Pages 8 & 11

USDA / Rural Development January / February 2011

Rural

COOPERATIVES COOPERATIVES

Doing business

with the new neighbors
By Kathleen A. Merrigan, Deputy Secretary

U.S. Department of Agriculture

n Sept. 14, 2009, we publicly launched the

Know Your Farmer, Know Your Food

initiative, a USDA-wide effort that aims to

create new economic opportunities and

promote healthy eating. At a time when more

Americans than ever are becoming interested in where their

food comes from and how it is

produced, we are also seeing midsized farmers struggling to maintain

solvency. The Know Your Farmer,

Know Your Food initiative seeks to

capitalize on this first trend while

reversing the second.

As I look back on our efforts over

the past year, it is clear to me that

the initiative would not be what it is

today without the vibrant

partnership USDA has long enjoyed

with various cooperative businesses.

Many of the co-ops highlighted in

each issue of this publication are

particularly well-suited to advancing

the goals of the Know Your Farmer,

Know Your Food initiative.

Whether they take the form of

mobile slaughter units, food hubs or

a myriad of others, these cooperative

businesses are making it easier for

consumers to purchase healthy foods

and develop a relationship with the

farmers and ranchers who help put that food on their plates.

In addition, because the cooperative business model makes it

more likely for wealth to remain in local communities, these

co-ops are helping rural communities maintain economic

vitality.

The enduring relationship that USDA and rural

cooperatives enjoy is exemplified by the Hillside Farmers coop in southeastern Minnesota, the recent recipient of a Small,

Socially Disadvantaged Producer Grant from USDA Rural

Development (see page 13). The grant will help the co-op —

a partnership between new Latino farmers and established

farmers in the region dedicated to producing food in

sustainable ways — develop the network of producers and

consumers that is necessary for them to flourish.

Another example of a cooperative advancing the goals of

the Know Your Farmer initiative is the Oklahoma Food Coop, which began as a small buying club in 2003 with 20 local

producers and sales of $3,500 on its opening day. Today,

thanks to a choreographed distribution system and an

Internet ordering program, the 200

participating Oklahoma-based

producers generate roughly

$70,000 in monthly sales to a

membership base that exceeds

3,000.

Some consumers are not

just satisfied to know that their

food has been produced locally.

These consumers also want to

know exactly where their food was

produced and by whom. A growing

number of co-ops are responding

to consumer demand.

The farmer-owned Prairie

Farms Dairy co-op, for example,

recently held a casting call for

family members of its producers.

Winning entries of the photo

competition will be featured in

promotional material advertising

Prairie Farms products. In

addition, the grower-owned

Florida’s Natural orange juice coop includes a “meet the growers” section on its website,

featuring biographies and photos of some of its members.

Not only do these efforts satisfy the consumer’s thirst for

knowledge, they are also helping producers generate repeat

customers.

I look forward to the challenges and successes that await

the Know Your Farmer, Know Your Food initiative in 2011.

Thanks in part to the enduring partnership between USDA

and cooperatives across the country, I am confident that it

will be a very good year. ■

2 January/February 2011 / Rural Cooperatives

Commentary

Know Your Farmer, Know Your Co-op!

Deputy Secretary Kathleen Merrigan visits

Ferolbink Farm in Warwick, R.I., where she

announced a conservation easement, made

through USDA’s Farm and Ranch Lands

Protection Program. Ferolbink Farms is

involved with a farmers’ cooperative that sells

local Rhode Island potatoes — branded as

“Rhode Island Royal Potatoes” — to

independent supermarkets.
Features

Rural Cooperatives / January/February 2011 3

Volume 78, Number 1

January/February 2011

Rural Cooperatives (1088-8845) is

published bimonthly by USDA Rural

Development, 1400 Independence Ave.

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0705.

The Secretary of Agriculture has

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Unless otherwise stated, articles in this

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necessarily reflect those of USDA or its

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To file a complaint of discrimination, write

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USDA is an equal opportunity provider

and employer.

Tom Vilsack, Secretary of Agriculture

Dallas Tonsager, Under Secretary,

USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or email:

coopinfo@wdc.usda.gov

This publication was printed with vegetable oil-based ink.

p.4

04 Ownership Succession Crucial for Rural America

Co-ops can play role in helping keep farms and ranches in producer hands

By Bruce J. Reynolds

08 Groomed for Success

Kansas farm supply co-op adjusts to urbanizing market with new goods, services

By Stephen Thompson

11 Expanding Your Customer Base

Kentucky supply co-op adapts to serve “mini” farms, homeowners

By Sarah Pike

13 Climbing the Hill

Hillside Farmers Co-op helps Latino producers

By Adam Czech

14 Agriculture of the Middle: Opportunity for Co-ops

By Thomas W. Gray, Ph.D.

18 Tomato Co-ops Help Craft Better Food Safety Standards

By Julie A. Hogeland

24 Sailing Turbulent Seas

Despite volatile markets, co-ops need to look to long-term competitive advantages

By Lynn Pitman

30 Co-op Ideas Can Help Education

By Joe Nathan

Departments

2 COMMENTARY

17 MANAGEMENT TIP

29 UTILITY CO-OP CONNECTION

31 NEWSLINE

p. 18 p. 24

ON THE COVER: Gerald Schneider, a warehouseman at the

Leavenworth County Cooperative Association in Kansas, loads bags of

horse feed for a customer. Like many co-ops in urbanizing areas,

Leavenworth has had to adjust its mix of products and services to

adapt to a changing marketplace. Photo by Prudence Siebert
By Bruce J. Reynolds

Ag Economist

USDA/Rural Development

bruce.reynolds@wdc.usda.gov

lthough nonagricultural business is

providing an increasing

share of economic

activity in many rural

areas of the nation, succession of land

ownership to a new generation of

farmers remains a vital issue for many

rural communities. Furthermore,

independent farmers and ranchers are

essential to cooperatives and other

membership organizations. Likewise,

farmer cooperatives — both traditional

model co-ops and new generation coops — can help keep farms and ranches

in the hands of more producers,

including more beginning producers.

Commodity programs and technological change over several decades have

provided incentives for farmers and

ranchers to increase the size of their

operations, including investments in

land and equipment. A parallel trend is

the greater longevity of ownership, as

the average age of U.S. farmers and

ranchers has risen. Taken together,

these trends render the succession in

farm ownership more financially

challenging than in previous periods

when farms were smaller, less capital

intensive and there was faster intergenerational turnover.

Many retiring farmers and ranchers

remain in their homes and lease their

land to active producers. Leasing keeps

their land as an income-producing asset

and a source of business for the

community.

When retiring producers sell their

farms and ranches, it is usually better

for the local economy when ownership

is transferred to independent farmers,

rather than to investors.

While many land investors continue

agricultural production, they often

operate as absentee landlords. They are

usually less involved in the local

economy than are owners who reside in

the community. Where farms or

ranches include forestland, ownership is

sometimes transferred to hunters from

urban areas. These former farms and

ranches are typically used for

recreational hunting on weekends. Such

uses create less local economic activity

than farms and ranches that continue

operating with resident producers.

Succession planning is critical for

ownership transfers to younger

generations. There are several steps in a

succession plan. Determining the

4 January/February 2011 / Rural Cooperatives

Ownership Succession

Co-ops can play role in helping keep farms and ranches in producer hands

A
commitment of young family members,

or other beginning farmers, to operate a

farm or ranch is the first step. Another

major step in transferring ownership is

a financial plan that usually involves

access to credit. This article reviews

some of USDA’s financial programs

available for beginning farmers and

ranchers and considers policies for

financing member succession in

cooperatives.

USDA programs

The Agricultural Credit

Improvement Act of 1992 began

targeting loans for beginning farmers

and ranchers. Support for beginning

farmers from conservation programs

began in 2002. In the Food,

Conservation and Energy Act of 2008,

this support was expanded in both

conservation payments and loan

programs. The 2008 Act also targeted

socially disadvantaged and limitedresource farmers for increased access to

these conservation and lending

programs. In addition, USDA’s National

Institute of Food and Agriculture was

authorized to initiate the Beginning

Farmers and Ranchers Development

Program to provide grants for training

and mentoring.

Since passage of the Act in 2008, idle

land that is one year from being

released for farming under the

Conservation Reserve Program is made

available for beginning farmers. These

farmers can then make preparations for

planting in advance of their either

assuming ownership or making lease

payments. In making these lands

available to beginning farmers,

participants in the Conservation

Reserve Program can receive payments

for two years following the expiration of

their individual programs. Other

outreach and support programs for

beginning farmers offered by USDA are

described in Economic Research

Service (ERS) Economic Information

Bulletin 53.

The Farm Service Agency (FSA)

administers USDA’s lending program

for beginning farmers and ranchers. It

includes both direct lending and loan

guarantees in support of borrowing by

beginning producers for buying and

operating a farm or ranch. FSA loans

and guarantees are only available to

applicants who are unable to obtain

loans from commercial lenders and who

are able to meet the program’s credit

standards, whether or not they are

beginning farmers.

Direct lending limits are $300,000

each for either ownership or for

Rural Cooperatives / January/February 2011 5

Crucial for Rural America

USDA photo by Stephen Thompson
6 J anuar y/ Februar y 2011 / Rural Cooperatives

operating loans per applicant, up to a

maximum of $600,000 if both types are

fully used. L oan guarantees are made

for either ownership or operating, up to

just more than $1.1 million, with

adjustments for inflation. Annual

participation by beginning farmers and

the dollar volume of both types of loans

and guarantees are reported for the

most recent 11-year period in table 1.

Participation in FSA’s beginning

farmer program is trending upward,

increasing from 8,109 in 2000 to 15,294

participants in 2010. Beginning farmers

represent more than 30 percent of loans

made under FSA’s farm program, up

from 20 percent at the start of the

decade (table 1). But it should be noted

that since 2008, higher percentage

shares of loans and guarantees are

reserved for beginning farmers. ese

set-aside reserves are relaxed near the

end of a fiscal year if beginning farmers

have not fully used the allocations

available (ERS Bulletin 53).

Loan guarantees

FSA loan guarantees support direct

lending to beginning farmers and

ranchers by the Farm Credit System

and other agricultural lenders. FSA

guarantees up to 95 percent of loss of

principal and interest on a loan. e

Farm Credit System, a producer-owned

cooperative, is the largest lender for

financing ownership transfers to

beginning farmers and ranchers. In

2009, more than 40 percent of its

beginning farmer loans used the FSA

guarantee program. Other institutions

such as Farmer Mac, Small Business

Administration and state governments

also provide loan guarantees for

beginning farmers, but FSA is by far the

largest provider of this type of program.

A report by the Government

Accountability Office (GAO) in 2007

pointed out that more research is

needed for better measurements of the

reach, scope and success of the

program. Subsequent research by the

ERS has addressed some of these

concerns. Specifically, census data were

used to develop an estimate of the

beginning farmer population in 2007.

