R

u

ral COOPERATIVES

USDA / Rural Development March/April 2009

T h i n g s l o o k i n g u p f o r f o r e s t r y c o - o p s

Pages 12 & 14 Grain co-ops, lenders survive wild ride Page 4
By Randall E. Torgerson

Editor’s note: Dr. Torgerson is the former administrator of USDA’s

Agricultural Cooperative Service, now the Cooperative Programs of

USDA Rural Development. He lives in Alexandria, Va.

ichael Pollan, a University of CaliforniaBerkley journalism professor, recently wrote

an open letter to the incoming secretary of

agriculture, in which he suggests a need to reorient our agricultural production and

distribution systems. In the letter, published

in the New York Times Magazine, Pollan sees a need to

emphasize policies that encourage producing and buying

locally produced food. This approach — embracing a

polyculture system of producing food, rather than the present

monoculture of subsidized commodity crops — is sparking

much discussion. 

Instead of the present heavy reliance upon fossil fuels, it

foresees smaller farms, more use of organic and/or other

“greener” production methods and development of local

markets for fresh food. It is viewed as a policy alternative to

continued price supports which go to ever-larger, industrialtype farms (a number of which do not support cooperatives). 

It also envisions saving energy by lowering transportation

costs, improving stewardship of the environment through use

of best-conservation practices and promoting consumption of

fresher, quality foods that enhance the health and well-being

of the public.

Impact on ag cooperatives

Cooperative leaders need to ask themselves how this

approach influences their operations. More specifically, will

cooperatives have a role to play if such an approach gains

traction, including policy support from Congress and the new

Obama administration? 

The concept isn’t totally new. In fact, statistics from the

recently released 2007 Census of Agriculture reflect a 4-

percent increase in the number of U.S. farms since 2002.

Many of these farms were created by subdividing larger

parcels near suburban areas as some people have sought the

benefits of a more rural lifestyle. Data show that these new

farms tend to have more diversified production, fewer acres,

lower sales and younger operators who, in some cases, also

work off the farm. The latest census figures show a

continuation in the trend toward more small and very large

farms, but fewer mid-size farm operations.

The census report also demonstrates that the concentration

of agricultural production has increased during the past five

years. In 2007, just 125,000 farms were responsible for 75

percent of the value of U.S. agricultural production, compared

to 144,000 farms in 2002 for the same share. This structural

shift has consequences for cooperatively owned businesses,

which must continue to adapt to the makeup of production

agriculture.

Direct marketing emphasized

The growth in smaller farming operations has been

accompanied by emphasis on direct marketing to local

communities and establishment of farmers markets. USDA

has been active in promoting and supporting direct marketing

through the Extension Service and grants funded by USDA’s

Agricultural Marketing Service. This effort has come at the

expense of diminished resources devoted to encouraging

cooperative marketing. 

Growth in community-supported agriculture (CSA) has

also expanded. By joining a CSA (many of which are either

organized as cooperatives or at least operate on cooperative

principles), a consumer pays a fixed rate at the beginning of

the growing season in return for being supplied with fresh

fruits and vegetables all season. Much, but not all, of the

production meeting these needs is provided by local farmers,

often producing on a relatively small scale. Historically, these

small but intensively farmed operations have been known as

truck farms.

Paralleling the growth in this approach — and often

encouraging it — has been buying clubs of like-minded

consumers who have organized natural food store

cooperatives to help meet growing demand for organic and

natural foods. These foods are produced without use of

hormones, pesticides and artificial fertilizers (in the case of

organic foods) to support what is deemed a sustainable

environment. 

In response to this development, USDA has adopted

organic food standards. The rise in popularity of organic

foods has reached national food chains and bulk discount

stores where organically labeled foods can found on many

store aisles. Some have predicted that the current economic

downturn could deal a setback to the growth of the organic

food movement, but the overall trend still appears to be on

the ascent.

Co-op business model fits demand

Application of the cooperative business model can, and

does, fit both ends of this spectrum. Linkages between farmer

2 March/April 2009 / Rural Cooperatives

Commentary 

The ‘Go-Local’ Movement: How will your

co-op be affected? What is your role?

M

continued on page 37
Rural Cooperatives / March/April 2009 3

Rural Cooperatives (1088-8845) is published

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Independence Ave. SW, Stop 0705, Washington, DC.

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Unless otherwise stated, contents of this publication

are not copyrighted and may be reprinted freely. For

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discrimination in all its programs and activities on

the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial

status, parental status, religion, sexual orientation,

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To file a complaint of discrimination, write to USDA,

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is an equal opportunity provider and employer.

Tom Vilsack, Secretary of Agriculture

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or

email: coopinfo@wdc.usda.gov

This publication was printed with vegetable oil-based ink.

R

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ral COOPERATIVES

March/April 2009 Volume 76 Number 2

p. 4

p. 16

p. 22

p. 26

O n t h e C o v e r :

Thomas Wyse, a forester with the Living Forest Cooperative (LFC) in

northern Wisconsin, marks out a forest stewardship plan for a co-op

member. The LFC has joined the National Network of Forest

Practitioners, which provides technical support to its members while

promoting healthy, productive forests. Photo by Peter Hoffman 

F E A T U R E S

4 Passing the Stress Test 

Grain co-ops and lenders work as a team to meet unprecedented credit needs during ’08 

By Dan Campbell

9 Largest co-ops reap record, $88 billion sales 

By David Chesnick

14 Forestry Co-ops Take Root 

By Jane Braxton Little

16 The Ethanol Crunch 

Farmer-owned ethanol plants may ride out the market crash that bankrupted VeraSun

By Stephen Thompson 

22 Royal Treatment 

Rhode Island farmers join forces to market RI Royal brand potatoes

By Bruce Burdett 

26 Cotton co-ops benefit from cottonseed oil comeback

28 Bigger role seen for Ohio farmers’ markets 

30 Co-op educators see critical need to ramp-up,

expand education efforts 

By James Wadsworth

D E P A R T M E N T S

2 COMMENTARY

11 SPOTLIGHT

12 CO-OP DEVELOPMENT ACTION

21 VALUE-ADDED CORNER

25 MANAGEMENT TIP

32 NEWSLINE

39 PAGE FROM THE PAST
By Dan Campbell, editor

USDA Rural Development

hrow out all those

clichés about farm

commodity markets

being like “a wild roller

coaster ride.” In 2008,

grain markets behaved more like the

Tower of Terror (an elevator thrill ride),

ascending to dizzying heights, only to

have the bottom drop out and plunge

earthward again. 

Managing a co-op, or serving as a

grain marketer for one, has never been

a job for the faint of heart. But rarely

have those marketers felt the stress of

their profession more than in this past

year. 

The good news is that there were

very few co-op failures linked to grain

market volatility. And when the dust

settled, most co-ops and their members

had posted solid gains for the year. 

But oh, how they — and their

lenders — worked for those margins.

Indeed, local and regional co-op

spokesmen interviewed in February for

this article all agreed on at least one

thing: 2008 was a year that underscored

the importance of having a good, wellestablished relationship with a lender

who understands co-ops and grain

markets.

CoBank, in particular, was repeatedly

singled out for praise for going the

extra mile to help its memberborrowers sail turbulent financial

waters. However, opinions are more

varied as to the long-term ramifications

of such a year for grain co-ops.

“Given the volatility of the past year,

based on what we know today, I would

say 2008 was a success story for co-ops,

their lenders and the grain futures

markets,” says Kurt Legred, market

analyst with Country Hedging, the

grain futures brokerage subsidiary of

CHS Inc. 

Roger Krueger, vice president for

grain at South Dakota Wheat Growers

(SDWG) cooperative in Aberdeen,

S.D., agrees. “The risk-management

system that country elevators use —

hedges on the Board of Trade and

normal trading-price relationships with

other commercial grain firms —

performed almost flawlessly. Everyone

who put their hedges on and kept them

in place, then met the margin calls, got

the margin money back again when the

market dropped back down. Producers

got good net returns per acre and

elevators were able to generate good,

solid margins. They showed their value

in the marketplace.” 

“It’s just a very efficient, selfregulating bulk-commodity system,”

Krueger continues. “If you can’t cut the

4 March/April 2009 / Rural Cooperatives

T

Passing the Stress Test

Grain co-ops and lenders work as a team

to meet unprecedented credit needs during ’08 

A shuttle train loads at South Dakota Wheat Grower’s elevator in Mellette, S.D. Photo by Cheryl Crase, courtesy SDWG. 
mustard, pretty soon someone who can

will be taking that slice of the business.”

Some people talk about the markets

getting messed up. “But the market is

always right,” says Legred. 

Under pressure

“It was the most stressful year I’ve

seen in my 30 years in the business; it

just created so much risk — risk like

we’ve never seen before,” says Gordy

Jensen, general manager at Harvest

Land Cooperative in Morgan, Minn.

But it also created opportunities for the

co-op, which has about 1,200 members

and did about $160 million in sales last

year. For those who negotiated the

market well, it was a profitable year,

Jensen says. 

It was actually farm supply co-ops

and diversified grain/farm supply co-ops

with large carryover stocks of fertilizer

purchased near the peak of the market

(fertilizer prices basically tracked grain

markets last year) that were in the most

precarious position entering 2009 (see

sidebar, page 7). 

“No one was objecting to high grain

prices; it was financing that was the big

issue,” says Michael Sulzberger, general

manager for Prairie Central

Cooperative, which operates 10 grain

facilities that handle about 25 million

bushels of grain in the highly

competitive central Illinois market.

“There is an elevator every five miles

here, which drives your margins very

low,” he notes. 

“There was just a perfect storm of

conditions that fed the higher prices

this year,” Sulzberger continues. “We

had margin calls of $2 million to $4

million in a single day. While we never

tapped out our credit, we had some

pretty serious talks with our lender. I tip

my hat to CoBank for working so

aggressively to support us and keep us

away from the cliff edge.” 

For Krueger, the most stressful part

was managing counter-party risk, both

with producers who had forward

contracts with the co-op and with

ethanol plants it was contracted to

supply corn to. The bankruptcy of

VeraSun in October (see related article,

page 17) idled two of its three plants,

which SDWG supplies with corn.

Other ethanol plants were also under

financial stress, he notes.

The biggest factor behind the $7 and

$8 per bushel corn prices was the flood

of investment capital shifted from other

sectors of the economy into the

commodity markets. Rising grain

demand from export markets, demand

from ethanol plants and cheap credit all

played a part in the historic price run-up.

Rural Cooperatives / March/April 2009 5

“Many co-ops had to ask

lenders to quadruple their

credit lines.”

Harvest Land Cooperative’s facility in Springfield, Minn. Photo by Greg Latza, courtesy VistaComm. 
6 March/April 2009 / Rural Cooperatives

“You had these huge pension and

hedge funds jumping into the grain

market — it was like spraying

accelerant on a fire,” says Sulzberger.

“Commodities became the trade of

choice. A lot of money flowed into the

market and it fed on itself,” adds Louis

Blank, manager of risk management

with MID-CO COMMODITIES Inc.,

GROWMARK’s grain hedging service

subsidiary. “Everything was tilted

toward the buy side.”

Too much of a good thing?

Corn prices soared to a record of

more than $8 a bushel in late June, only

to fall back to $2.90 in early December,

then rising to $3.76 in early February.

Soybeans and wheat also experienced

record price run ups and subsequent

fall-offs. 

Those who don’t deal with grain

forward contracts and hedging may find

it hard to understand why record grain

prices could be a bad, or difficult, thing

for farmers and their co-ops. But for

co-op elevators — the “middlemen”

and conduit of America’s huge grain

market — the historic price rise meant

they were exposed to a vast increase in

risk levels as they scrambled to meet

repeated margin calls for grain forwardcontracted on the Chicago Board of

Trade.

Many co-ops had to ask their lenders

to more than quadruple the credit lines

they started the season with. Harvest

Land’s Jesnen says his co-op started

with a credit line of $14 million, but

that it peaked at $80 million. “We

wound up borrowing about $76 million

of the $80 million,” he says. 

Another co-op manager said he had

to expand his line of credit from about

$28 million to $200 million. 

Many co-ops were virtually tapped

out on even these expanded borrowing

limits by the time the bull run for grain

subsided. Many grain handlers — both

co-op and private — reduced the timewindows for grain forward contracts

they traditionally offer to their

members. Some slashed the window for

forward contracts from as much as two

years out to as little as 45 days.

Corn prices sometimes spiked 30

cents in a day. “That resulted in some

hefty margin calls that had to be posted

that night; there is no wiggle room in

these futures exchanges,” says Tim

Emslie, research manager at Country

Hedging, which works with hundreds of

co-op elevators throughout the

Midwest and Northwest. “If you don’t

meet the margin call, you are subject to

liquidation, and that’s a very ugly

situation.”

Still, despite such pressures, most coops were able to meet the margin calls. 

“Every one of our customers met

their margin requirements last year,”

says MID-CO’s Blank. “We had no

defaults, but it became necessary for

them to have a close relationship with

their banker.”

“We heard of just two or three co-op

failures, including one in Illinois,” says

Emslie. “But our impression was that

those co-ops did not have a good

financial standing to start with. Most

co-ops made money.” Some elevators

had to stop buying ’09 crop, which was

the biggest ramification of the market

for producers, and could have some

long-lasting implications for them, he

notes. 

Those high prices prompted

growers to sell a larger percent of their

crop earlier than normal. “They

marketed a huge share of their crops in

the first six months of the marketing

year — which is not the normal

pattern,” Blank says. “That, too, put

extra stress on the elevators, which were

coming off a large crop the previous

year.” 

Most elevators need to net about 10

to 15 cents per bushel on corn, and a

bit more for soybeans, to keep their

business healthy. But the interest co-ops

had to pay on those huge margin calls

chipped away at their profit margins.

“Last year, you could have had all of

that margin eaten up by interest on

your margin calls,” Emslie says. 

“Interest costs eroded gross

margins,” concurs Jensen. “All in all,

grain had a poor year as far as gross

margins because of that. But we stuck

with the program because we had

commitments to ship.” 

The majority of grain was sold

before it ever got to $7 or $8 per

bushel, he says. “The long tail of this

thing — with high rent and land prices

and high input costs — is that it could

take away every gain they got in the

short term over the next few years.” 

The new norm?

The question everyone is

contemplating: Was this year the new

norm?

“The volatile times are not behind

us,” says Blank. “As long as we trade a

commodity that is so subject to shifting

world demand and varying weather

patterns, and that can be so affected by

investors, we will continue to have a

volatile market.”

“Volatility is the natural state of

commodity markets,” adds SDWG’s

Krueger. “I don’t think we will see the

same levels of volatility as we did last

continued on page 8

Loading a train at Harvest Land

Cooperative elevator. Photos pages 6-7

by David Lundquist, courtesy CHS. 
Rural Cooperatives / March/April 2009 7

Whereas the story for grain markets last year

was basically “all’s well that ends well,” many

farm supply co-ops are still facing a great deal

of risk if they are holding large unsold

inventories of fertilizer purchased when the

market was at, or near, record highs. 

Fertilizer prices followed the same general

trajectory as the grain markets, soaring to

extreme highs, then “coming down with a big

thud,” says Keith Swanson, manager of dealer

risk management services for CHS Crop

Nutrients. “As goes the grain market, so go crop

nutrient prices.” 

