Rural

COOPERATIVES COOPERATIVES

USDA / Rural Development May/June 2000 USDA / Rural Development May/June 2000

Ethanol co-ops:

Squeezing new

value from corn
2 May/June 2000 / Rural Cooperatives

Rural Americans looking for an effective business structure to process and

market their products or to acquire

goods and services have long looked to

cooperatives. As part of its mission to

create new opportunities for rural Americans, USDA Rural Development is

striving to stimulate the creation of

cooperatives that can help boost the rural economy and ensure that family farmers remain a dominant link in our

nation’s food production chain.

Since the 1920s, USDA has offered

technical assistance to those looking to

start or improve cooperatives. Through

research and education products (including this magazine), USDA has also done

much to increase public awareness of

cooperatives. 

USDA is expanding the ways in

which it can provide financial backing

for cooperatives. Through the Business

and Industry (B&I) Guaranteed Loan

program, USDA Rural Development

can help finance cooperatives engaged in

value-added processing and marketing.

Likewise, USDA’s Rural Business Enterprise Grant (RBEG) and Rural Business

Opportunity Grant (RBOG) programs

can provide seed money for fledgling coops. 

Under the B&I program, a cooperative pursuing a value-added project first

seeks financing from a local lending

institution, which can then ask USDA to

guarantee a portion of the loan; the percentage of the loan covered by the guarantee depends on the size of the loan. 

Our Cooperative Stock Purchase

Program works much the same, but in

this case, family farmers who want to

borrow money to buy membership

shares (or stock) in a new, value-added

cooperative can receive a USDA guarantee for up to 80 percent of the loan.

Interest rates are negotiated between the

lender and the farmer, and may be fixed

or variable.

For a real-life example of how our

programs are promoting new co-ops,

turn to page 4 of this issue and read

about how USDA helped turkey producers in Michigan open their own processing plant. These growers turned

adversity into opportunity when faced

with the sudden closure of the processing plant which had been buying their

flocks. USDA helped kick-start the coop with technical assistance and a

$95,000 RBEG to fund the co-op’s feasibility study. Eight of the 15 farmers who

started the co-op also used our Co-op

Stock Purchase Program to secure

USDA financial backing for their membership investments. In all, USDA

backed nearly $2.3 million in loans

issued by a local Farm Credit bank in

Michigan.

Our cover story examines the surge in

activity among co-ops seeking to turn

corn and other crops into ethanol.

USDA has also been active in this arena,

both with technical assistance and financial support. As I write this, USDA has

just provided a $95,000 RBOG to a

cooperative of grain growers in Western

Kentucky, who will use the money to

study the feasibility of starting an ethanol

production facility. USDA also just

approved a $10 million B&I guaranteed

loan to purchase machinery for a new a

dry-mill ethanol plant in Craig, Mo.,

owned by a farmers’ cooperative. USDA

also provided technical assistance to help

launch a new co-op-owned ethanol plant

in Macon, Mo., the state’s first. Both

plants are discussed on page 12. 

The future of ethanol as a clean, biofuel additive for gasoline appears to be

bright and could help stabilize corn

prices. Our story quotes one expert who

believes that the ethanol industry could

soon consume 600 million bushels per

year, which he says could raise corn

prices by about 35 cents per bushel. The

ethanol industry has been on a roller

coaster ride during the past decade, its

fortunes rising or falling depending on

factors such as the price of foreign oil

and various financial incentive programs.

Prospects for the ethanol industry are

much improved, but when it comes to

the economics of energy, there is always

a high element of risk. 

To learn more about any of our programs, visit our website at: www.rurdev.

usda.gov and click on the “Rural Business-Cooperative Service” button. Or

contact your USDA Rural Development

state office, which you can reach by dialing (202) 720-4323. 

Jill Long Thompson

Under Secretary, USDA Rural Development

COMMENTARY

USDA Rural Development programs

help fuel co-op movement
Rural Cooperatives / May/June 2000 3

FEATURES

4 Saving an industry

Plant closure leads Michigan growers to form new turkey 

cooperative

Laura Moser

7 Power formula

Higher gas prices fuel drive for ethanol production; 

farmers look to co-ops to gain market share

Mary Farrell-Stieve

16 Making its mark

Agri-Mark, New England’s largest dairy co-op, is building

markets for producers

Patrick Duffey

DEPARTMENTS

2 COMMENTARY

15 A CLOSER LOOK AT...

20 IN THE SPOTLIGHT

23 NEWSLINE

29 PAGE FROM THE PAST

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Jill Long Thompson, Under Secretary,

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Rural Business–Cooperative Service

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United States Department of Agriculture

Rural

COOPERATIVES COOPERATIVES

May/June 2000 Volume 67 Number 3

On the Cover:

The resurgent ethanol industry could soon be consuming up to 600 million

bushels of corn each year. Farmer-owned cooperatives are building new plants to

help their members capture some of the added value derived from processing

corn into ethanol. Story on page 7. USDA Photo
4 May/June 2000 / Rural Cooperatives

By Laura Moser

When the 25 turkey

growers supplying the

Sara Lee plant in Zeeland, Mich., received

notice that they no

longer had a market for their birds,

tough decisions had to be made. With

no local market, these growers had to

act quickly or suffer great losses due to

transportation costs.

Like most farmers, these growers had

weathered tight times in recent years. For

some, the closure notice was the final

hurdle and they left the business. But for

15 of them, this was just another challenge — another chance — to gain control of their business.

“It was really a blessing in disguise,”

says Dan Lennon, chief executive officer

and plant manager. “Many of the growers

knew they would be better off and have

more security if they owned their own

processing facility. But until they actually lost their market, the option wasn’t

seriously considered.

“Transportation is tough on the

birds,” he explains. “They needed a plant

close to their farms. We saw a significant

mortality loss when the birds were

hauled to facilities in other states.”

Michigan Turkey Producers

Cooperative

Forming a cooperative was the first

step in creating a producer-owned processing business. In October 1998, just

four months after receiving their cancellation notices, the growers formed

the Michigan Turkey Producers Cooperative.

The 15 members operate 40 farms

in west Michigan and farm more than

15,000 acres. The largest operation,

owned by Harold Walcott, raises over

1.6 million birds per year. The chairman of the board, Harley Sietsema,

raises 1.2 million birds on seven farms.

The vision of the growers to save

Michigan’s turkey industry captured

the attention of many in the state.

Michigan State University (MSU)

poultry economist Allan Rahn supplied

necessary market analysis and feasibility

studies. The Michigan Farm Bureau,

MSU Extension, the Michigan Department of Agriculture and USDA Rural

Development also stepped forward to

help the cooperative.

Rahn reported that in 1998 western

Michigan turkey growers had $30 million invested in farm-related assets and

were growing nearly 8 million birds a

year. It is estimated that the turkey

industry in western Michigan has an

economic impact of $60 million. Ernie

Birchmeier, Michigan Farm Bureau

commodity specialist, says feed consumption for 4 million turkeys each

year equates to 50,000 tons of soybeans, estimated at $6.5 million annually, and more than 4 million bushels of

corn, valued at $8.6 million annually.

Additionally, more than 200 people are

employed on the farms and 300 at the

plant with a combined payroll of $10

million. Over $6 million a year is spent

on purchasing poults.

The group received a $95,000 grant

from USDA Rural Development to

conduct feasibility studies.

Saving an industry

Plant closure leads Michigan growers to form new turkey cooperative

W

Producers took matters into their own hands to save the turkey industry in western

Michigan, by purchasing a closed processing plant and reopening it as a farmerowned and -operated facility. Photo courtesy Laura Moser
Rural Cooperatives / May/June 2000 5

“USDA Rural Development has

placed a strong emphasis on providing

financial assistance to Michigan producers and has encouraged agricultural

producers to find ways to add value to

their agricultural products,” says Donald Hare, Michigan state director for

USDA Rural Development. 

The grant was part of USDA’s Rural

Business Enterprise Grant Program.

This program is designed to help public

bodies, non-profit corporations and federally recognized Indian Tribal groups

finance and facilitate development of

small and emerging private business

enterprises located in rural areas.

“As commodity prices continue to

be low and volatile, more producers

are looking at forming their own

cooperative,” says Jason Church, a

cooperative specialist with the Michigan state office of USDA Rural

Development. “These cooperatives,

such as the turkey growers’, allow the

producers to become more vertically

integrated. It is not a guarantee for

success, but it does give the producer

more control.”

Taking processing into their own

hands was a good thing for the producers, Sietsema told Michigan Farmer, an

agricultural publication. “It forced us to

look at where we were in the food chain.

I think it was just a matter of time, and

we needed to do this anyway.”

Finding the right facilities

In February 1999, armed with the

work from Rahn and a feasibility and

market study from Sparks Commodities Inc., the growers began searching

for the right facilities and financial

backing. 

They located a vacant potato processing plant in Wyoming, a southwest

suburb of Grand Rapids, Mich. The

location — within 40 miles of their

farms — suited their needs and had a

large labor pool available. Once found,

plans were made to convert the building into a turkey processing plant.

“We gutted the building and started

over,” Lennon says. “We had to build a

new building inside the old building.”

The 190,000-square-foot plant is

furnished with state-of-the art equipment. Some of the equipment came

from the Sara Lee plant in Zeeland.

That plant, once used for raw processing as well as cooked products, was

now strictly a cooked-product plant.

The newly renovated processing

plant is targeted to process 4.25 million

birds a year with annual sales projected

to top $70 million. Over 300 jobs were

created when the plant reopened.

“This is the first new turkey processing plant to be built in the United

States in the past 15 years,” Lennon

explains. “We built the plant with an

eye toward food safety and prevention

of problems. So much has happened in

the area of food safety in the past 15

years, we were able to draw on others’

experiences.”

Financing the dream

The Michigan turkey industry was

not the only commodity sector experiencing unrest in 1998. The failure of

other commodity plants and depressed

farm prices left lenders hesitant to

extend the necessary capital for the

processing facility. The location of the

plant in a non-rural area also limited

the amount of backing available

through USDA Rural Development.

“We worked out a loan package with

CoBank in May 1999 to finance the $20

million project,” Lennon explains. “We

were close to finalizing the loan when

the equity position needed to be changed

from 30 percent to 50 percent.”

The growers had generated the 30

percent capital through stock purchases

in the cooperative. Growers purchased

stock at $1.50 per shackle (the hooks used

to hold turkey carcasses in the plant); one

share equals 1,000 shackles. The stock

purchases gave growers the right to send

birds to the plant as well as an obligation

to keep the plant supplied. The growers

subsequently increased their per-shackle

commitment by 50 cents, to a total of $2

each, to help close the gap.

Eight of the producers received

loan guarantees through the USDA

Rural Business Guaranteed Cooperative Stock Purchase Program. Slightly

more than $2.28 million was approved

to the GreenStone Farm Credit Services for loan requests made by the

growers.

“Agricultural producers in Michigan

are searching for ways to be more competitive in the marketplace,” says Hare.

“If they are going to compete in the

national and international markets,

they need to find ways to cut cost,

bring greater value to their products

and reap higher bottom-line profits for

their commodities.”

The additional capital needed to meet

the bank requirements was generated

through investments by “friendly parties” interested in the success of the

cooperative. To allow outside investors,
6 May/June 2000 / Rural Cooperatives

an LLC (limited liability corporation)

was formed, with the cooperative as a

member.

By April 2000, the necessary equity

position had been obtained and the $20

million loan package was in place.

“We are anxious to conclude this

start-up chapter,” Lennon says. “It was

stressful waiting to have all the financing

in place so we could move forward.”

On March 7, 2000, just 18 months

after the cancellation notices, the first

turkeys were processed at the plant.

Building a name and a market

“The key to success for new cooperatives looking to add value to their commodities is to hire professional managers,” Church says. “The members

need to be successful in their own individual businesses and bring in top management to run the processing facilities.”

Before joining the turkey cooperative,

Lennon was a sales and marketing director for Bil Mar products at Sara Lee. His

experience in turkey product development and sales will be critical to the success of the cooperative. Lennon and

Don Delardo, sales manager, began

looking for customers months before the

first turkeys were brought in.

“Our first phase is to sell to other

industrial processors, we will then

branch out into food service and the

retail food markets,” Lennon says.

As the customer base broadens, so

will the line of products produced.

Currently the facility is equipped for

strictly raw processing. The growers

are supplying heavy Tom turkeys (34-

36 pounds).

The growers have developed a

brand name and “story line” for the

products when they enter the retail

market. The products from the Michigan plant will be marketed under the

name “Legacy,” or Golden Legacy for

top products such as breast meat; Silver

Legacy for “second-tier” products,

such as thighs and drumsticks; and

Legacy for the ground products.

Accompanying the brand and logo is

a history of the cooperative and the

name. This story captures the long history of turkey production in Michigan

and lists the members of the cooperative.

“Raw turkey meat is basically a commodity,” Lennon explains. “We hope to

differentiate our product by adding flavors and create portioned cuts like

steaks, roasts and ground products.”

Long-term, the co-op plans to add

more processing equipment to prepare

product in vacuum sealed packaging for

food service and to eventually move

into a cooked-product line.

“I don’t think people realize how

close this industry was to being extinct

in Michigan,” Lennon said.” Without

the diligence and the commitment of

the turkey growers to raise additional

capital, this dream never would have

become a reality. ■

Editor’s Note: Laura Moser is an agricultural writer based in Williamstone,

Michigan.

Building a Cooperative on the Fast Track

July 1998 — Twenty-five growers receive notice from Sara Lee- Bil Mar turkey processing plant in Zeeland, Michigan that they no longer have a local market for the 8

million turkeys raised annually in west Michigan.