Of those producing in 2007, there

were 305,964 that were principal

operators off arms and 446,121 that

were classified as beginning operators

on active farms (ERS Economic

Information Bulletin 53). Table 1

reports 10,640 FSA beginning farm

loans and guarantees made in 2007,

which is a relatively small share of the

beginning farmer population. ese

data are a general indication of

potential to assist more beginning

farmers in successfully establishing and

sustaining farm or ranch businesses.

At a USDA farm policy hearing in

September 2010 in Fort Morgan, Colo.,

participants from both the local farm

community and government concurred

that FSA lending programs for

beginning farmers are of insufficient

scope to accomplish the objectives of

transferring farms and ranches to the

next generation of producers. Mary

Kraft, co-owner of a local farm, said:

“In this age, ag producers must embrace

technology and efficiency in order to

make it, but young farmers can often

spend all the aid they can get on one

sprinkler system. at leaves nothing to

get the rest of the operation going.”

Participants emphasized that the

programs need to reach far more

beginning farmers and to support more

continuity in lending services over

several start-up years (Fort Morgan

Times, June 10, 2010).

One farm owner at the meeting

described a succession plan for his farm

workers whereby they gradually earn

ownership. Another aspect of his plan

involves mentoring these workers to

help them gain farm management skills.

Others pointed out the importance of

continued access to credit and highquality succession planning for creating

successful transfers of farm and ranch

ownership.

One way to use FSA programs to

better meet credit needs in some cases

is to guarantee loans for transferring

ownership in stages. Financing

ownership in stages more readily works

in tandem with succession planning and

mentoring than a one-time, 100-

percent transaction. FSA may allow

loan guarantees to be applied for

purchase of partial interest in a farm or

ranch. In partial ownership transfers, all

owners, buyer and seller, must be

signatories in securing the loan.

Guarantees fo r rural businesses

e challenges for beginning

farmers are analogous to those involved

Table 1 — FSA loans & guarantees for farm and ranch purchases and

operations, Fiscal 2000-2010 (millions of dollars)

2000 8,109 716.2 3,571.3 20

2001 8,003 706.6 3,168.5 22

2002 8,691 839.5 3,496.8 24

2003 8,633 851.2 3,502.9 24

2004 8,572 867.5 3,073.6 28

2005 9,592 1,030.3 3,022.9 34

2006 10,677 1,082.8 3,073.6 35

2007 10,640 1,110.8 3,133.3 35

2008 10,992 1,249.9 3,307.7 38

2009 14,523 1,587.4 4,474.4 35

2010 15,294 1,706.2 5,283.6 32

Number of

beginning

farmer

loans

Beginning

farmer loan

dollars

obligated

Total

loan

dollars

obligated

Percentage of

loans to

beginning

Year farmers
Rural Cooperatives / January/February 2011 7

in transferring ownership of nonagricultural businesses. Some of the

tasks in transferring family businesses to

the next generation of owner/operators

have been discussed in previous issues

of Rural Cooperatives magazine

(Jan./Feb. 2009, page 10). While

farmland usually continues in some type

of economical use, many nonagricultural businesses permanently

close after their owners retire, which is

economically detrimental to rural

communities.

USDA Rural Development provides

loan guarantees in its Business &

Industry (B&I) Program for

transferring ownership of businesses.

However, under its regulations, a loan

guarantee can only be used for

financing a total ownership transfer.

This restriction protects against nonborrowing owners benefiting from loan

guarantees, but there is recognition that

it inhibits effective succession planning.

Discussions are underway to have

flexibility for loan guarantees with

partial ownership transfers to either the

children of a family business or to its

employees when forming a worker

cooperative. There is also potential for

revisions in the B&I program so that

loan guarantees could be applied to the

financing of stock transfers from those

who are retiring to new members of

either worker or agricultural new

generation cooperatives.

New generation

cooperatives (NGC)

Neither beginning nor experienced

farmers will stay in business for long if

they are not profitable. Cooperatives

contribute to the profitability of many

farmers and ranchers, and

organizational innovations in the co-op

business model in recent years have

been aimed at better achieving that

objective. One such innovation is the

NGC.

Members of an NGC invest in stock

shares with delivery-rights that can be

transferred to others. If an NGC is

successful, farmers have appreciated

stock shares that upon their retirement

from the cooperative can be sold to new

members.

The challenge is that most beginning

farmers, especially those with farm

debt, cannot afford to buy appreciated

shares in an NGC. In recent years,

many value-added enterprises have been

functioning as NGCs, but have been

formed as Limited Liability Companies

(LLCs). In this way, farmers have a

larger market for selling shares, one

that includes non-farmer investors.

Ownership and control of these

businesses will become increasingly

unavailable to beginning farmers, or to

any farmers, for that matter.

Thus, the new generation

cooperative may not become the

cooperative for the next generation of

farmers.

Several NGCs have established

programs for gradual transfers of stock

shares to new members. A potential tax

policy action to help transfer NGCs to

farmers would involve deferral of

capital gains on stock sales to farmers

but not if shares are sold to non-farmer

investors. A retiring farmer from an

NGC would have a deferral from taxes

by re-investing in stock, financial

instruments or some type of account

that would satisfy criteria of the

Internal Revenue Service.

This type of capital gains tax deferral

would parallel the Internal Revenue

Code 1042, which applies to the sale of

a business to employees to form either

an Employee Stock Ownership Plan or

a worker cooperative. There is also a

specific provision, 1042(g), for an

agricultural processor to obtain tax

deferrals on the sale of processing

plants to farmer cooperatives.

Since it is public policy to provide

tax deferrals on the sale of a business to

create either a worker or a farmer

cooperative, it is logical to extend the

same benefits to retiring members when

they sell stock to new employees or to

farmers. This will help ensure that

ownership remains with farmers or

workers, rather than transition the

business to non-cooperative status in

the future.

Together with flexible B&I loan

guarantees, a 1042 tax deferral would

make NGCs more financially attractive

for farmers and contribute to the

longevity of all types of transferrable

stock cooperatives.

Future ownership of farms

The ownership of farms in the future

may take a variety of forms other than

the tradition of a single family as sole

proprietor. Some of the high-value

fresh product farms near urban areas

provide ownership shares to their

customers. For some of the large

commodity farms that are often

relatively far from major urban centers,

various methods of shared ownership

and partnerships are being applied to

manage the high cost of farming. In

addition, commodity farmers will

increasingly need to make investments

for delivery rights to food, fiber or bioenergy businesses.

Future needs for USDA lending

programs to assist beginning farmers to

achieve ownership in farms and ranches

will likely persist. Making these start-up

agricultural enterprises sustainable may

involve more lending program

flexibility to support gradual ownership

transfers. In addition to lending,

training on succession planning and

offering supportive tax policies on

ownership transfers can have a positive

impact. Lastly, cooperatives — both

traditional and NGC — can make a

significant contribution in helping

beginning farmers create a financially

sustainable enterprise.

References

• Barker, Dan. Producers: USDA does not do enough,

Fort Morgan Times, Fort Morgan, CO, Sept. 10,

2010.

• USDA, Economic Research Service. Beginning

Farmers and Ranchers (Economic Information

Bulletin Number 53) May 2009. Available at

http://www.ers.usda.gov/Publications/EIB53/EI

B53.pdf.

• USDA, Farm Service Agency. Farm Loan

Programs. Available at

http://www.fsa.usda.gov/FSA.

• USDA, Rural Development. Rural Cooperatives,

“Building a Bridge for Ownership Succession,”

Jan-Feb 2009.

• U.S. General Accounting Office. Beginning

Farmers: Additional Steps Needed to Demonstrate

the Effectiveness of USDA Assistance, GAO-07-

1130, Washington DC: Government Printing

Office, Oct. 2007. ■

Rural Cooperatives / January/February 2011 9

By Stephen Thompson, Assistant Editor

Editor’s note: Many farm supply co-ops have had to shut their doors when largeand medium-size production farms have been replaced by hobby farms and housing

developments. Other co-ops, such as the operations featured below and on page 11 of

this issue, have learned how to supplement their traditional farmer business with

sales and service aimed at the “new neighbors.”

hat do you do if you’re a small rural service co-op and the

area in which you operate is getting less rural?

That’s the question that faced the Leavenworth County

Cooperative Association in Kansas, which operates in an

area that used to be farm country but has become

progressively urbanized during the past 20 years. The cooperative faced the

choice of becoming increasingly irrelevant, or changing the way it does

business. It chose the latter course and has found a way to attract a new

customer base while still serving its traditional market.

Leavenworth was founded in 1963 as a traditional service cooperative to

provide fuel, agricultural chemicals, seed and other necessities to member

farmers, filling an important niche in the local agricultural community. It

had a filling station and convenience store at its headquarters, as do many

similar rural cooperatives.

However, the situation began to change in the 1980s, says Roger Brandt,

a farmer whose family has been with the co-op from the beginning.

Drought and high fuel prices coincided with a boom in demand for

residential lots, he says, as people from nearby Kansas City sought to live in

the outer suburbs.

Many farmers decided they’d be better off taking advantage of that

demand. “A lot of guys would sell 80- and 160-acre parcels to developers,”

Brandt says. “It changed the whole community.”

Cropland replaced by housing

Soon there were housing tracts where there had been row crops. Hog and

cattle operations were replaced by horse stables. The cooperative’s

traditional business began to dry up. By 2004, says General Manager Sue

Elniff, the corner on which the co-op’s headquarters stood — which

originally was “out in the country” — was part of an urban area. The

agronomy department had been moved eight miles away into more rural

surroundings in 1997, but the headquarters property presented a problem.

“It’s hard to run an ag co-op when you’re sitting in a residential area,”

Elniff says. “The property is on a very high-traffic corner, so we had to

decide whether to sell it to realize its value, or to exploit its advantages.”

Clockwise from upper right: The addition of a pet

grooming service has been a successful adaptation

to the Leavenworth County Co-op’s urbanizing

market. Here, Cassandra Elkins clips a customer’s

dog. Josh Demaranville, a co-op truck driver,

attaches a propane hose to his truck at the co-op’s

main bulk plant in Lansing, Kan. Patty Delpercio calls

the feed warehouse to request bags of milo for a

customer. All photos by Prudence Siebert

W

Kansas farm supply co-op

adjusts to urbanizing market

with new goods, services

Groomed for Success
10 January/February 2011 / Rural Cooperatives

As Brandt puts it, “They had to decide whether to go with

the flow or do something different.”

In 2002, part of the property was sold as the site of a new

grocery store. The rest, including a 24-hour filling station

and convenience store, was retained. With many new horse

farms in the area, the co-op decided to include tack and other

equine-related items in the farm store section, and to offer

gardening supplies. At the same time, it opened a pet supplies

department, which soon began to do well.

In 2008, the property was remodeled, combining two

adjacent buildings into one larger space. A small kitchen and

café with four booths, called “Good News,” was built in, and

a pet grooming business was started.

The tack shop has languished in recent years, apparently

due to the dip in the economy. “People are staying away from

large animals,” Elniff says. “We’re just not getting the horsehobby traffic.”

One the other hand, the pet business has taken off.

“Customers who are having a hard time financially will still

spend money on their pets. And 50 percent of the people

living around here have pets.”