In the case of nitrogen — the lifeblood of the

corn industry — costs surged from around $200

a ton early in the year to as much as $850 a ton

when the corn market was riding high at more than $7 per

bushel.

“This was record-shattering volatility; we’ve never seen crop

nutrient prices go to those levels before,” Swanson said when

interviewed in mid-February. “It meant borrowing more and

more. Many input dealers are also involved with grains, and the

more diversified they were, the more extreme the cash-flow

pressures.”

“Wholesale prices have collapsed far below retail prices,”

Swanson continues. “The farmer is looking at the wholesale

prices, and saying: ‘we don’t want to pay those high retail levels.’

It’s a gridlock situation. If the dealer lowers the price to farmers,

he will suffer monstrous losses. It’s a standoff right now. Who

blinks first — the farmer or the dealer?”

If a dealer had a good first half of the year in 2008, that dealer

is probably doing OK, Swanson says. “You just wound up giving

back your gains in the second half.” 

Some dealers are now buying lower price fertilizer inventory

and hoping their overall average on sales will come down far

enough to ease them through the situation. “But they will still get

hurt — it would take big jump [in fertilizer prices] to cover them,”

Swanson says. 

Avoiding the pitfall 

Harvest Land Co-op in Morgan, Minn., managed to avoid this

situation, says manager Gordy Jensen. “We are very fortunate in

that we do not have a lot of the high-priced fertilizer inventory on

hand. We have a large plant where we were able to carry most

of the inventory on early buy. But volatility in the fertilizer market

is definitely causing lots of headaches out here — some

companies are under severe stress.”

Through Harvest Land’s AgQuest financial subsidiary, the coop came out with a program last winter where farmers could sell

’09 grain and, at the same time, purchase their ’09 crop fertilizer

(for application in the fall of ’08). Farmers could take out a loan

against that sale to prepay for the buy. 

“So the money basically stayed in-house,” Jensen says. “It

turned out well, because before the dramatic increases in

fertilizer prices, we were able to capture some pretty good

sales.” 

“It is going to change the way we sell fertilizer,” he continues.

“We are trending toward more of a weekly market on fertilizer,

where we will basically set the market each week. We will more

closely tie our buying of product to selling of product.” 

Roger Krueger, vice president with South Dakota Wheat

Growers, says that despite the tumultuous market, some supply

retailers have fared well. “In managing inventories, if you were

on the right side of the market, you had a pretty good year. But if

you got to the end of the season and still had a lot product left

over, you were probably facing some big write downs when the

market collapsed.”

Unlike grain markets, where there are methods to hedge to

avoid price risk, the same kind of tools do not exist for fertilizer.

“There is not a liquid futures market to spread out your risk,”

says Krueger. “If you always want to have inventory to meet

farmer demand, it means you will always be long on fertilizer. In a

rising market, that’s good; in falling market, that’s bad.” 

The best scenario Swanson can see is for good spring

planting weather and for expanded corn acreage, since corn

requires more fertilizer than soybeans. “Everybody is hoping for

early demand to help empty the pipeline and get the ship righted

a bit.” 

— By Dan Campbell, editor

High-priced inventory from ’08 

big problem for some supply co-ops 

“We’ve never seen crop nutrient prices to go to those [high] levels before,” says Keith

Swanson of CHS Crop Nutrients. Above, loading dry fertilizer into an applicator rig. 
8 March/April 2009 / Rural Cooperatives

summer, but grain will certainly

continue to be volatile.”

Jensen agrees. “It won’t be as

extreme as this year, but in the next 10

years I expect we will see a lot more

volatility than we have seen in the

previous 10 years. When you strip it

down to bare essentials, we are in a

global economy and something can

happen on the other side of the world

that can affect us instantaneously. There

are fewer and fewer players in the

market, and with the uncertainty of

financial markets, it will have an impact

on us all.”

Legred thinks one impact of the year

is that co-ops and producers will adopt

a more conservative stance. “Maybe

they will make a basis sale a little

quicker — take a little less risk.

Remember, what makes a co-op

different than a [proprietary] business is

that farmers make the rules, and there

is a real reluctance not to buy grain out

past 90 days. But in general, as your

margin calls get a little bigger, you get a

little more conservative.”

Prairie Central’s Sulzberger concurs.

“I think you will now see a more

cautious stance on forward contracts.” 

Some believe the wild swings in the

market this past year could accelerate

the pace of consolidations among local

co-ops. 

“I think a year like this does

encourage consolidation,” says Blank.

“Some of these elevators that in the

past could exist on their own are

finding that they need a partnership to

survive the business demands of this

industry. But this it not new, it just gets

exaggerated in a year like this. The

landscape will continue to change.” 

“If weaker players recognize that

they are in a different operating

environment and don’t have the scale,

capital structure, management skills or

number of people needed, then yes, I

would think it would accelerate the pace

of consolidation,” says Krueger. 

Emslie, on the other hand, says he’s

not so sure that the grain market of ’08

will have a big impact on the rate of coop consolidation.

Spreading the risk

Does a year like this increase the

need for farmers to accept more of the

risk that co-op elevators have

traditionally borne? 

Writing in the November-December

2008 issue of this publication, CoBank

Executive Vice President Phil DiPofi

said higher grain prices may mean that

co-op elevators can no longer shoulder

so much of the price risk of selling into

futures markets. “Since everybody

benefits from hedging, the risks and

costs need to be spread across a broad

base — one that specifically includes

producers,” he wrote. (For the entire

article, visit: www.rurdev.usda.gov/

rbs/pub/nov08/nov08.pdf.)

“I think that is exactly right,” says

Emslie. “Some of the risk needs to be

pushed to the end of the chain which,

like it or not, is the farmer.” He says he

is seeing this reflected in the different

margin structures being adopted at

elevators. “You have to increase your

margin, whether you do it through a set

fee structure or forward contracts. You

need to say you can provide this service

for, say, 15 cents per bushel.”

The alternative is for farmers to set

up their own futures trading accounts.

“That’s not an avenue for everyone —

it’s a tougher thing to do,” Emslie says. 

“The market will determine who

bears the risk and rewards of accepting

these management functions,” says

Krueger. “Producers, if they have the

financial wherewithal, always have the

option to use a brokerage service and

make margin calls for themselves. Most

are reluctant to do that, and I don’t see

that in the long run producers will bear

more of that risk. Those that take it —

the elevators — will get paid more for

taking the risk, now that there is a

higher cost associated with it.” 

Skills put to the test 

The volatile ’08 market showed that

co-op managers and grain marketers

need more business acumen than ever.

“You find out how well a business is run

when it is under stress,” says Emslie.

“You need a GM and a board with the

foresight to prepare for these types of

situations.” 

“Whatever business you are in,

maintaining profitability is becoming a

bigger challenge — you have to pay so

much attention to details and all facets

of the market,” says Blank. It’s hard to

single out co-op managers and grain

marketers, he notes. “But if you ask: ‘Is

your job more demanding than it was

five years ago,’ without doubt, most

would say yes.” 

There is simply less room for error

in markets like these. 

“You have to be sharper on all your

decisions, to analyze things a little more

and speed up your decision-making

process,” says Jensen. But you also have

to keep some balance in your life. “If

you let this stuff get to you...you need

to get out of the business.” 

No co-op manager could succeed in

a market like this without the support

of a knowledgeable board of directors.

Sulzberger echoed an oft-mentioned

theme when he said: “This co-op is

blessed with good directors. They have

their elevator hat on firmly when they

come to a co-op board meeting, and

they bring all their considerable

experience with them. If the elevator

does well, they will do all right too.

They want their elevator to be there for

them in the fall.” ■

“The risk management system that

country elevators use...performed almost

flawlessly,” says Roger Krueger of SDWG.

Photo by Cheryl Crase, courtesy SDWG. 
Rural Cooperatives / March/April 2009 9

By David Chesnick, Ag Economist

USDA Rural Development

he largest 100 U.S.

agriculture

cooperatives posted

a record $88.6

billion in total sales

in 2007, up 23 percent from 2006.

These large farm co-ops also set a

new net income record of $1.9

billion in 2007, up 43 percent from

2006. (Table 1 illustrates a

consolidated income statement for

the combined largest 100

cooperatives.)

The commodity groups leading

this increase were dairy, diversified

(grain and farm supplies), farm

supply and grain cooperatives. The

dairy group within the Top 100

cooperatives had an increase of $9.4

billion, or 33 percent. The

diversified cooperatives group had a

$3.1-billion increase, to $20 billion.

Farm supply cooperatives were up

23 percent, to $12 billion, followed

by the grain cooperatives with a $2-

billion increase (figure 1).

Higher milk prices and greater

milk volume fueled the dairy sector

increase. Grain sales were the

leading revenue generator for

diversified cooperatives, with feed

and petroleum sales helping on the

farm supply side. 

Petroleum sales were also a

driving force for sales gains by

cooperatives that deal primarily in

farm supplies. Many of these farm

supply cooperatives also marketed

member’s grain, which further

boosted revenue.

Table 1—Consolidated income statement

for the combined top 100 agriculture cooperatives 2006-07

2007 2006 Difference % Change

Sales 88,623,541,827 71,852,099,029 16,771,442,798 23%

Cost of Goods Sold 80,410,876,691 64,780,551,893 15,630,324,798 24%

Gross Margins 8,212,665,136 7,071,547,136 1,141,118,000 16%

Service 901,941,098 1,001,663,434 (99,722,336) -10%

Total Operating

Income 9,114,606,234 8,073,210,570 1,041,395,664 13%

Wages 3,301,482,949 3,065,671,176 235,811,772 8%

Depreciation 810,814,465 726,755,228 84,059,237 12%

Interest 572,398,426 475,150,271 97,248,155 20%

Other Expenses 2,701,164,506 2,759,197,988 (58,033,482) -2%

Total Expenses 7,385,860,345 7,026,774,664 359,085,681 5%

Local Savings 1,728,745,889 1,046,435,905 682,309,984 65%

Patronage Refunds 204,630,638 211,789,118 (7,158,480) -3%

Non Operating Income 109,862,630 168,647,448 (58,784,818) -35%

Net Income

Before Taxes 2,043,239,157 1,426,872,471 616,366,686 43%

Income Taxes 175,222,677 119,506,244 55,716,433 47%

Net Income 1,868,016,480 1,307,366,227 560,650,253 43%

2007 2006 Change % Change

Current Assts 19,568,833,650 13,440,505,860 6,128,327,790 46%

PP&E 7,614,360,494 6,665,388,277 948,972,217 14%

Other Assets 3,796,704,983 3,941,017,610 (144,312,627) -4%

Total Assets 32,902,504,583 25,551,115,201 7,351,389,382 29%

Current Liabilities 15,972,881,644 10,173,284,738 5,799,596,906 57%

Long-Term Liabilities 6,366,063,135 5,864,488,520 501,574,615 9%

Total Liabilities 22,338,944,779 16,037,773,258 6,301,171,521 39%

Allocated Equity 8,100,592,924 7,366,048,215 734,544,709 10%

Retained Earnings 2,462,966,880 2,147,293,727 315,673,153 15%

Total Equity 10,563,559,804 9,513,341,942 1,050,217,862 11%

Total Liabilities and

Equity 32,902,504,583 25,551,115,201 7,351,389,382 29%

Table 2—Consolidated balance sheet

for the combined top 100 agriculture cooperatives 2006-07

Largest co-ops reap record, 

$88 billion sales year in ‘07 
Higher gross margins fuel record income

Cost of goods sold for the largest cooperatives jumped 24

percent, to $80.4 billion. The resulting gross margins

improved by $1.1 billion, to $8.2 billion. This surpassed the

record-level gross margins from 2006. 

Fruit/vegetable cooperatives were the only commodity

group to show declining gross margins, with a decline of 35

percent, to $629 million. The leading cause of this decline

was higher-than-expected output, which suppressed world

market prices. However, the cooperatives paid members

higher amounts for their products. The result was higher cost

of goods sold for the cooperative in relation to sales.

Total expenses for the 100 largest farm co-ops were up 5

percent, to $7.4 billion, in 2007. Leading this increase was

labor expense, which jumped $235.8 million. Dairy

cooperatives accounted for nearly 60 percent of that increase.

Dairy cooperatives generally have the highest labor costs,

representing about 40 percent of the total, for the Top 100

farm co-ops. 

By contrast, cotton and poultry/livestock cooperatives

reduced their labor costs by a combined $4.8 million.

Interest expense jumped 20 percent, to $572 million, while

depreciation was up 12 percent, to $811 million, in 2007.

Most of the interest increase is attributed to grain, diversified

and farm supply cooperatives. 

The grain commodity group accounted for 57 percent of

the increase in interest expense due to much higher grain

prices. 

Those commodity groups with the highest increase in

interest expenses also had the highest increase in

depreciation, including the dairy group. 

The record $1.9 billion of income posted by the Top 100

co-ops in 2007 held true for all sectors, except for sugar

cooperatives. Sugar co-ops had a decline in net income of 7

percent, to $74 million. Several sugar cooperatives suffered

losses due to declines in non-operating revenue sources.

Cooperative assets continue to rise

Balance sheet highlights for the largest 100 ag

cooperatives are presented in table 2. They show that total

assets were up 29 percent, ending 2007 at $32.9 billion.

Current assets showed the biggest gain, up $6.1 billion, to

$19.6 billion. 

Current assets now make up 59 percent of total assets up

from 53 percent in 2006. Current assets are those

assets considered the most liquid. These include

cash, accounts receivable, inventory and other

assets that could be sold quickly in case of

emergency. 

Fixed assets were up 14 percent, to $7.6

billion. Most of the commodity groups invested in

fixed assets during 2007. Dairy cooperatives

accounted for more than one-third of that

increase. Diversified and farm supply cooperatives

also accounted for a substantial part of the

increase.

Current liabilities jumped 57 percent, to $16

billion. However, long-term liabilities had a more

modest increase of 9 percent, rising to $6.4

billion. Total liabilities for the largest agriculture

cooperatives jumped 39 percent, to $22.3 billion. 

Equity allocated to members was $735

million more than in 2006, ending 2007 with $8.1

billion. Every commodity group added to their

members’ equity account except cotton,

fruit/vegetable and rice cooperatives. 

Retained earnings were up 15 percent, to $2.5 billion.

Dairy and sugar commodity groups each had declines in

retained earnings. However, higher allocated equity offset

those declines, and they ended 2007 with higher total equity. 

Total equity for the combined Top 100 cooperatives was

up 11 percent, to $10.6 billion. The only commodity group

to post lower equity was the fruit/vegetable group, which saw

a 3-percent decline, to $514 million.

Other 2007 highlights

USDA analysis of the Top 100 co-ops also shows that:

• Local savings were up 65 percent, to $1.7 billion. Every

commodity group showed a tremendous increase in local

savings. Local savings are margins generated from the

cooperative business before patronage refunds received,

non-operating income and taxes are included. This number

looks at the core business of the cooperative. 

• Patronage refunds received from business conducted with

other cooperatives were down 3 percent, to $205 million.

Non-operating income — revenue sources not directly

involved with operations — was down $59 million. 