September 1998 — Fifteen growers form a cooperative, Michigan Turkey Growers

Cooperative, and begin their own business.

December 1998 — Turkeys no longer processed at the Zeeland plant, growers begin

transporting birds to out-state markets in Iowa and Indiana.

December 1998 — Cooperative receives USDA grant to conduct feasibility study.

May 1999 — Formation of LLC to generate additional equity.

June 1999 — Renovation of Simplot Potato Processing plant into a turkey processing

plant begins.

February 2000 — Eight members receive USDA loan guarantees for stock purchases.

February 2000 — USDA inspection and approval granted.

March 2000 — First turkeys are processed at new facility.

Dirk Pyle, Zeeland, Mich., is back in the turkey business as one of the 15 members who

started the Michigan Turkey Producers Cooperative. Photo courtesy of Farm & Country Journal
Rural Cooperatives / May/June 2000 7

By Mary Farrell-Stieve

outh Dakota just broke

ground on a 40-milliongallon ethanol plant owned

by a cooperative of corn

growers, who believe that consumption

of corn to produce ethanol will help

boost prices for their crop. National

Corn Growers Association President

Lynn Jensen, one of the plant owners,

says he will send as many as 25,000

bushels — about 25 percent of his total

crop — to the plant. South Dakota is

are part of a growing trend as farmers

and their cooperatives all across the

nation are investing in ethanol facilities

as a way to add much-needed value to

their crop (see related story, page 8).

Jensen believes that committing 600

million bushels of corn nationally for

ethanol will add 35 cents to each bushel

of corn U.S. farmers market. 

Jensen foresees a bright future for

ethanol. Another ethanol plant in that

state will begin its fundraising campaign in July. 

“These farmer-owned enterprises

turning our crops into value-added

products create a great opportunity for

rural development,” says Jensen on a

spring day as he readies his equipment

for another planting season. “And I’m

not just talking about ethanol, but all

value-added investments.

“Once the start-up costs have been

covered and the investments start generating returns for the investors, that

money comes back into the community,” he continues. “These investors are

more likely to use that money to

improve their standard of living, pay

down debt and invest in equipment to

make their work easier.”

Add those capital reinvestments to

the benefits a community realizes in

new job opportunities and the security

of a local ownership of local business,

and it’s easy to see why there’s increased

optimism throughout agriculture and

rural development circles for bio-based

fuels. The bio-fuel movement is also

being backed by those who want to

make the United States less dependent

Power formula 

Gas price hikes fuel drive for ethanol production; farmers look to co-ops to gain market share 

S

Just down the road from the Hastings, Neb., ethanol plant, AGP cooperative officials opened a

new soybean processing plant and are laying the groundwork for an adjacent vegetable oil

refinery — all adding value to farm crops and tapping the bio-fuels market. Photo courtesy AGP 
8 May/June 2000 / Rural Cooperatives

From sea to shining sea, farmers and their cooperatives are

eyeing new ethanol production plants as a way to add value to

their crops and build a stronger rural economy. Market studies

indicate farmers should build new ethanol plants to provide

more value-added opportunities in rural America. For many

farmers, new-generation co-ops are the preferred model for

gaining a share of the ethanol market. 

In New Jersey, the Farm Bureau is encouraging its members to consider building an ethanol plant. In Washington,

farmers are hoping a facility that would turn barley and wheat

into ethanol would buoy sagging grain markets. In Illinois,

memberships are being marketed for a new ethanol plant, and

a Minnesota ethanol facility is being expanded to meet surging

demand.

In early June, USDA Rural Development agreed to provide

funding for a feasibility study for a possible ethanol plant in

western Kentucky. That project is being eyed by the Hopkinville Grain Elevator, a 2,200-member grain producers’ coop looking for ways to add value to members’ crops.

“While commodity prices remain at historically low levels

and changes in tobacco production present additional downward pressures in our rural economy, it is essential that we

look together at new and innovative ways to add value to our

traditional farm products,” Kentucky Gov. Paul Patton said at

an event marking the USDA award. 

Earlier this year, the Environmental Protection Agency

announced its decision to phase out the use of methyl tertiary

butyl ether (MTBE). The fuel additive helped reduce air pollution but now has been linked to drinking water contamination and cancer in animals. The EPA and USDA are working

to find “safe bio-fuel” additions, or oxygenates, which add oxygen to fuel and reduce pollution in exhaust.

New Jersey grain growers look to ethanol 

With MTBE on the way out, ethanol is the only commercially available alternative, says John Urbanchuk, executive

Fill ‘er up! Pipeline flowing with new generation ethanol co-ops 

By Pamela J. Karg

Field Editor

As the administration investigates soaring

gas prices, farmers and their cooperatives

are taking high fuel prices and low 

commodity prices into their own hands by

turning corn into ethanol. At right, a 

customer pumps ethanol-blend fuel at a

CENEX filling station. Inset photo by David

Lunquist, courtesy CENEX-Harvest States

on foreign oil-producing countries,

which currently dictate fuel availability

and prices. Consumers are becoming

more interested in bio-fuels, especially

with recent concerns about the impact

of methyl tertiary butyl ether (MTBE).

MTBE phase-out boosts ethanol 

MTBE is an oxygen-bearing additive the petroleum industry added to

gasoline to make it burn cleaner to

meet the 1990 clean air requirements.

Now the additive that helped clean the

air is suspected of contaminating

groundwater. 

To counteract the spreading threat

of MTBE to the groundwater supply,

MTBE has been banned in places such
Rural Cooperatives / May/June 2000 9

as Iowa. In California, gasoline suppliers have until Dec. 31, 2002, to eliminate MTBE. The response to these

bans has been a call for the end of the

reformulated gasoline program’s oxygen requirement.

This also opens new doors for biofuels, such as ethanol. Ethanol can add

the needed oxygen to make fuel burn

cleaner. It’s also organic, non-toxic and

reduces the amount of toxic substances

in the fuel. The ethanol solution could

protect groundwater, clean the air, and

lessen dependence on foreign oil, and it

is good for engines and gives a muchneeded boost to farmer income. It can

also add economic vitality to rural

communities where ethanol is produced, various proponents point out.

Ethanol sounds like the solution to a

host of challenges. Why has there been

strong resistance to its use in the past?

Some people suggest that there is

not enough ethanol produced to

replace all the MTBE used in the United States. The American Coalition for

Ethanol (ACE), an organization of

ethanol producers, technical experts

and supporters, tries to dispel that fear.

ACE points out that there is a large

amount of unused capacity in its member ethanol plants. If ethanol demand

increases, new plants can be built

rapidly, notes the Governors’ Ethanol

Coalition (GEC).

Governors see ethanol value

There are 58 ethanol plants in 19

states and six new plants in five states

nearly ready to begin production.

Twenty more plants in 16 states are in

the planning stages. These plants are

all grain-to-ethanol facilities. There are

also 12 plants in the planning stages

that would use organic material left

after products such as sweet potatoes,

rice straw or forest waste are processed. 

Another proponent trying to educate

the public and Congress about ethanol

is the GEC. Governors from 22 states

and Puerto Rico plus representatives

from Canada, Mexico, Sweden and

Brazil comprise the GEC membership.

Its goal is “to increase the use of

ethanol-based fuels, to decrease the

nation’s dependence on imported energy resources, improve the environment

and stimulate the national economy.”

A coalition study estimates the

ethanol industry in the United States

could produce 3.5 billion gallons of

ethanol per year by 2004. In his

remarks to the National Conference on

Ethanol Policy and Marketing in San

Francisco, GEC chair and Iowa Governor Tom Vilsack said that when ethanol

production reaches that volume, 47,800

jobs will have been created, many in

areas where job creation is difficult.

Bob Slaughter, general counsel for

the National Petrochemical and Refiners Association, cautioned the ethanol

industry not to promise too much

regarding the extra volume it can deliver quickly.

“Supplying American consumers’

transportation needs is a tough business,” Slaughter said during the USDA

Agricultural Outlook Forum 2000.

“Consumers want adequate supplies,

affordable prices and they expect to see

environmental improvements in facilities and products at the same time.”

Some of the biggest assets the ethanol

vice president of AUA Consultants, Moorestown, N.J. He was

hired last year by the New Jersey Farm Bureau (NJFB) to do

an economic feasibility study on building an ethanol distillery.

Urbanchuk says that farmers looking for options to increase

their income must consider ethanol production. Corn is the

largest grain crop in New Jersey. Normally, Garden State

farmers produce about 9 million bushels of grain, enough to

make a New Jersey ethanol plant a viable option, he reports.

Currently, New Jersey corn is shipped mainly to Maryland

and Delaware for chicken feed, according John Rigolizzo, a

farmer and president of the NJFB. He says that Farm Bureau’s

preliminary evaluation shows this ethanol option to be a timely

alternative and that it could lead to a larger effort toward

renewable fuel projects in New Jersey.

Farmers currently pay 25 to 50 cents a bushel in transportation costs for corn that fetches only $1.25 a bushel. Sales for

ethanol would bring in about 15 to 25 cents more per bushel,

according to the AUA study. With those economics in mind,

the possibility of building an ethanol plant has a growing number of farmers willing to commit a percentage of their corn

crop to cash in on the fuel additive.

The Farm Bureau is looking for investments from about

400 farmers, who would form a cooperative to produce

ethanol. A share in the plant would cost $12,500, and farmers

would be asked to sell corn to the plant at market prices.

Even the most skeptical farmers are asking for shares, and

they’re excited by the prospect of tapping into the bio-fuels

trend, Rigolizzo says. What got him to endorse the idea was

two years of investigation into the making of ethanol fuel from

grains and visits to ethanol plants.

Rigolizzo also paid attention to the economic study by

AUA, completed last December, and to the comments between

Farm Bureau representatives and the New Jersey Petroleum

Council earlier this year. The NJFB directors then toured dry

mill and wet mill ethanol plants – both owned by ArcherDaniels-Midland – in Decatur, Ill., and Peoria, Ill., before

beginning a series of farmer information meetings this past

spring.

In addition to creating a new market, local ethanol production would mean corn farmers would not plant tomatoes and

garden crops. Giving grain farmers an alternative to tomatoes

and other truck-crop markets will help keep prices for these

other New Jersey-grown crops from being driven down by an

increase in supplies, Rigolizzo says.

Washington co-op to invest $122 million 

Plans were recently unveiled to build a barley-wheat

ethanol plant in Moses Lake, Wash. Pacific Rim Ethanol LLC

Continued on page 10
10 May/June 2000 / Rural Cooperatives

industry has are its enthusiasm, the

need for a safe fuel additive, public

support and political support, he says.

Jensen believes demand for ethanol

will rise. At the USDA Agricultural

Outlook Forum, he said, “Today,

there are no fewer than 22 farmerowned cooperatives with more than

800,000 members producing in excess

of 450 million gallons of ethanol

annually. The total farmer investment

in these facilities exceeds $1 billion.

Farmer-owned cooperatives have

been the fastest growing segment of

the fuel ethanol industry.”

In addition to increasing job opportunities in rural areas, ACE says

ethanol production can result in cleaner air, increased energy security

through domestic production and better prices for corn and other farm

commodities.

Impact on food supply

But some wonder how much better

crop prices would be with a strong

ethanol industry, and at what cost to

the food supply.

Currently, the ethanol industry uses

about 5 percent of the nation’s corn

crop. This would increase if ethanol

production and sales increase. Still, in

nearly every year the corn supply outstrips demand. Whether or not the

corn necessary for increased producwould use fermented barley and wheat to produce 40 million

gallons of ethanol a year. Ritzville Warehouse Co., a 1,100-

member farmer cooperative, will invest in the $122 million

venture being led by Doug MacKenzie, who helped set up

Commercial Alcohols, Canada’s leading ethanol producer.

MacKenzie, Pacific Rim’s President and CEO, heads up

the effort to secure funds from corporations and individuals

throughout the western United States via a public offering of

shares in the plant. According to MacKenzie, “the offering is

receiving a very high degree of interest,” including an initial

$1 million grant for a low-interest loan from the Community

Economic Revitalization Board for the City of Moses Lake.

“This commitment to our project at the local community level makes clear just how important this plant will be to the

region.” The loan will provide for infrastructure development

to support the ethanol plant.

“In addition to creating an enhanced market for local grain

growers, ethanol is a non-polluting renewable fuel source that

can significantly increase the burning efficiency of gasoline,

effectively reducing the emission of greenhouse gasses. There

really isn’t a downside to ethanol,” says MacKenzie.

The plant could use up to 60 percent of Washington’s barley crop, about 4 million bushels of wheat per year. Adding to

the positive outlook for success, the Pacific Rim plant will act

as a giant distillery. “We’ll produce alcohol for spirits such as

vodka and gin, industrial-grade alcohol, vital wheat gluten, a

grain protein used in baking, and a high-grade component for

cattle feed, in addition to ethanol, says MacKenzie. “Basically,

99.9 percent of what goes into this plant will come out in

usable consumer products. That means no waste, and no pollution.”

Moses Lake was the site chosen for the plant, based upon a

unique combination of factors. “This location is basically

equi-distant from the key markets for ethanol distribution,”

says Mackenzie. “Seattle, Portland and Spokane are all potentially important markets for the consumption of ethanol and

many of the other products the plant will produce. That will

reduce costs for consumers because freight costs will be minimized simply because we’re closer to the point of purchase.”

