someone had thrown a

hand grenade and shut the door.”

LO’L sales second best

in its 90 years

Land O’ Lakes Inc. (LO’L) reported

the second-highest net sales and

earnings in its 90-year history, despite

challenging economic conditions. More

than 1,000 cooperative members and

visitors who gathered in Minneapolis

for the co-op’s annual meeting were

told that the co-op:

• Returned a record $125 million in

cash to members;

• Had net sales of $11.1 billion (up 7

percent from 2010) and net earnings

of $178 million (down from 2009’s

record $209 million);

• Saw a reduction of 11 percent in its

debt;

• Strengthened the LO’L market

presence in nearly all of its key

business segments.

Co-op president and CEO Chris

Policinski pointed to several factors that

drove performance in 2010: the

strength of Land O’Lakes brands; solid

performance by new, innovative

products; a continued focus on

operating efficiency and risk

management; and the “disciplined

pursuit of strategic growth initiatives.”

The co-op improved its market position

in branded butter, deli cheese, seeds,

crop protection products, young animal

milk replacers, premium lifestyle feed

and value-added livestock feed.

LO’L’s dairy foods business

generated pretax earnings of $50.3

million, compared to $61 million in

2009. Dairy foods sales were $3.7

billion, up from $3.2 billion in 2009,

helped by higher sales volume for the

co-op’s flagship branded butter.

LO’L’s feed business reported $22.1

million in 2010 pretax earnings,

compared to $29.8 million in 2009.

Feed sales were $3.3 billion, down only

slightly. Volume was down significantly

in the livestock segment, while

relatively flat in the co-op’s Lifestyle,

Milk Replacers and Feed Ingredients

segments.

The company’s crop inputs business

— Winfield Solutions LLC — reported

36 March/April 2011 / Rural Cooperatives

The Piko Wholefoods Co-op store

sustained heavy damage in the earthquake that hit Christchurch, N.Z. The top

floor of the 106-year-old building had to

be demolished.
Rural Cooperatives / March/April 2011 37

$144.8 million in pretax earnings, up

from $136.8 million in 2009. Crop

input sales hit $3.7 billion, well up from

$3.3 billion in 2009. Sales volume was

strong across-the-board, especially for

crop protection products and nearly all

seed categories.

Gray to lead SRSA

Thomas W. Gray, Ph.D., a rural

sociologist with the Cooperative

Programs office of USDA Rural

Development, was installed as president

of the Southern Rural Sociology

Association (SRSA) in February at the

association’s annual meeting in Corpus

Christi, Texas.

SRSA is a professional social science

association oriented to enhancing the

viability and quality of rural life,

communities and the environment in

the South and to encourage similar

work nationally. In addition to work of

its own academic discipline, the

organization’s approach to rural

sociology also encompasses other social

sciences and includes practitioners at

the university, community and

government levels.

“Social justice, as seen through

various disciplinary lenses, is an

essential focus of the organization,”

Gray says. The organization has a

national membership and is responsible

for publishing the Journal of Rural Social

Sciences.

Co-chairs picked

for Co-op Caucus

U.S. Senators John Thune of South

Dakota and Amy Klobuchar of

Minnesota will be co-chairs of the

Congressional Farmer Cooperative

Caucus. In the House, U.S.

Representatives Sam Graves of Missouri

and Tim Holden of Pennsylvania will

also co-chair the caucus. The caucus

has 18 Senate members and 44 House

members.

Thune was also co-chair of the

Congressional Farmer Cooperative

Caucus during the last session of

Congress and has served on the U.S.

Senate Agriculture Committee since

2007. He played a critical role in the

passage of the 2008 Farm Bill in the

U.S. Senate and served on the U.S.

House Agriculture Committee during

the drafting of the 2002 Farm Bill.

Klobuchar serves on the U.S. Senate

Agriculture Committee and worked

closely with House Agriculture

Committee Ranking Member Collin

MMPA wins Dairy Plant of the Year

Michigan Milk Producers Association (MMPA) recently took home top honors

from the International Dairy Foods Association (IDFA) annual meeting, winning

the 2010 Plant of the Year award from Dairy Foods magazine. The co-op recently

completed a two-year, $62 million renovation project at the plant.

The investment made by the dairy farmer-owners of MMPA increased daily

processing capacity to nearly 5 million pounds and expanded the production

capabilities at the Ovid facility. The expansion included construction of a $27

million tower dryer, $7 million in mechanical vapor recompression (MVR)

equipment and $28 million in receiving, processing, utility and warehousing

improvements and additions.

MMPA General Manager Clay Galarneau accepted the award at the IDFA

meeting. “It is a real honor to be recognized by this group of processors,”

Galarneau said. “Our members have made a significant investment in our

processing facilities and we are proud of the improvements made at Ovid. We

believe this investment will benefit our dairy farmer owners for many years.”