• While cooperatives are considered “not for profit” entities,

they still pay income taxes to both the state and federal

government. Income taxes paid ballooned by 47 percent. ■

10 March/April 2009 / Rural Cooperatives

35,000

30,000

25,000

20,000

15,000

10,000

5,000

40,000

Sales Revenue in Million $

2006 2007

Cotton Dairy Rice

Fruit &

Vegetable Grain Livestock Sugar Diversified

Farm

Supply

Commodity Group
Rural Cooperatives / March/April 2009 11

Spotlight

By Blair Fannin

Editor’s note: Fannin is associate news

editor for Texas AgriLife Research at A&M

University, College Station, Texas. 

gricultural cooperatives,

though smaller in

numbers than in the past,

are providing more goods

and services than ever

before in Texas, and new ventures may

occur in the future, according to an

agriculture expert with Texas AgriLife

Extension Service. 

“If you look at the amount of business

those co-ops are doing, they are actually

doing more business than they used to,”

says Dr. John Park, AgriLife Extension

economist and a Roy B. Davis professor of

agricultural cooperation at Texas A&M

University in College Station. “Those

cooperatives represent a large amount in

terms of dollars of equity and a large

economic contribution by these farmers

through a cooperative business.” 

Park recently was named to the Davis

endowed professorship and serves both

AgriLife Extension and the agricultural

economics department at Texas A&M in

dual teaching outreach roles. Conducting

research on trends and advising

agricultural cooperatives is one of Park’s

main responsibilities. 

“One of the things we are doing now is

trying to document the economic

contributions of cooperatives through

Texas, working through the Texas

Agricultural Cooperative Council,” he

says. “They’re very interested in seeing

this done; their individual members are

interested in seeing this done because it

means more support and more dollars

when talking to legislators.” 

Park’s research and educational

responsibilities as part of the endowed

professorship extend beyond agricultural

cooperatives. For example, he and others

assisted the Texas citrus industry by

exploring the market potential of a freshcut grapefruit retail product. 

“Texas grapefruit happens to be a

fantastic product,” he says. “It’s the besttasting fruit and it’s far undervalued. We’ve

worked with the Texas citrus industry and

Texas Citrus Mutual to evaluate new ways

of capturing value from that product.” 

Park also deals with risk-management

issues. He and other Extension specialists

are working with a group of farmers in the

coastal region to mitigate damage done by

feral hogs to wheat, corn and sorghum

crops. 

Park teaches two courses: Agricultural

Marketing 314 and Agricultural

Cooperation 413. The agricultural

cooperation course is part of the endowed

professorship and is designed to shape

future leaders who might become

employed by a cooperative after

graduation, he says. 

His course instruction takes a different

approach: Students are elected to board

positions, with Park acting as the general

manager. Class members receive

“patronage dividends” in the form of grade

points for specific projects completed. 

Park says he couldn’t be in a better

position in serving both Texas agriculture

and working with students at Texas A&M

who will someday be industry leaders. 

“I’m really thrilled to be a part of the

cooperative environment here in Texas and

with people who are truly concerned about

not just their business, but their neighbors

and communities,” Park says. “To be part

of this Roy B. Davis professor-ship is very

exciting and a blessing for me.” ■

Park sees bright future for Texas ag co-ops

Although fewer in number, Texas

farm co-ops are doing more

business than ever, says John Park,

left. Photo by Jerold Summerlin,

courtesy Texas AgriLife Extension

Service

University seat

honors Roy Davis 

The Roy B. Davis

Professorship in Agricultural

Cooperation was created in

1971. Davis was the longtime

general manager of the Plains

Cooperative Oil Mill and

leader in agriculture and

cooperative development in

Texas. 

In addition to serving as

the Davis endowed professor,

Dr. John Park’s research

program focuses on valueadded agriculture and

management issues facing

cooperatives and other

businesses associated with

agriculture and rural

communities. 

For more information, visit:

http://cooperatives.tamu.edu.

A
By Rita Simerly 

Cooperation Works!

he maintenance of a

profitable cooperative

business practice often

calls for outside

assistance. To provide

the resources necessary to keep

cooperative ventures buoyant, the

National Network of Forest

Practitioners (NNFP) provides the

tools and the know-how to support

cooperative growth and instigate intercooperative participation. It provides

education, technical assistance and

networking opportunities for rural

forest and wood-related cooperatives. 

NNFP – the newest member of

Cooperation Works!, a national

cooperative of cooperative development

professionals – supports the growth of

business groups and grassroots

organizations while promoting the wellbeing of the forest. It helps these

businesses and local organizations

create jobs while stewarding or

restoring the forest. 

This cooperative development work

is distinctive in that it focuses

exclusively on forest-related services,

including landowner cooperatives,

forest products manufacturing and

12 March/April 2009 / Rural Cooperatives

Co-op Development Action

National network of practitioners

connects forestry cooperatives

This timber was harvested from 215 acres outside Wytheville, Va., owned by Jim and Sarah Minick, members of the Blue Ridge Forest Co-op.

Birch bark is also used to make baskets and weavings. Photos by Michael DiBari Jr.
forest-grown medicinal herbs.

Springing from a collection of forest

workers, micro-enterprises and

grassroots organizations in the early

1990s, NNFP has become a force for

sustainable business development and

cooperative ownership. Originally

founded in New Mexico, the NNFP is

now based in foothills of the

Appalachian mountains of Southeast

Ohio and focuses much of its efforts in

Appalachia, while remaining open to

working with other groups nationally. 

Members include the Blue Ridge

Forest Cooperative, the Ohio Forestry

Cooperative, the Living Forest

Cooperative and the Massachusetts

Woodlands Cooperatives, among

others. These include a variety of

efforts by people seeking ways in which

to improve their livelihoods. 

Timber industry hurt

by housing crisis

With the timber industry in a freefall

due to low housing starts, the need is

great for cooperative education and

support as communities look for ways

to retain workers in the vital woodprocessing infrastructure. In particular,

sustainable forestry groups are looking

for assistance with marketing Forest

Stewardship Council (FSC) certified

wood. FSC is an international standard

for sustainable forestry that gives local

businesses a boost in marketing to

“green building” projects.

“Our interest is in supporting

ownership and entrepreneurship for a

broader range of people,” explains

Colin Donohue, NNFP executive

director. “Business isn’t just for people

with a large pool of money; everyday

folks should be able to participate in

ownership too.”

The association achieves its goals

through a variety of means. In order to

provide education and consultation,

NNFP provides educational services to

member cooperatives, encouraging

them to share their experiences and

take steps that can help shape forestry

and rural development policy. 

NNFP provides education via its

website, newsletters and workshops. In

association with American Forests, the

Communities Committee and the

Pinchot Institute for Conservation, it

helps host the annual Week in

Washington to build awareness of

federal policy and encourage

participation with decisionmakers. 

Working with co-ops in a number of

states means NNFP needs to “work

smart” to stretch funding. A key feature

of this has been hosting web-based peer

learning sessions that facilitate

exchanges of information and ideas to

address problems faced by co-ops.

Recent webinars have been focused

specifically on ensuring the economic

survival of member cooperatives in light

of the deteriorating economy.

Buckle down time

“Currently, our biggest project is

helping people buckle down and get

finances in order,” says Donohue. 

NNFP provides business planning

and general technical assistance

necessary to keep cooperative ventures

afloat. This is achieved through the

webinars, which not only allow for the

free exchange of information, but also

spare participants the costs and time of

travel. In 2009 NNFP will also be

cooperating with other organizations to

host and facilitate web-learning sessions

to help spread the use of this

technology. 

“The webinars are a much more

effective way of sharing information,”

explains Harry Groot, CEO of the Blue

Ridge Forest Cooperative (BRFC), who

participated in recent webinars aimed at

the economic security of groups such as

his. “We can share solutions and

problems that we’ve been having, or are

going to have, and we come out of it

with a prioritized laundry list of issues.”

The Blue Ridge Forest Cooperative

helps sustain the Blue Ridge Forest

while marketing local forest products.

The co-op has benefitted significantly

from the webinars, NNFP-hosted

gatherings and other assistance. By

working with other cooperative forest

industries nationwide, BRFC has been

able to foresee potential business

problems and develop methods of

avoiding them. 

In the case of the web meetings,

members are instantly connected to one

another, becoming part of a network of

related groups that are then able to

collaborate with one another to achieve

common goals. 

“The webinars have broadened the

network of resources we can get

assistance from very effectively,” says

Groot. “It’s a fantastic group to work

with.” ■

Rural Cooperatives / March/April 2009 13

Dave Martinson, a member of the Living Forest Cooperative and an organic farmer in

Bayfield, Wis., collects wood from his 90-acre property and turns it into furniture. “I look

for anything that’s unusual,” he says of his wood selection. Photo by Peter Hoffman
14 March/April 2009 / Rural Cooperatives

By Jane Braxton Little

Editor’s note: Little is a California-based writer.

hen Don Flournoy decided to thin a portion

of his 235-acre Sugar Bush Farm, he wanted

to use a “light-on-the-land” logging method

that would not damage his property. He knew

right where to find help: The Ohio Forestry

Cooperative. 

The organization of Ohio forest landowners put Flournoy

in touch with a horse logger who uses lightweight equipment

suited to his mixed-hardwood forest. The results left him

satisfied — “very satisfied,” says Flournoy, an international

telecommunications consultant and professor at Ohio

University in Athens. 

For forest landowners such as Flournoy, the Ohio Forestry

Cooperative is providing support and critical links that are

helping them manage their forests sustainably for wood,

water, wildlife and recreation. Ultimately, the co-op may make

the difference between lands that remain forested and those

that become parceled into smaller and smaller tracts that are

no longer economically productive or ecologically functional.

Other forestry co-ops in different parts of the country are

providing similar services to landowners. 

A “bootstrap” operation first incorporated as the Ohio

Premium Pine Cooperative (OPPC) in 2004, the co-op began

as a group of tree farmers who banded together to market

their pine products. As they worked to improve their pine

plantings that had been established on “beat-up” hill farms,

some members realized that the services of the cooperative

could, and should, be extended beyond pine to sustainable

management and marketing of their members’ hardwood

forests, as well. 

Forestry Co-ops Take Root 
Rural Cooperatives / March/April 2009 15

They recently reorganized as a “holistic” forest

cooperative, offering landowners services that

range from marketing and logging contract

preparation to forest management plans. 

Forest needs vary greatly

Not all forests need the same treatment, says

Pete Woyar, a consulting forester and for 28

years a forestry instructor at Ohio’s Hocking

College. Determining what a landowner wants

and what the land will support is a careful

process, he says. Members of the newly reorganized Ohio Forestry Co-op recruited

Woyar to help match their members with onthe-ground specialists for land management. 

The co-op also provides education,

information about conservation easements and

other tax-related benefits. Sometimes all a

forest owner needs is someone to turn to for

advice, Woyar says. 

The Ohio cooperative is one of a growing

number of regional organizations the members

of which share a commitment to ecological

care of the land. Others include the Blue Ridge

Forest Cooperative in southwest Virginia,

Living Forest Cooperative in northern

Wisconsin and the Massachusetts Woodlands

Cooperative in western Massachusetts. 

Landowners in each of the groups have

banded together for the long-term stewardship

of forestlands, healthy communities and local

economic development. Now the groups are

connecting with each other. The National

Network of Forest Practitioners is connecting

them for peer-to-peer learning and networking,

while supporting them by providing education,

technical assistance and targeted services

around financing and marketing. 

The Ohio Forestry Co-op is in the process

of applying for certification under the Forest

Stewardship Council for its members’ forests,

which total more than 5,000 acres and

growing. That would offer a market for

“green” building materials from sustainably

managed forests, says Terry Jeffers, a

landowner and the cooperative’s president. 

Management plan essential 

A condition of FSC certification is

development of a forest management plan. By

working as a group, the co-op members can

hire a forester to craft management

prescriptions on their separate properties for a

better price than each of them could get on his

own, Jeffers says. 

The forest owners also hope to pool their

forests’ potential for storing carbon and are

moving into carbon-offset sales. NNFP is

assisting them in marketing the carbon credits. 

Colin Donohue, NNFP’s executive director,

explains that carbon trading seems to be at a

tipping point. “While sales of commodity

credits from forestland are currently marginal,

there are opportunities for branding and

marketing of Family Forest credits that are

from “Green Certified” lands in the current

voluntary market.

“If the United States establishes a cap-andtrade system for reducing carbon omissions,

there will be tremendous potential for these

rural landowners to profit,” Donohue

continues. “We’re helping the co-ops get ahead

of the curve.” 

Along with these tangible goals, the

cooperative is focused on small landowners

working together to improve forests for the

future, says Flournoy. He remembers his

parents hand-planting more than 500 acres of

pines on their worn-out cotton farm in east

Texas. They never saw the benefits of their

labor, but their children did. 

“And ours will, too,” Flournoy says. “Our

children and their children and their children,

along with the rest of society. That’s why we do

this work.” 

For more information, contact: Terry

Jeffers, landowner and president, Ohio

Forestry Cooperative, 408-354-8384,

tlplaw@comcast.net. ■

Flournoy’s parents

hand-planted 500

acres of pines on

their worn-out cotton

farm. They never saw

the benefits of their

labor, but their

children did. 

Peter Woyar of the Ohio Forestry Cooperative

(foreground) and logger Rich Douglas use

horsepower to harvest timber in Ohio. Photo by Colin

Donohue. Lower photo: Emery Hammond loads

timber near Barnes, Wis., on a job managed by the

Living Forest Cooperative. Photo by Peter Hoffman
Farmer-owned ethanol plants may ride out

the market crash that bankrupted VeraSun
Rural Cooperatives / March/April 2009 17

By Stephen Thompson, assistant editor

t was a gold rush.” That’s how Anne Duignan,

a securities analyst for J.P. Morgan,

characterizes the heady days when ethanol

plants were popping up like mushrooms after

a spring rain. Ethanol startups made money

hand over fist; some paid their investors back completely in

two years or less.

Unfortunately, such booms rarely last. Additional investors

(mostly non-farmers) chased the high profits, and the

resulting over-expansion in the industry — coupled with

falling oil prices — caused profit margins to fall. Most of the

late entrants into the industry were highly leveraged ventures

that are now struggling; the value of ownership shares

plummeted some 89 percent in 2008 and there have been

some notable bankruptcies. 

The most conspicuous ethanol failure has been VeraSun,

the nation’s second-largest ethanol producer, with 1.64 billion

gallons of annual production at its peak. Many analysts say

the company was victimized by its own unwise market

decisions. VeraSun, now in bankruptcy, had grown rapidly, in

part through aggressive acquisition of other companies,

including U.S. Bioenergy. CHS Inc., the nation’s largest

farmer cooperative, held a 28-percent stake in U.S.

Bioenergy, and thus holds 8 percent ownership of VeraSun.

The bankruptcy resulted in the cooperative writing off its

$142-million investment in VeraSun.

But VeraSun is far from alone in feeling the impact of the

sharp reversal in the ethanol market. Virtually all corn

ethanol operations are now being squeezed by the oversupply, causing a decline in profit margins.

The plunge in the economy that began with the collapse

of the market for mortgage-backed securities caused the stock

market to tumble, and nervous investors — including huge

hedge and pension funds — looked for other places to put

their money; many poured their dollars into the commodities

markets. 