MacKenzie also cites the availability of grain, inexpensive

energy and a good interstate highway, plus the availability of

land, all as key reasons for selecting the site. “Moses Lake may

be the best place in North America for a project like this to

succeed.”

Pacific Rim Ethanol LLC is continuing to hold meetings

around the state to build interest and support for the project.

Agreements with suppliers and business partners are also in

the works, with details to be released in the near future. 

In 1985, Washington produced 1.2 million acres of barley.

But demand, especially from overseas buyers, has dropped,

leading to decreased production. Last year, only 490,000 acres

of Washington barley were harvested.

A new ethanol plant brings hope to the shrinking barley

industry. The rural economy of the area would benefit from

500 construction jobs, the plant would employ at least 70 and

there would be new markets for locally grown grain.

Most of the ethanol consumed in the region currently

comes from the Midwest or overseas. Corn from the Midwest

is used to produce 850 million gallons of ethanol per year. Yet

ethanol plants in other regions are not deterring Midwestern

farmers from expanding their operations.

Minnesota ethanol plant expanding 

In Minnesota, Ethanol2000 began adding to its capacity

last year. The limited liability partnership was formed by

Southwest Minnesota Agrifuels Cooperative (SMAC) and

Broin Enterprises, Inc. It owns and operates a dry mill

ethanol plant.

The initial plant construction cost $19 million. Twentyeight new jobs were created and the economic impact generContinued from page 9
Rural Cooperatives / May/June 2000 11

tion of ethanol would use more than

the surplus portion of the crop is hard

to predict. Many factors, including the

amount of land in production and

increased yields, will affect the answer. 

Some people worry that the

increased production of ethanol could

hurt the nation’s food supply or limit

the supply of corn available to feed the

hungry around the world. Last year,

American farmers produced 9.4 billion

bushels of corn, yet only about 525

million bushels were used for ethanol

production. That’s only about 5 percent, and ethanol proponents explain

that only the starch portion of the corn

is converted to ethanol. The by-products are still available for other uses,

such as distiller’s dried grain, a highprotein animal feed.

Higher corn prices paid to farmers

as a result of demand from ethanol

plants will vary depending on climate,

acres in production and yields. During

the most recent Commodity Classic

(the combined convention of the

National Corn Growers Association

and the American Soybean Association), Jensen told the media that,

“USDA indicates that ethanol could

successfully replace MTBE nationwide

by 2004 with negligible effect on gasoline prices and no disruption in supply.

This would more than double the size

of the ethanol market, consuming an

additional 600 million bushels of corn

annually and adding approximately 35

cents to the value of every bushel

grown in the United States.”

Two milling processes

Two types of milling processes can

be used to produce ethanol: dry milling

or wet milling. The wet milling process

produces by-products that include

ated was estimated at $7.5

million annually.

Through the combined

efforts of Broin Management and the Ethanol2000

operations team, the plant

exceeded expectations.

Corn use is up to about

5.5 million bushels per

year and ethanol production is at about 135 percent of design capacity.

Initial production began

on June 20, 1997, and the

first break-even month

was July 1997. The first six

months of operation in

1997 yielded a value added

(net profit) of 62 cents per

bushel of corn delivered to

the plant.

Following a detailed

feasibility study a year ago, the decision was made to expand

the existing ethanol plant to a capacity of 27.5 million gallons

per year. Current production is 15 million gallons per year,

even though the plant was designed with an 11-million-gallon

capacity. The expanded facility should come on line by

August, even though the contractor has had trouble finding

construction workers due to the strong economy and low

unemployment across most of the Upper Midwest.

When expanded, Ethanol2000 will employ about 35 people. The direct economic benefit to rural southwest Minnesota

should increase to $15 million annually, co-op leaders report.

Those kinds of results are fueling more attention by other

Corn Belt farmers and their cooperatives. Farmers have lived

through 18 months of volatile price swings for just about

everything except beef cattle and organic products.

Co-op invests $9 million in Illinois plant 

Amid those swings, 412 northern Illinois and southern

Wisconsin farmers invested $9 million in equity to form

the Adkins Energy Cooperative. However, organizers had

hoped to raise $16 million, so the new-generation cooperative took on five partners in a limited liability corporation. Those partners include Pearl City, Ill. Elevator

Cooperative; Nicor Energy Solutions, Naperville, Ill.;

Williams Energy, Decatur, Ill.; PSI, Memphis, Tenn.; and

Delta-T, Williamsburg, Va.

According to Jim Graham of Nicor, everyone is getting

anxious over construction of the new ethanol plant slated for a

yet-unnamed site. At one point, the co-op board wanted to

explore sites in Wisconsin after that state’s legislature passed

an ethanol subsidy and communities offered economic development incentives. But Graham believes the board and its

partners will end up staying with their original plans to build a

dry mill ethanol plant in northern Illinois. 

Plans call for the plant to make 30 million gallons of

ethanol, process more than 11.5 million bushels of corn and

cost approximately $68 million dollars to build. Already

Adkins Energy has talked with Northern Illinois Gas to construct a co-generation facility that will supply all the energy

needs of the ethanol plant, saving an estimated $1.7 million

per year. 

“Securing financing has been a big issue for us over the past

two years,” Graham explains. “Farmers have been very receptive to forming a new-generation cooperative and they’ve

stuck by our plans during some pretty tough times in the agricultural community. We’re just all anxious to get started, and I

think we’ll be able to start digging soon because we’ve found a

financial institution that will back us.”
12 May/June 2000 / Rural Cooperatives

sweeteners, corn oil and gluten feed

and gluten meal. The dry milling

process produces dried distillers grains

and corn meal as by-products.

Gluten meal, gluten feed and dried

distillers grains are rich in protein,

nutrients, fat and minerals with readily

available sugars, lactic acid and other

short-chain fatty acids. They are in

demand as livestock feed and their availability could free up unprocessed corn

for other uses. Corn meal, sweeteners,

oil and other by-products are also in

high demand by food processors.

Ethanol production would not withdraw these products from the market.

Rather, it would add value to the rest of

the corn. Many ethanol producers even

capture the carbon dioxide emissions

from processing and sell them to the

beverage industry. Ethanol production

is a showcase for efficient use of a raw

product, proponents say. They believe

that turning corn into ethanol takes a

$2 bushel of corn and turns it into $3

worth of fuel and $1 worth of feed.

Environmental impacts

But wouldn’t putting more land into

corn have negative effects on soil and

water conservation?

Corn is not the only raw material

that can be used to produce ethanol. In

fact, there are ethanol-producing plants

using by-products from other processes. Sugar beets, potatoes, brewing

wastes and cheese whey are examples of

by-products that have been successfully

used in ethanol production. Cellulose

materials including grasses, trees and

waste paper have been used to produce

ethanol. While these processes were

too expensive to be profitable in the

past, new technologies and research

into cellulose-based materials are

increasing their viability.

Switchgrass is also being studied as a

fuel source. The tall, fibrous grass once

covered the American prairies. It held

the soil in fierce winds and created the

rich land pioneers turned into America’s breadbasket. Switchgrass can be

grown on marginal land in many

weather conditions. 

The grasses live for 20 years or more

and, because they are harvested with dry

matter and not nutrition as the goal, harvesting takes place only once a year. This

yearly harvest saves on labor, fuel and

machinery costs. The machinery is the

same used to harvest feed forages. Yields

vary, but Alabama test plots yielded 15

tons of dry matter per acre. 

Despite these advantages, the cost of

converting switchgrass into an alternative to coal- fire energy production has

Fred Stemme, Director of Communications

Missouri Corn Merchandising Council

For the first time, Missouri corn groups will be able to ship

their crop to an ethanol plant in their own state. The new

ethanol plant in Macon is owned and operated as Northeast Missouri Grain Processors (NEMOGP), a new-generation farmer cooperative. It will

process approximately 6 million

bushels of corn annually to produce

15 million gallons of ethanol. In addition, the plant will produce over 100

million pounds of dry distiller’s grain, a

high-quality livestock feed.

The ethanol plant will benefit not

only its members, but the economy of

the entire area. The plant will generate

an estimated $31 million in annual economic activity and create 28 full-time jobs. 

The co-op’s 311 farmer-owners invested $5.6 million in the

project, which cost $23.5 million to build. Seed money to start

NEMOGP was provided by the Missouri Corn Merchandising

Council, Missouri rural electric cooperatives and others.

USDA Rural Development provided technical assistance to

help in forming the cooperative. 

The initial co-op organizational meeting was held in Shelbina, Mo., in December 1994, which launched a six-year

effort to open the plant. The membership drive was held from

June 1997 to November 1999. Groundbreaking was held in

Macon, Mo., during April 1999, with the grand-opening April

29, 2000.

At press time for this magazine, USDA Rural Development

had just approved a $10 million loan guarantee to buy

machinery for what will be Missouri’s

second ethanol plant, being built in

Craig by a subsidiary of the Golden

Triangle Energy Cooperative Inc. This

dry-mill plant will produce 14 million

gallons of ethanol and consume 5 million bushels of corn each year. The

plant will also produce dried distillers

grains soluble (a livestock feed supplement). 

Co-op members are required to

deliver 400 bushels of corn for each $1,000 of membership interest (the minimum investment for membership is 5,000 bushels).

Additional corn will be purchased on the open market. 

The grand opening events for the Macon plant were the

first in Missouri not only for an ethanol plant, but also for a

new-generation, farmer-owned, value-added cooperative.

Approximately 1,500 people attended the events held at the

NEMOGP ethanol plant east of Macon.

Missouri’s first ethanol plants will have

major impact on region’s rural economy

Photo courtesy NEMOGP cooperative
Rural Cooperatives / May/June 2000 13

“This is a gigantic step forward for Missouri agriculture.

The importance of this ethanol plant to Missouri corn farmers is highlighted by the list of special guests joining us for

the event,” said Gary Marshall, Missouri Corn Growers

Association CEO. Guests included Senator Kit Bond, Senator John Ashcroft, Governor Mel Carnahan, House Speaker

Steve Gaw, House Agriculture Chairman Sam Leake and

House Environment and Energy Chairman Gary Wiggins. 

“We’re tremendously excited about this opportunity for

Missouri farmers to capture value from their corn production,” Marshall said. “The hard work of many visionary leaders has brought us to this point. It’s the farmers – the board of

directors and member-investors of Northeast Missouri Grain

Processors – that deserve the most credit. It was their hard

work and dedication that built an ethanol plant.”

John Eggleston, NEMOGP chairman and a farmer from

Memphis, Mo., concurred. “Thanks to the dedication of

many farmers, public officials and others we’ve turned the

dream of an ethanol plant in Northeast Missouri into a reality,” he said. “The farmers of Northeast Missouri Grain

Processors are very proud of our new ethanol plant. We’re

even more excited that we’ll soon be able to sell ethanol.

It’s going to be a win-win-win for everyone. Farmers benefit

by adding value to their corn production through selling

ethanol. Consumers benefit because ethanol fuel is cleaner-burning. The rural economy benefits through the creation of additional jobs. The American economy and environment benefit because we rely less on imported oil and

water-polluting MTBE.”

Senator Kit Bond said, “Our nation and state require a

renewable, environmentally-friendly alternative for energy.

Ethanol helps create local jobs, good markets which add to

the value of farmers’ products, and moves us away from a situation of being energy hostages. America is becoming more

and more reliant on foreign oil producers – we’re at the mercy of foreign oil cartels. Over 57 percent of our oil comes from

foreign sources and we’re being held hostage to that situation. Promoting renewable energy that is domestically produced, especially ethanol, is critical to gaining our independence from the foreign oil cartels.”

Senator John Ashcroft, who toured the plant earlier in

the day, commented, “It is great to see farmers get together in a cooperative way, not only to produce corn, but

process it into ethanol, which will become part of a cleaner

environment and self-reliant fuel capacity for America. It’s

a tremendous achievement. The real effort was made by

farmers, who decided they would add value to the corn that

they grow.”

NEMOGP is directed by a 13-member board made up of

Missouri corn producers. The plant is owned by Northeast

Missouri Grain, LLC, directed by a seven-member board, with

five farmer members and two non-producer members. ■

not been price-competitive. However,

if the switchgrass is first converted to

ethanol and the by-product then

burned to produce electricity, the

future for switchgrass as a bio-based

fuel source brightens, some Alabama

researchers say.

Switchgrass has other qualities as an

alternative to row crops. The root system extends almost as far down into

the subsoil as the stems reach to the air.

Switchgrass traps carbon in its roots,

drawing it out of the air and restoring

it to the soil. This has some switchgrass

enthusiasts declaring it as a fuel that

can also clean the air.

Switchgrass is very adaptable and

researchers are working to develop

strains that need very little chemical

fertilizer and will produce the most cellulose. Wildlife ecologists are pleased

at the prospect of seeing row crop

fields converted to switchgrass. Despite

it’s still being a monoculture, a field of

switchgrass benefits wildlife, especially

birds. If cutting and harvesting are left

until August, the fields can provide

excellent nesting and chick-rearing

environments.

The success of switchgrass and other bio-based fuel sources will depend

on how policymakers see the future.

President Clinton has called for a

three-fold increase in the use of biofuels and bio-based products by 2010.

Combined with Congress’ interest in

promoting value-added industries,

expansion of the bio-based fuel industry looks promising. Still, bio-based

fuels are more expensive than fossil

fuels to produce. The keys will be what

government incentives are available to

keep the new industry growing and

whether the public is committed to

environmentally friendly forms of fuel

after gasoline prices drop.