The pet grooming business has proved to be a real money

maker. The cooperative has three groomers working for it,

with the service available six days a week, 12 hours a day.

Even so, its popularity means customers have to make

appointments up to three weeks in advance.

Elniff says the service also helps sell more pet food and

supplies. People hang around the co-op while their pets are

being washed and groomed, giving them the chance to

wander aisles packed with pet goodies of every description.

TV advertising draws business

The café, open for breakfast and lunch, is also making a

difference, and there are plans to expand it with additional

tables. “We serve a lot of breakfasts, especially,” Elniff says.

One of the biggest obstacles the transformed co-op store

faced was a perception on the part of some members of the

public that the cooperative only sells to members.

“Once you get them in the door, you can offer them all

kinds of things,” says Elniff. “But you have to get them in the

door.” The co-op’s answer was a television ad campaign, first

aired in 2009. Five spots resulted in a notable increase in

traffic, as did a follow-up spot in the summer of 2010 touting

the café. The co-op has also aired some radio advertising.

Meanwhile, the cooperative’s more traditional business

continues. Five trucks run full time delivering propane and

bulk fuel to urban and rural customers. A new fuel salesman

has successfully gone after new business, says Brandt. “And

he makes sure you don’t run out.”

Seed and farm chemicals have also seen increased sales:

“The agronomist was given the room to take the initiative,

and he’s done it,” says Brandt. “He and his employees are

doing a heck of a job.”

Leavenworth’s experience offers hope for other small

supply and service co-ops caught in similar circumstances. If

changes in your neighborhood hand you a lemon, make

lemonade. ■

“Once you get them in the door, you can

offer them all kinds of things,” says co-op

manager Sue Elniff (left). The co-op also

provides some part-time clerk jobs for high

school students (below).
By Kara Keeton, Keeton Communications

The Kentucky Center for Agriculture & Rural Development (KCARD) fosters business success and growth by

developing and delivering technical assistance and by providing education opportunities for agriculture and rural

businesses seeking to enhance their economic opportunities in and around Kentucky. For more information,

contact Larry Snell at 270-763-8258 or lsnell@kcard.info.

n Marshall County, Kentucky, when you hear someone talking about the co-op, it isn’t

a commodity receiving station he or she i s referring to. It is the long-standing farm

supply store. During the 70-some years it has been in operation, the Marshall County

Co-op has moved around the area and gone through several marketing changes, but

its status as a member-based cooperative remains.

Building a coope rativ e

T he Marshall County Co-op — the official name is the Marshall County Soil Improvement

Association — began in 1935 as a part of a program between the Tennessee Valley Authority (TVA)

and the University of Kentucky Extension. T he objective was to test newly developed fertilizers

produced by TVA.

T he local organization incorporated in 1940 and began providing agriculture supplies to farmers,

along with the TVA fertilizer for testing.

In 1946, the farmer-owners and the board of the cooperative decided that there was a need and a

desire to expand the farm supply services. T hat fall, the co-op hired a full-time manager and

Rural Cooperatives / J anuar y/ Februar y 2011 11

I

E xpanding Your Customer Base

Kentucky supply co-op adapts

to serve “mini” farms, homeowners

The co-op's grand opening celebration drew a large crowd. Photos courtesy Marshall County Co-op
12 January/February 2011 / Rural Cooperatives

purchased a warehouse to accommodate the initial operations

of the supply business.

Enthusiastic cooperation from farmer-owners led to the

co-op’s growth over the next 30 years. By 1975, the co-op

had grown to an annual sales volume of more than $1

million, and it enjoyed a solid financial rating. The co-op had

more than 2,300 members and operated in one of the finest

farmer-owned cooperative facilities in the entire area.

The next 20 years saw a dramatic change in the area’s

agricultural operations, which had an impact on the co-op.

High interest rates in the 1980s led to the collapse of farms

throughout the area, and many of those that remained were

large commercial farms. Although the co-op suffered several

years of losses during this period, it was able to maintain its

position as a viable agribusiness in the area and continue to

grow into the new millennium.

Cooperative in transition

In 2005, Tim Ferrell, the co-op manager, began looking to

the future. He was seeing more and more changes in his

customer base as the agriculture industry continued to

change.

“We had large commercial farmers who were going to

larger farm stores or direct to a dealer for their needs,”

explains Ferrell. “What we were seeing in our store were

more and more mini-farmers, people who own 5, 10 and 20

acre parcels with a few animals and a garden.”

One day, while Ferrell was having lunch with Lincoln

Martin, the Marshall County Extension agent, Martin

suggested that KCARD might be a good resource to help in

the planning for the future of the co-op.

Ferrell contacted KCARD and, after an initial meeting

with staff, it was determined that a business management and

operational audit would be the first step in the collaboration.

“KCARD came in and spent three days with our staff and

customers, reviewing information, doing competitive

shopping in the area — it was just much more than I

expected,” says Ferrell. “Then they presented the results to

our board on that Thursday, it was a great experience.”

Beyond the efficient and thorough evaluation process,

Ferrell was impressed by the information KCARD presented

in the report. Ferrell, a former stock broker, felt the financial

analysis was a key component in explaining business

recommendations to the board.

“A cooperative is a business, and for a business to survive

it has to make money,” says Larry Snell, executive director of

KCARD. “In a business management operational analysis, we

try to show this to a board by explaining the finances of the

cooperative.”

Ferrell says the co-op has used the analysis results to

improve on pricing at the store now that the staff has a better

understanding of the price points for the main products. It

has also allowed them to branch out beyond the traditional

items carried in the store, to meet the needs of the changing

clientele.

“The one thing that was extremely helpful for me was that

the KCARD study showed that our cooperative had major

name recognition in the area,” said Ferrell. “We had been

considering a name change, and these results kept us from

committing [a major error].”

Community cooperative

Ferrell has continued to work with the KCARD team over

the last several years as he and the staff at the co-op have

transitioned from the traditional commodity cooperative to

include a lifestyle market to reach out to an urban customer

base.

In 2009, the retail market was expanded and renovated

allowing the co-op to meet the growing demands from its

new urban customer base.

“I think our farmer base is only 20 percent of our

customer base today; this is a big change,” says Betty

Travghber, the co-op bookkeeper. “Our gift department and

our pet department are probably two of our biggest and

growing departments.”

While the co-op has diversified its products and expanded

the retail market, it continues to focus on providing services

to those individuals who were the foundation of the business:

area producers.

The co-op is still the source of information for the

agriculture community. The hay bulletin posted at the store

continues to be the best place in the area to find hay for sale.

Special educational seminars and demonstrations are held

throughout the year to provide a service to the community.

There is also Ferrell’s daily agriculture radio show on a local

radio station that mixes agriculture news and entertainment.

“Meeting the needs of the co-op’s members is the main

focus of the co-op,” explains Ferrell. “It has also been

instrumental in the survival and is critical to the growth of

the co-op. ■

Rick Carrico (left) and Brad Fest of Land O' Lakes Purina Feed helped

out at the grand opening of the co-op's remodeled store.
Rural Cooperatives / J anuar y/ Februar y 2011 13

By AdamCzech

USDA Rural Development

Minnesota State Office

e-mail: adam.czech@mn.usda.gov

he Hillside Farmers

Cooperative has some

big goals for L atino

farmers in southeastern

Minnesota. With the

help of a Small, Socially Disadvantaged

Producer G rant (SSDPG ) from USDA

Rural Development, Hillside Farmers

Cooperative has taken another step

toward reaching some of those goals.

Hillside Farmers Co-op includes

L atino immigrants and established

farmers in southeastern Minnesota who

are committed to producing sustainable

foods and building healthier

communities. Immigrant families are

matched with established area farmers

who rent out their land for gardening

and poultry production.

T he SSDPG will help the co-op

conduct a feasibility study, develop a

business plan, provide training and help

pay for other related expenses in

developing a network of L atino-owned

businesses in the free-range poultry

industry. T he primary objective of the

SSDPG program is to provide technical

assistance to small, socially disadvantaged agricultural producers through

eligible cooperatives and associations of

cooperatives. T his is the first SSDPG

awarded in Minnesota.

Dev eloping compe ti tiv e

sus tainable farms

Many L atino families have strong

backgrounds in rural living and

Hillside Farmers Co-op helps Latino producers

The Hillside Farmers Co-op is helping Latino immigrants rent farmland for gardening and poultry production. Above: Maria Sosa and her family work

their garden plot near Northfield, Minn. Photo by Natascha Shawver. Below: (from left): Reginaldo Haslett-Marroqui, Todd Prink and Eladio Carpiode-Evans. Photo by Morgan Sheff Photography, courtesy Edible Twin Cities

T

continued on page 37
By Thomas W. Gray, Ph.D.

Rural Sociologist

Cooperative Programs

USDA Rural Development

Editor’s note: The author welcomes

feedback from readers on this article and on

broader topics of family farm survival.

Their thoughts may be used in future

articles and can be e-mailed to:

Thomas.Gray@usda.gov. Supportive

research is referenced by author’s name and

university affiliation.

uring the past several

decades, U.S. farm

numbers have increased

in two farm categories:

those with annual sales

of less than $2,500 and those with sales

of more than $1 million (see chart, page

20). Thus, when measured by sales,

only the very largest and very smallest

farms have increased in number. This

trend reflects the emergence of two

parallel food and agriculture systems in

the United States.

One farming system produces huge

volumes of commodities into a

vertically integrated, global and

corporate food system; the other is

comprised of much smaller and more

diverse farms that are oriented

primarily to metro-local and regional

markets. These small farms cater to

organic markets, community-supported

agriculture associations (CSA), farmers

markets and farm stands, and other

direct marketing and local outlets.

Between these two extremes are

“farming occupation” farms, or the

agriculture of the middle (AOTM) —

also referred to as “the disappearing

middle.” AOTM farms tend to be

commodity based with larger outputs

than “metropolitan-local” units, but are

smaller than their mega-farm

industrialized cousins.

Many of these AOTM farms are

struggling for survival, in part because

they produce large volumes of a lowvalue, homogenous product (a

commodity), while competing directly

with the massive-scale industrialized

farms. Further, their large volumes and

distance from metropolitan areas tend

to preclude entry into specialized

“local” metropolitan markets.

Farm loss hurts rural towns

The loss of these AOTM farms has

direct implications on the sustainability

of rural communities. A series of studies

has found that small- to mid-size farms

generally have greater positive impacts

on nearby communities than do large

industrialized farms.

Such measures as median family

income, college education and

participation in local civil society were

all found to be greater in communities

surrounded by a base of small- to midsize farms, though the most recent

studies find a mix of small and large

farms having the greatest impacts (Rick

Welsh, Clarkson University). These

findings have been replicated numerous

times by various anthropologists and

rural sociologists (Fred Buttel, Olaf

Larson, Gilbert Gillespie, and Tom

Lyson of Cornell University; Linda

Lobao, Ohio State University; and

Walter Golschmidt, UCLA).