The resulting price boom affected everything from

precious metals to petroleum to corn and soybeans. This put

corn-ethanol producers in a bind: climbing grain prices

squeezed their margins, despite the higher prices they were

receiving as ethanol was used to augment supplies of highpriced gasoline.

Corn prices peaked at about $8 a bushel during the

summer of 2008, and then began a steep decline to under $3,

although as of this writing prices have climbed to about

$3.50. Some ethanol producers, most conspicuously VeraSun,

took out long-term contracts on corn when prices were at, or

near, the high-water mark, only to be whipsawed when

commodity prices crashed. It was the decision most

responsible for sinking the company. 

Ethanol production, after climbing more than 40 percent

in 2008, to 9.2 billion gallons, is now leveling out. Figures

from the U.S. Department of Energy’s Energy Information

Administration show biomass fuel production remaining

essentially flat since January, with only a 4-percent rise

projected for 2010. Part of the slowdown is due to the closing

of ethanol production facilities, with 1.9 billion annual

gallons capacity taken offline since October — VeraSun

accounted for 1.2 billion gallons of the decline. 

Farmer-owned ethanol

plants faring better

But what about farmer-owned ethanol cooperatives and

LLCs? How will they weather the economic storm; and what

are their prospects in an uncertain market?

Anthony Crooks, an economist with USDA Rural

Development, thinks smaller operations with local feedstock

sources are in a better position to weather the downturn if

they haven’t gone out on a limb with futures contracts or

leveraged expansion. “The small co-ops didn’t use contracts

as much as the big operations,” he says.

Robert Cropp, an agricultural economist and emeritus

professor at the University of Wisconsin who focuses on

cooperatives, agrees. He says that cooperative ventures that

depend on member-growers for their feedstock are generally

doing a little better than average. “None of them are doing

the greatest,” he says. “But some are doing OK because

they’ve been around for a while.” 

While some ethanol co-ops and producer-owned LLCs

took out futures contracts with members, they tend not to

have gone as far out on a limb as VeraSun, Cropp says. “It’s

different. They were hedging, instead of speculating.”

Cropp thinks that corn prices will generally remain around

the $3.50 mark for the foreseeable future. “I think prices

below $4 are the long-term trend,” he says. “We don’t have

hedge funds or speculators in the market for corn any more,

so it probably won’t go down to $2 or up to $6.”

For those who got into the ethanol market too late, the

price can be high. The Greater Ohio Ethanol LLC plant in

Lima, Ohio, a 54-million-gallon-per-year operation that cost

$150 million to construct, was recently sold in bankruptcy for

just $5.75 million, with the promise of another $15 million at
18 March/April 2009 / Rural Cooperatives

an unspecified later date. None of that money will go to

investors. The plant opened last July and closed after only

five months of operation due to a deadly combination of low

ethanol prices, high debt and design problems, according to

press reports. 

Crooks says that part of the problem facing ethanol

producers is that ethanol prices have become decoupled from

gasoline prices. Two years ago, as gasoline prices climbed,

ethanol prices lagged. Later, when fuel prices fell, ethanol

prices fell further. 

The problem seems to have stemmed from waivers from

ethanol-content requirements set by the U.S. Environmental

Protection Agency (EPA) for oil refineries ill-equipped to

handle ethanol shipments. It isn’t practical to transport

ethanol through pipelines. Unlike other materials handled by

refineries, it must be shipped in railroad tanker cars or trucks. 

Many refineries unable to deal efficiently with large

ethanol unit trains were allowed to skirt the requirements at

the time. But, says Crooks, “They should all be in

conformance now.”

Crooks believes that ethanol prices should normally follow

wholesale gasoline prices in a roughly one-to-one

relationship. Today, after most transportation problems have

been resolved, ethanol prices languish in the $1.50-per-gallon

range — 25 cents higher than those for gasoline, but not high

enough for most producers to make money.

EPA mandate spurred market

Ethanol’s use as a motor fuel in the United States is

primarily the result of legislation. EPA regulations require

that gasoline sold in many areas suffering from air pollution

include additives containing oxygen. Until the early 2000s,

the preferred oxygenating agent was methyl tertiary butyl

ether, or MTBE. The discovery that MTBE was seeping out

of storage tanks and contaminating groundwater led to the

adoption of ethanol as a substitute, beginning in California in

2003. 

The Federal Energy Policy Act of 2005 established a

nationwide requirement for the use of “renewable fuels” by

fuel producers and importers, with a quota of 6 billion

gallons of ethanol or their equivalent in biodiesel or other

renewable fuels in 2006. The Energy Independence and

Security Act of 2007 (EISA) increased those requirements to

9 billion gallons in 2008, 10.5 billion in 2009 and to a

maximum of 15 billion in 2015 and subsequent years. The

result was the above-mentioned explosion in ethanol plant

construction (see sidebar, page 20).

High petroleum prices in 2007 and 2008 added to the

demand for ethanol: with gasoline prices above $2.80 per

gallon wholesale, it was good business to blend it with

ethanol priced at $2.50. But today, with wholesale gasoline

going for only about $1.25, ethanol at $1.50 offers no such

advantage. 

USDA economist Dr. Hosein Shapouri says the limiting

factor is the “blend wall”: the limit on the amount of ethanol

that can be blended into gasoline for conventional cars and

trucks. Currently, the limit is considered to be a little more

than 10 percent ethanol, although Minnesota has mandated a

20-percent blend to be implemented by 2013, and various

groups have lobbied for 15 and 20 percent requirements in

federal bailout legislation for automakers.

With 10 percent currently an upper limit for blending

ethanol into gasoline, the overall amount used is actually less,

because some small refineries are exempted from the

requirements. As a result, the amount of ethanol that can be

blended into gasoline, on average, is about 9 percent.

Members of the Governors’ Biofuels Coalition, an

organization of state governors dedicated to promoting the

use of fuel ethanol, recently announced that they had

requested the EPA to issue a waiver that would raise the

blend limit to 13 percent. A biofuel trade group called

Growth Energy says a switch to 15 percent ethanol would

create 136,000 new jobs and inject $24 billion into the

economy each year. 

Meanwhile, E85 — which is 85 percent ethanol and 15

percent gasoline — is having trouble penetrating the market,

even though more than 7 million “flex-fuel” vehicles in the

United States are configured to use it (see sidebar, page 19). 

Increasing the blend of ethanol in fuel for conventional

engines can pose problems. Ethanol contains only about twothirds the energy of gasoline. While new technology may

enable engines of the future to deliver mileage from higher

ethanol blends comparable to that of gasoline, in current

engines their use results in lower mileage per gallon.

Moreover, in higher concentrations ethanol also alters the

fuel’s combustion properties and can cause corrosion in

Sugarcane bagasse (supplied by a farmer co-op), dedicated

energy crops, wood products and switchgrass are fueling the

Verenium Corporation’s cellulosic ethanol demonstration plant in

Jennings, La. Photo courtesy Verenium Corp. 
Rural Cooperatives / March/April 2009 19

Only a few years ago, auto fuel containing 85

percent ethanol was being promoted as the

wave of the future. It was touted as the fuel that

would help make the United States less

dependent on foreign oil producers, keep

engines cleaner, cut down on air pollution and

prevent global warming. Car and truck makers

have built millions of “flex-fuel” vehicles

capable of burning E85, and GM and Ford

recently announced that half of their vehicle

production will be E85 capable by 2012. 

Karl Simon of the U.S. Environmental

Protection Agency says E85 “must be part of the

solution” to the problem of reducing greenhouse

gases.

So why is the market lagging? E85’s share of

the auto fuel market is tiny. In Iowa, a state with

one of the highest numbers of E85 outlets in the

country and an active state government

promotion program, the fuel makes up only .1

percent of vehicle fuel purchases. In most of the

rest of the country, the proportion is far less, and

seven states have no E85 retail outlets at all.

Part of the problem is the cost of the fuel vs.

its energy content. According to some

estimates, ethanol contains only about twothirds of the energy of conventional gasoline.

That means fewer miles per gallon, which is not

currently offset by a comparable difference in

price per gallon. 

The National Ethanol Fuel Coalition, which

promotes the use of E85, maintains that its

mileage disadvantage is only about 10 to 15

percent, and points out that E85 has a much

higher octane rating than even premium gasoline: 95 to 105 octane. The organization compares the E85 mileage loss to those resulting

from “aggressive driving” and low tire

pressures: 20 percent and 6 percent

respectively. 

In any case, Phillip Lampert, the

organization’s executive director, thinks the cost

drawback is temporary. “I don’t want to start a

conspiracy theory,” he says, “But the easiest

way for oil companies and petroleum-producing

nations to ruin the alternative fuel industry is to

drastically lower the price of gasoline. It’s clear

that the price of gasoline will increase and

ethanol will again be a good buy for

consumers.”

E85’s higher octane makes it possible to

improve mileage by using engines with much

higher cylinder pressures than those in

conventional vehicles and technologies such as

direct injection into the combustion chamber.

Ricardo Technologies, a large independent

automotive engineering firm that consults for

major manufacturers, says it has developed a

turbocharged engine that can achieve mileage

rates from ethanol comparable to gasoline and

even diesel engines. 

Another issue is E85’s need for special

handling. It can’t be shipped in pipelines that

carry petroleum products. However, Poet LLC

and Magellan Midstream Partners LP have

announced a joint venture to study a possible

1,700-mile, dedicated ethanol pipeline. The

pipeline would cost about $3.5 billion and deliver

ethanol from plants in the Midwest and Plains

states to distribution terminals in the Northeast.

E85 can’t be stored and dispensed from

conventional facilities at the point of sale;

special tanks and pumps must be installed —

adding to its expense. ■

Whatever

Happened to

E85?

vehicles not configured for its use. General Motors has come

out against ethanol blends of more than 10 percent in

conventional vehicles, claiming they cause damage to

catalytic converters and declaring that the use of higher blend

levels will void warranties. A recent EPA study found that the

use of E15 and E20 was associated with increased

temperatures in catalytic converters, and said the additional

heat may cause damage. The marine industry has also issued

warnings about problems associated with the use of ethanolblended fuel in boat fuel tanks.

The EPA’s Karl Simon, director of the Office of

Transportation and Air Quality Compliance and Innovative

Strategies Division, says that undertaking a study of the

effects of raising the blend limit to 20 percent for use in all

gasoline engines is impractical. “It would take years and tens

of millions of dollars,” he says, because of the need to

document the effects of the blend on diverse older vehicles as

well as small gasoline-powered tools such as chainsaws and

lawnmowers. 

However, newer vehicles are least likely to be affected by

higher levels of ethanol, and Simon hopes for a more focused

study to find whether they can use it with no ill effects. 
20 March/April 2009 / Rural Cooperatives

The Renewable Fuel Standard (RFS), set by the Energy

Independence and Security Act of 2007, requires that U.S.

gasoline producers (except for certain low-capacity

refineries) incorporate 9 billion gallons of ethanol, or its

renewable energy equivalent, into their production in 2008.

Other fuels, such as biodiesel, may be used instead of

ethanol at amounts that are pro-rated according to their

relative energy content. For instance, biodiesel has 1.5 times

the energy content of ethanol, so .67 gallon of biodiesel may

be substituted for one gallon of ethanol.

For 2009, the RFS requirement is 11.1 billion gallons.

However, only 10.5 billion gallons of the requirement may be

met using conventional corn ethanol or its equivalent. Of the

other 600 million gallons, 500 million gallons must be

biodiesel; 100 million gallons must be supplied through

imports or by using ethanol made from feedstocks other than

corn, such as cellulose.

Each gallon of fuel ethanol — or its equivalent —

produced in, or imported into, the United States is given a 13-

digit “renewable identification number,” or RIN, identifying

the facility where it was made, the batch and so on. This RIN

is associated with that gallon until the ethanol is blended into

fuel, at which time it may be transferred as a credit.

If the fuel processor has used ethanol to meet its

mandated portion of the RFS requirement, it uses its RINs to

certify this fact. However, if the processor used the ethanol

to make E85 (which would far exceed the renewable content

requirement for gasoline), or used biodiesel to produce

diesel fuel, it will have surplus RINs, which it can use to

certify unblended gasoline, or sell to another producer to do

the same. This allows fuel producers to sell gasoline with no

ethanol content and still meet their obligations under the

RFS.

As many as 1 billion RINs are expected to be available to

gasoline blenders in 2009. Some of these will have been

carried over from 2008; others will come from current

biodiesel production or imports of renewable fuels. Thus, the

demand for fuel corn ethanol is expected to increase only by

about 500 million gallons, unless the cellulosic requirement is

relaxed or higher petroleum prices make ethanol more

attractive economically.

— By Stephen Thompson

Shapouri notes that ethanol is not the only fuel that can be

used to meet the renewable fuels requirement. Biodiesel is

one alternative that can be absorbed by the energy

infrastructure relatively easily, although that market is much

more limited. 

Another fuel that some say shows promise is gasoline

produced by the “BioForming” technology of Virent Energy

Systems Inc. The Virent process uses catalyzed reactions to

synthesize fuel hydrocarbons from sugars, starches and even

cellulose. Virent claims it is more efficient, more economical

and more flexible than microbe-based processes, such as

those producing ethanol. 

Cellulosic ethanol, made from non-food plant material —

such as wood wastes, grasses and crop residue — is seen by

many as the ultimate future of the ethanol industry. When it

becomes commercially feasible, it will be possible to retrofit

cellulosic production technology to existing corn ethanol

distilleries. 

Cellulosic’s potential advantages include the ability to use

waste materials and crops grown on marginal land, reducing

the emission of carbon dioxide and other greenhouse gases in

comparison to grain ethanol, and lowering the cost of

production and easing the squeeze on profits. The Renewable

Fuel Standard mandates increasing use of cellulosic ethanol

and other advanced biofuels in comparison to corn ethanol. 

But it remains to be seen how long cellulosic ethanol will

take to achieve full commercial viability. The Verenium

Corporation is currently operating a demonstration plant in

Louisiana, partially funded by USDA Rural Development.

This plant uses sugarcane waste, known as bagasse, from a

sugar cooperative as the cellulosic feedstock. The firm has

entered into a partnership with British Petroleum (BP) to

build and operate a commercial-scale plant in Florida,

scheduled for completion in 2010. 

Other cellulosic ethanol ventures also claim to be close to

commercial viability. 

For corn ethanol producers, now is crunch time.

“Nobody’s making money right now,” says Duignan. But, she

adds, if gasoline prices rise 20 cents, ethanol will be profitable

again at current corn prices.

Cropp thinks gas will eventually go up — the question is

when. He thinks the wholesale price has to rise above $2 per

gallon for ethanol co-ops to do well. “Some operations are

more efficient,” he says. “Others will need $2.50 gas to make

a go.”

In any case, the gold rush is over for now. ■

How the Renewable Fuel Standard works
Rural Cooperatives / March/April 2009 21

Value-Added Corner

Identifying ‘better ideas’ helps

MaxYield Co-op double sales 

ike the farm sector itself,

Iowa’s MaxYield

Cooperative has had its

ups and downs since its

first stockholders met in

1915. But with plenty of local faith and

investment, and support from various

USDA programs, MaxYield Cooperative (previously West Bend Elevator

Co.) and its 18 locations across northwest Iowa are on a healthy growth curve.