Tax incentives necessary

The move to eliminate MTBE from

fuels has spurred some lobbyists to call

for the end to oxygenated fuels rather

than a switch to the more environmentally friendly ethanol. This call has

friends among those who see the lower

taxed ethanol as a threat to transportation programs.

In his remarks at the Outlook

Forum, Slaughter touched on the idea

that draining hundreds of millions of

dollars out of the highway trust fund is

not a way to make friends in the rest of

the fuel industry. Ethanol has a federal

gasoline excise tax exemption of

$0.054 per gallon. The exemption was

to expire this year. While movement is

afoot to extend it to 2007, the future is
14 May/June 2000 / Rural Cooperatives

uncertain. Without that exemption,

ethanol will have a tougher time being

a competitively priced fuel additive.

The petroleum industry has called

this a huge special interest subsidy, but

ethanol proponents point out that the

oil depletion allowance and the money

spent each year to protect access to

Middle Eastern oil more than make up

for the gas excise tax exemption. Twothirds of the world’s known oil reserves

are located in the Persian Gulf. By

2010, analysts believe that more than

75 percent of the world’s petroleum

needs will be met by Middle Eastern

nations that make up the world’s most

politically volatile region.

In a 1998 poll and article about the

future of ethanol published by ACE,

83 percent of American voters said

they fear the United States remains

extremely vulnerable to an energy crisis at the behest of foreign oil suppliers. Eight out of 10 voters believe the

nation’s dependence on foreign oil is a

serious threat to the economy, jobs

and standards of living. Seven out of

10 polled were equally concerned

about environmental threats. And

eight out of 10 voters favored increasing the use of renewable transportation fuels such as ethanol to reduce

oil dependency.

Research and development in the

bio-based fuel field is growing and the

results are exciting. The Renewable

Fuels Association, the trade association

of the domestic ethanol industry, published a report outlining some areas of

research using ethanol not as a fuel

additive, but as the main source of fuel.

The E85 alternative

In order to comply with the Energy Policy Act of 1992 (EP Act), many

operators of vehicle fleets are choosing flexible fuel vehicles (FFVs) that

can operate on 85 percent ethanol

(E85), gasoline, or any combination

of the two fuels in the same tank. The

Chippewa Valley Ethanol Co.

(CVEC) and Swift Co-op Oil have

opened Minnesota’s first E85 pump in

the Benson Cenex station. John Curruth, chairman of the CVEC board is

driving a flexible-fuel Ford Ranger

pick-up truck that allows him to use

E85, a 10 percent ethanol blend or a

mix of the two. Oxygen sensors and

computer chips sense what is in the

tank and adjust the combustion system to fit the fuel blend. The technology for this may have come from

university students who take part in

the E85 Challenge.

Each year, Argonne National Laboratory Transportation and Technology

Research and Development Center

sponsors the “Ethanol Vehicle Challenge.” The laboratory and General

Motors make a vehicle available to

interested universities around the

country. Student teams then modify

the vehicle to run on E85. The teams

are judged on factors such as on-road

fuel economy, cold-start performance,

driveability, sound, acceleration, and

hill climb/trailer pull performance. In

May, the student teams and their advisors meet at the General Motors Corporation’s Milford Proving Grounds in

Michigan to test their vehicles.

Today, there are a variety of flexible

fuel vehicles available both to fleet

managers and the public, at either the

same cost or less than the cost of a conventionally fueled vehicle. The U.S.

Postal Service recently purchased

10,000 FFVs. Coordinating the distribution of FFVs and fueling stations to

make E85 available is tricky, but will be

well worth the effort. E85 has possibilities beyond FFVs and one of them is

the fuel cell designed vehicle.

A fuel cell vehicle is an alternative to

the internal combustion engine. Epyx

Corporation, working with the U.S.

Department of Energy, has designed a

fuel cell reformer capable of converting

ethanol on-board the vehicle into

hydrogen, which is used to power a

fuel cell and generate electricity. 

“Ethanol provides higher efficiencies, fewer emissions and better performance than other fuel sources, including gasoline,” said Jeffrey Bentley, chief

operating officer of Epyx. These vehicles could radically redesign the shape

of automobiles since they will not need

room for an engine and the fuel cells

take up nominal room.

OxyDiesel

Research is aimed at finding a perfect blend of ethanol and diesel fuel

that will reduce exhaust. If a blend can

be formulated that provides a market

equal to the 12 percent market penetration ethanol currently has in the

gasoline market, there would be a need

for an additional 485 million gallons of

ethanol a year. Work is also ongoing to

develop ethanol fuels and fuel additives

for the aviation industry.

Slaughter encouraged members of

the ethanol industry to trust market

indicators and feels the future for

ethanol is good. In Wisconsin, this perspective resulted in legislation being

considered that will open the door to

an ethanol production facility. Jensen’s

South Dakota facility has strong support among banks and the Farm Credit

System.

Research into new fuel sources and

improved methods of refining, formulating and transporting these new fuels

is on-going at universities, governmental laboratories and trade associations.

Automobile manufacturers are introducing vehicles ready to accept the new

fuels.

There is great opportunity for

farmer co-ops to get involved. Jensen

adds, “The 20th century was the century of oil. Who knows what the 21st

century will be? It will look different.

We want to make sure that farmerowned, fuel-producing businesses are a

part of the new century.”

Editor’s note: Mary Farrell-Stieve is an

Upper Midwest agricultural writer and

public relations professional.

Ethanol plants, such as this AGP facility,

could see increased demand as MTBE is

replaced with ethanol. Photo courtesy AGP 
Rural Cooperatives / May/June 2000 15

Co-op service: Cal/West Seeds has built a

reputation on professional research,

production and marketing enhancing its

position as a leader in the forage seed

industry. It supplies the highest quality

seeds to customers around the world. It’s

proud to have been one of the first in the

seed industry to establish a private forage

research program in 1959.

Co-op leadership: Paul Frey was recently

appointed president and chief executive

officer after serving for the past eight

years as vice president of marketing.

Co-op’s history and changes: Cal/West

Seeds was formed in 1969 from the

merger of Calapproved Seed Growers,

Modesto, and Caladino Farm Seeds,

Inc., Artois. It was said that, “The two

were virtually stepping over each other

in seed production, sales and in the

recruitment of seed growing members.”

Today, Cal/West has 550 membergrowers in California, Washington,

Oregon, Idaho and Nevada. It ranks as

the largest member-owned seed

production cooperative in the United

States. It is headed up by a nine-member

board of directors, composed of

member-growers and four operating

officers.

Services members expect: Whether its

alfalfa (over 70 varieties), any number of

clovers or sudangrasses, Cal/West

produces and markets a full line of forage

seed. The company’s major research

efforts center on the development and

production of proprietary alfalfa varieties

for marketing to customers throughout

the world. Each product has been

developed or adapted to fit the specific

geographic needs of farmers. Research

and marketing efforts are freestanding

programs independent of any

partnership or joint ventures. The

research objective is to remain

committed to meeting customer needs

for improved germplasm and to continue

positioning for future growth.

Aggressive, cutting-edge breeding

programs are focused on developing

varieties that have the genetic potential

to maximize farm profitability.

Investment in biotechnology research

will position Cal/West Seeds to develop

transgenic varieties with enhancements

in yield, quality, pest resistance and

herbicide resistance. 

How does the co-op operate? It markets

products throughout the world via seed

companies that sell directly to farmers.

Cal/West’s products are sold in nearly

every state and around the globe, to

customers who understand, appreciate

and demand the highest standards of

seed quality. The marketing rights for

proprietary products developed by

Cal/West research are licensed to

companies that sell them under their

own brand name within their marketing

region. Publicly developed varieties are

sold to wholesale customers on a

containerlot, trucklot or carlot basis. In

addition, Cal/West provides contract

production of varieties for customers

around the world. Whatever the market,

the goal remains the same: provide the

very finest in seed quality, packaged with

care and delivered according to each

customer’s exact specifications.

Where its facilities are located: California

seed conditioning facilities are located in

Artois, Galt, Tranquillity and Woodland,

Calif. Two other conditioning facilities

are located in Othello and Touchet,

Wash. In addition to its seed

conditioning facility, Woodland includes

the cooperative’s headquarters, research

headquarters, an oil seed conditioning

and storage plant, and a 21,400-ton bulk

safflower elevator complex. The

cooperative maintains an extensive

greenhouse, trial grounds and office in

West Salem, Wis. Cal/West’s research

and conditioning facilities are rated

among the best in the forage seed

industry. 

A co-op fact: The success of Cal/West’s

quality control program rests on its

ability to make everyone in the

organization – from the grower and the

agronomist, to the registered seed

technologist – feel responsible for the

quality of the seed shipped to customers.

Grower-members maintain an

ownership position in the cooperative.

Quality means more to growers as they

have an important stake in the success

and reputation of the organization. To

growers, producing quality seed in the

field helps guarantee Cal/West’s

leadership role in the forage seed

industry. 

To learn more: Cal/West Seeds, P.O. Box

1428, Woodland, CA 95776; 530-666-

3331; fax 530- 666-5317; or

www.calwestseeds.com.

A CLOSER LOOK AT...

Cal/West Seeds

Woodland, California

Cal/West farmer-members grow forages

and then supply the seed to customers

around the world. Photo courtesy Cal/West Seeds
16 May/June 2000 / Rural Cooperatives

Making its mark

Agri-Mark, New England’s largest dairy cooperative, is building markets for producers

By Patrick Duffey

USDA Rural Development

here’s a hard working Bantam rooster strutting

around the New England

dairy market these days,

flapping and fluffing its brightly colored

wings, and crowing with delight about

the Cabot delicacies being introduced to

new audiences along the East Coast and

California.

The rooster personifies Agri-Mark

Inc., a dairy marketing cooperative representing 1,500 dairy producers in New

England and New York. In less than a

decade, Agri-Mark has patiently and

methodically stretched to build a valueadded market that is beginning to pay

dividends to its dairy farmer-owners as

they try to carve out a living in a beleaguered industry. Agri-Mark is a cooperative that has done what many experts

advise farmers to do: it purchased a popular consumer brand of food products, and

is now marketing that brand to the hilt. 

Agri-Mark handles 40 percent of

New England’s raw milk supplies. Thirty

percent of that comes from New York

state, where the cooperative’s membership is growing the fastest. New York

producers are attracted by the premium

price paid for milk under the six-state

Northeast Dairy Compact, the only

over-order pricing mechanism of its type

in the nation.

New England provides only 3 percent of the nation’s milk supply vs. 16

percent from Wisconsin, the second

largest milk-producing state. The

Northeast is locked in by Canada to the

north and the Atlantic Ocean to the east.

The region’s rocky terrain puts a damper

on the corn acreage needed to support

larger dairy herds. Milk production is

also curbed by a short growing season

and wide temperature swings. Just outside New England, neighboring New

York state and Pennsylvania are major

dairy-producing states.

Although some 300- to 500-cow

herds exist here, the Northeast herd size

averages 75 milking cows. By comparison, 1,000-cow herds are common in

California, the country’s leading milkproducing state. In 1983, Agri-Mark’s

4,500 members provided 2.8 billion

pounds of milk, or about 40 percent of

the New England supply. Today, it takes

only 1,500 Agri-Mark members to provide 2.3 billion pounds of the total 3 billion it markets annually. The average

member produced 1.54 million pounds

in 1999. Extra volume comes from milk

Agri-Mark markets for other cooperatives.

While small compared to its competitors, Agri-Mark is the largest New England-based dairy cooperative. It has 500

employees and is headquartered on Milk

Street in Methuen, Mass., just outside

Boston, a major destination for many of

its products. 

Birth of Cabot

The Northeast was the site of the

nation’s first dairy cooperative in 1807 at

Goshen, Conn., when James Madison

was serving as president. The national

population was only 7 million, less than

today’s combined population of Massachusetts and Connecticut. 

For perspective, in 1919, Cabot

Creamery’s 94 Vermont farmers invested

$3,700 on the basis of $5 per cow, plus

one cord of wood each to fire the boiler

in the building that became the home of

the new cooperative. Cabot’s early forte

was the quality butter it produced for

nearby neighbors. It added a cheesemaker in 1930 and began making Vermont

Cheddar.

The 1920s and 1930s marked a mass

population migration from rural areas to

the cities of the Northeast, so Cabot

moved its products to meet them. In

T
Rural Cooperatives / May/June 2000 17

time, it began marketing milk to packagers across southern New England and

manufacturing butter, Cheddar and cottage cheese.

By 1990, Cabot had built a $30 million business based on a volume of 330

million pounds of milk. But two years

later, the small Vermont dairy cooperative of 400 members was losing money.

Although it was producing high-quality

dairy products, its corporate and membership size could not adequately support the brand. A decade earlier, participation in the U.S. Department of

Agriculture’s whole-herd-buyout program was heavier in the Northeast than

any other region of the country due to

low prices, heavy oversupply of milk and

the demand among developers for farmland. Between 1985 and 1999, dairy farm

numbers dropped more than 40 percent.

Merger with Agri-Mark

Although Agri-Mark is a youngster in

the market, its origins stretch back to the

New England Milk Producers Association (NEMPA) formed in 1917. Like

Cabot, it had been adapting to a changing consumer marketplace for decades.

Agri-Mark was formed in 1980 by the

acquisition of the business and assets of

Yankee Milk Producers and the acquisition of H.P. Hood processing plants,

which were then leased back to Hood,

then a wholly owned subsidiary of

Agway.

Fluid milk packager Suiza replaced

H.P. Hood, Agri-Mark’s former jointventure partner during the 1980s, as the

new major processor in New England.