The changes made at the plant were spurred by increasing milk production in

Michigan and the Great Lakes region. Faced with additional volumes of milk,

MMPA members had to choose between investing in their own facility or

sending the milk to neighboring states. “Our members saw the need for the plant

expansion and backed it with a 10-cent per hundredweight equity retain,” says

MMPA President Ken Nobis. “Our members see a strong future in Michigan’s

dairy industry, and our facilities need to be able to keep pace with our members’

production and customer needs.”

Products made at the Ovid facility include cream, condensed milk, butter and

powdered milk, which are sold as dairy ingredients to a wide variety of food

manufacturers. “You don’t see the MMPA label in the store, but when you eat

pudding, yogurt,

cookies, ice cream

and many other

foods, chances are

you are enjoying

ingredients made at

the MMPA

manufacturing

facility,” Galarneau

says.

MMPA is owned

by about 2,100 dairy

farmer-members

throughout Michigan,

Indiana, Ohio and

Wisconsin. In 2010,

MMPA marketed more

than 3.9 billion pounds

of milk.

A $62-million renovation project at its Ovid dairy plant

resulted in Michigan Milk Producers Association

(MMPA) winning the 2010 Plant of the Year award from

Dairy Foods magazine. Photo courtesy MMPA
38 March/April 2011 / Rural Cooperatives

Peterson to pass the 2008 Farm Bill.

With more than 200 cooperatives,

Minnesota leads the country in number

of cooperatives.

Foremost distributes

$31 million to members

Foremost Farms USA, Baraboo,

Wis., issued cash payments of $31.8

million during 2009 and 2010 to dairy

producer-members of the cooperative.

Of that total, $6 million was paid in

2009 in cash patronage and equity

revolvements. The remaining $25.8

million was issued in 2010, including

$6.7 million of cash patronage; the

balance represented revolvement of

equities held by dairy producers who

marketed milk through Foremost Farms

and its predecessor cooperatives.

“We have repositioned our business

and have been profitable despite

marketplace volatility and a challenging

national and global economy,” says

Dave Fuhrmann, co-op president. “The

board of directors is looking to the

future as the global demand for dairy

increases. We will grow with that

demand and maximize returns for our

present, past and future memberowners.”

Foremost Farms USA is owned by

2,200 dairy farmers from Wisconsin,

Minnesota, Illinois, Indiana, Iowa,

Michigan and Ohio who market 5

billion pounds of milk annually. In

2009, Foremost Farms revenue was

$1.14 billion.

Changes to VAPG

program announced

Deputy Agriculture Secretary

Kathleen Merrigan has announced

changes to USDA Rural Development’s

Value Added Producer Grant (VAPG)

program that will provide additional

opportunities to beginning and socially

disadvantaged farmers. The changes,

outlined in an interim rule published in

the Federal Register, will also assist

independent producers, farmer and

rancher cooperatives, agricultural and

producer groups, as well as support

local and regional supply networks with

their value-added projects.

“Improvements to this popular

program will create additional

economic and job opportunities by

helping owners of small- and mediumsized family farms sell their products in

local and regional markets, part of our

drive to ‘win the future,’” Merrigan

said. “USDA investments such as these

are part of the Obama administration’s

work to support farmers, ranchers and

rural businesses.” The regulations

address program changes included in

the 2008 Farm Bill.

The revisions include:

• Providing up to 10 percent of funding

to beginner farmers and socially

disadvantaged farmers and ranchers;

• Providing up to 10 percent of funding

to local and/or regional supply

networks that link producers with

companies marketing their products;

• Giving priority for grants to beginner

farmers, socially disadvantaged

farmers and ranchers, and operators

of small- and medium-sized family

farms;

• Extending grant eligibility to

producers who market their products

within their state or within a 400-mile

radius.

These changes take effect March 25,

2011. In addition to the rule changes,

USDA Rural Development is soliciting

comments on the interim rule and the

best way to facilitate the participation of

tribal entities and tribal governments in

the VAPG program. For information

on how to submit comments, see page

10,090 of the Feb. 23, 2011, Federal

Register.

VAPGs may be used for feasibility

studies or business plans, working

capital for marketing value-added

agricultural products and for farmbased renewable energy projects.

Eligible applicants include independent

producers, farmer and rancher

cooperatives and agricultural producer

groups.

Value-added products are created

when a producer increases the

consumer value of an agricultural

commodity in the production or

processing stage. For more information

on VAPG and other USDA Rural

Development programs, visit:

www.rurdev.usda.gov.

Sunkist sales top $1 billion;

Gillette picked as new

chairman

Sales for Sunkist topped $1 billion in

2010, the 10th time in the past two

decades it has surpassed that mark,

President and CEO Russell Hanlin told

the more than 800 grower-members

who met at California’s Ventura County

Fairgrounds in February for the citrus

marketing cooperative’s 117th annual

meeting.

“In 2010 we were faced with, and

successfully overcame, many difficulties

imposed by the weak global economy,”

Hanlin said. “We ended the year strong

and financially stable, increasingly more

efficient and well positioned for

continued success. The coordination

between our sales and marketing team

and our packinghouses was the best I’ve

seen.”