One reason for the recent, welldirected growth of this co-op,

headquartered in West Bend, Iowa, is

USDA’s Value Added Producer Grant

(VAPG) program. Under the program’s

50/50 match rules, MaxYield received

$30,500 in VAPG funding to study the

feasibility for installing a methane

digester. This was followed by $50,000

in additional VAPG money to study

biodiesel production. (For more

information on the VAPG program,

visit: www.rurdev.usda.gov/rbs/coops/

vadg.htm). 

The two studies led to shelving the

digester plan for now and continuing to

pursue biodiesel retail sales, although

holding off on biodiesel production.

These decisions played a part in turning

MaxYield’s disappointing financial

results during the 1990s into today’s

very healthy profits picture. 

When the time is right — perhaps in

another 10 years — MaxYield leaders

say they will be ready to add methane

gas to its mix of operations.

“The two Value-Added Producer

Grants were instrumental in our

decisionmaking process,” MaxYield

CEO Keith Heim explains. “The

feasibility studies clearly showed that

the time was not yet right for methane

digestion here, and that we should

continue to expand the biodiesel retail

market share but hold off on entering

into biodiesel production.” 

New solutions

Billing itself as “not your grandfather’s cooperative,” Heim says “we

view ourselves less as a traditional input

supplier and more as an entrepreneurial

solutions provider, from organic nutrients to ethanol to precision

agriculture.”

MaxYield’s secret is being agile

enough to incorporate the best new

ideas – like ethanol, biodiesel, precision

seed trait choice and nutrient

management — but wise enough to

avoid other ideas not yet ripe for

commercialization. The result, says

Larry Arndt, MaxYield director of sales

and marketing, is that sales have

doubled to $208 million over the past

five years. Along with these record

sales, MaxYield notched another record

by announcing $5.5 million in allocated

patronage refund payments to its 1,900

members at its 94th annual meeting in

December.

The operation remains a traditional,

100 percent farmer-owned cooperative

that handles more than 80 million

bushels of corn and 5 million bushels of

soybeans per year. MaxYield also

provides solutions by managing

sophisticated marketing, seed, fertilizer,

feed and fuel needs both for farmers

and for major bioenergy companies,

such as Global Ethanol.

“In the last fiscal year, we have

become a very ‘Lead with Seed’

company,” Arndt explains. “That’s what

we call it, because seed-trait technology

today demands that we focus on seed

solutions for our clients. Agriculture is

probably the most exciting thing going

on around us in terms of economics and

the world perspectives.” 

Agriculture has its work cut out for

it, Arndt says, because “there are more

people to feed in the world and more

consumers are demanding more

protein.” Fortunately, he says there are

also “more bright young people

pursuing agriculture” careers. 

MaxYield has been able to attract

some of those the bright young people,

he says, because of the exciting new

programs it has developed — such as

SciMax Solutions and the SciMax

Nitrogen program, which use half-acre

grid maps to precisely manage seed

types and fertilizer needs for 25 growers

and nearly 40,000 acres. ■

“We view ourselves less as a traditional input supplier and more as an entrepreneurial solutions finder,” says MaxYield Cooperative CEO

Keith Heim. Photo courtesy MaxYield Cooperative
By Bruce Burdett

Editor’s note: This article is reprinted

courtesy East Bay, Rhode Island,

Newspapers.

ever mind Maine or

Idaho, some of the

best potatoes grown

anywhere come from

Sakonnet towns and

Westport. Now five of those farms are

joining forces to promote that fact

with a new, all-local potato brand: the

RI Royal. 

“Fresh and super creamy, the white

potatoes in the purple bag with the

Narragansett label” are beginning to

show up on store shelves and

restaurant tables. 

The marketing effort, which takes a

page from the successful Rhody Fresh

milk campaign, is backed by Farm

Fresh Rhode Island, W.J. Canaan

Produce Co., the R.I. DEM Division

of Agriculture, and Semap “Buy

Local” of Southeastern Massachusetts. 

Participants include Ferolbink

Farms in Tiverton, Lacerda Farm and

Quonset View Farm in Portsmouth,

Sampson Farms in Westport and

Young Family Farm in Little

Compton. 

The five farms didn’t all at once

begin growing a new sort of potato,

said Jerome Sampson, owner of

Sampson Farms. They are simply

calling attention to a potato they

believe is something special.

“It is a really delicious light potato

that grows especially well in the

moderate conditions we get here,” Mr.

Sampson said. The potato doesn’t like

extreme heat and needs a longer

growing season than is found in

Maine. Elsewhere the spud is known

as the Norwis, or FL (Frito Lay) 657. 

“It is an excellent all-around

potato,” agrees Joe Lacerda Jr. of

Portsmouth. Lacerda Farm grows an

early variety to get things started, “but

these are 80 percent of what we do.

They are great for frying, mashed,

baked and with sauces and soups. You

can’t go wrong.” 

Mr. Samson said his farm used to

grow other varieties before being

tipped off to this type by Pete

Peckham, owner of Ferolbink Farms

in Tiverton. “He had been given some

22 March/April 2009 / Rural Cooperatives

Royal Treatment 
Rural Cooperatives / March/April 2009 23

bags of seed to try and he shared five

bags with us.” 

After harvest, so thrilled were they

all with the results that Ferolbink

ordered a truckload of the seed. 

“Now it is our main crop,” Mr.

Sampson said. 

Because it is light and fluffy, this

potato is especially good at absorbing

flavors, making it delicious alone with

butter or sauce or in a stew. It is a big

seller in natural foods markets and in

Portuguese markets and restaurants,

among other places. 

Farmers’ tap demand

for local produce 

They know their product is a good

one, but these local farms face

challenges not unlike those that drove

area dairy farms to market Rhody

Fresh Milk. 

The prices offered by big regional

distributors make it difficult for small

New England farms (in comparison to

large mid-America farms) to compete.

And any hope of profit can be

devoured by transportation costs. So

by selling close to home, they avoid

long-haul shipping costs and cutthroat

pricing policies. The end product on

the store shelf can then be priced

competitively with those from the

giant potato producers. 

“And there is actually a chance a

little [money] may land in our

pockets,” said dairy farmer Louis

Escobar of Portsmouth about the

Rhody Fresh milk brand. 

Farm Fresh RI and Semap also

point out that local brands, such as RI

Royal, tap into a growing consumer

desire to buy products produced

nearby. Not only homeowners, but

schools and colleges are increasingly

seeking local produce both for quality

and environmental reasons. 

“Just as successful cooperatives like

Rhody Fresh Milk and Rhody Warm

Blankets have done, local potato

growers have teamed up to

cooperatively market fresh local

potatoes that are just days from

harvest,” said Ken Ayars, chief of the

Rhode Island Division of Agriculture.

“Buying local keeps family farms

viable and ensures a fresh product, and

saves on the energy costs farmers

would need for storage — and the

taste of locally raised spuds can’t be

matched.” 

Close enough

Mr. Sampson said that when he was

approached about joining the group,

he asked why a Westport grower

would be part of a Rhode Island

potato project. 

“They told me, ‘You’re in Westport

— close enough.’” Plus, the potato

and the growing conditions are the

same. 

Mr. Samson said last year was a

decent season for these potatoes. 

“It got pretty dry in mid-summer,

but we are fortunate to have irrigation

— we irrigated twice.” September

rains were a bit much, but the earlier

dry spell left his fields able to absorb

the near record rains. 

Overall, it was a good year, Mr.

Lacerda said — a year that would have

been better without the September

downpours that rotted crops in a few

low-lying places. 

“Our big problem was the squeeze

with fuel and fertilizer costs. A few

years ago it was the low-carb thing

that hurt us, but the diet people are

coming back to potatoes,” Mr.

Lacerda said, but then-high fuel prices

were a big problem. 

The RI Royal is available at a

growing number of markets including

Clements’ in Portsmouth. For more

information, visit: www.farmfreshri.

org. ■

Rhode Island farmers join forces

to market RI Royal brand potatoes 

Below: Jeremy Lambert drives a load of freshly harvested potatoes to be sorted at the Sampson Farms barn.

Facing page: Gripping a three-pound potato. Photos by Richard W. Dionne Jr., Courtesy East Bay Newspapers
24 March/April 2009 / Rural Cooperatives

Editor’s note: information courtesy Farm Fresh

Rhode Island.

The coastal climate and soils of Rhode Island

are fertile ground for spuds. But for many years,

potato prices stagnated and potatoes from other

states flooded the marketplace. Local

connections and farmer-grocer relationships

were lost, and Rhode Island potato growers

increasingly had to turn to out-of-state

wholesalers — or else grow turf or houses. 

The farmers who still grow food have come

out wiser, and now days many potato farmers

are diversified, growing a variety of vegetables.

The proliferation of farmers’ markets and recent

successes of the Rhode Island farm-to-school

program have also been key to securing the

future of the farmland and local food supply. But

farmers’ markets alone won’t be able to market

all the potatoes grown in the state. 

Enter Farm Fresh Rhode Island, a 501c3 nonprofit organization founded in 2004 that believes

revitalized farm-to-grocer connections will be a

foundation for more secure farms and more

secure food that will benefit Rhode Island’s

farmers and eaters for generations to come.

Farm Fresh mission & objectives

The mission of Farm Fresh Rhode Island is:

“We are growing a local food system that

values the environment, health and quality of life

of Rhode Island farmers and eaters.” The overarching program strategy is to achieve this

mission by linking local farmers and buyers. 

The organization’s objectives include: 

• Preserving Rhode Island farmland and

agricultural and culinary knowledge; 

• Building healthier communities; 

• Increasing access to fresher, tastier food; 

• Improving the impact of food production and

distribution on our environment; 

• Strengthening community-based businesses

in Rhode Island. 

To help achieve these objectives, Farm Fresh

Rhode Island is involved in these efforts:

• R.I. Farms & Foods online database — a

searchable Web resource for learning about

fresh foods, farms and markets in the Rhode

Island region. Farmers can update the

information about what they are growing and

how they sell. Consumers and businesses

can find out what is in season and how to get

it. The database is constantly being updated

with information on new farms, photos and

markets to ensure it’s an accurate and

comprehensive tool for finding local food.

• Urban Farmers’ Markets — strategically

manage farmers’ markets in Pawtucket and

Woonsocket, as well as five farmers’ markets

in Providence. These markets are the

crossroads of urban and rural. They give city

dwellers access to fresh seasonal foods and

the people who grow them. The markets give

life to public spaces and offer a livelihood to

farmers from across Rhode Island. 

• Buy Local R.I. — develops collaborations

and partnerships within the Rhode Island

business community around environmental

sustainability, community health and good

food. The educational campaign fosters the

sharing of knowledge and experience about

bringing fresh seasonal foods into the

kitchen. Farm Fresh RI hosts workshops,

such as the Local Food Forum, and harvest

celebrations, such as the Local Food Fest, to

encourage sharing ideas and promote

networking between farmers, advocates,

chefs, schools and food service. ■

About

Farm

Fresh

Rhode

Island

Carla Lacerda picks out weeds

and off-grade potatoes while her

father, Joe Lacerda Jr., drives the

harvest rig. Photo by Richard W.

Dionne Jr., Courtesy East Bay

Newspapers
Rural Cooperatives / March/April 2009 25

By Jean Freeman, President

Jean Freeman & Associates

Jean@JeanFreeman.com

Editor’s note: The author is a Fairfax, Va., communications

consultant who specializes in governance and communications issues

for cooperatives, nonprofits and for-profit companies.

ny nonprofit corporation — which includes

most cooperatives — is required to have a

governing board of directors, accountable to

the membership. Board members have legal

or fiduciary duties, including the duties of

care, loyalty and obedience. Serving on a board is not only an

opportunity to contribute to a worthwhile effort, it is also a

very serious responsibility. 

So, how does a board know if it is governing effectively?

One of the best ways is to conduct a periodic self-assessment.

This provides the board with a chance to step back and take a

good, hard look at how well it is governing. 

But before a board can assess itself, it should have a “job

description,” or a well-defined set of roles and

responsibilities. Once board members are certain of what

they should be doing, they can evaluate how well they are

doing.

Board job description

Members of the board are responsible for governance,

leadership and fiscal stewardship. Some typical

responsibilities for boards are to: 

• Set the mission of the cooperative;

• Hire, support and assess the performance of the chief

executive; 

• Plan strategically for the co-op’s future; 

• Develop sufficient policies to guide the co-op consistently; 

• Measure organizational progress; 

• Ensure the co-op has adequate resources; 

• Monitor and inform the membership on the co-op’s

progress; 

• Enhance the image of the cooperative; 

• Ensure sound governance practices.

This list provides a guideline for developing a group of job

descriptions, outlining the responsibilities for board directors,

board officers, board

committees (if any), the

attorney, auditor and chief

executive officer. When

boards do not have the

leadership framework

specifically defined, they often experience uncertainty and

inefficiency, resulting in poor leadership. 

Areas to evaluate

There are many generic board evaluation tools available.

Most of these include questions measuring the following

areas:

• Board orientation;

• Active involvement in planning and priorities;

• Measuring CEO performance;

• Ensuring the co-op is financially sound; funds are managed

effectively;

• Demonstrating an understanding of leadership roles;

• Maintaining high credibility with members;

• Operating within co-op mission and values;

• Obeying bylaws, policies, etc.;

• Maintaining a positive partnership with the CEO;

• Exhibiting conflict-resolution and decisionmaking

capabilities;

• Ensuring that meetings are run efficiently.

These are all very good areas to measure, but experts in

the field of performance evaluation agree that boards are

more likely to find the process productive if they put

together a thoughtful instrument, designed to measure

specific outcomes. Although looking at other existing selfevaluation questions is a good place to start, you’ll have

greater success if you customize your questions to fit your

own cooperative.

Individual board member assessment

In addition to the board evaluating itself as a whole, there

can be value in having each board member assess his or her

own expertise in governing. This could be a private

undertaking and could primarily serve as a “check-up” or a

reminder for the individual. It could also be included in an

orientation package, preparing the individual board member

for this important role. 

Management Tip

A Look in the Boardroom Mirror

continued on page 37
26 March/April 2009 / Rural Cooperatives

Editor’s note: this article supplied courtesy the National Cottonseed

Products Association.

ho knew that actions taken to protect heart

health could breathe new life into the cotton

industry and cottonseed oil mill cooperatives

across the South? But that’s exactly what

happened when officials in New York City

made the decision to ban trans fats from restaurants about

two years ago. Many restaurants across the country are

following suit. Many food manufacturers — from potato chip

makers to donut purveyors — have also started to eliminate

the artificial fat, which is blamed for increasing one’s risk of

coronary heart disease.

The cotton industry, best known for its role in textile

production, suddenly had a renewed interest in an old

product: cottonseed oil.

“A product that once was sold to help offset ginning costs

is now viewed as a viable revenue stream,” says Ben Morgan,

executive vice president of the National Cottonseed Products

Association. “Today, it’s about more than just the fiber value

per acre.”

Currently, cottonseed oil is the most lucrative market for

cottonseed processors. Prices peaked in July 2008 at 80-90

cents per pound, more than double the five-year average.