In 1989, the changing environment

prompted Agri-Mark to withdraw from

its venture with Hood and caused the

cooperative to take a hard look at itself.

Cabot Creamery was doing the same.

In 1992, Cabot merged with AgriMark to gain marketing expertise and

financial strength. At the time, about 10

percent of the milk supply was feeding

the Cabot brand, compared with nearly

30 percent today. For Agri-Mark, the

merger was an opportunity to couple

Cabot’s retail brands with Agri-Mark’s

wholesale operations, build more valueadded business, and increase profits for

dairy farmer-members. 

Agri-Mark’s wholesale milk business,

which supplies 75 customers, and its reputation as one of the leading butter and

nonfat dry milk manufacturers, proved a

natural link with Cabot’s retail brand

business of Cheddar cheese and butter.

Promotions for the Cabot brand now

play up its farmer-owned roots. Cabot

Agri-Mark and Cabot Creamery joined forces in 1992 so the cooperative could build more value-added business 

and put more money back into the pockets of family dairy farmers. Photo courtesy Agri-Mark
18 May/June 2000 / Rural Cooperatives

Cheddar has also won first place ratings

in two national contests in the past two

years.

Today, Cabot contributes $150 million to Agri-Mark’s $575 million in

annual sales. Agri-Mark members fell in

love with the idea owning the Cabot

consumer brand. The combined cooperative now operates three milk processing

facilities, two in Vermont and one in

Massachusetts from which it produces a

wide array of products, most notably its

traditional white Cheddar cheese. 

The white Cheddar is extremely popular throughout the Northeast – especially when it carries the “Vermont” title

in its name. Last year, though, the cooperative ran into a snag selling the white

Cheddar in the Southeast. Customers

were more accustomed to seeing a yellow-colored Cheddar, so the natural

annatto coloring used to make cheeses

yellow was added.

Other new products introduced after

the Cabot-Agri-Mark merger include

Cheddar cheese slices, flavored cheeses

and a refrigerated macaroni and cheese

product. The New York/New Jersey

market was targeted for expanding the

Cabot brand. And the co-op’s cheese

plants are operating near capacity.

Balancing the market

At West Springfield, Mass., AgriMark owns New England’s only balancing plant, the largest quality control lab

and the only large butter manufacturing

plant in the region. The plant converts

surplus milk – milk not needed to fill

customer demands for other products –

into condensed blends of milk and

cream, used by the ice cream industry

and nonfat milk powder for the bakery

and food industries.

To take full advantage of the Cabot

acquisition, Agri-Mark began modernizing facilities to support the expanded

demand for its branded products. In

1994, it purchased a plant at Middlebury, Vt., and converted it to Cheddar

cheese production. Last year, it added a

54,000-square-foot warehouse at Middlebury to store and cool up to 12 million pounds of Cheddar before the 640-

pound blocks are shipped to Cabot’s

updated cut-and-wrap operation. As a

result of these capital investments, the

Cabot facilities are a major New England tourist destination, attracting

50,000 visitors a year.

It takes 10 pounds (or 10 pints) of

milk to make one pound of cheese. That

leaves nine pounds of whey, rich in protein, lactose (milk sugar) and other nutrients. This fall, Agri-Mark will open a

$19 million whey protein processing

plant at Middlebury to extract further

profits from the whey. The facility was

needed because whey processors in Vermont and neighboring states closed. In

addition, Cabot-branded product sales

have tripled. Specifically, the new equipment will more efficiently trap

lactoferin, an iron-binding whey protein

Agri-Mark has been marketing for the

past two years. 

When USDA changed its rules in

1997 to allow yogurt as a protein component in school lunches, Agri-Mark

wasted no time in responding. Sales of

Cabot-branded yogurt increased nearly

25 percent since the program began.

Communicating with members

With three successful years leading

up to 1999, Agri-Mark built up profits of

$16 million. But like other dairy manufacturers, it got caught with high butter

inventory values after milk prices hit a

record in 1998. Fiscal 1998 sales reached

$575 million, from which the cooperative generated a record $7.8 million in

profits and returned $3.7 million to

members in market premiums. However, the cooperative lost $4 million in fiscal 1999 due to poor markets. But AgriMark continues to invest in the future.

The cooperative invested $2 million

to update to a faster, more efficient

mainframe computer system and

expanded internal communications at all

facilities. New software was added for

production, sales and inventory control,

and improved member and hauler payroll systems – much of it aimed at

implementing federal milk marketing

order changes and to prepare for the

new millennium. 

Agri-Mark follows the more conventional tenets of cooperatives. There are

no outside directors. For specialized

expertise, the board turns to consultants.

It has a 15-member board of directors,

all of them dairy farmers. Each of its 15

regions has between 85 and 100 member-farms. There is one voting delegate

for every 15 member-farms. Carl Peterson from Delanson, N.Y., is in his eighth

term as Agri-Mark’s chairman.

The cooperative believes its success

stems in part from an educated membership. There are informational meetings, a newsletter published nine times

a year, a letter sent with twice-monthly

milk checks, a 1-800 number voice

messaging service members can call

The Cabot brand of dairy foods is among the most popular in the Northeast, and accounts for

about $150 million of Agri-Mark’s $575 million in annual sales. Photo courtesy Agri-Mark
every Friday for price updates, and a

website updated weekly. To broaden

the horizons of employees, members

and guests, Agri-Mark invites other

cooperative or industry leaders to speak

at its annual meeting.

Last year’s speaker was Don

Storhoff, chief executive officer of

Foremost Farms USA, a Wisconsinbased diversified dairy cooperative.

Johnston said the exchange “bridged

regional differences and increased

understanding.” Gary Hanmann, CEO

for DFA, appeared earlier. All three

CEOs also serve on the board of the

National Milk Producers Federation,

the trade association for most of the

nation’s dairy cooperatives.

Northeast Compact supporters

Both Agri-Mark and neighboring St.

Albans Cooperative Creamery in Vermont were strong proponents of the

compact when legislation was passed in

individual states and later by Congress in

1997. The compact was extended last

year by Congress until September 30,

2001. It regulates Class I fluid milk only.

Participating producers have earned

$100 million since the compact

began. To Agri-Mark members, that

meant $30 million, or about $20,000

per member.

Paul Johnston has been AgriMark’s first and only chief executive officer and president for the

past 24 years. He says the compact

is “quite an accomplishment. It

continues to have the support of

consumers who consider it beneficial to keep farmers in business in

this area and less subject to the

whims of the federal government

or milk production in other parts of

the country. That support is critical to

the compact’s success and future, a factor ignored or downplayed by those

who would like to see the compact

eliminated.”

Compact regulations kick in whenever Class I prices decline below a predetermined level. The higher price has

been a boon to many producers, who

have suffered from a sharp decline in

basic milk prices throughout the Northeast.

Looking to the future

Looking ahead, the cooperative

conducts a Young Cooperator (YC)

program for members age 18 to 40.

They must either be members or

work on a member’s farm. They get

acquainted with how their cooperative

operates, its structure and its objectives to help them better understand

its actions. They are chosen from

each of the cooperative’s 15 regions

and mirror the Agri-Mark board in all

respects. They prepare an annual

budget and present it to the senior

board for approval. Two-day training

seminars are conducted for new YC

members and officers in conjunction

with the Agri-Mark board meeting.

Chairman Peterson, other directors,

CEO Johnston and his staff are

involved. On occasion, outside speakers also appear.

Two YC officers attend the cooperative’s board meeting each month to

see how it operates and how it develops policies. The YC annual meeting

is conducted in conjunction with

Agri-Mark’s annual meeting. 

Through an essay contest and

interviews, several YC members are

selected to attend the annual National

Institute on Cooperative Education.

As proof of how effective the program

is in building future cooperative leaders, eight of the present 15 Agri-Mark

directors were once YC members.

Meanwhile, the cooperative is always

searching for ways to develop new markets. It quit selling products to the Commodity Credit Corp. a decade ago. Now

the search is on for international markets, especially for nonfat dry milk. The

cooperative’s award-winning Cabot

Cheddar cheese was exported to England, where Cheddar cheese was first

invented. While it was popular, import

restrictions and tariffs added to the price

and effectively blocked any sizeable

export program.

That reality squared with CEO

Johnston’s observations to members last

year. “The rosy prospects accompanying the 1996 Freedom to Farm Act

(Farm Bill) were based on predictions

that world trade talks would open up

new markets for U.S. agricultural products, including dairy. For the most part,

this has not happened and it will be a

long time before the opening of world

markets will create the ‘utopian’ level

playing field. But,” he cautioned, “this

does not mean that we should abandon

efforts to open up new and existing

markets.”

So, where does the future lie for a

small dairy marketing cooperative

that operates in a highly competitive

industry where the four largest U.S.

fluid milk packagers control 75

percent of the New England market? Speaking at the cooperative’s

20th anniversary meeting last

year, Chairman Peterson found

the challenging answer right in

his own back yard.

“Our best option to address

the new millennium is in more

fully using the opportunities given to farmers by the Capper-Volstead Act enacted more than 60

years ago. It enables our farmers

to join in cooperatives like AgriMark to achieve goals that are not

possible individually. Unfortunately, there are many farmers who

are unwilling to work cooperatively

with their neighbors. And it is unfortunate that our achievements are of

less a magnitude because of that.

“We’re focusing on adding value to

our farmers’ milk, whether it is on the

wholesale or retail end of the business. If

farmers want long-term profitability,

cooperatives like Agri-Mark have to capture more of the consumer’s dollar in the

marketplace.” ■

Rural Cooperatives / May/June 2000 19

Cabot butter rolls through a processing plant. The co-op’s

cheese plant in New England is a major tourist attraction,

drawing 50,000 visitors per year. 
20 May/June 2000 / Rural Cooperatives

Wally Beyer 

Retired Administrator

USDA Rural Development

Rural Utilities Service

At the end of 1999, North Dakota native

and life-long cooperative leader Wally

Beyer announced he was retiring from

his post as administrator of the Rural

Utilities Service (RUS) of USDA Rural

Development. He was the first rural

electric cooperative borrower-manager

to head up the system. But after six years

of service, Beyer and his wife, Patsy,

decided it was time to head back home

to the Northern Plains to begin a new

chapter in their lives. 

Beyer, 69, stays active with personal

and business trips, work on statewide

political campaigns, volunteer work, and

family activities in North Dakota. It’s

hard to catch him at home in Bismarck,

but we did, and on the following pages

he discusses the state of rural electric coops in the United States. 

RC: How did you begin your career in

the cooperative business world?

Beyer: It’s all a matter of timing. I

began my career with a consulting engineering firm. I worked with rural electric

cooperative (REC) associations and

municipal electrical systems throughout

the Upper Midwest, until Verendrye

Electric Cooperative needed help.

Verendrye Electric — the REC that

served our family’s farm in central North

Dakota — was advertising for two people. They needed a member services

manager and an engineer. I wanted to

work for the rural electric co-op because

I wanted to serve my community, serve

the people in North Dakota, in some

capacity.

Three years after I joined the local

REC as an engineer, the board let the

existing manager go and hired me. I had

no idea I was going to work in management when I joined the cooperative in

1963. But I stayed for 30 years before I

was named administrator of the Rural

Electrification Administration (now the

Rural Utilities Service). 

How did you go from being an REC

manager to RUS administrator? 

North Dakota is a small state, and

everyone knows everyone. There’s only

about 640,000 of us here. I was involved

with state rural water and rural development activities and with Democratic

Party politics. With a change in the

administration in Washington, D.C., I

guess my name kept popping up. I got a

call asking if I’d be interested in working

as administrator of the Rural Electrification Administration. Patsy and I talked

about it, and we decided it was a oncein-a-lifetime opportunity to participate

in some needed and far-reaching

changes in government. 

What observations and changes did

you make during your tenure there?

One of my first days in the office,

three women came in with these shopping carts full of loan documents that I

needed to sign — a two-hour session

with their help! Then came my secretary,

who wanted me to sign what I called a

“paper-clip purchase order.” I decided

then that we needed to take care of business differently. I started to talk to my

people to find out what they thought

about the system in place and how it

could be changed to make RUS more

“user-friendly” and agency-efficient.

We implemented a major change in

the agency delegation of authority. For 

example, now program people can sign

loan documents up to $50 million after a

due diligence process and committee

reviews. I think that sent a good message

to RUS employees that “I trust you.”

The benchmark of all human relationships is trust.

As a user of the system for 30 years

and somewhat familiar with how REA

worked, being suddenly responsible as

administrator to implement changes to

help the agency streamline its operations

was an interesting process. Congressional reorganization called for major

changes at the Department of Agriculture. USDA has gone from 43 agencies

down to 29, cutting the work force by

some 11,000 full-time employees, and is

in the process of closing 1,100 field

offices. This will save taxpayers $3.6 billion. In RUS, we were able to reduce the

regulation and oversight by 40 percent.

What advice would you have for

leaders in such positions?

Delegate, delegate, delegate! Trust

people. Provide constant communications! I was constantly counseling my

staff to ensure that the agency was providing timely, reliable assistance to rural

electric, telecommunications and

water/wastewater systems. 

What is important to safeguarding our

nation’s rural electric infrastructure?

Rural electrification is one of the

IN THE SPOTLIGHT

Wally Beyer 
greatest engineering, financial and

human endeavors of the American experience. Critical in the future will be to

maintain an adequate supply of capital to

finance growth and technology changes.

RECs have a network of generating

and transmission (G&T) systems that

are owned and controlled by the member-owners. These G&Ts are invaluable

in providing the rural electric energy

delivery system with reliable, reasonably

priced energy into the 21st century.