However, shifts in consumer food

demand may be opening expanded

market potential beyond commodity

production. A series of studies has

documented significant shifts in

consumer demand toward organic,

environmentally sensitive and/or locally

produced foods. These studies are

broad ranging and include research

conducted in Missouri, California,

Colorado, Oregon, Washington, Ohio,

Tennessee, Illinois, Indiana, Iowa,

Kansas, Minnesota, Nebraska and

Wisconsin, as well as national studies by

the Hartman Group, Health Focus and

Whole Foods.

Richard Schneiders, CEO of Sysco

Corporation, reports that his customers

are “wanting memorable, high-quality

food, produced with a farming story

they can support [i.e., family farms],

and brought to them through a supply

chain they can trust.” This underscores

a growing preference among many

consumers for local and “mid-tiersized” companies, rather than

multinational corporations. As these

new markets open, they represent

greater potentials for smaller scale

production.

Commodity production, on the other

hand, lends itself to output on an

industrial scale. The production/

marketing strategy is one of large

volumes with thin margins. Commodity

farms with smaller volumes (AOTMs)

simply cannot compete, and thousands

drop from financial viability each year.

They do not make a sufficient return

per unit of output over their total

output to survive.

Niche markets harder

to industrialize

Differentiated niche products are not

as easily industrialized as are

commodities. The scale advantages of

industrializing production are more

muted. Production/marketing emphases

are on what some term “craft-growing

systems” (Julie Guthman, University of

California-Santa Cruz) and, in some

cases, products are specifically produced

and branded as “family farm raised.”

George Stevenson (University of

Wisconsin), Fred Kirshenmann (Iowa

State University) and others suggest

AOTM survival will depend on moving

into this emerging “alternative” food

area. Stevenson has developed a flow14 January/February 2011 / Rural Cooperatives

D Agriculture of the Middle:

Opportunity for Co-ops
Rural Cooperatives / January/February 2011 15

chart (figure 1) to help sort out the

alternatives.

In this chart, the lower left quadrant

(labeled the “Troubled Zone”), are the

AOTM farms. For reasons specified

above, farms with a production/marketing strategy of commodity output will

likely not survive. e trends charted

on page 16 document their demise.

e social organization of these

farms tends to be based on a family

farm structure (i.e. labor, management

and ownership are held under one

kinship group). Individual farms may

survive by moving into “very large

commodity marketing” (quadrant three)

by buying out other farms,

consolidating and seeking to produce

ever larger volumes of commodities.

e surviving farms then move into

the large industrial farm category, with

all the incumbent community and

environmental challenges and loss of

their family farm structure. Total

volumes will likely expand and overall

margins may “thin-out” entirely.

Rather than increasing volume of

production, AOTM farmers might

consider adding value to their output by

moving out of commodity production

and into direct marketing (quadrant

one). is option might include

capitalizing on local foods from a

nearby metropolitan market, converting

to organic production, developing a

CSA and/or entering into other direct

marketing alternatives (farm stands,

Internet sales, farm-to-school sales,

farm-to-restaurant and other

institutional sales).

Unfortunately, even if AOTM farms

are close enough to a “local”

metropolitan market (and most are not),

markets in general are not large enough

to absorb their large volumes of output.

Opportunity to add value

Quadrant two of figure 1, “the

opportunity area,” may represent the

most likely option for the largest

number of AOTM farms. is area

represents the development of valueadded, value chains. However to take

advantage of the developing

“alternative” food market, Stevenson

and Kirshenmann reason the value

chains must take shape as “values-based,

value chains.”

“Values-based” refers to products

and production that incorporate various

organic, environmentally sensitive

and/or locally identified food. ey

generally incorporate various aspects of

Figure 1
16 January/February 2011 / Rural Cooperatives

economic, social and environmental sustainability.

Cooperative development

Four cooperative examples that fit within “the opportunity

area” are Organic Valley, OFARM, Country Natural Beef and

Thumb Oilseed Producers Cooperative. Each of these

cooperatives markets its products by emphasizing superior

taste, health and nutritional qualities of foods produced by

small- and mid-size farmer-members of the co-op. They also

emphasize their members’ concerns for environmental

responsibility in production methods and in final product

characteristics.

As individual producers, the farmers of the middle will

continue to struggle to survive economically, as well as

socially, to maintain their family farm structure. Shifting to a

values-based, value-added agriculture may hold promise and

new opportunities, given an expanding demand for highvalue differentiated products.

However, like any new product initiative, market

development is required. No single farmer can take on this

kind of development. Agricultural cooperatives are socialeconomically positioned to facilitate this emerging

opportunity with their tradition and close connection to

farmers and their communities. The production and market

development of this genre of products requires certain basic

tasks of purchasing inputs, local assembly, grading, packing,

shipping and more. To differentiate the product and protect

it from potential competitors, complex tasks of branding,

advertising, packaging, intensive processing and product

molding — as well as research and development — are

needed.

Small- to mid-size farmers can little afford to perform

these functions as individuals. However, their mutual

interests as a group can be pursued with the facilitative

functions of a cooperative. Agricultural cooperatives have

been performing these functions for decades.

Furthermore, a rural development advantage of

cooperative organization, different from other organizations,

is their member-patron orientation. Benefits flow to the

members of the organization, rather than to non-farm

absentee owners. To the extent that cooperative members

farm locally and regionally, the benefits can flow to local and

regional communities.

Historically, cooperatives have had a distinct role in

seeking to keep farmers in business. Helping to shift AOTM

farmers to a more survivable quadrant of figure 1 may open

up greater possibilities for farmers, their cooperatives and

their larger communities.

Author’s note: Readers may also examine the web pages of

Organic Valley, OFARM, Country Natural Beef and Thumb

Oilseed Producers Cooperative to see what these cooperatives are

doing in this area of development. ■
Rural Cooperatives / January/February 2011 17

By John Dilland

Editor’s note: John Dilland recently

retired as CEO of Michigan Milk

Producers Association.

efore relating my

perspective on

cooperative

management, let me

provide a brief

description of the Michigan Milk

Producers Association (MMPA) and

how I became involved in co-op

management. MMPA is a regional

dairy marketing cooperative with

around 2,200 members in Michigan,

Indiana, Ohio and northeastern

Wisconsin. Total annual revenues have

recently ranged from $550 million to

$800 million per year. The total is

highly dependent on the price paid for

nearly 4 billion pounds of milk

marketed for its members each year.

Roughly 45 percent of the member

milk is sold to fluid milk bottling

companies and other bulk-milk

manufacturing customers. About 20

percent of the member milk is sold to a

major cheese manufacturer and the

remaining 35 percent is processed

through MMPA’s two manufacturing

plants located in Ovid and Constantine,

Mich. Member equity in MMPA is

roughly $45 million, which will likely

double in the next 10 years as a result of

an equity capital-retain program that

was approved by members in 2008 to

help finance a major capital expansion

of MMPA’s manufacturing plant in

Ovid, Mich.

I have worked for cooperatives for

nearly my entire working career.

Following military service and graduate

school, I began my cooperative career

working for the St. Paul Bank for

Cooperatives as a credit analyst and

loan officer. In the mid-1970s, MMPA

B

Management Tip

The most important things

I learned about running a co-op

Manager pursued

value-added strategy

During his 35 years with Michigan Milk

Producers Association (MMPA), John

Dilland is credited with having helped to

shape MMPA into one of the most

financially stable cooperatives in the

country.

His initial challenge at MMPA was to

restructure the balance sheet of the

cooperative. He then helped to lead the

transition from the fluid market into a

high-quality line of value-added dairy

products. This move, coupled with

streamlining plant production,

strengthened the overall economy for

Michigan dairy farmers. While serving as

the co-op’s director of finance, Dilland helped craft one of the first dairy

cooperative partnerships with Leprino Foods Inc.

In 2003, Dilland was appointed MMPA’s general manager, in which

role he fine-tuned the cooperative’s marketing structure. In 2005, another

landmark arrangement between Leprino Foods, Dairy Farmers of

America and MMPA was signed, further solidifying the milk-supply

agreement.

Dilland was saluted by the co-op’s board for his ability to project longrange goals in a turbulent business environment, allowing the

cooperative to take advantage of changing market trends without

sacrificing MMPA’s mission to market the members’ milk to the greatest

advantage possible.

In addition to his work for MMPA, Dilland has held leadership roles

with the National Council of Farmer Cooperatives, National Society of

Accountants for Cooperatives and the National Milk Producers

Federation. He also served on the board of the Michigan FFA Foundation

and the Michigan Dairy Memorial and Scholarship Foundation.

John Dilland

continued on page 38
By Julie A. Hogeland, Ag Economist

Cooperative Programs

USDA Rural Development

e-mail: julie.hogeland@wdc.usda.gov

ears before the Food Safety Modernization

Act was passed in December 2010, two

grower-owned cooperatives, the Florida

Tomato Growers Exchange (FTGE) and

California Tomato Farmers (CTF),

developed a comprehensive market-based solution to

consumer demands for safer food. These cooperatives

anticipated the Act’s call for science-based minimum

standards of food safety for commodity-like produce,

including updated good agricultural practices and guidance

covering production and harvesting. This article explores the

hurdles these cooperatives overcame to become champions of

food safety within the fresh tomato industry.

Attention to food safety is an example of how cooperatives

legitimize markets by developing rules of conduct benefiting

both producers and buyers. Early in the 20th century,

Sunkist, Sun Maid and Sunsweet brought order, coordination

and predictability to produce markets described as “chaotic”

by contemporaries. The cooperatives’ grades and standards

showed members the value of what they were selling,

providing leverage against unscrupulous buyers and greater

access to credit. Through their willingness to go into

uncharted areas such as food safety, FGTE and CTF have

likewise created and safeguarded a market fundamental —

safe food — and given tomato growers a similar control over

their destiny.

A key difference between the last century’s collective

action and now is that cooperatives are more likely to enlist

the support of others in the supply chain to attain their goals.

Emphasis on cooperative “difference” and self-reliance —

“doing it all” — has diminished. Cooperatives increasingly

recognize that grower needs must be situated and solved

within the context of the entire supply chain. The shift from

independence to interdependence marks a profound cultural

change within cooperatives. CTF and FTGE were strongly

motivated to streamline and clarify tomato food safety by the

needs of key foodservice suppliers, notably Taco Bell and Jack

18 January/February 2011 / Rural Cooperatives

TOMATO

CO-OPS HELP

CRAFT BETTER

FOOD SAFETY

STANDARDS

Y
in the Box, and

retailers such as

Wegman’s. The

result was substantial

industry progress

toward eliminating food

safety claims as a basis for

industry competition.

Pre-1998 food safety practices

Prior to 1998, fresh produce was regarded as raw

agricultural commodities; as such, it was not addressed

by the U.S. Food and Drug Administration’s (FDA)

regulation of processed foods. In 1998, FDA identified

good agricultural practices (GAP) for all produce

growers, irrespective of commodity, by publishing the

“Guide to Minimize Microbial Food Safety Hazards for

Fresh Fruits and Vegetables” (U.S. FDA 1998). The

guide relied heavily on industry recommendations for

water, manure and municipal bio-solids, worker health

and hygiene, sanitary facilities, field sanitation, packing

facility sanitation and transportation issues.