Prices have since settled at the 35-cent range, following the

downward trend of all edible oils and responding to the

current economic downturn of most industries. But demand

and optimism remain strong, given the ongoing need for

trans fat-free oils.

“For the first time in more than 10 years, more cottonseed

will be crushed for oil than will be fed as whole cottonseed to

dairy cattle,” Morgan notes. For calendar year 2007,

government data showed use of cottonseed oil for “salad or

cooking oils” reached 573 million pounds — a 47-percent

increase from just three years ago. 

Heartfelt health

As America’s original vegetable oil was beginning to make

a comeback, the cottonseed crushing industry saw an

opportunity to reinvent itself and differentiate itself among a

growing range of edible oils available to the commercial food

industry, including soybean oil and consumer-friendly

sunflower oil.

Cotton co-ops benefit from 

cottonseed oil comeback
Rural Cooperatives / March/April 2009 27

In 2007, the National Cottonseed Products Association

launched a new public relations campaign to educate food

industry decisionmakers and consumers about cottonseed oil’s

role as a trans fat-free cooking oil.

Cottonseed oil’s built-in stability, thanks to a 23-28

percent saturated fat level, eliminates the need for

hydrogenation, the process by which hydrogen is introduced

to create artificial stability, making it harder for the body to

break down and contributing to heart disease and obesity.

Unlike many other oils

with single-digit saturated

fat levels, cottonseed oil is

stable on its own and

valued for its longer fry life

and ability to resist flavor

reversion. 

Still, the saturated fat

level is low enough to be

recommended as “hearthealthy” by the American

Heart Association. 

For years, oil mills have

provided a steady flow of

cottonseed oil which, along

with cottonseed meal,

makes up about 80 percent

of cottonseed’s value. 

Standing out as one of

the more lucrative crops,

cottonseed remains on the

forefront and continues to

provide a reliable, steady

revenue stream for cotton

gins and farmers through

co-op rebate programs. The rebate programs are designed to

fluctuate with the market, a delicate balance, and are now

seeing a renewed interest in membership.

Co-ops see increased demand

In Oklahoma City, Producers Cooperative Oil Mill

(PCOM) — long known for its cottonseed oil extraction — is

producing cottonseed oil for use in a larger number of

consumer products than ever before. 

“When Frito Lay announced its move away from

cottonseed oil a few years ago, the market dropped

significantly,” says PCOM President Gary Conkling. “But

we’ve seen a reversal since the trans fat movement began and

cottonseed oil is now back in high demand.”

As the trans fat movement gained momentum in 2007 and

the price of cottonseed oil rose, snack food manufacturers felt

an urgency to purchase already-produced oil in larger

quantities and grew concerned that cottonseed oil would

soon not be as readily available, or affordable.

“Cottonseed oil has always been a premium oil in the food

market, and manufacturers prefer it over other oils because of

its neutral flavor and extended fry life,” says Ronnie Gilbert,

vice president of oil trading and packaged oil for PYCO

Industries. “However, over the past year, the economy has

dipped and consumer behaviors have changed. They’ve

purchased fewer snack food products and are dining out less,

so the food industry’s oil reserve has lasted longer than

expected.” 

A reborn need for cottonseed oil has surfaced and

producers are confident that the demand for cottonseed oil

will remain steady, if not

increase, this year.

Cottonseed oil

continues to compete with

corn and soybean prices

and fight for acreage in

previously cotton-rich

states in the South.

However, in states like

Texas, where the weather is

hot and the natural water

supply is weak, the cotton

crop is favored over

competing crops that

require more maintenance. 

The cottonseed industry

also has seen a decrease in

the amount of cottonseed

that is being fed to dairy

cows, freeing up more seed

to be crushed for oil.

For members of cotton

cooperatives, the positive

forecast and continued

moderately priced

cottonseed oil means the industry overall sees a significant

increase in demand. When the demand for oil increases, coops see more seed come in not only from members, but from

non-members who have outright sold their seed to the co-op

at a competitive price in the open market. 

“Members have a choice when it comes to how they want

to sell their seed to the co-op. They can sell it direct to the

co-op at a competitive price, or they can utilize the rebate

program and have the opportunity to see a greater return,”

says John Fricke, CEO and general manager of Planters

Cotton Oil Mill, Pine Bluff, Ark. 

“Because non-members don’t have access to co-op rebate

programs, either way members choose to do business, they’re

still receiving the marketing, storage and accessibility benefits

of belonging to a co-op,” Fricke continues. “And when the

demand is high and more seed is being crushed from both

members and non-members, members are still the ones who

enjoy a greater reward.” ■

Cottonseed (above) can be processed into salad and cooking oil

(facing page). It is gaining popularity with those seeking trans fat

alternatives, including fried-snack makers. Photos courtesy National

Cottonseed Products Association
28 March/April 2009 / Rural Cooperatives

Editor’s note: This article is provided courtesy Ohio State

University Extension.

he popularity of farmers’ markets and locally

grown food is soaring nationally. According

to the Farmers’ Market Coalition, the

number of farmers’ markets in the United

States has increased 40 percent during the

past decade. More than 3 million consumers shop at farmers’

markets, spending more than $1 billion annually.

A majority of farmers’ markets are organized as

cooperatives or operate on cooperative principles. 

Several efforts are underway in Ohio to help farmers’

markets and their farmer-vendors boost the marketing of

fresh, local foods. A new Ohio State University (OSU)

Extension program, supported by USDA Rural

Development, is helping with the effort. The OSU South

Centers office in Piketon, Ohio, was awarded a $99,000 Rural

Business Enterprise Grant from USDA Rural Development

to launch the Growing! Ohio Farmers’ Markets program. 

The goal of the program is to help farmers’ market

managers, boards and vendor/producers in three main

business functions: marketing, money/accounting and general

management.

“There has been tremendous growth in consumer demand

for locally produced foods, and we want to assist Ohio’s food

producers in taking advantage of this opportunity,” says

Christie Welch, an OSU Extension farmers’ market specialist

with OSU South Centers at Piketon. “This is a win-win for

producers and consumers alike. The producers increase their

financial stability, which helps maintain their farms, and the

consumers have access to the fresh local foods they demand.”

Welch and her colleagues are partnering with USDA

Rural Development in implementing the program, the focus

of which will be on providing business training and technical

assistance. The technical assistance is designed to increase the

knowledge, skills and abilities of the farmers’ markets

participating in the program.

Training emphasizes marketing plans 

Training, which began in the fall of 2008, includes

developing marketing plans, establishing producer standards,

building a business plan, developing accounting systems,

leveraging resources and conducting feasibility studies. To

date, 342 hours of one-on-one technical assistance have been

provided to clients who are either vendors at farmers’

markets or are looking to become vendors or to start a

farmers’ market.

The first six of 12 training programs have been held for

farmers’ markets and their vendors/producers. Topics

presented were:

• Conducting Feasibility Studies and Developing Business

Plans;

• Building Bylaws, Establishing Legal Structures and

Managing Risk;

• Using technology to market your farmers’ market.

More than 60 participants attended, representing 18

existing farmers’ markets and three potential markets. 

Tom Worley, director of OSU South Centers, emphasizes

the importance of the program and its connection with local

foods. “This funding is expected to expand the availability of

locally grown products by working with current and potential

growers and vendors, as well as managers of farmers’

markets,” says Worley.

Statewide co-op formed to help farmers’ markets 

The Farmers’ Market Management Network is a statewide

cooperative formed in early 2008 to bring together managers,

vendors and board members to improve Ohio’s farmers’

markets, both large and small. Specific goals include helping

farmers’ market managers determine common needs and

collaborate to improve the cost effectiveness of their markets. 

The cooperative was scheduled to hold its first annual

meeting on March 9 at the Ohio Department of Agriculture

in Reynoldsburg, Ohio. 

The cooperative is beginning work on two big projects,

including creation of an Ohio farmers’ market manual for

new and emerging markets. It will identify best practices and

needed resources for starting a farmers’ market. The second

Bigger role seen for Ohio farmers’ markets 

A grant from USDA Rural Development is being used to promote the

Growing! Ohio Farmers Markets program. Photo by Cathy Rollison-Krist
Rural Cooperatives / March/April 2009 29

project involves working closely with the Ohio Department

of Agriculture to create consistent and reasonable regulations

to maintain the highest level of food safety for consumers.

The Network was formed after a focus group of market

managers expressed interest in networking, pooling resources

and pursuing education for themselves and for their

communities. The Ohio Cooperative Development Center

(OCDC) in Piketon assisted with the formation of the co-op

and continues to work closely with it by providing technical

assistance and training. 

OSU, OCDC support state’s co-ops

Farmers markets aren’t the only co-ops receiving help

from the OSU Extension and the Ohio Cooperative

Development Center. 

In the Appalachian region of Ohio — where low income,

high unemployment and lack of opportunities stifle economic

growth — an OSU program promotes rural development by

pooling the resources, training and services for new and

existing businesses. For nearly a decade, the OCDC office in

Piketon has also been supporting rural economic development throughout southern Ohio by assisting businesses in

developing cooperatives. 

The goal, says OCDC’s Snyder, is to encourage businesses

that serve a common purpose to work together, especially in

communities where cooperatives would have a significant

impact on economic development and where they would be

more cost efficient. “I love the notion of cooperatives,” says

Snyder. “Working together can be such a great tool and can

have quite a powerful, positive impact on an otherwise

negatively viewed situation.”

OCDC has assisted in the formation of six new

cooperatives, some of which target farmers’ markets,

manufacturing businesses and healthcare services. The

program operates through grants and funding from OSU

Extension and the Ohio Agricultural Research and

Development Center. OCDC also recently received a

$200,000 grant from USDA Rural Development to continue

its efforts.

“We’ve worked closely with the Ohio Cooperative

Development Center to carry out the common mission of

rural economic developing using the cooperative business

model,” says Randy Hunt, former state director for USDA

Rural Development in Ohio. “Successful competition for this

grant ensures an available funding source for many of Ohio’s

rural community development initiatives.”

Appalachia region has greater needs 

Snyder says some of the objectives of OCDC are to

increase incomes and production, create employment

opportunities and decrease out-migration from rural Ohio

communities — in short, to ensure the region is an asset to

Ohio’s overall economic sustainability.

“In Appalachia Ohio, as opposed to more metro areas,

unemployment is higher, the average household income is

lower and community structure is not always conducive to

business growth. Additionally, businesses tend to be smaller,

so they have fewer opportunities to access resources

individually,” says Snyder. “We recognized these issues and

realized that the keys to economic growth may lie in the

ability to market as a group and increase business visibility

for those seeking employment opportunities.”

To help businesses achieve those goals, OCDC staff

provides technical assistance and advisory services, conducts

training programs, assists with information access, conducts

feasibility studies, develops business plans, produces budget

and cash flow documents and participates in bylaw

development. 

“We strive to lobby for the services that Appalachia Ohio

needs,” says Snyder. “Sometimes the area is just not first on

the list to get money, support or attention it deserves.”

For more information on the farmer’s market program or

the Farmers’ Market Management Network , visit:

www.ohiofarmersmarkets.osu.edu, or contact Christie Welch:

(740) 289-2071, ext. 234. For more information on the Ohio

Cooperative Development Center, visit: http://ocdc.osu.edu

or contact Tom Snyder at (740) 289-2071, ext. 220. ■
By James Wadsworth,

Co-op Education and Outreach Program

USDA Rural Development

hile many valuable co-op

education resources are

available today from

USDA Rural

Development and others,

many publications and other co-op

educational materials are in serious need

of updating. New communications

technologies should be better employed

and outreach and distribution efforts must

be geared up if the co-op business model

is to be more widely adopted. 

This was the general consensus of a

group of 91 people USDA recently

engaged in discussions about the state of

its co-op education efforts, and co-op

education in general in America. Tailoring

co-op education efforts to meet the

greatest needs is seen as being especially

crucial during times of limited resources. 

USDA Rural Development’s

Cooperative Programs staff solicited

feedback from educators outside the

agency, including: university professors

and researchers, vocational ag teachers

and cooperative leaders and officers.

Other participants came from cooperative

extension offices, cooperative

development centers, cooper-ative

councils, national cooperative

associations, state governments and

USDA Rural Development state offices.

Audiences ranked on need 

The educators ranked primary target

audiences based on need for co-op

education. A large majority (about 75

percent) of them ranked people

considering the formation of a

cooperative at the top of the list, followed

closely by board members of existing

cooperatives. Nine audiences were

ranked, as follows: 

1. People considering forming a

cooperative

2. Cooperative directors

3. Cooperative management

4. Young members of cooperatives

5. Cooperative members

6. Cooperative employees

7. Youth (post secondary)

8. General public

9. Youth (K-12)

In terms of groups currently being

least well-served by cooperative education

efforts, the audiences were ranked as

follows: 

1. General public

2. Cooperative members and young

members of cooperatives

3. Those exploring a new cooperative

4. Youth (post secondary)

5. Youth (K-12)

6. Cooperative directors

7. Cooperative employees

8. Cooperative management

Interestingly, cooperative directors

were ranked second among groups

needing co-op education the most, but

educators seemed to think this type of

education is being carried out to a good

degree at the present time, since directors

are sixth on the list for being least wellserved. Those exploring a cooperative

were third on the least well-served list,

but were identified as the highest priority.

Most crucial co-op topics

The co-op educators see a wide variety

of topics that need to be addressed to

improve cooperative “literacy.” Topping

their list is finance issues — always a key

issue for both existing and new co-ops.

The topical priorities they see, in rank

order, are: 

1. Finance

2. Advantages and disadvantages of the

cooperative business model

30 March/April 2009 / Rural Cooperatives

About 86 percent of the 91 educators who provided

feedback for this report say they are familiar with USDA’s coop educational publications and materials, and most of them

personally use these publications as resources. 

The top three USDA co-op publications used by educators

are: Co-ops 101, How To Start a Cooperative and

Cooperatives: What They Are and the Roles of Members,

Directors, Managers and Employees. A wide variety of other

publications in USDA’s co-op library are also used by a

significant number of co-op educators. These include

publications from all three of the categories to which USDA

assigns its co-op publications: Co-op Information Reports, Coop Research Reports and Co-op Service (or Statistical)

Reports, as well as articles from Rural Cooperatives magazine

USDA educational publications

seen as valuable resource

Co-op educators see critical

need to ramp-up, expand

education efforts 
Rural Cooperatives / March/April 2009 31

3. The roles of members, directors,

managers and employees

4. Governance

5. Strategic planning

6. Cooperative principles

7. Legal issues

8. How to start a cooperative

9. Cooperative structure

10. Cooperative operations

11. Cooperative accounting and tax issues

Educators also listed co-op feasibility,

business planning and best cooperative

practices as other crucial topics. While

many of these topics are the subject of

current cooperative education efforts,

educators believe the extent of those

efforts is not meeting the entire need.

Topical gaps

Educators saw these areas as “topical

gaps” that education efforts should aim to

address: 

• How cooperatives create economic value

• Case studies of retail food cooperatives

• Advantages and disadvantages of the

cooperative business model, including

life cycle analyses

• Research-based information on finance,

governance and strategies for leaders

• Information on other types of

cooperatives (e.g., housing, child care,

employee-owned, etc.) as well as newer

businesses, such as buying clubs that

operate on cooperative principles

• Director and management

compensation

• Comparison of cooperatives with other

contemporary business models (limited

liability corporations and partnerships,

S-Corps., etc.)