These G&T systems are energy treasures for rural America.

I’m proud to say that America’s REC

systems are in very good shape. As

America’s electric systems enter the

future of electric restructuring, open

access and customer choice, they must

stay together and work together for

strength in leveraging. RECs’ collective

strength in working in the democratic

process at every level of our democratic

society is critical to continued success.

What threats lie on the horizon for

rural America’s electric power co-ops?

The rural electric infrastructure sustains and develops quality of life in rural

America. Available financing at reasonable interest rates for rural infrastructure

is a critical issue. In fact, in the beginning

in the mid-1930s, securing financing to

serve high-cost rural areas was the principal issue. There would not have been

an electric power infrastructure in rural

America without the investments made

by the federal government. Availability

of reasonably priced capital into the

future of the “infrastructure revolution”

is probably the most critical issue we

face, with our aging systems and the

need to reinvest in these changing times. 

These last few years have been the

“golden age of financing” for electric and

telecommunications cooperatives. Cooperatives today have good ratings on Wall

Street. Federal credit support necessary

to leverage private investments for a rural infrastructure will remain critical into

the future.

Restructuring of the electric and

telecommunications systems are also of 

grave concern. There will always be high

costs to serve areas in rural America,

requiring the federal partnership.

The administration’s support for the

REC family is demonstrated by a budget

that proposed more than $1 billion in

loans and loan guarantees for our electric

program. That federal investment was

also used in new ways to support and

leverage private capital.

For every federal dollar RUS contributes to rural electric infrastructure,

three additional private-sector dollars are

leveraged. On average, over the past five

years, the public/private partnership has

resulted in some $4 billion invested

annually in rural electric infrastructure

— one-third of this investment being

government loans and loan guarantees.

The federal program is now the minority

lender.

President Clinton, Vice President

Gore and Secretary Glickman understand the importance of quality infrastructure in the rural American economy. A strong nation is built on an

abundant supply of food and energy.

Investments in basic infrastructure,

transportation, energy, telecommunications, water, education and health care

are critical to modern societies.

Rural America must be connected to

the information superhighway. Private

investors are not going to put the money

into high-cost rural areas. Public support

will be critical to rural systems to make

investments so that rural America is connected with quality, high-tech infrastructure.

While we are proud of our accomOn behalf of USDA’s RUS program, Vice President

Gore’s National Partnership for Reinventing Government

presented RUS Administrator Wally Beyer with a Hammer

Award before he retired in 1999. RUS received the award

for its work to streamline agency procedures, reduce red

tape and target resources while continuing to improve the

quality of life in rural America. Following are RUS’s program reinvention activities during Beyer’s tenure as administrator: 

• Targeting scarce federal funds and limited budget

authority to those areas of our country that do not

have basic utility infrastructure; to those areas with the

highest poverty levels and out-migration of human,

financial and economic resources; and to Native

Americans.

• Developing varied and flexible financing programs

that result in substantial interest savings to RUS borrowers.

• Promoting a federal/private partnership that leverages

limited federal program dollars in rural communities.

• Reducing regulatory burdens enabling eligible borrowers and rural communities to more effectively and

efficiently participate in RUS programs.

• Eliminating and simplifying RUS loan approval

processes, allowing borrowers to respond more quickly

to the ever-changing financial and economic markets.

• Automating loan processing functions to provide borrowers faster access to loan and grant funds while

reducing the administrative costs incurred by the federal government.

• Networking with federal, state and local government

agencies in an advocacy role for rural ratepayers.

• Servicing an industry in revolution both technically

and financially.

• Promoting a paperless society that makes the federal

government more responsive to its customers while

decreasing the national paperwork burden.

• Streamlining the RUS organization while providing

quality training and an innovative work environment

for employees.

Streamlined USDA utilities program draws plaudits

Rural Cooperatives / May/June 2000 21
22 May/June 2000 / Rural Cooperatives

plishments, we know that our work is

not done. Rural systems are simply more

expensive to operate and maintain. Plant

improvements remain expensive. Capital

investment will always be more expensive on a per-consumer basis for rural

systems than for high-density urban

areas. As we look to the future, we know

that the public/private partnership must

continue. In a competitive marketplace,

the RUS credit support and leveraging

of critical investment capital will be more

valuable than ever.

What advice would you have for

helping rural areas compete in a

global marketplace?

Certainly we live in rapidly changing

times — the information age, global

trade and commerce, E-commerce,

deregulation and restructuring of basic

infrastructures and industries. The forces

of technology are driving national and

international competition for the consumer dollar. Legislative and social

actions are providing consumer flexibility and purchasing options. Everyone is

demanding more for less.

For rural America to compete in this

global marketplace, we need to develop

niche markets, diversify our economies

and create new wealth at every opportunity.

Basic to all growth creating new

wealth and new jobs is an abundant supply of reasonably priced, reliable energy

and state-of-the-art telecommunications

that erases time and space. Rural America must be connected to the information

superhighway. RECs and RTCs must

provide active local leadership in new

wealth and job creation.

We need to embrace change, work

together, stay together to manage the

systems of the future!

It seems the Dakotas have especially

embraced new-generation

cooperative development. What is it

about the spirit of Dakotans and the

economic realities of that region that

make the people more willing to

consider so many different and

creative possibilities?

I think Dakotans are driven by need.

When there’s a need, people respond,

they’re willing to try things, willing to

invest.

During the 1980s, we lost 25 percent

of our farm families in my home county

in North Dakota. Out of that experience

came a need to grow new wealth and

take advantage of new opportunities. A

lot of people are struggling out here

again, and that breeds innovations.

North Dakotans have always been

willing to try alternatives in creating new

wealth. Value-added cooperative processing activities have been ongoing for a

couple of decades -– sugar-beet plants,

pasta plants, slaughter plants, potato processing, to name a few. From the producers to the supermarket, adding value

benefits the local folks on the land.

Some people question the ongoing

need for USDA’s Rural Utilities

Service. Based on your experiences,

how important is the service?

The rural America local/federal partnership is the envy of the world. People

around the globe are studying this partnership model for infrastructure development.

Rural America would be a very different place without the USDA/RUS federal/local partnership. Together, it provides the necessary infrastructure

investment capital needed to serve rural

areas. A safe, affordable, modern utility

infrastructure is a key component of economic competitiveness and a fundamental building block of economic development.

The 65-year-old federal/local partnership must continue providing critical

credit support and direct loan funds for

America’s rural systems serving in highcost rural areas. All Americans have benefited from this partnership between the

federal government and the rural electric

and telecommunications families.

The needs of rural electric and

telecommunications systems are very different today from what they were in

1935. Simply put, RUS is not your

father’s REA!

RUS must continue accommodating

system efficiency activities, mergers,

consolidations and aggregation of electric plants. RUS is working with local

cooperatives, providing assistance as they

prepare for open access, competition and

customer choice. The reformed RUS

has become a partner to local activities,

not a parent and certainly not a policeman.

Local people must continue to determine the value of RUS and the role they

want the federal government to play to

benefit rural America’s future. In his

book “Mister Speaker,” Tip O’Neill

stressed that all politics are local. From

my rural experience, I’m convinced that

“all development is local.” State and federal governments can and should assist in

basic infrastructure and rural development, particularly in high-cost rural

areas. However, local folks must decide

what’s best for them in providing quality

infrastructure, new wealth and job creation. RUS needed to move from the

“one size fits all” policy to recognizing

regional and local differences in rural

America.

What new roles do you believe rural

utility cooperatives should take on?

Many local RECs are very active in

local development activities, creating

new wealth and much-needed jobs in

their local communities. Many rural

development programs are available

from USDA’s rural development mission

area. At every opportunity, I have

encouraged, and continue to encourage,

local RECs to actively involve their

cooperative organizations in local development activities. But much more needs

to be done.

Even though you’re officially retired

from USDA, no one ever really

retires. What projects are you

planning to remain involved in? 

Patsy’s parents (Grandpa is 90 years

young and Grandma is 85) and my

mother (who’s 88) are still around and

need our help from time to time. And

we have three children — in Minnesota, North Dakota and Colorado —

whom we like to visit.

The richest blessing in life is the gift

of contribution to others. Our family has

been richly blessed with many opportunities to contribute. We love the Great

Plains and are thankful for the opportunity to serve rural America. ■
Rural Cooperatives / May/June 2000 23

Sunkist cheers opening of China 

The first shipment of California

oranges to Shanghai and Beijing in 20

years were sent to China this spring

after the Chinese government issued

long-awaited rules opening its market

to U.S. citrus fruit. The rules mark the

last step in implementing an agreement

reached between the United States and

China almost a year ago that allowed

citrus, meat and wheat into that country, a major step toward cementing

U.S.-China trade relations.

Sunkist Growers, a cooperative of

6,500 growers in California and Arizona, estimated the deal will mean

almost $500 million in new business for

its growers over the next five years.

“China has all the potential to be a

huge market for us, as citrus is very

popular with Chinese consumers,” said

Vincent Lupinacci, the cooperative’s

president.

U.S. Agriculture Secretary Dan

Glickman and U.S. Trade Representative Charlene Barshefsky hailed the

action in a joint statement, saying it

gives U.S. farmers and ranchers a

“tremendous opportunity to significantly increase export sales to the

world’s most populous country.”

It was the first time California growers shipped to China since 1980, when

their fruit was quarantined because of

Mediterranean fruit fly infestations. It’s

welcome news for California citrus

growers, who have struggled with lower prices and increased competition

from imports in recent years.

USDA, NFU spur Michigan co-ops

The Michigan state office of USDA

Rural Development has signed an

agreement to work with the National

Farmers Union (NFU) and Michigan

Farmers Union (MFU) to promote and

use programs aimed at starting new

agricultural cooperatives and developing rural businesses.

“By working cooperatively with

USDA Rural Development state and

area offices, we are further equipped to

assist producer groups in the preparation of various projects involving agricultural cooperatives, value-added processing, rural business development,

and in launching a variety of innovative

co-ops,” says NFU President Leland

Swenson.

“These agreements unite the shared

missions of our organizations to serve

rural America and help family farmers

and rural citizens succeed through the

promotion of economic and cooperative development, particularly the formation of value-added processing and

marketing cooperatives,” adds Carl

McIlvain, MFU president.

Iowa egg co-op, Nuzum awarded

The Iowa Area Development Group

(IADG), West Des Moines, awarded

the “Outstanding Business of the Year

Venture Award” to Southwest Iowa

Egg Cooperative, Massena, Iowa. The

IADG is the economic development

office for Iowa’s member-owned rural

and municipal electric utilities. Its Venture Award program honors businesses

that contribute to Iowa’s economic base

through investment, expansion and job

creation. The cooperative began operations in 1999 and expects to produce 14

million dozen eggs annually.

Meanwhile, Bruce Nuzum, IADG

vice president of finance, was recently

named the National Rural Electric

Development Association (NREDA)

“Economic Developer of the Year.” His

role is to assist member rural electric

cooperatives, municipalities and rural

communities with USDA development

NEWSLINE

USDA Secretary Dan Glickman hails the first shipment of California oranges to China in 20

years. At left is Bill Lyons, secretary of the California Department of Food and Agriculture. 

At right are Charlene Barshefsky, ambassador/U.S. trade representative, and Sunkist President

Vince Lupinacci. Photo courtesy Sunkist
5 in Co-op Hall of Fame

Five people earned the highest honors when they were

inducted intothe Cooperative Hall of Fame this spring in

Washington, D.C. The inductees were (from left) Edgar

Callahan, Dave and Erma Angevine, Richard Magnuson

and Glenn Webb. Established in 1974 by the National

Cooperative Business Association (NCBA), the Hall honors distinguished individuals whose contributions to cooperatives have been genuinely heroic. 

Callahan is president and CEO of Patelco Credit

Union, San Francisco. He also served as chairman of the

National Credit Union Association in the early 1980s. The

Angevines, from Virginia, began their careers at the Consumers Co-op Association, now Farmland Industries. They

then worked for the Cooperative League of the USA, now

NCBA. Their contributions include service to the National

Rural Electric Cooperative Association, the Farmers Cooperative Service and the start-up of a worldwide volunteer

program for co-op development. Magnuson, an attorney at

Doherty, Rumble & Butler in St. Paul, Minn., has provided

legal assistance to cooperatives for more than four decades.

He is only the second attorney to be named to the Hall. A

Tunnell, Ill., farmer, Webb is chairman and president of

GROWMARK. He also has been a leader at CF Industries, CoBank and the Federal Farm Credit Banks Funding

Corporation. 

Photo courtesy NCFC 

24 May/June 2000 / Rural Cooperatives

loan and grant applications. He also

strategically assembles many players to

work as a team in securing funding for

rural development projects. Those

players include federal, state, local and

private funding sources. Bruce’s hard

work and accomplishments with USDA

emphasize how important that organization and its programs are to revitalize

rural America.

Over the past 15 years, Iowa has realized over $2.2 billion in capital investment and 26,000 new jobs through over

800 IADG projects. According to

national statistics, Iowa’s electric cooperatives now lead their counterparts

throughout the nation in average commercial and industrial monthly electric

utilization. The IADG includes Iowa’s

rural electric cooperatives, Iowa Farm

Bureau Federation, Iowa Department of

Economic Development, and USDA

Rural Development.