Following the annual meeting, the

newly elected board of directors met to

elect their officers for the current year.

Mark D. Gillette of Dinuba, Calif., was

elected to his first term as board

chairman, succeeding Nicholas F.

Bozick of Mecca, Calif. Bozick had

served as chairman for five consecutive

terms, the maximum allowed under

Sunkist bylaws.

Gillette is a fourth-generation citrus

grower who started the Gillette Citrus

Co. in 1983 with his father and brother.

He is the managing partner of Gillette

Citrus, a Sunkist-affiliated grower,

packer and shipper of fresh citrus. He

grows oranges in Fresno and Tulare

counties. Gillette has served on the

Sunkist board since 1999.

CCA cooking up ‘hot

communications’

“Hot Ideas for Cooperative

Communicators” is the theme for the

2011 Cooperative Communicators

Association’s (CCA) annual institute

June 19-22 in San Antonio, Texas.

Among the scheduled sessions are:

• Spice up your newsletter design;

• Writing a smokin’ social media policy;
Rural Cooperatives / November/December 2010 39

deal of time communicating to shareholders and each wants

to be seen as having high ethical standards.

I believe the differences between a cooperative and a

publicly traded corporation are what every cooperative CEO

needs to understand.

The obvious difference is that a cooperative’s customer is

also the shareholder, making it sometimes difficult to balance

how the shareholder-customers want their return. Do they

want it in price? Do they want it in service? Do they want it

in a market? Or do they want it in profit returned in

patronage or dividends?

Balancing those questions is the minefield that cooperative

CEOs and boards of directors must manage their way

through.

The second major difference is the method of

communication used. The publicly traded corporation is very

formal in this regard, by requirement. The cooperative is

much more informal and hands-on, directly one-on-one with

the customer. Communication is much more open regarding

operations and the direction of the company because

cooperatives do not need to be as concerned that what they

say may affect their stock price. Cooperative CEOs must be

prepared to spend a lot of time with their customer-owners.

The third major difference between co-ops and investorowned businesses is the focus on quarterly earnings. A

publicly traded firm is often much more concerned about

short-term earnings and the impact on stock price. The

cooperative is usually focused on annual results and the

impact on patronage returns at the end of the year.

The final difference is the close personal relationships that

are sometimes developed with the customer-owners of a

cooperative. Cooperatives view themselves as an extension of

the customers’ operation and take a more personal interest in

their overall success.

I would have to say that there are more similarities

between a cooperative and a publicly traded corporation than

there are differences. It is the close personal relationships and

the feeling of being a part of the customer-owners’ operation

that has been the most rewarding to me. ■

Management Tip

continued from page 29

• Allocation of assets if the co-op dissolves.

While each member within a membership class

(consumers, for example) will receive an equitable proportion

of voting rights in a multi-stakeholder co-op, the distribution

of voting rights (or transfer rights or surplus) will not

necessarily be equal between the classes of memberships. In

fact, they may be quite different. For example, in some multistakeholder co-ops, community members receive a higher

allocation of surplus (either directly or through dividends on

preferred shares) because of their higher monetary

investment, yet they have claim to a smaller proportion of

governance rights.

In other multi-stakeholder co-ops, community members

receive no allocation of surplus at all. In some such co-ops,

worker-members receive the majority of any surpluses. In

other co-ops, including Boisaco, the majority of profits are

kept internally to help the co-op advance its shared mission

for the future.

There are no right and wrong answers to these important

questions. Examples can be found of multi-stakeholder

cooperatives coming to quite different conclusions. The

important thing is that allocation decisions should be well

thought out and that they support and sustain the ultimate

mission of the co-op, which is what brings diverse parties

together in the first place.

Considering each of these important issues from the

perspective of the different players, then codifying the agreed

upon checks and balances clearly in the co-op’s organizational

documents, will help build trust and ensure that parties from

the different groups each feel their perspective is

acknowledged and that their concerns are addressed.

Information, dialogue and a lot of “sunshine” and

transparency are often cited by practitioners as necessary

ingredients to make multi-stakeholder cooperatives a success.

A good dose of patience helps as well. But with these key

elements in place, small communities have shown they can

achieve impressive results. ■

A Convergence of Interests

continued from page 17

• Fun with Photoshop, and other

creative solutions;

• Crisis communications: getting out of

the hot seat, and

• There’s an App for that.

Other sessions will focus on project

budgeting, website design and effective

writing, among others.

The conference is usually attended

by more than 100 cooperative

communications specialists from all

types of cooperatives who say they find

the chance to network and discuss

common issues with their peers to be

just as valuable as the conference

sessions.

Early discount registration deadline

is May 6. To register online, visit:

wwww.communicators.coop. For more

information, call Sarah Dorman,

conference co-chair, at (712) 667-3200,

or e-mail her at:

sarahd@westcentral.net.
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40 March/April 2011 / Rural Cooperatives