A large number of the educators see

delivery of services as being the biggest

challenge today, and believe more

contemporary delivery systems need to be

used to a greater degree. These could

include: interactive online programs,

distance learning programs, video-clips,

podcasts, webinars, new school

curriculums, CD- and DVD-based

programs, etc. 

They also indicated that information

presently available needs to be updated

more frequently and to employ greater

use of current examples, situations, case

studies and data.

One educator mentioned that short

snippets of current important information

for co-ops should be made available on a

regular basis so that cooperatives,

cooperative organizations and educators

can “cut-and-paste” them into their

delivery tools for members and

constituents.

Planning for future co-op education

The educators’ comments reinforce

the widespread perception in the

cooperative community that educational

materials and programs need to be

improved and adapted for delivery to a

more technologically advanced society

and new topical materials or programs

need to be developed to meet

contemporary needs. 

Cooperative educational publications,

information and materials are being

widely used, and there are many

cooperative educational initiatives

ongoing across the United States.

However, survey participants see a strong

need for ramping up co-op education

efforts. 

Clearly, greater communication and

outreach are needed. Educational

resources already available from the

Cooperative Programs of USDA Rural

Development and from other cooperative

organizations need to be updated and

more widely distributed. 

While many cooperative education

resources are available, too many people

don’t know about them. Some see the

need for a central depository for sharing

information, publications, programs and

other resources. 

“In planning future cooperative

education initiatives, educators and the

entire co-op community should take the

findings of this conversation to heart,”

says John Wells, co-op development

division director for USDA Rural

Development. “Cooperative Programs

remains dedicated to cooperative

education and will continue to reach out

to others for contributions as it develops

its research and education programs going

forward.” ■

(although the magazine itself was not the focus of the

discussions). 

The average rating educators gave these publications was

“good” for attributes of readability, objectivity and technical

accuracy. Format, general appearance and overall quality

scored “OK.” A high number of educators rated the attributes

of the publications as “very good.”

USDA’s library of co-op publications and Rural Cooperatives

magazine were deemed “important” for helping to deliver

effective cooperative education by a majority of the educators. 

A major problem facing Cooperative Programs as well as

numerous other organizations as they attempt to update,

improve, and expand cooperative educational materials has

been a drastic reduction in staffing in recent years. ■
32 March/April 2009 / Rural Cooperatives

CoBank earnings surge

to $538 million 

CoBank, a national cooperative bank

serving U.S. agribusinesses and rural

utilities, saw its net earnings for 2008

increase 28 percent, to $533.4 million.

That’s up from $415.6 million in 2007.

The increase was driven by robust

growth in average loan volume across

all operating segments. Net interest

income rose 34 percent, to $862.6

million, compared to $645.4 million in

2007. 

At year’s end, the bank’s loan and

lease portfolio totaled $44.6 billion and

total assets were $61.2 billion, a $9-

billion increase from 2007. 

“CoBank delivered exceptional

financial performance during 2008 on

behalf of customer-owners, investors

and our other stakeholders,” says

Robert B. Engel, CoBank president and

chief executive officer. “As importantly,

we were able to stand by our borrowers

Newsline

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

Co-op developments, coast to coast

NDFU opens ‘green dining’ option in DC

Founding Farmers restaurant in Washington D.C. opened last September, and is the second restaurant in the nation's capital owned

by members of the North Dakota Farmers Union (NDFU). The other restaurant is Agraria, located on the waterfront in Georgetown.

The menu at both restaurants is centered on sustainable agriculture. Founding Farmers operates as a Certified Green Restaurant,

having been designed and constructed to meet strict standards of energy efficiency and sustainability. Reclaimed barn wood covers

the walls; reclaimed stone pavers and hardwoods line the floor, and fabrics and carpets are made with post-consumer recycled

materials. The design maximizes natural daylight and uses energy-efficient lighting to reduce its carbon footprint. It has achieved a

LEED (Leadership in Energy and Environmental Design) Gold certification by the U.S. Green Building Council, a first for a full-service,

upscale-casual restaurant in the United States. Photo courtesy Founding Farmers
Rural Cooperatives / March/April 2009 33

in the face of extremely challenging

conditions in commodity markets,

credit markets and the broader

economy.”

Extreme volatility in the grain,

oilseed and farm supply markets during

the first eight months of the year were a

key driver of increased financing

requirements from CoBank’s

agribusiness customers (see related

article, page 4). Lending to rural

providers of power, water and

communications services also

experienced robust growth. 

CoBank is issuing $314 million in

patronage payments to customerowners, up significantly from the $245

million in patronage paid in 2007. Of

that, $207 million will be paid in cash,

with the remainder distributed in

CoBank stock. Patronage distributions

represent an average 25 percent return

on the stock investment of active

borrowers.

“The increased patronage payout

authorized by our board of directors

underscores the strength of the

cooperative model and the overall value

proposition that CoBank offers its

customer-owners,” Engel says.

At year-end, capital levels at the bank

remained well in excess of all regulatory

minimums. Due to the ongoing turmoil

in the credit markets, CoBank says it

took steps to enhance liquidity by

issuing long-term debt, when possible,

and holding higher levels of liquid

assets, including cash. 

“We have deliberately bolstered the

bank’s liquidity and capital base in order

to preserve our foundation of strength

and stability in volatile markets,” says

Brian Jackson, CoBank’s chief financial

and administrative officer. 

About 97.2 percent of the bank’s

loans and leases outstanding rank in the

highest regulatory category used to

measure credit quality. Non-accrual

loans and leases increased to $217.8

million as of Dec. 31, 2008, compared

to $14.8 million the year before.

Additionally, CoBank recorded a $55

million provision for credit losses in

2008, compared to a $5 million reversal

of allowances for credit losses in 2007.

“Going forward, we expect that the

credit quality of our lending portfolio

will decline modestly as a result of the

broader economic downturn,” Engel

says.

Smith, Bozick win top honors 

at NCFC’s 80th annual meeting 

Eddie Smith, chairman of Plains

Cotton Cooperative Association, and

Nicholas Bozick, chairman

of Sunkist Growers, have

been awarded the

prestigious Farmer

Cooperative Director of

the Year Award by the

National Council of

Farmer Cooperatives

(NCFC). Smith received the award for

a director with more than 12 years of

board service, while Bozick was selected

from among directors with 12 or fewer

years of service. 

Smith, who has been a cooperative

member since 1973, produces cotton,

cattle and row crops in Floydada, Texas,

in partnership with his son, Eric.

Bozick, of Mecca, Calif., is president of

Richard Bagdasarian Inc., a family-run,

multi-commodity produce growing,

packing and shipping business in the

Coachella Valley. In addition to citrus,

the company also handles table grapes

and several vegetable varieties.

The award was established to

recognize the outstanding achievements

of farmer cooperative directors who

take the lead to help their board of

directors make decisions vital to their

cooperative. 

“Both Eddie and Nick have spent

their careers exhibiting outstanding

leadership of their cooperatives and

showing a strong commitment to the

farmer cooperative community in

general,” says NCFC President and

CEO Charles F. Conner. “They are

truly dedicated to the principles of

farmer-ownership and I congratulate

them on being named Director of the

Year.”

Director of the Year nominees were

examined by a panel of judges

representing the NCFC members and

outside experts. In selecting the

winners, judges looked at four broad

criteria: how well the nominee

understands his or her cooperative; the

ability to provide leadership and be a

team player; the possession

of good business judgment;

and the ability to

communicate effectively.

The awards were

presented in February

during NCFC’s 80th

annual meeting.

NCFC is a national

association representing

America’s farmer

cooperatives. There are

nearly 3,000 U.S. farmer

cooperatives, whose

members include a majority of the

nation’s more than 2 million farmers

and ranchers. 

Wisconsin economic recovery

plan aims to boost state’s dairy

co-ops

Cooperative Network, the Wisconsin

and Minnesota trade association of

cooperative businesses, is supporting an

economic recovery plan in Wisconsin

that would help dairy cooperatives

modernize. The proposal includes the

creation of two new income tax credits

for the modernization of dairy

manufacturing and meat processing

facilities. The tax credits are aimed at

encouraging the continued growth of

Wisconsin’s agricultural economy and

are nearly identical to legislation

Sunkist’s Nicholas Bozick

PCCA’s Eddie Smith 
34 March/April 2009 / Rural Cooperatives

supported by Cooperative Network in

the past.

“Because 85 percent of Wisconsin’s

milk is shipped through dairy cooperatives, the cooperative community has

pushed for state support of our dairy

plant infrastructure for years,” says Bill

Oemichen, president and CEO of

Cooperative Network. “Modernizing

dairy-manufacturing and meatprocessing facilities is a good step

toward bolstering Wisconsin’s economy

and will create good jobs.”

According to a 2004 study from the

University of Wisconsin-Madison

Department of Agricultural and Applied

Economics, dairy processing provided

more than 17,000 jobs, and had an

additional indirect impact of 53,000

jobs. 

The dairy cooperative investment

credit is identical to Assembly Bill 37,

and the meat processing facility credit

matches Assembly Bill 12. 

Global co-op award

competition launched

The dotCoop Global Award for

Cooperative Excellence has been

launched to recognize successful

businesses in any nation that embrace

cooperative principles. The award is

being spearheaded by dotCoop, sponsor

of the “.coop” Internet domain.

Entrants must describe and

document specific processes and

activities they employ to “leverage the

cooperative business model,” such as

using the .coop domain for branding

purposes.

For more information and to submit

entrees, visit: www.globalawards.coop.

The deadline for entries for the

inaugural awards is May 31, 2009.

There is no entry fee for this award.

Cooperatives can compete in one of

three categories based on the size of the

co-op. Winners will be selected by an

international panel of judges in late

summer and will receive funding

towards travel to Geneva, Switzerland,

in November 2009, where they will

accept the award in front of the

International Co-operative Alliance

General Assembly.

Study boosts ethanol status

for environmental quality 

A study reported in the Journal of

Industrial Ecology found that ethanol

derived from corn emits an average 51

percent less greenhouse gas than

gasoline. The study was conducted by

the University of Nebraska-Lincoln. 

“Critics claim that corn ethanol has

only a small net energy yield and too

little potential for direct reductions in

greenhouse gas emissions compared to

the use of gasoline,” a member of the

research team said in a press release.

“This is the first peer-reviewed study to

document that these claims are not

correct.” 

About 30 percent of the U.S. corn

crop in 2009 is expected to be

shipped for ethanol.

In related news, a big

majority of American Farm

Bureau farmer-members say

they believe that ethanol has

been good for the nation’s

agricultural economy,

according to a straw poll

conducted by the Reuters news agency

during the Farm Bureau’s annual

meeting in San Antonio, Texas, during

January. Nearly 80 percent of 820

farmers surveyed said ethanol was good

for agriculture, with only 17 percent

saying that the biofuel did more harm

than good. 

Does your co-op rock?

Send videos to NCGA 

If your food co-op rocks, let the

world know it. The National

Cooperative Grocers Association

(NCGA) is inviting individuals and

groups to submit videos of up to two

minutes in length to: My Co-op Rocks

Video Contest. Submissions will be

accepted from March 1 until April 17

at: www.MyCoopRocks.coop. Prizes

totaling $3,500 will be awarded to the

best videos in “people’s choice” and

“judges’ choice” categories. 

Co-op shoppers may share their

favorite co-op moments, memories and

stories online. NCGA says it is hosting

the contest “in celebration of all the

qualities and quirks that

make co-ops integral parts

of communities.” 

“No matter the times

or economic environment,

shoppers remain passionate

about co-op grocers and the

sense of community that

they inspire,” says Robynn

Shrader, chief executive officer for

NCGA. “Everyone loves their local coop for different reasons; this contest

provides an opportunity for shoppers to

tell us in their own words.”

Whether shooting videos with a cell

phone or in high-definition digital

video, all skill levels are welcome to

Alabama Farmers Cooperative (AFC) is the winner of the Best Cooperative Communications

Award in the National Council of Farmer Cooperatives’ Co-op Information Fair. It won for a TV

commercial for its Bonnie Plant Farm which promotes its environmentally friendly peat pots.

The ad has the “right mix of voice, music and visuals,” the judges said. Photo courtesy AFC 
Rural Cooperatives / March/April 2009 35

submit their videos. Participants are

encouraged to unleash their sense of

humor and creativity.

Once posted, videos will be viewed

and voted on by the general public. A

panel of judges will also score entries

based on creativity, theme and overall

appeal, with prizes awarded to the top

three “judges’ choice” entries. The

deadline for submissions and online

voting is 11:59 p.m. CST on April 17.

Suggested themes include: Top 10

reasons I love my co-op; Top 10 foods

at the co-op; Top 10 funniest sights at

my co-op; Top 10 ways to get a date at

the co-op; Top 10 reasons to become a

co-op member, and Top 10 reasons why

shopping at a co-op is just better. 

Video focuses on credit unions

The National Cooperative Business

Association (NCBA) and Cabot

Creamery Cooperative have produced

an eight-minute informational video

that features interviews with credit

union members, employees and

industry executives. The video is

designed to educate the media and

general public about the value of credit

unions, how they work and why they

are different from banks. To view the

video, visit: www.thebetterchoice.coop.

An accompanying online resource helps

consumers find credit unions in their

area.

Credit unions are cooperative

businesses guided by democratic

principles that govern all co-ops, which

exist to serve their members who also

act as owners of the business. Credit

unions are routinely rated higher than

banks in customer satisfaction surveys. 

Paul Hazen, CEO of NCBA, says

the ongoing world credit crisis has

focused more attention on the

advantages of credit unions. “Credit

unions have stood apart during this

crisis,” Hazen says. “While many banks

have faltered due to high-risk, highreward investment practices, credit

unions stuck to their tried and true

practice of making responsible loans to

their members.” 

Although credit unions have not

been immune to the challenges of the

foreclosure crisis, overall they have

fared better than banks, Hazen notes.

Almost everyone is eligible to join one

of the roughly 9,000 credit unions

operating in the United States, he adds.

Irwin new CEO at Welch’s 

Brad Irwin assumed duty on Feb. 16

as president and chief executive officer

of Welch’s, the world’s leading marketer

of Concord and Niagara grape-based

products. Irwin’s goal is to help

Welch’s continue to maximize the

organization’s value while expanding

returns for its grower-owners.

“The opportunity to continue to

grow a company that has a strong,

iconic reputation grounded in a rich

history is very exciting to me,” says

Irwin. “I look forward to this journey

with Welch’s and helping to drive the

growth and profitability of the

company.”

Irwin was most recently president of

Cadbury Adams North America LLC,

the confectionery business unit of

Cadbury Schweppes plc. He joined

Cadbury in 2000 after 20 years with

Procter & Gamble. 

“The addition of Brad Irwin as

president and CEO comes during an

important time for Welch’s,” says Joe

Falcone, board chairman and president

of National Grape Cooperative Inc.

“Brad’s experience with other

consumer-based brands and proven

organizational leadership will be crucial

in helping to drive our business forward

successfully.” 

Irwin has a Bachelors’ Degree in

economics and political science from

Amherst College. He will be Welch’s

14th president. 