Spring Wheat Bakers loads first train

Earlier this year, Spring Wheat Bakers cooperative shipped its first 26-car

unit train of identity- preserved wheat

from an AGP elevator in Valley City,

N.D., bound for a Cargill flour mill in

Chattanooga, Tenn. Flour milled from

this wheat was then trucked to a Spring

Wheat Bakers plant outside Atlanta, Ga.,

to make partially baked frozen bread and

roll products. Last year the cooperative

announced the selection of McDonough,

Ga. for its first production facility. Feasibility studies indicated placement of the

plant there would give Northern Plains

farmer’s superior distribution logistics to

regional customers.

Mike Hardy, director of grain operations for Spring Wheat Bakers, said

about 24 farmer members provided

grain for the first train, averaging about

3,600 bushels each. “We bid it out to

shareholders on a first-come, firstserved basis and limited it so that more

people could be involved,” Hardy said.

“Some people came quite a ways out of

their trade area just to be involved in

this first identity-preserved wheat shipment.” The co-op has since shipped

grain out of five other locations to

Chattanooga while developing additional spring wheat shipments for

domestic and export markets. All grain

shipped is identity preserved.

Dakota ranchers opening feedlots 

A new group of cattle feeders —

North Dakota Barley Feeders — is asking North Dakotans to invest in cattle

that can be custom-fed in existing feedlots around the state. 

The Agricultural Products Utilization Commission gave $12,500 to the

project in 1999. The North Dakota

Barley Council kicked in $5,000 and

another $2,500 each came from the

Carrington, N.D., Development Corp.

and the Carrington Jobs Development

Authority. The program, structured as

a limited liability limited partnership,

asked a minimum of $5,000 per person

with a goal of $2 million. The group

expects to borrow another $4 million to

buy and feed out 8,000 to 10,000 cattle

annually. Initially, the group may feed

cattle in existing larger feedlots in the

region, including Butts Feedlot of Carrington; Polries of Sykeston, N.D.; Larson in Carrington; and Amundson in

Jamestown, N.D. 

Iowa pork producers endorse co-op

Delegates to the Iowa Pork Producers Association annual meeting

endorsed the formation of a producerowned cooperative that would help hog

producers capture more of the consumer pork dollar. Heavy financial losses suffered by Iowa hog producers last

year led to the formation of a task force

to create a cooperative enterprise. The

task force launched Iowa Premium

Pork Co. as an entity separate from the

producers association.
Rural Cooperatives / May/June 2000 25

Corn co-op rebounds, but no dividends

The Golden Growers Cooperative,

Fargo, N.D. is gaining strength despite

a $5 million loss this past fiscal year,

Board Chairman Pat Benedict reported

at its annual meeting. “If there’s good

news about those losses, it’s that (they)

are behind us,” he said.

His faith did not extend to some

growers who had held out hope the

cooperative might pay out small dividends this year. But Benedict said continued losses at the ProGold corn processing plant in Wahpeton, in which

Golden Growers is a partner, prevented

any return to producers. “No, you will

not receive a dividend check this year,”

Benedict told growers. “Believe me, my

dearest wish would be to tell you otherwise.”

In its fiscal year ending in August

1998, Golden Growers recorded losses

of $5.1 million, down considerably

from the $11.7 million lost in 1997. As

in 1997, a large part of the loss was

attributed to Golden Growers’ investment in ProGold. The $261 million

corn sweetener plant opened nearly

three years ago as a partnership among

Golden Growers, American Crystal

Sugar Co. and Minn-Dak Farmers

Cooperative. 

Golden Growers owns 49 percent of

the plant. ProGold has not made a

profit since opening, and officials have

blamed a slump in the high-fructose

corn syrup market. The partners decided last year to lease the plant to Cargill

for 10 years, believing the arrangement

with the large corporation would

reduce losses.

Brian Ingulsrud, assistant treasurer,

said the deal paid off. Golden Growers’

share of losses at the plant fell from

$14.8 million in 1997 to $ 4.3 million

last year. He said the cooperative is

confident it will not have lost money

on the ProGold plant in fiscal 1999.

However, he said the 1,900 members of

Golden Growers should not expect significant profits, either. Mark Dillon,

the cooperative’s executive vice president, understands some members are

frustrated at the losses. But he said

patience will eventually pay off.

TVG regaining profitability

With his plans firmly in place and a

new software system halfway there, Tri

Valley Growers is on pace to return to

profitability in 2001, Chief Executive

Officer Jeff Shaw says. The cooperative

is addressing the internal problems and

the inventory buildup that led to losses

of $165.2 million during the past two

years. Shaw says the more doubters

question Tri Valley’s financial stability,

the more determined he gets about

turning the cooperative around.

“There’s not a day when I come to

work when somebody doesn’t call and

say, ‘I hear you’re going out of business,”’ Shaw said. By rebuilding the

company, he thinks he can convert the

naysayers.

Shaw said the co-op has rebuilt the

financial and marketing departments,

secured new loans, and launched a

sales and operating plan. It is halfway

into installing its new computer software program. By reducing inventory

through big sell-offs, the company

eliminated $100 million in debt, he

said. “All that cash was being stored in

our warehouses.” At one TVG plant,

$8.6 million in cost savings were realized. 

Associated gins one-millionth bale

Associated Cotton Growers, a 26-

year-old co-op north of Crosbyton,

Texas, has ginned its one-millionth

bale. “I think it’s quite an accomplishment,” says Donny Wheeless, assistant

manager for the past 14 years. He

believes customer loyalty contributed

to the gin’s accomplishment. 

Manager Randy Arnold agrees. “We

have lots of long-term customers who

are here with us through the thick and

the thin,” says Arnold, who has headed

the co-op for five years. 

The record-setting bale was produced on the C.R. Marsh farm. Marsh,

a farmer for about 30 years, was

informed of the event after it happened. The co-op, which has ginned an

average of 53,000 bales per year the last

five years, was only 1,300 bales shy of

the record when its 1998 season ended.

Termed a “super-gin,” ACG began

in 1973 as Crosbyton, Wake and

Prairie Farms sales top $1 billion 

For the first time in its history, sales at Prairie Farms Dairy Inc., Carlinville, Ill., topped $1 billion, reports Leonard J. Southwell, executive vice

president and chief executive officer. Southwell reported that 1999 total

earnings for the cooperative, which were slightly over year-earlier earnings,

were $50.2 million. Sales totaled $1.045 billion. 

“Of course, this does not include the various joint ventures which we are

involved in,” Southwell said. Earnings and sales were at all-time highs in

1999, and the board of directors voted to distribute 60 percent of the 1999

patronage refunds in cash. This marks the 16th year the cooperative pays

members cash for 50 percent of more of its patronage income. Total patronage paid to members for the past five years is $110.4 million.

Southwell reported that Prairie Farms is debt free, financing all operations

from earnings. “It is highly significant that a cooperative engaged in fluid milk

distribution is able to essentially operate from earnings,” says Randall Torgerson, deputy administrator for the Rural Business-Cooperative Service of

USDA Rural Development. “Further, this cooperative returns retained equity

to members on a seven-year basis — a very quick turnaround.”
26 May/June 2000 / Rural Cooperatives

McAdoo co-op gins consolidated to

enhance the grower’s ability to make a

profit by increasing volume. This mission was enhanced by the co-op working with the Plains Cotton Cooperative

Association, Lubbock, Texas, to create

its own marketing pool and to test what

later became the common practice of

moduling cotton to separate the harvesting and ginning functions. When

ACG opened, it was the largest cotton

gin in the world. Still one of the largest

gins on the South Plains, ACG has the

ability to gin up to a thousand bales per

day.

Corry new Amalgamated CEO

After the announcement that Amalgamated Sugar Co. Chief Executive

Officer Allan M. Lipman would step

down, it was announced that Larry

Corry, president of Amalgamated Sugar, was named CEO of Amalgamated

and president of the Snake River Sugar

Cooperative, positions previously held

by Lipman.

Corry joined Amalgamated in 1968

and served in

various positions. The coop owns

Amalgamated.

Lipman was

part of Idaho’s

sugar beet

industry for

25 years.

Under his

leadership,

Amalgamated

became the

second-largest

sugar beet

processor in

the nation. It won the Arthur Anderson

1998 international best practices award

for “unleashing the power of technology.”

“Allan’s leadership has made an extraordinary impact on Amalgamated and on

the nation’s sugar policy,” Terry Ketterling, Amalgamated board chair, said at

Snake River’s annual meeting. Amalgamated supplies almost 14 percent of the

nation’s beet sugar production.

CRF opens new hog research facility

Cooperative Research Farms

recently completed a new state-ofthe-art 1,000-head swine research

nursery. The facility – built at the

Land O’Lakes Answer Farm near

Fort Dodge, Iowa – is designed to

conduct trials on high-health-status

pigs and provide CRF membership

with proprietary swine starter nutritional and management-related information.

CRF is an innovative, multinational organization of eight regional cooperatives from the United

States, Canada, and France. CRF

members have worked together for

more than 45 years conducting livestock and poultry nutrition- and management-related research for the benefit of their farmer-owners. CRF’s

members are Agway, Syracuse, N.Y.;

Co-op Atlantic, Moncton, New

Brunswick, Canada; Cooperative FederÈe de Quebec, Montreal, Quebec,

Canada; Federated Co-operatives

Limited, Saskatoon, Saskatchewan,

Canada; Land O’Lakes, St. Paul,

Minn.; Southern States Cooperative,

Richmond, Va.; Tennessee Farmers

Cooperative, LaVergne, Tenn.; and

UNCAA Division Productions Animales UCAAB, Chateau Thierry,

France.

Farmland sells hog plant, introduces

branded bread 

Farmland Industries, Kansas City,

Mo., the nation’s largest farmer-owned

cooperative, sold its Dubuque, Iowa,

pork processing plant to Virginia-based

Smithfield Foods, the world’s largest

hog producer and packer. Terms of the

cash purchase were not disclosed. The

plant was part of Farmland’s refrigerated foods group, headed by Bill Fielding, who said the sale was “the first step

in an overall plan to strengthen our

pork operations. After a detailed analysis of the needs of our producer-owners, we have determined that, as a

cooperative, our limited capital would

be better spent on improvements and

expansion at other Farmland facilities.” 

The deal will result in the elimination of 1,000 jobs when slaughter operations cease. Hog producers also must

scramble because they no longer have a

local buyer.

Meanwhile, Farmland is testing its

transferability to grain-based products

with the introduction of its own branded bread line. “Bread is the perfect item

for us to see how the brand will work

on new food products,” said Ken

Thomas, director of the co-op’s grain

processing division. “Think about what

you eat with meat. Some type of bread

is always involved. We’re going to

Larry Corry, president

of Amalgamated Sugar,

and now also its CEO

as well as president of

Snake River Sugar

Cooperative.

This new hog research facility has been opened by Cooperative Research Farms in Iowa to

conduct trials to breed healthier livestock. Photo courtesy CRF

FPO
Rural Cooperatives / May/June 2000 27

leverage the brand recognition that

Farmland has in another part of the

supermarket. If marketing Farmlandbranded bread works, it well tell us a

lot about the potential market power of

the brand.”

Farmland’s bread venture is the

result of a partnership with Gerard’s, a

Longmont, Colo., bakery owned by

Mountain View Harvest Cooperative.

The farmer-owned cooperative got into

the bakery business to link its producers – mainly eastern Colorado wheat

growers – to consumers.

Canadian, U.S. potato farmers work

together 

U.S. and Canadian potato growers

have voted to create an alliance

designed to help them survive an unsettled agriculture market and get the best

possible prices for their product. Representatives from major production

areas in the United States and Canada

met recently in Boise and voted unanimously to unite.

“The main reason we all got together is that the contracts are just so low,”

said John Thompson, the communications director and acting president of

the Potato Growers of Idaho. “Everybody is right at breakeven or just hanging in there,” he said. “The average

grower return right now is probably

$5.25 to $5.75. We see all the increases

with fuel and interest rates, seed prices

were more this year. All that says it will

cost more to produce potatoes in the

next two years than it ever has.”

Thompson said the growers agreed to

work together and share knowledge

instead of competing and trying to

undercut each other.

The Potato Marketing Association

of North America, Potato Growers of

Idaho bargaining associations, bargaining cooperatives, and state and provincial grower associations agreed to create a communications network and

share information, help each other in

contract negotiations, hold regular

meetings and actively support the

efforts of the Potato Marketing Association of North America. The organizations also agreed to have each growing

USDA co-op resources on the Web

Looking for quick information, rural economic development resources or details

about how USDA can help cooperatives? Contact these Internet websites:

Homepage: http://www.rurdev.usda.gov/rbs/coops/csdir.htm

What we do: http://www.rurdev.usda.gov/rbs/coops/cswhat.htm

Organizational structure: http://www.rurdev.usda.gov/rbs/coops/csorg.htm

Special initiatives: http://www.rurdev.usda.gov/rbs/coops/csspec.htm

Rural Cooperative Development Grant Program:

http://www.rurdev.usda.gov/rbs/coops/rcdg.htm

National Sheep Industry Improvement Center:

http://www.rurdev.usda.gov/rbs/coops/cssheep.htm

Appropriate Technology Transfer for Rural Areas (ATTRA):

http://www.rurdev.usda.gov/rbs/coops/attra.htm

Research on Rural Cooperative Opportunities and Problems via Cooperative 

Agreements: http://www.rurdev.usda.gov/rbs/coops/rrcop.htm

Publications: http://www.rurdev.usda.gov/rbs/pub/newpub.htm

Rural Cooperatives Magazine:

http://www.rurdev.usda.gov/rbs/pub/openmag.htm

Cooperative Information Reports:

http://www.rurdev.usda.gov/rbs/pub/cooprpts.htm

Research reports: http://www.rurdev.usda.gov/rbs/pub/research.htm

Service reports: http://www.rurdev.usda.gov/rbs/pub/service.htm

Miscellaneous reports: http://www.rurdev.usda.gov/rbs/pub/miscell.htm

Contact index for State Office Cooperative Specialists:

http://www.rurdev.usda.gov/rbs/coops/cscontac.htm

There is a large selection of USDA Rural Business-Cooperative Service

co-op information, research and service reports.