At that time, paying attention to the “early” (on-farm)

parts of the food-marketing chain was a relatively new

concept. In contrast, the microbial processes that ensure

product safety in the packing of low-acid canned foods

were well understood.

Nevertheless, recurring food safety incidents indicated

that a more intensive approach was needed. Between

1996 and 2004, FDA tallied 14 outbreaks of salmonella

exposure resulting in 859 cases of food-borne illness

from consumption of fresh lettuce or fresh tomatoes.

The industry-wide catalyst for change was a letter from

FDA, advising lettuce and tomato growers, shippers and

handlers to make food safety a top priority.

Turning point

Industry observers cite the FDA letter as a turning

point that convinced the tomato industry it needed “new

rules of the game.”

Harvard Business School analyst Michael Porter says

that industries forced to adapt to significant cultural

change (such as consumer pressure for

safer food) will resemble new,

emerging industries. Firms in such

industries compete to identify the

technologies and processes that will

become the industry standard, allowing the

industry to survive and prosper. Since

emerging industries lack critical technological

and strategic information, firms experiment with

different approaches to product/market positioning,

marketing and servicing.

Emerging industries experience heightened

uncertainty and risk because the consequences of

particular choices may not be known for some time. For

example, the industrializing pork industry experimented

with different breeds to raise productivity (pigs per sow

per year) and minimize the potential for PSE syndrome

— pale, soft, exudative (watery) meat resulting from

animals that could not stand the stress of confinement.

Initially, the produce industry seemed to find the

credibility it needed through voluntary third party

certification (TPC) providing production process

verification through periodic auditing. The public or

private organizations conducting TPC used scientific

studies and technical requirements to interpret the 1998

FDA GAPs. By 2005, TPC seemed to be an important

emerging institution for enforcing both private and

public standards.

Nevertheless, imprecise, conflicting and subjective

results accumulated over time, suggesting that the

independent verification of process, product quality and

safety claims offered by TPC might be subject to

conflicts of interest. It appeared that the best that could

be said was that food was either very safe, safe enough,

barely safe or that safety could not be determined.

Retailers drove the adoption of third party

certification to ensure that suppliers were in compliance

with the 1998 guide. Yet different interpretations of the

guide, coupled with ad hoc extensions, made uniformity

and consistency among TPC providers a significant

industry problem.

The existence of third party certifiers, with varying

Rural Cooperatives / January/February 2011 19

Recurring food safety

incidents indicated that

a more intensive

approach was needed.
claims to authority, made it difficult to identify whether

standards were accurate and unbiased. The likelihood that

auditing was being used strategically led industry

observers to wonder whether audit outcomes were

influenced by whether a company was “signed on” or not.

Pressure for positive evaluations undermined the

credibility of the assessments, contributing to what

observers called “a spiral of distrust.”

“Audit mania”

Outbreaks of food-borne illness in 2004 and 2006

triggered what industry observers called an “audit mania.”

Retailers asked: “Can we make our standard stricter than

anyone else?” Buyers seemed to believe: “If this standard

is good, another will be better.”

Multiple audits fostered the

belief that: “My food is

safer than yours.”

Retailers,

especially those

competing for

market share in

the emerging

markets of China,

India, Eastern

Europe and South

America,

differentiated

themselves by the

strictness of the “private

standards” they adopted to

monitor food safety.

Retailers’ competitive “race to the top” based on ever

more rigorous standards resembled a “spiraling food safety

arms race.” Private corporate standards fueled

“increasingly aggressive on-farm management practices

despite a more widely accepted set of standards,” said the

Produce Safety Project (2010). As standards were

ratcheted upwards by auditors, inspectors and other food

safety professionals, normal production risk became highstakes decisions.

The evolution of norms is not well understood. One

potential explanation is that norms undergo a process of

competitive selection, enabling the best standard to prevail

(Hayek, 1960). Tomato industry experience suggests that

conflicting standards prolonged the competitive filtering

process.

In the decade following 1998, intense pressure to

improve food safety fostered the assumption that it could

be accomplished without environmental consequences.

Lettuce growers in California’s Salinas Valley were among

the first to encounter normative trade-offs. For example,

critical habitat for some 80 species covered by the U.S.

Endangered Species Act could be eliminated if growers

chose to use bare-ground buffers free of vegetation. Yet,

vegetation filters and absorbs pollutants from drainage

water and from surface water run-off that otherwise would

reach cropland through bare ground. The Produce Safety

Project found that farmers seeking to co-manage

environmental and food safety risks face “tremendous

pressure” by auditors and inspectors to remove wetland,

riparian and other habitat, and eliminate wildlife on or

near farmland. Grower efforts to protect air, water and

soil quality were reduced or discontinued as auditors and

inspectors associated particular conservation practices with

food safety hazards.

The second phase of industry evolution included

increasing awareness of the cost of multiple

audits. Growers shouldered the cost

of audits with conflicting

standards that put them at

risk for failing, or for

getting results that did not

make sense. Ed Beckman,

chief executive officer of

CTF, saw the pain of

audit fatigue getting to

the point where people

were ready to set aside

personal agendas. This

provided an incentive to

consolidate and standardize (or

harmonize) multiple tomato GAP

audit forms into a common set of

guidelines — the third phase of industry adjustment.

Streamlining standards

To establish consistency in leafy green production and

handling, Western Growers Association (WGA) supported

a national marketing agreement with growers. The

consistency provided by a national baseline standard

could, reasoned WGA, reduce the cost of multiple audits

and criteria and potentially prevent buyers from

tightening standards beyond the national level. Without a

national agreement, WGA predicted that retailers, food

service industries and states would try to improve their

competitive position by creating mandatory, but not

necessarily scientific, standards.

Growers began demanding science-based standards.

Standards became less arbitrary as people began asking

questions such as: “Is this a best practice? What controls

are you using? What kind of practices are equally

acceptable — animal or poultry manure or chemical

fertilizer? Should I use strip or overhead irrigation? Is the

water of adequate quality? How often do you want me to

test it? How far should we be from a grazing area?”

20 January/February 2011 / Rural Cooperatives

Growers began demanding

science-based standards.
Better industry metrics emerged from this

process of determining “how many, how

often, how far?” When science was lacking,

the experience of people who had “walked the

field” was used. One outcome of this process

was the California Leafy Green Products

Handler Marketing Agreement and a similar

program in Arizona.

Although the agreements were not

designed for tomatoes, buyers liked the

metrics, so standards for green leafy

vegetables were indiscriminately applied to

tomatoes. From this, tomato growers realized

they needed to work harder to let buyers

know about how much they had improved

traceability and introduced scale-neutral

procedures (those not affected by farm size)

covering worker hygiene, adjacent land use,

water quality and equipment sanitation.

Cooperatives transform

tomato food safety

The Fresno-based California Tomato

Farmers (CTF) and Maitland-based Florida

Tomato Growers Exchange (FTGE) represent

more than two-thirds of the U.S. domestic

tomato supply. Formed in 1974, the FTGE is

a cooperative of 20 first handlers of tomatoes

from Central and South Florida. Florida is the

largest producer of fresh market round

tomatoes in the United States. Total annual

value at the farm-gate level ranges between

$400-500 million, depending on tomato

prices.

Prompted by the 2004 FDA letter to

produce growers, FTGE developed tomato

GAPs (T-GAPs) and best management

practices (BMPs) in 2006, in conjunction with

producers, the University of Florida’s Institute

of Food and Agricultural Sciences, the Florida

Department of Agriculture and Consumers

Services and FDA. Florida was the first state

to develop a comprehensive food safety

program with mandatory government

inspection and auditing of tomato production, handling

and packing.

California also drew on scientific research to formulate

and update standards. In 1999, the California tomato

industry and the California Tomato Commission

conducted food safety research through the University of

California, Davis. The group also created an advisory

panel of government agencies, customers, university

scientists and farm labor advocates.

Momentum spreads

To maintain the improvements made at the growershipper level throughout the supply chain, an industry task

force was created in 2007 to develop commodity-specific

food safety guidelines for the fresh tomato supply chain.

This covered tomato production in greenhouses and open

fields, harvest and field packing, repacking and

distribution. The CTF and FTGE cooperatives; retailers,

such as Wegman’s; and food service companies such as

Setting a ‘Fresh Standard’

The California Tomato Farmers (CTF) and the Florida

Tomato Growers Exchange (FTGE) represent more than twothirds of the U.S. domestic tomato supply. Growers created

CTF in 2006 to voluntarily address food safety, social

accountability and sustainability through practices

mandated for members as “The Fresh Standard.”

CTF’s 54 grower-members supply nearly 90 percent of the

fresh market tomatoes produced in California, representing

$250 million in annual sales.

Formed in 1974, the FTGE is a cooperative of 20 first

handlers of tomatoes from Central and South Florida. Florida

is the largest producer of fresh market round tomatoes in

the United States. The total annual value at the farm-gate

level is between $400 million and $500 million, depending on

tomato prices.

Florida was the first U.S. state to develop a

comprehensive food safety program with mandatory

government inspection and auditing of tomato handling,

production and packing. California’s political and regulatory

climate was less conducive to establishing state regulations

on agricultural produce (Thompson, 2008). Nevertheless,

CTF’s Fresh Standard is “compatible with the Florida Best

Practices Manual, approved by USDA, and calls for

inspections carried out by USDA officials” (Thompson,

2008:41).

Both programs have established food safety guidelines

for farmers and handlers and stringent field verification

audits by inspectors from their state departments of

agriculture.

Packinghouses likewise are subject to random and

unannounced government inspections evaluating their

ability to conduct tomato tracebacks. The traceback

requirements mandated under the Florida and California

programs exceed current federal requirements under the

Bioterrorism Act of 2002, as well as current California state

regulations.

Rural Cooperatives / January/February 2011 21
Taco Bell,

McDonald’s,

Kentucky Fried

Chicken and

Subway joined this

effort. (Beckman

says food service

businesses drove the

process much more

than did food retailers).

Coordinated by the United

Fresh Fruit & Vegetable Association (now

United Fresh Produce Association), the task force sought

to meet FDA’s goal of making “best practice into common

practice.”

To minimize the possibility that those who didn’t have

a voice could reject the new standards, or that an end user

might co-opt the process, United Fresh sought broad

industry participation. Identifying how food safety

research could produce solutions was a prelude to building

industry consensus.

Within nine months, the task force developed a

consolidated, yet comprehensive, set of audit standards,

followed by auditor training and field testing. In 2008, the

Food Safety Programs and Auditing Protocols for the

Fresh Tomato Supply Chain were published. Harmonized

food safety commodity-specific best practices for growers,

re-packers and distributors had been achieved through the

food safety model initiated by the FTGE and CTF

cooperatives.

Implications of food safety crises

Growers developed T-GAPs and BMPs through their

cooperatives to defend themselves against a potential

Salmonella St. Paul “red scare,” said The Grower (2008).

The potential for erratic product quality is a significant

problem confronting emerging industries, however. “A

few firms with erratic quality can negatively affect the

image and credibility of the entire industry,” said Porter.