Rural Economic Development

funds awarded in 13 states 

Agriculture Secretary Tom Vilsack

in January announced that utilities in 13

states have been selected to receive

$18.1 million through USDA Rural

Development’s Rural Economic

Development Loan and Grant program.

“Providing capital to support small

business development and improve the

quality of health care in rural

communities is a key part of USDA

Rural Development’s mission,” Vilsack

said. “By working with our partners,

including utilities, USDA is helping to

Brad Irwin, right, the new CEO at Welch’s, gets a lesson in vine pruning from a co-op

grower-owner. Photo by Charlene Ryder, Courtesy National Grape Cooperative 
36 March/April 2009 / Rural Cooperatives

fund rural infrastructure improvements

that will support President Obama’s

goal of enhancing the quality of

community life and helping small

businesses compete more effectively.” 

Rural Development is awarding

$14.2 million in loans and $3.9 million

in grants to a total of 27 applicants.

Funds are allocated to Rural Utilities

program borrowers, usually rural

telephone or electric cooperatives,

which in turn provide loans to local

rural businesses and communities.

Funding of individual recipients is

contingent upon their meeting the

conditions of the loan or grant

agreement. 

The projects are expected to create

or save more than 1,800 jobs in

Alabama, Colorado, Georgia, Illinois,

Iowa, Kansas, Kentucky, Missouri,

Nebraska, North Dakota, South

Carolina, South Dakota and Tennessee. 

Among the fund recipients is Se-MaNo Electric Cooperative in Mansfield,

Mo., which is receiving a $740,000 loan

to build a rural health clinic and

ambulance base in Mountain Grove,

Mo. The project is expected to create

15 new jobs. 

The Coastal Electric Cooperative of

Midway, Ga., will receive a $740,000

loan and a $300,000 grant to help the

McIntosh County Industrial

Development Authority finance

expansion of a local industrial park. The

project is expected to create 183 jobs. 

A complete list of loan and grant

recipients is available on the USDA

Rural Development website:

http://www.rurdev.usda.gov. USDA

Rural Development’s mission is to

increase economic opportunity and

improve the quality of life for rural

residents.

Sunkist sales top $1 billion 

Sunkist Growers’ 2008 revenue

jumped 8 percent from 2007, to $1.07

billion, thanks to a large crop, strong

demand and efforts by the co-op to

improve its operating efficiency. 

Payments to members of $839

million were up 5 percent over the

previous year. 

“2008 was another

billion-dollar year for

Sunkist, the 11th in the

past two decades —

which includes four freeze

years,” Sunkist President

and CEO Russ Hanlin

told the more than 500

growers attending

Sunkist’s 115th annual

meeting at the Ventura

County Fairgrounds.

The 2008 results, Hanlin said, are

especially gratifying because they were

achieved while not only dealing with a

record navel orange crop, but also while

transitioning the co-op’s sales

organization to a more centralized

structure.

The record navel crop was followed

by a large crop of Valencia oranges,

presenting more marketing challenges

which were exacerbated by record fuel

prices followed by the nation’s worst

economic downturn in decades. 

Lemons, Hanlin noted, were a

different story. “It was another year for

the record books...the highest FOB

[free on board] prices and revenue ever,

exceeding the record set the prior year

by $20 million and a pretty good 2006

by $60 million.”

Helping the bottom line were

ongoing improvements in Sunkist’s

Citrus Juice and Oils operations. In

2008, Sunkist completed the plant

consolidation and now all citrus

byproducts are processed at Sunkist’s

Tipton plant, driving greater economies

of scale and increased efficiencies. 

“We are now the leading highquality, low-cost producer on the West

Coast and a top supplier of value-added

citrus products,” Hanlin added. He

reminded growers that the industry is

changing rapidly. 

“Competition is increasing, with

offshore fruit impacting both domestic

and traditional export markets in everexpanding volumes and with new trade

agreements adding to that competitive

equation. Customers continue to

consolidate, concentrating more and

more purchasing power in fewer and

fewer hands.”

Hal Doran remembered

for dedication to co-ops 

Hal Doran, known as “Mr.

Cooperative Education” in

Pennsylvania and the Northeast,

died Feb. 26. “Hal was a mentor to

so many of us and influenced the

lives of so many cooperative

leaders,” says N. Alan Bair,

director of dairy industry relations

for Penn State and Pennsylvania

Dairy Stakeholders, Middleton, Pa.

Even though Doran has been retired

for many years, he continued to stay in

contact with cooperatives and the

people that make them work.

“He was one of the ‘behind the

scenes’ people who are so influential,

but often unrecognized,” Bair says. “He

genuinely understood cooperatives and

their potential — both from the

business and the human side (members

and employees).”

Doran was born in 1920, in Moscow,

Pa., and grew up on Doran Glenn

Farm. He graduated from Penn State in

1942 with a degree in ag education and

earned a Master’s degree from the same

school in 1948. 

He worked for Eastern States

Farmers Exchange until 1961, where he

was a district manager. From 1961 to

1966, he served as operations manager

and personnel manager at Agway, then

accepted a position at Penn State as

director of cooperative business

education. 

When he retired from Penn State in

1991, the Hal F. Doran Cooperative

Business Education Award fund was

established to recognize an individual

showing leadership and dedication to

cooperatives. 

A white oak tree and plaque stand on

Ag Hill at Penn State in honor of Mr.

Dorn’s dedicated service. Among the

many awards he received are the

National Cooperative Business

Education Award and the Distinguished

Agricultural Service Award, the latter

from Eastern Milk Producers. ■

Hal Doran
A self-assessment could include such

questions as:

• Do I understand the meaning and

value of a cooperative?

• Do I fully understand my co-op’s

mission?

• Do I understand the co-op’s financial

statements?

• Do I thoroughly prepare for each

board meeting?

• Do I truly understand each issue

before I place my vote in a board

meeting?

• Do I take advantage of educational

opportunities and improve my ability

to govern well?

• As a co-op leader, do I take advantage

of opportunities to represent my coop in the community?

• Do I understand the confidential

nature of issues discussed by the

board?

• Do I leave board meetings feeling

unified and prepared to support the

Rural Cooperatives / March/April 2009 37

co-ops and consumers who want more local food are growing,

providing a cultural connection with agriculture that is often

missing in today’s mass-consumption society.

Producers often organize to pool their produce and

transport it to markets. In this way they can ensure supplies to

customers on a regular basis and avoid glitches from weather,

disease or harvesting problems. In many instances, produce

that exceeds the demand of the fresh market, or which does

not meet required grade standards, can be cooperatively

processed or otherwise channeled to a secondary market. 

While some producers choose to market individually at

roadside stands, most do not enjoy a strategic location nor

want the responsibility of maintaining such an outlet. For

them, the cooperative method of supplying local markets,

restaurants and stores is more viable. 

Consumers have often been the initiators of buying direct

from local farms. Variations of this “farmer-consumer

connection” range from local purchasing groups that handle

distribution to members on a voluntary basis, to the more

formalized agreements of CSAs. In many cases, natural food

cooperatives have initiated outreach to local farmers to

achieve committed supply relationships. In some cases,

attempts have been made to make producers and consumers

members of the same cooperative, thereby internalizing

supply arrangements and transactions.

Do these collaborations between local growers and

consumers doom the role of local farm supply cooperatives or

existing marketing cooperatives? Certainly not. But they do

afford an opportunity for exploring support, and perhaps even

establishing new linkages not previously considered.

Helping family farms prosper 

An even broader issue concerning the future economic

organization of American agriculture is at play here. Farmers

have organized cooperatives to gain access to markets that are

often geographically distant

Through marketing and processing, they reach store

shelves coast to coast and even internationally. Witness the

strong reach of cooperative brands such as Florida’s Natural,

Cabot, Land O’Lakes, Sunkist, Sun Maid, Blue Diamond,

Ocean Spray, Tree Top and Welch’s among others in national

and foreign markets. These brands are the envy of the

marketing world and are a testament to the soundness of the

cooperative method of marketing on a national and worldwide

basis. They have built a strategic market presence that keeps

member-growers in business by building consumer

recognition and purchases of their quality products. Farmermembers, small and large, are the benefactors.

Similarly, farm supply, credit, electric and telephone/

communication cooperatives continue to provide members

with inputs used for production, and these co-ops often have a

local presence in their members’ communities. Again, farm

operators, small and large, benefit from such ownership and

supply availability.

The concept that is advocated in the “go-local” policy is

one of providing a role and opportunity for smaller scale

farming operations to prosper in a marketplace that has

become dominated by a monoculture production system that

is heavily reliant on fossil fuels and the dictates of national and

global mass marketing systems. 

This policy envisions the survival of family-run farming

operations by once again marrying sunlight, crop plants and

animals on the farm. In his New York Times article, Pollan

quotes Wendell Berry’s elegant solution: 

“Sunlight nourishes the grasses and grains, the plants nourish

the animals, the animals then nourish the soil, which in turn

nourishes the next season’s grasses and grains. Animals on pasture

can also harvest their own feed and dispose of their own waste — all

without our help or fossil fuel.”

In arguing for a “re-solarization” of the food system by

“going local,” the approach is built upon a “reregionalization” of the food system, in which food is

consumed closer to where it is grown. In the process, the rural

country is revitalized and generates new “green jobs” and

rebuilds America’s food culture.

This vision, if it appears as romanticism for a bygone

structure of farming, is exactly what constituted the

membership of local and regional farmer cooperatives for

more than 80 years and especially in the last half of the 20th

Century. What is significant about this movement is that it is

supported by an electorate that is deeply concerned about the

health of the environment and their children, and is led by

consumers as much as by agriculturalists.

The ideas proffered by Pollan and others are worth a look

by cooperative leaders who wish to engage advocates and

further discuss policy parameters. There is a great deal of food

for thought here that should cause critical reflection about our

present food system and how it can be improved. ■

Commentary

continued from page 2

Management Tip

continued from page 25
38 March/April 2009 / Rural Cooperatives

decisions made by the board?

• Do I find serving on the board to be a

satisfying and rewarding experience?

Aligning the assessment with

the strategic plan

To really make the board evaluation

a valuable tool, tie it directly to the

goals and strategies of the organization.

In today’s climate, members of

cooperatives and other nonprofits are

seeking greater transparency and want

to see evidence that board members are

behaving professionally. A board

evaluation tied to the strategic plan

demonstrates that professionalism and

accountability.

The best time to develop this

assessment is immediately following a

strategic planning session. While the

planning is fresh, simply ask yourself:

“How will we know if we are doing

what we anticipated?” 

For example, suppose one of your

goals is to enhance member relations,

and one of your strategies within that

goal is to develop a new, “Members

Only” area on your website. In this

case, assessment questions might

include: “Did the board monitor the

progress of and provide support for

management in the development of the

new website project?” Or, “Have we

requested and reviewed reports from

management about the use rates and

member satisfaction of the new website

pages? 

Boards that take the time to develop

these strategic questions have the

opportunity to measure their progress

toward specific plans and goals. The

process of self-assessment can result in

sharper, more focused board members

who are prepared to shape the future of

their cooperative. It will also likely

improve communication among

directors. 

Steps to take

The first step is for the board to

reach agreement that it wants to

conduct a self-evaluation and that it is

committed to the process. There should

be a thorough discussion about the

method used and the desired outcome. 

The board should establish a timeframe for the process and determine if

an outside facilitator will be used. Once

the details of the process have been

worked out, a questionnaire should be

developed and administered. 

When everyone has completed the

evaluation, someone will gather and

analyze the responses. If a facilitator is

being used, that person can summarize

and analyze the evaluation. Otherwise,

consider giving this job to someone

trusted and capable to at least

summarize the responses.

The next step is to develop a plan of

action based on the results of the selfassessment. There is absolutely no

reason to devote the time, energy and

budget for such a process if nothing

ever changes as a result. 

Finally, evaluate the evaluation

process! The board should learn how to

continuously improve this process. ■
Rural Cooperatives / March/April 2009 39

Editor’s note: this article originally

appeared in the September 1971 issue of

USDA’s “News for Farmer Cooperatives.”

It was written by E. J. Huenemann, who

was then manager of the Farmers

Cooperative Society in Garner, Iowa.

ive years ago, the

business climate for the

Farmers Cooperative

Society at Garner, Iowa,

looked like this:

Business volume was down. No growth

had been experienced for several years.

The board of directors was thinking of

eliminating departments showing losses.

Employees showed little enthusiasm.

Customer service needed improving.

Members did not understand

cooperative financing and were not

satisfied with patronage refunds. In

short, members had lost interest in their

cooperative and had little desire to

support it.

As the new manager, I questioned

what new life could be given to the

cooperative. It seemed that before

progress could be made, the communications gap had to be narrowed.

The immediate goal was to set up a

program that would result in well

informed directors, employees, and

members working together for the

common good of the cooperative. To

attain this goal, we decided to hold

three report-to-owner meetings. The

board of directors personally invited a

group of not more than 50 memberpatrons for each meeting.

They proceeded by taking every

third name on the membership list. The

three meetings were held on successive

nights. The local banker and other

community leaders also were invited.

We picked a time after harvest, in

mid-November, when members were

least busy. The dinner meetings were

held at a local cafe.

Support hinges on

understanding co-op

Our uppermost purposes were to

improve members’ understanding of

their co-op; to convince them why they

should be loyal supporters; and to show

them that by working together each

individual would profit. Topics

included: the purpose of co-ops; aims

and purposes of the Garner co-op;

credit and credit terms; building

programs; products and services

available; revolvement policy; marketing

activities; sales and savings; changes in

member equity and new programs.

These informational meetings

preceded producer meetings by about

60 days.

Our first informational meetings

four years ago were so successful that

we’ve made them an annual affair. The

board and management have learned

that the meetings are particularly useful

whenever major expansion is being

considered. Members have ample time

to express their opinions before a final

decision is made. 

Members often convince each other

of the need, and thus a given project

receives fuller member support. An

example was the decision to build an

additional 170,000 bushels of storage

two years ago.

Communications gap closed

We believe the meetings are largely

responsible for closing the

communications gap. Both employees

and members are more loyal. New

projects have been executed with strong

support, because members had a part in

making the decisions.

Most important, members have

begun to feel that the cooperative is

their business, and that they do have a

voice in its management.

The board has been able to make

wiser decisions, based upon members’

desires and needs. Management has

found that less time is spent explaining

board decisions, because members have

been aware of actions that were going

to be taken.

Garner now has a stronger

cooperative. 

We’ve gained 75 new members, and

— considering the declining number of

farmers — that’s doing pretty well.

Total membership is now about 700.

Volume has increased more than 100

percent in the past four years since the

meetings were started. 

From the increase in sales, the

Farmers Cooperative Society has been

able to pay out in cash one year’s

deferred patronage each year. New

facilities and equipment have been

added to provide better service.

These member informational

meetings have been one of the best

member relations programs we’ve had.

We’re firm believers that it is dangerous

to allow current, every day business

activities to be the only member

informational program.

Now that we’ve informed the

membership about the value of the

cooperative, now that employee and

member enthusiasm is stirred . . . what

do we talk about? This year we talked

about the progress the cooperative had

made in the past five years. ■

Page from the Past

Revamped member-relations program

turns around negativity toward co-op 
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