“Direct Marketing Today: Challenges and Opportunities” is now available

on the Web in PDF format at http://www.ams.usda.gov/directmarketing/

DirectMar2.pdf. This publication, in cooperation with Cornell University

Extension, discusses the results of focus groups (with producers and facilitators) about direct marketing hosted by USDA. A print publication will be

available soon and can be ordered in advance from Velma Lakins at

velma.lakins@usda.gov 

“Small Farmer Success Story” are four bulletins that describe a project

through which a group of limited-resource growers in the northern Florida

area formed a co-op to market fresh produce to local school districts. The

bulletins outline the experiences of the New North Florida Cooperative, now

in its third school year of operation. They are available in PDF format at

http://www.ams.usda.gov/tmd/mta/publications.htm
28 May/June 2000 / Rural Cooperatives

region determine its production costs

and the impact increased oil prices have

on production expenses, then meet and

evaluate the information. It will be used

when negotiating the 2001 potato processing contracts. Organizations

involved in the agreement are Potato

Growers of Alberta, Potato Growers of

Washington, Malheur Potato Bargaining Association, Red River Valley Potato Growers Association and Wisconsin

Potato and Vegetable Growers, among

others.

Judge says permit properly granted

to Golden Oval

District Court Judge Artis I. Reis

ruled that a state construction permit

was properly granted to Golden Oval

Eggs’ new laying and processing facility

in Winnebago County, Iowa, the

Renville, Minn., company announced.

A citizen group had filed a lawsuit in

August 1999 seeking to block the egg

facility. It challenged the permit granted by the Iowa Department of Natural

Resources (DNR). The judge dismissed

the case and assessed costs to the citizens group, Citizens Against Golden

Oval. Cooperative officials said construction continues at the Winnebago

site. The operation eventually will use

7 million chickens, making it the

largest animal confinement facility in

the state. Golden Oval is a farmerowned cooperative. Its production site

in Renville has about 2 million hens

and produces about 55 million pounds

of eggs annually.

Co-op communicator Reuwee dies

Dan Reuwee, 56, director of cooperative communications and media relations at Dairy Farmers of America

(DFA), Kansas City, Mo., died April 2

due to complications after a recent

surgery.

Reuwee earned a Bronze Star while

serving in the Army in Vietnam. In

1969, he earned a master’s degree

from Ohio

State University. Before

the formation

of DFA,

Reuwee was

director of

communications for MidAmerica

Dairymen,

Springfield,

Mo. He also had worked with the

American Soybean Association and

Future Farmers of America. He was

an active member of the Cooperative

Communicators Association and the

communications committee of the

National Milk Producers Federation.

Reuwee is survived by his wife, Barbara, Liberty, Mo.; and two children:

Laura, New York City; and Brian, a

junior at the University of Missouri,

Columbia; as well as his mother and

sister, both in his native Ohio.

The Delta-Montrose Electric Association made history

this spring with the startup of a 10-kilowatt propanepowered fuel cell system at DMEA’s headquarters in

Montrose, Colo. This prototype, built by H Power of

Clifton, N.J., is reputedly the first in the nation outside of

a laboratory that runs on propane, a fuel readily available

in areas served by rural electric cooperatives. 

“We’re proud to be in the vanguard of fuel cell installations nationally,” said Dan McClendon, DMEA’s general

manager. “Sixty-two years ago our cooperative was formed

to bring electric power to rural areas at a time when forprofit utilities were not interested in providing electric service to our communities. Fuel cells – particularly propanepowered fuel cells – represent an exciting way to continue

our mission of providing power to areas not currently

served through traditional means.” 

DMEA’s propane fuel cell is the first of a series of

units which will be installed by rural electric cooperatives working with Energy Co-Opportunities (ECO), a

national cooperative created to assist electric distribution cooperatives in diversifying into new energy services. ECO recently entered into a partnership with H

Power, a world leader in fuel cell technology, to bring

residential and small commercial fuel cells to rural electric cooperatives and their members.

“The installation at DMEA’s building will help sharpen

the cutting edge of this technology and hasten the time

when ECO fuel cells will be available to members of

DMEA and other cooperatives across the nation,” said Bill

Cetti, ECO’s vice-president of distributed generation solutions. “We appreciate DMEA’s leadership and hard work

in making this historic event possible.”

Delta-Montrose installs first propane fuel cell

Dan Reuwee

Rural cooperatives such as Delta-Montrose in Colorado are leading the way with the installation of a 10 kilowatt propane-powered fuel cell system. Photo courtesy DMEA
Pamela J. Karg

Field Editor

ike well-pedigreed cattle, Foremost Farms

USA cooperative, can trace its lineage

back to the birth of a Guernsey bull that

eventually found its way into the hands of

one of America’s best-known businessmen: James Cash

Penney Jr, founder of J.C. Penny Co. department

stores. The Baraboo, Wis., dairy cooperative takes its

name from the Guernsey bull named Langwater Foremost, owned by Penney. How fate brought a dairy

cooperative, a Guernsey bull and a man who lived by

the golden rule together is a tall tale of twists.

After his April 1915 birth, Foremost sired several

animals that “became remarkable examples of type and

milk inheritance through line-breeding,” according to

historical records kept at the Dallas, Texas, headquarters of J.C. Penney. In fact, the bull was voted the

fourth most influential in his breed, and he sired 68

registered daughters and 87 registered sons.

Meanwhile, Penney was building a chain of retail

stores.

Penney opens Golden Rule Store

Penney was born in Hamilton, Mo., in 1875. He

maintained that his career in business began at the age

of eight, when he was told by his father that he was old

enough to assume responsibility for paying for his

clothes. Penney ran errands and worked in the fields

to earn the money to buy the pair of shoes he needed.

After apprenticing with a local storekeeper, Penney

moved to Denver and worked briefly as a store clerk

before opening a butcher shop in Longmont. After it

failed — largely due to the loss of the local hotel’s

business when he refused the cook’s demand of a payoff in the form of whiskey — Penney accepted a job

with the Colorado firm of Johnson and Callahan,

operators of drygoods stores in small towns throughout the region.

In 1900, Penney was sent to Evanston, Wyo., to

manage the firm’s branch mercantile store. Johnson

and Callahan recognized Penney’s ability and helped

him open his own store in Kemmerer, Wyo.

Rural Cooperatives / May/June 2000 29

PAGE FROM THE PAST

Foremost farms traces

its name to J.C. Penney

L

J.C. Penney would probably like the fact that his beloved Foremost

bull is the namesake of a dairy cooperative, an organization that

shares its profits with its owners, just as Penney did.

“When the sun rose over Kemmerer, Wyo., April 14, 1902, it

gilded a sign reading, Golden Rule Store, and I was in business

as a full partner,” Penney wrote. “In setting up a business under

the name and meaning of Golden Rule, I was publicly binding

myself, in my business relations, to a principle which had been a
30 May/June 2000 / Rural Cooperatives

real intimate part of my family

upbringing. To me, the sign on the

store was much more than a trade

name. We took our slogan ‘Golden

Rule Store’ with strict literalness. Our

idea was to make money and business

through serving the community with

fair dealing and honest value, and did

business cash-and-carry.”

Two revolutionary ideas — cash

only and do unto others as you would

have them do unto you — were the

basis for Penney’s new business venture. In fact, he was a lifelong advocate of what he referred to as “Christian principles” in business, which

included preparation, hard work and,

above all, the Golden Rule. Penney

also frowned on smoking and drinking by his employees.

By 1914, there were 71 stores. In

1917 when he accepted the position of

chairman, there were 197 stores. In an

effort to make it easier for the company to obtain the financial credit essential to any successful retail operation,

the organization became a corporation. Shares were listed on the New

York Stock Exchange in October

1929, just a few days before Black

Thursday. While the crash caused

sales to shrink, the number of stores

continued to grow because of their

affordable merchandise.

Creating a Sense of Heritage

As his personal fortune grew, Penney began donating significant

amounts of money to his favorite

charities, which included the Christian Herald and a home for retired

clergymen. He borrowed against his

store stock and accumulated in excess

of $7 million in personal debts.

At the same time, this son of a Missouri farmer and preacher made two

observations. First, he was concerned

about “the low quality of beef and

dairy animals found on a large percentage of farms.” Second, Penney

felt the great U.S. herds were being

broken up after the owner died, contrary to what he saw in England and

Scotland, where herds remained in

families for generations.

Penney purchased Emmadine Farm

at Hopewell Junction, N.Y. On the

advice of leading Guernsey breeders,

Penney also bought Langwater Foremost for the then record price of

$20,000. He then endowed the herd

because he decided that “a lifetime

was too short a period to develop a

great herd of cattle.”

In 1952, the herd was moved to the

College of Agriculture, University of

Missouri-Columbia. There are still a

few Guernsey cows in the herd,

though most of the cows are now

Holsteins. Each Guernsey, however,

can trace her lineage back to Langwater Foremost.

With creameries closing during the

Great Depression and with extensive

holdings in Florida, including City

National Bank, Penney bought a Jacksonville creamery. He named it Foremost Dairies after his prized bull. It

originally operated in 12 southern

communities and its net sales totaled

$1 million the first year. By 1932,

Penney had lost his personal fortune

and was subject to unfounded charges

that he had profited at the expense of

fellow shareholders in the collapse of

the Florida bank in which he was a

major investor. After a brief stay in a

sanitarium, Penney returned to the

post of chairman of the company and

rebuilt his fortune. He resigned as

chairman in 1958, and died in New

York City in 1971 at age 95.

World’s longest milk route 

Between 1932 and 1944, Foremost

Dairies doubled the communities

served and increased sales 10-fold.

The company’s major growth started

in 1945 with the acquisition of Southwest Dairy Products Co. “It’s better

than good, it’s Foremost” became a

household slogan.

During World War II, the U.S.

military sparked Foremost’s international growth and the creamery

opened additional plants nationwide.

Foremost Dairies became known as

“the longest milk route in the world.”

Foremost Dairies was the third largest

dairy company in the world by 1951.

With the 1954 acquisition of Golden

State Co. — the largest dairy business

in California — Foremost had operations in 23 states across the South and

North as well as in Japan, the Philippines, Guam and Hawaii. Foremost

established its headquarters in San

Francisco, and it still lived by the

golden rule established by Penney.

Wherever it set up a facility, the organization wanted to teach local people

how to operate it and then share in its

success.

The business continued to grow. In

1956, it made the key acquisition of

Western Condensing Co. In Appleton, Wis., that would eventually lead

the Foremost name to Upper Midwest dairy producers.

But troubled times hit in 1962,

With creameries closing during the Great Depression,

Missouri-born businessman J.C. Penney bought a

Jacksonville, Fla., creamery and named it after his prized

Guernsey bull — Foremost — which grew into the

longest milk route in the world and is now the choice

name used by a Midwestern-based farmer cooperative.
Rural Cooperatives / May/June 2000 31

when the Federal Trade Commission

said that Foremost’s “dominant presence” could affect competition. The

company was ordered to release ownership of its 10 most recent acquisitions. Foremost also sold all of its

milk and ice cream plants east of the

Mississippi River.

In 1967, Foremost and McKesson

merged. At the time, ForemostMcKesson included chemical, liquor

and pharmaceutical companies as well

as Foremost Foods Co. It also included the Wisconsin whey processing

plants formerly operated under Western Condensing.

Wisconsin Dairies Acquires

Foremost

The dairy industry was changing,

and Wisconsin Dairies Cooperative,

Baraboo, Wis., realized that there were

ways to capture more money for its

members by further processing of

whey. After all, it took 10 pounds of

milk to make one pound of cheese,

leaving nine pounds of whey that was

packed with proteins, lactose (milk sugar), other nutrients and trace minerals.

In 1984, the cooperative acquired

the whey operations, research library,

patents and rights to the Foremost

name in the United States and Canada

from McKesson. In addition to marketing whey-based products through

its Foremost Ingredient Group division, the cooperative licensed the

Foremost name for use by companies

in the western United States, Hawaii,

Alaska and Mexico.

In January 1995, the member-owners of Wisconsin Dairies and Golden

Guernsey Dairy Cooperative consolidated their operations. At the time,

the consolidation of Wisconsin

Dairies and Golden Guernsey into

Foremost Farms USA was unique in

the dairy industry. Both cooperatives

were financially sound, with effective

member-owner programs. They had

efficient operations and marketing

programs, along with complementary

product lines and service and procurement areas. Foremost Farms acquired

the Morning Glory Farms Region of

Associated Milk Producers, Inc. in

December 1995.

Today, Foremost Farms ranks

among the top five largest U.S. dairy

cooperatives for milk volume. As a

cooperative, it’s only fitting that Penney is part of the history. When he

opened stores, created his Guernsey

legacy or developed a superb purebred Aberdeen Angus herd, Penney

always shared his profits with his business partners. And the profits from

Foremost Farms USA go back to the

business partners — some 7,000 dairy

farmers in Wisconsin, Iowa, Minnesota, Illinois, Indiana, Michigan and

Ohio.

Langwater Foremost was voted the fourth most influential bull of the Guernsey breed.
32 May/June 2000 / Rural Cooperatives Rural

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