Although only about 1 in 100 cases of food-borne illness

are reported in the United States, 1,400 people became

sick in 2008 from a rare strain of bacterium known as

Salmonella St. Paul.

Epidemiology is difficult and time-consuming because

tomato outbreaks are generally associated with

intermittent, low-level contamination and dispersed multistate individual cases of illness. The difficulty of “teasing

out” the source of the contamination increases when food

products are combined.

Tomato trace-backs are also complicated by supply

chain complexity. The vast majority of domestic tomatoes

are channeled into value-added processing, not sold fresh.

Most tomatoes are sold to repackers for sorting, then resold

to retailers or food service

operators, who may chop, slice

or dice them before they reach

consumers. Tomato re-packers

may repack multiple times,

reusing the original boxes, and,

as product is re-sorted, one kind

of tomato may land in a box

intended for another.

Epidemiologists from the Centers for Disease

Control and Prevention initially attributed the 2008

Salmonella St. Paul crisis solely to tomatoes. Later,

jalapeno peppers appeared to have a more conclusive role

(Thompson 2008). This ambiguity convinced tomato

growers that they needed a better working relationship

with the regulatory agencies, including broader diffusion

of a fast trace-back method created by the CTF

cooperative using electronic recordkeeping.

There were differences of opinion, however.

Epidemiologists found that records of tomato

transactions, such as re-packing, tended to be either very

poor or nonexistent. The industry, in contrast, saw a need

for a common language. It was clear to both that more

routine information about “who is handling what food and

how” was needed.

Review and conclusions

This case shows that tomato growers sought to

maintain public confidence in their product by minimizing

risk. “Growers live and die based on product reputation,”

said CTF’s Beckman. Reggie Brown, FTGE’s executive

vice president, concurred: “The loss of buyer confidence

is absolutely lethal.” Economic historian Douglass North

emphasizes that norms evolve slowly and incrementally.

This was true of the tomato industry, where the learning

curve was steep and growers needed more than a decade

to define the scope of the problem they faced.

Yet, what was possible by 2009 would not have been

possible 10 years earlier. The protracted process of

identifying where and how pathogens emerge taught

tomato growers where they were most vulnerable to

contamination. The evolution to “co-management”

initiated by the leafy greens industry began to

demonstrate, for all produce items, the sometimes subtle

and complicated relationship between production and

environmental quality.

The transition to commodity-specific standards enabled

tomato growers to learn how distribution systems work

together. Progress was made in food safety science during

this period, and gaps were identified. The 2008

22 January/February 2011 / Rural Cooperatives

“Growers live and die based

on product reputation.”
Salmonella St. Paul crisis challenged industry and

government to consider the interaction between tomatoes

and the many other ingredients frequently combined with

them.

T he most important accomplishment since publication

of the 1998 guide was substantial cooperative and industry

progress toward eliminating food safety claims as a basis

for industry competition. Together, the large market share

of the California Tomato Farmers and the Florida Tomato

Exchange provided an incentive to address the pervasive

uncertainty typical of industries redefined by new

consumer needs, such as an increased emphasis on food

safety.

T he standards developed in tandem by the two co-ops

eventually became a foundation for a universally

applicable model of food safety marked by harmonized

and auditable standards applicable to each phase of the

tomato industry. By eliminating contradictory standards

through a uniform audit metric, GAP harmonization led

to auditor harmonization. Without this, buyers could not

fully trust those from whom they buy goods and services.

Costly sanctions and guarantees typically are needed to

compensate for wariness and distrust.

L oss of buyer confidence in the aftermath of the 2008

Salmonella St. Paul crisis — tomato sales have yet to

rebound to pre-crisis levels — could be considered an

industry sanction, measured by the consequences to public

health, industry jobs and incomes foregone, as well as the

detrimental effect on the national agenda to increase fruit

and vegetable consumption. T he tomato industry lost

$100 million from the 2008 crisis, says Beckman.

In this context, industry and government no longer

dismissed mandatory standards as being “too radical.”

Compared with private auditors, FDA had “real teeth”

(The Packer, 2009). “T hey can’t survive without us, and

we can’t survive without them,” Beckman said. In July of

2008, both Beckman and Brown testified at the House

Subcommittee on Oversight and Investigations hearing to

express support for nationwide food safety legislation

modeled after the two groups’ mandatory programs.

Profit was less important to Beckman than trying to

stay in business. He adds that inadequate attention to food

safety meant “you are contributing to the demise of an

industry. T he industry cannot afford to take these hits.”

Inadequate recordkeeping is a factor that, in the pork

and beef industries, prompted structural change through

industrialization to capture productivity gains. Because

tomato growers want to present the message that

tomatoes are safe, food safety crises may similarly prompt

the produce industry to adopt a structure more conducive

to systematic recordkeeping. At the same time, inspectors

and other food safety professionals may progress toward a

common industry language, easing pressure to revise

conventional handling practices which have been

satisfactory in other respects.

Repeated measures of food safety through frequent

auditing became a significant industry cost and an onerous

burden for tomato growers, who might be contacted by as

many as 20 auditors during a month at a cost of some

$400 to $10,000 per audit.

Multiple competing standards undermined the

credibility of any particular standard. Industry leaders,

facilitated by trade association United Fresh Produce

Association, formed a task force to eliminate the excess

and potentially spurious competition created by multiple

sources of food safety standards.

T he standards developed by the Florida Tomato

Exchange and California Tomato Farmers provided a

foundation for developing a new set of harmonized

standards legitimated by widespread industry acceptance.

Nevertheless, to the extent that gaps in food safety science

remain, any set of standards must be considered

evolutionary. T he challenging and difficult nature of

creating commodity-specific food safety standards in the

tomato industry raises the question of how possible it is

for other commodities to move quickly from limited

product guidance to comprehensive standards reflecting

broad industry support.

A primary mandate of industrialized agriculture is “the

low-cost producer survives.” T his normative belief may

affect food safety outcomes. W hen supply is tight,

particularly when weather conditions affect supply, buyers

are more concerned about sourcing product than about

food safety practices. Comprehensive, harmonized and

auditable food safety standards recognized as legitimate by

major industry stakeholders represent significant progress

toward reducing the influence of this competing norm.

Selec ted Refe rences

• North, Douglass C.

1990, Institutions, Institutional Change and Economic Performance.

Cambridge: Cambridge University Press.

• Produce Safety Project

2010, Managing for Food Safety and E cological Health in

California’s Central Coast Region. Stakeholders’ Discussion Series

February 17, Washington, D.C., Electronic document:

http://www.producesafety project/org/admin/assets/files/wildlife.pdf.

• Selltiz, Claire, L awrence S., W rightsman, and Stuart W. Cook

1976, Research Methods in Social Relations, 3rd edition, New York:

Holt, Rinehart and Winston.

• T hompson, Stephen A.

2008, Feeling the Squeeze: Tomato growers take big hit in food

scare, Rural Cooperatives, September-October, Electronic document,

http://www.rurdev.usda.gov/rbs/pub/sep08/sep08.pdf.

• U.S. Food and Drug Administration

1998, Guide to Minimize Microbial Food Safety Hazards for Fresh

Fruits and Vegetables, Center for Food Safety and Applied Nutrition,

October.

Rural Cooperatives / J anuar y/ Februar y 2011 23
24 January/February 2011 / Rural Cooperatives

By Lynn Pitman

University of Wisconsin Center for

Cooperatives

e-mail: pitman@wisc.edu

Editor’s note: More information about the

Farmer Cooperatives Conference, including

PowerPoint presentations, is available on

the University of Wisconsin Center for

Cooperatives website: www.uwcc.wisc.edu.

ike ships sailing

through turbulent seas,

co-ops will likely deal

with continued risk and

uncertainty in 2011, but

there is opportunity on the horizon.

Indeed, despite ongoing structural

challenges on the global and domestic

fronts, agricultural cooperatives

represent a long-term competitive

advantage for the United States,

CoBank CEO Bob Engel said during

the 13th Annual Farmer Cooperatives

Conference.

e conference, held Dec. 6-7 in

Broomfield, Colo., was presented by the

University of Wisconsin Center for

Cooperatives. It provided a broad

overview of the current issues affecting

farmer cooperatives. Challenges range

from continuing world economic

volatility to issues of sustainability and

creating new domestic markets.

Engel’s presentation contrasted the

strong growth in the emerging

economies of China, India and Brazil

with expected challenges in the U.S

economy throughout 2011, and perhaps

beyond.

Current policies, Engel said, have

merely shifted debt from the private to

the public sector. But the system still

hasn’t gone through a necessary

deleveraging.

Engel said he expects that

uncertainty and volatility will remain

for some time, but sees many

cooperatives building flexible

organizations that are capable of

balancing member value with long-term

Despite volatile markets, co-ops need to look to long-term competitive advantages

SailingTurbulent Seas
Rural Cooperatives / J anuar y/ Februar y 2011 25

stability for the enterprise. In the long

term, the expanding economies and

populations of the countries which pose

competitive challenges will also offer an

expanding market for the high-quality

agricultural products that the U.S.

agribusiness sector can produce, he

noted.

Global compe ti tion

Terry Barr, senior director of

industry research at CoBank, expanded

on these themes and summarized the

global competition, inventory and cost

trends that will influence acreage

decisions for grain producers. W hile

the weaker dollar will push up the cost

of ag inputs, Barr said, passing on

higher costs of production to the

consumer will be difficult, given high

unemployment rates.

More debates concerning

implementing protectionist trade

policies can be expected. Barr said he

expects increased focus on acreage and

commodities investing. However, unlike

during the 1970s, the market

fundamentals for these investments are

solid.

Providing one cooperative’s

perspective on the global marketplace,

Duane Nelson, president of Genex

Cooperative, described the benefits of

an international presence, from both

the board and member perspectives.

Genex supplies livestock genetics and

consulting services to increase farm

profitability and is one of three

subsidiary cooperatives that own CRI

Inc., a holding cooperative. Genex sells

worldwide, maintaining low marketing

costs through an in-country distributor

network based on commission.

The profitability of international

operations offsets the higher domestic

costs around member services and has

provided some opportunity to import

outside genetics. Nelson expects that

within five years the units sold globally

will surpass domestic volume. This

growth is made possible by building

relationships and knowing the politics

and culture of international customers.

Rick Browne, CHS Inc. senior vice

president for grain marketing, observed

that a cooperative must be global if it is

to compete globally. Global customers

want one or two suppliers that can meet

their needs year-round. CHS Grain

Marketing is moving from contractual

relationships with international

customers to supply U.S. commodities,

to being a global supply-chain manager

with multiple sources of supply.

Burgeoning demand in China is

especially driving the development of

competing global supply chains as new

export capacity is built.

Browne described a multi-step

process that CHS takes to establish new

in-country presences. The process

addresses typical challenges that may

include local business conditions,

sovereign governmental issues, counter

party risk and lack of alignment in

interests. However, these are

outweighed by the benefits of

international expansion, which includes

access to both human resources and

grain supplies, as well as access to

global demand for a wider range of

CHS business lines, including freight

capabilities.

A nti trus t, heal th insurance

among domes tic issues

The Department of Justice and

USDA conducted a series of workshops

over the past year to examine

competition issues in agriculture. Initial

comments about antitrust exemptions

caused some concern about the status of

the Capper-Volstead antitrust

exemption for agricultural cooperatives,

said Marlis Carson, senior vice

president and general counsel for the

National Council of Farmer

Cooperatives. NCFC, its members and

other cooperative groups launched a

strong education campaign regarding

the importance of Capper-Volstead to

the nation’s co-ops.

Carson noted that Assistant Attorney

General Christine Varney made positive

statements about the role of

cooperatives during the workshops.

However, this is an issue that co-ops

must continue to monitor and

education efforts must continue, since

co-op consolidations may trigger

further scrutiny, Carson said.

The cooperative model is being used

to address another issue that has
26 January/February 2011 / Rural Cooperatives

significant impacts on farmer co-op

members — the availability of health

insurance. According to Bill Oemichen,

president and CEO of Cooperative

Network, surveys showed that during

1995-2005, when Wisconsin was losing

dairy farms rapidly, the primary concern

of state dairy producers was the access

to affordable quality health insurance,

not low dairy prices.

Oemichen described the innovative

Co-op Care Project, which was

developed to allow individuals and small

groups to create cooperative purchasing

alliances to contract with an insurer,

which was implemented through an

amendment to Wisconsin’s cooperative

statute. As a result of education and

advocacy efforts during the health care

debates, the new federal health care

reform law supports the development of

nonprofit health care exchanges. These

exchanges have cooperative

characteristics and provide the

opportunity to build on the health care

cooperative model.

Natural resource management

Resource management issues for coops were explored in the context of

water use in Colorado. Christopher

Goemans, assistant professor at

Colorado State University, described

water-use trends, noting that water

allocations for agriculture inevitably

face strong challenges to identify water

transfer marketing arrangements to

growing population centers without

“drying out” rural communities.

James Pritchett, associate professor

at Colorado State University, explored

how more efficient water use would

allow agriculture to do more with less,

as decreasing aquifers, urbanization and

compacts between states all will

increasingly affect water availability.

Irrigated agriculture is an engine of

economic activity, and a water

cooperative to handle farmer-municipal

transactions might be one option to

support it, he noted.

There are unique challenges to

managing and growing a farmer

cooperative with member-producers

who are dependent on water access, said

Keith Devoe, general manager for

Roggen Farmer’s Elevator Association.

Producer decisions to sell water rights

are dependent on individual goals and

farm leasing agreements, but the trend

is toward more “dryland ” farming

acreage. This has significantly lowered

both agronomy sales and production

volume for the co-op.

Devoe asked whether water pricing

reflects its true replacement value. He

pointed out that municipal financing

mechanisms place the irrigated

agriculture industry at a disadvantage.

But long term, economic growth might

be better served through valuing

agricultural use, he said.

Consumer concerns

drive sustainability issues

Resource management is one

component in the broader conversation

about sustainability and food. While

sustainability may have negative

International operations are becoming increasingly important to GENEX, with foreign sales

expected to outpace domestic sales within five years. Here, a technician does fertility

monitoring on a dairy herd. Photo courtesy Cooperative Resources International
Rural Cooperatives / January/February 2011 27

Training sessions are held by GROWMARK to help cultivate the next generation of co-op leaders. Photo courtesy GROWMARK

The success of such strategic ventures — at both the

enterprise and member benefit levels — is affected by

decisionmaking grounded in good cooperative

governance practices. Brent Hueth, associate professor

and director at the University of Wisconsin Center for

Cooperatives, provided the Farmer Cooperatives

Conference with an update on the in-depth cooperative

governance research project being conducted by the

Center.

Cooperative boards usually play an active role in

setting strategy, although CEOs and board chairs often

have conflicting perceptions on the role of boards in the

planning process. Hueth also noted that in an era of

significant CEO turnover, more than half of the co-ops

surveyed do not have succession plans in place for the

CEO/general manager.

Jim Hoyt, vice president for strategic planning and

corporate Services at GROWMARK Inc., took a closer look

at the succession planning process. This is a strategic

issue for cooperatives, especially as their leadership

teams begin to retire and take with them their institutional

memory and accumulated knowledge. Planning also

needs to take into account the unexpected: departures,

illness or other factors.

GROWMARK has made succession planning a priority

for top management. It will be working with its member

co-ops to develop board training programs to cultivate the

next generation of board leadership. Hoyt suggested

developing a “depth chart” that identifies the people at

the mid-management level and higher that could fill key

positions at present, or with additional development

training.

There are a variety of individual and experiential types

of training programs that can be provided, but the process

of selectively offering these opportunities needs to be

handled sensitively within the organization. The board

should understand the depth of the pool of possible

candidates for key positions, whether there is a leadership

development process and/or whether the cooperative is

attracting an appropriate amount of external talent.

Les Hardesty, a director with Dairy Farmers of America,

described the governance structure used at DFA to

represent and strategically plan for the needs of diverse

member operations, which range from an average of

farmers with 55 to more than 3,500 cows. Regional

governance issues also exist, given DFA’s national scope

and variety of farm services. However, milk marketing is

the core business of the cooperative, and other services

are only paid for by the members who use them.

The DFA governance structure uses regional delegates

to area councils that elect a 51-member board of

directors. There is an executive committee and an

extensive use of board committees that also participate in

regular revisions of the co-op’s strategic plan. ■

Good governance and strategic decisionmaking
connotations for some in production

agriculture, the “triple bottom line” —

which encompasses profit, people and

planet — is something that increasing

numbers of consumers and retailers

care about, explained Chris Peterson,

professor at Michigan State University.

Sustainability is an example of a

“wicked problem,” in which

stakeholders have radically different

frames of reference. Cause-and-effect

relationships are uncertain, so solutions

are not “true or false,” but rather

“better or worse,” he said.

Peterson noted that wicked problems

are not solved, but managed — from

both impact and process perspectives.

He discussed how sustainability

questions have been addressed in the

Brazilian sugarcane industry and in the

Netherlands. Managing sustainability

requires that all relevant stakeholders

be part of the process and that they be

willing to leave behind old debates and

embrace learning and innovation.

Peterson pointed out that

cooperatives, by their nature, represent

multiple players in a supply chain and

they can be both an enabler and target

of sustainability.

Sarah Stokes Alexander, director of

Sustainability and Leadership Programs

at Keystone Center — a Coloradobased nonprofit that focuses on finding

solutions to environmental, health and

energy challenges — described

Keystone’s Field to Market project.

Using a collaborative stakeholder group

of producers, agribusiness, food and

retail companies and conservation

organizations, the project’s goal has

been to develop metrics for the

environmental and socioeconomic

impacts of agriculture.

An online tool is now available for

growers to help assess the operational

efficiency for their natural resource

management decisions, and a new

version is in development, based on

grower feedback. Work continues on

developing benchmarks for other

environmental and socio-economic

indicators.

A stakeholder perspective on

sustainability was provided by Russell

Williams, director of regulatory

relations for the American Farm Bureau

Federation. He described sustainability

as a process, not an end point, based on

incremental and continuous

improvement. While the development

of standards helps consumers make

decisions, they are inflexible and costly

for producers, said Williams. He called

for a grower-driven process and

governmental support for transition to

sustainable practices.

Growth strategies

The conference also included a look

at several strategies that agricultural

cooperatives could pursue to expand the

benefits they provide to their member

owners. Brad Miller, vice president of

auctions and competitive bidding for

CRA International Inc., a Boston-based

consulting firm, described the

globalDairy Trade (gDT) auction

platform, developed in 2008 for New

Zealand-based cooperative Fonterra,

one of the world’s largest dairy

producers. About 25 percent of

Fonterra’s domestic production is now

on gDT, which provides reliable,

credible prices and market information,

benefitting both co-op members and

the market place. A similar trading

platform has been developed for Ocean

Spray for cranberry concentrate. Miller

noted that these platforms can be

designed and tailored to meet the needs

of both buyers and sellers in a variety of

markets.

Growth is also dependent on access

to capital. Stefan Shaffer, managing

partner with SPP Capital Partners

LLC, noted that the current borrowing

environment is unique and most likely

will not continue.

Mike Jackson, president and CEO

for Adayana, a Minneapolis-based

consulting firm, described joint venture

opportunities as a way to share risk and

rewards with a partner while protecting

core asset ownership. To take full

advantage of the growth possibilities of

a joint venture, Jackson suggested

looking for partners that provide

complementary resources and skills, but

have similar cultures and a collaborative

attitude.

Detailed venture expectations and

goals are critical to successful execution

of such deals. Upfront planning for

dissolution, including grounds for

termination and partner rights, is also a

prudent and necessary step when

negotiating a joint venture.

Interconnectivity:

resource and opportunity

Online connections, opportunities

and resources available to cooperatives

were also discussed. One example is the

national eXtension initiative, which

takes advantage of online and social

media technologies to deepen the reach

of Extension resources.

Greg McKee, assistant professor and

director with the Quentin Burdick

Center for Cooperatives at North

Dakota State University, introduced the

eXtenstion Cooperative Community of

Practice. He described how the public

will use the site to gain information

from cooperative experts, as well as the

other resources it will offer.

The collaborative dialog and

learning opportunities that digital

interconnectivity provides were also the

topic of a creative presentation by

David Warlick, director with the

Landmark Project. ■

28 January/February 2011 / Rural Cooperatives

Cause-and-effect relationships are uncertain,

so solutions are not “true or false,” but

rather “better or worse.”
By Anne Mayberry

USDA Rural Development

Rural Utilities Service

e-mail: anne.mayberry@wdc.usda.gov

it Carson Rural

Electric Cooperative in

Taos, N.M., is among

several rural electric

cooperative utilities

that were awarded funding under the

American Recovery and Reinvestment

Act of 2009 to deliver broadband to

rural communities. Just as electric

cooperative utilities brought electricity

to rural America 75 years ago with the

passage of the Rural Electrification Act

of 1936, today’s cooperatives are

delivering broadband to rural

communities.

Projects such as that awarded to Kit

Carson will directly serve households,

businesses, farms, and public safety and

community facilities. Rural areas have

too often been among the last to

receive broadband service. “Much like

electrifying the countryside 75 years

ago, low population density and

geographic features, such as mountains

or deserts, are often the challenges with

rural broadband projects,” according to

Jonathan Adelstein, administrator of

the U.S. Department of Agriculture’s

Rural Utilities Service (RUS), part of

USDA Rural Development.

Along with the U.S. Department of

Commerce’s National Telecommunications Information Administration,

RUS was tasked with implementing the

Recovery Act broadband program.

“During the past two years, we’ve

gained tremendous insights into the

unique challenges of financing

broadband in rural high-cost markets,”

K

Utility Connection

Bridging the Gaps: New Mexico co-op

expanding broadband in rural West

The vast areas of land — including canyons, mountains and deserts — in the service territory of

the Kit Carson Rural Electric Cooperative pose a challenge as it seeks to expand the availability

of broadband services to its members. The Rio Grande Gorge Bridge (above), crosses one such

canyon. Photo by Chris Dahl-Bredine, courtesy Taos Vacation Guide

Rural Cooperatives / January/February 2011 29

continued on page 36
CO-OP IDEA S CAN

HELP EDUCAT I ON

By Joe Nathan

E ditor’s note: J oe Nathan is a former public school teacher,

administrator and PTA president. He is the parent of three public

school graduates and now directs the Center for S chool Change at

Macalester College in St. Paul, Minn. This article is adapted from

a column that originally appeared in the “Mille Lac County

Times.” He welcomes comments at: jnathan@macalester.edu.

or generations, some Milaca (Minnesota)

area farmers have been members of a co-op.

Now that idea is being applied, with

encouraging impact, to public school

teachers. T hat’s a central message of a recent

report, “Can Teachers Run their Own Schools? Tales from

the Islands of Teacher Cooperatives” (online at:

charlestkerchner.com/cr/uploadImages/Teacher_run_case.pdf).

W ritten by Charles Kerchner, a Claremont (California)

College professor, it’s the story of another Minnesota

educational innovation: public schools run like agricultural

cooperatives. But if you think about options that doctors,

lawyers, journalists and other professionals have, this is not

just for rural communities. Kerchner notes: “T he use of

cooperatives is much more widespread than commonly

realized, involving as many as 100 million Americans.”

But don’t schools need school boards and administrators?

Isn’t it vital to have school boards at the top, setting policy,

hiring administrators who make recommendations to school

F

boards and are responsible for hiring and firing the teachers?

Many would say “no.”

How often have teachers said to themselves, “If I were in

charge, here’s how I would do it.” Some teacher-run schools

are charters, some are part of a traditional district. T he new

Minnesota “site-governed law” provides the option for

teachers wanting to remain part of a district. St. Paul and

Minneapolis Federation of Teachers backed this law.

Kerchner shows that teacher-run schools are appearing all

over the nation. He begins with Avalon, a teacher-run charter

public school in St. Paul.

He recalls that in the legends of King Arthur, Avalon was

“T he Fortunate Isle.” T he majority of board members at

Avalon are teachers in the school. One board member is a

former business agent for the Minneapolis Federation of

Teachers.

T he teacher-run school idea was born in Henderson,

Minn., in 1994, with the creation of the Minnesota New

Country School (MNCS). (Full disclosure — my

organization helped start this school, providing both financial

and other assistance). Doug and Dee T homas, and a number

of other public school veterans/visionaries created MNCS,

with assistance from Ted Kolderie, a creative Minnesota

policy thinker. Ladies Home J ournal recently named MNCS

one of the 10 “most amazing public schools” in the country.

USDA Rural Development played an important role in

this school. It guaranteed the loan that allowed the school

building — complete with a grain elevator inside — to be

constructed. T he large, mostly open-space building provides

MNCS students with their own work area. E ach of the grade

7-12 students not only have her/his own computer, but also a

space that can be decorated (discretely) with pictures of

friends, family, animals and other hobbies.

MNCS and a larger cooperative called EdVisions remain

in Henderson, providing assistance and inspiration to

educators and families throughout the United States (as well

as visitors from a number of other countries.) T here are 12

EdVisions schools in Minnesota and 35 others around the

country (for more information, visit: www.edvisions.com)

Kerchner is clear that “T he range of test score results

among the teacher-run schools is very large, and so is the

student population served. T he schools appear to have

better-than-average college test results and college-going

rates.” Most EdVisions schools also use the “Hope Study,”

which reports: “Students with high Hope Scale scores believe

that they have the ability to find workable routes to their

goals and that they can meet them.”

Helping youngsters learn to set and reach goals is a

central value at these schools. It’s a very important part of

education.

Kerchner acknowledges that the approach won’t solve all

of education’s problems. But he makes a strong case that they

are “worthy of consideration.”

The Minnesota New Country Schools (MNCS) was named one of

the “10most amazing public schools” in the country by “Ladies

Home J ournal.” Photo courtesy of EdVisions Schools

30 J anuar y/ Februar y 2011 / Rural Cooperatives
Send co-op news items to: dan.campbell@wdc.USDA.gov

C o-op developments, coast to coast

USDA’s Lew is w ins hono r

Edgar L . L ewis, an agricultural

economist who has been a strong

advocate for small, limited resource and

socially disadvantaged producers, has

been awarded the Booker T.

Washington Entrepreneurship and

L eadership award. L ewis has been a

USDA ag economist for 44 years, most

of it spent with the Cooperative

Programs office of USDA Rural

Development, where he manages rural

entrepreneurial outreach partnerships

between 1890 L and G rant Institutions

and USDA. He also serves as an

outreach coordinator for small and

beginning farmers and ranchers.

T he award was presented during the

15th Booker T. Washington E conomic

Development Summit at Tuskegee

University in Alabama. T he theme for

the summit, held in September, was:

Revitalizing Entrepreneurship and

Procurement Opportunities in Small

Towns and Rural Communities.

T hrough his research, technical

assistance and outreach work, L ewis has

provided an array of services to

minority producers, small-scale farmers

and cooperatives. He has helped to

forge a number of partnerships and

collaborative efforts involving land

grant and 1890 institutions and others

while striving to raise income levels for

small-scale farmers and improve the

economic viability of small-farm

enterprises.

A native of L ouisiana, L ewis pursued

his love of agriculture at Southern

University in Baton Rouge, where he

received a Bachelor’s degree in ag

economics. His graduate studies were

done at Ohio State University and the

University of Maryland.

L ewis has brought his expertise to

many task forces and committees,

including USDA’s Small Farm Working

G roup, the 1890s Scholars Program

and Partners Meeting. He has also

worked closely with USDA’s Office of

Advocacy and Outreach to promote

initiatives that advance the economic

position of minority and under-served

producers in rural America. He has

been a regular participant in the

Professional Agricultural Workers

Conference and is the winner of a

number of other awards for his work

with minority and limited-resource

producers.

U.S. A gbank, CoBank

pursue me rge r

U.S. AgBank and CoBank, two of

the five banks in the Farm Credit

System, are pursuing a merger. A letter

of intent has been signed, setting forth

key terms and conditions of the

proposed transaction, which also

requires regulatory and stockholder

approval.

T he merged bank would serve as a

wholesale provider of financing to Farm

Credit Associations, which provide

credit and financial services to more

than 70,000 farmers, ranchers and other

rural borrowers in 23 states. It would

also serve as a direct lender to

agribusinesses and rural electric, water

and communications service providers

throughout the country.

T he merged bank would continue to

do business under the CoBank name

and be headquartered outside Denver,

Colo., but it would maintain U.S.

AgBank’s existing presence and

operations in Wichita, Kan., and

Sacramento, Calif. Robert B. Engel,

CoBank’s president and chief executive

officer, would be the chief executive of

the combined entity.

“Over the course of the past year, the

U.S. AgBank board has engaged in a

strategic review of our business to

determine the course that would best

serve our associations and the farmers

and ranchers in our territory for the

long term,” says John Eisenhut,

chairman of U.S. AgBank. A merger

with CoBank will best achieve that

purpose, he said.

“T he merger will bring together two

financially sound, profitable banks to

create an even stronger cooperative

financial services institution, under a

governance structure that will offer

associations, cooperatives and other

Edgar L. Lewis

Rural Cooperatives / J anuar y/ Februar y 2011 31
customer-owners a fair and equitable

voice in the governance process,” says

CoBank Chairman Everett Dobrinski.

Wichita-based U.S. AgBank provides

wholesale loan funds and financial

services to Farm Credit Associations

and other financing institutions in

Arizona, California, Colorado, Hawaii,

Kansas, Nevada, New Mexico,

Oklahoma, Utah, southeastern Idaho

and the western edge of Wyoming. It

has about $25 billion in total assets.

Denver-based CoBank provides

wholesale funds to Farm Credit

Associations serving Alaska,

Connecticut, Idaho, Maine,

Massachusetts, Montana, New

Hampshire, New Jersey, New York,

Oregon, Rhode Island, Vermont and

Washington. The bank also provides

retail loans, leases, export financing and

other financial services to agribusinesses

and rural power, water and communications service providers in all 50

states. CoBank has about $60 billion in

total assets.

DFA members learn grazing

strategies; co-op acquires

Hispanic cheese brand

About 150 producers and

agribusiness professionals attended

Dairy Farmers of America Inc.’s (DFA)

2011 Grazing Conference in Louisville,

Ky., in January. The two-day event was

presented by Dairy Grazing Services

(DGS), a wholly owned subsidiary of

DFA that provides resources and

consulting services to producers

interested in pasture-based dairying.

“Increasing input costs and volatile

milk prices continue to create uncertain

profit margins for dairy farmers,” said

Jackie Klippenstein, who oversees DGS.

“However, some producers are finding

that utilizing existing pastures can help

cut costs and create a more secure

profit.”

Producers and industry experts

shared their strategies and tips for

sustaining high-performance, pasturebased dairies. Larry Tranel, a dairy

specialist with Iowa State Extension

who assists producers in adapting their

operations to intensive rotational

grazing, presented a series of case

studies on successful grazing dairies.

Phil Wicks, U.S. general manager

for the Livestock Improvement Co., a

dairy farmer-owned cooperative

genetics supplier from New Zealand,

provided insight on best practices for

designing breeding programs for

grazing dairy farms. Eric and Julie

Neill, dairy producers who started a

seasonal grass-based dairy from scratch

in 2010, shared their experiences in

planning the dairy, developing the

grazing system, building the milk parlor

and the first year of operation.

Jay Waldvogel, DFA’s senior vice

president for strategy and international

development, discussed how grazing

producers in the United States fit into

the rapidly changing dairy global

industry. For more information visit:

www.dfamilk.com/grazing.

In other DFA news, its recent

acquisition of Houston-based Castro

More efficient use of their pastureland is helping some dairy farmers reduce their overhead costs. Industry experts and producers shared

grazing ideas at a recent Dairy Farmers of America (DFA) conference in Kentucky. Photo courtesy DFA

32 January/February 2011 / Rural Cooperatives
Cheese Co. means the co-op is entering

the rapidly growing ethnic dairy

product market. Castro Cheese owns

the La Vaquita brand product line,

which includes Queso Fresco, Panela,

Queso Quesadilla and other artisanal

cheeses commonly used in Hispanic

dishes.

DFA will retain the company’s

current 72 employees, who will

continue to be led by Alberto Bandera,

the current operating executive.

Urban co-op development

initiative launched

Congressman Chaka Fattah of

Pennsylvania, chairman of the

Congressional Urban Caucus, is leading

an initiative to support urban

cooperative business development

throughout the United States. Fattah,

an eight-term Congressman from

Philadelphia, will partner with the

National Cooperative Business

Association (NCBA), a Washingtonbased federation of cooperatives from

all sectors of the economy, and

CooperationWorks! (CW), a national

trade association of cooperative

development centers and individuals.

“Cooperatives provide an excellent

means for economic development and

community enrichment,” Rep. Fattah

says. “This new initiative is catching on

in our cities and urban areas. The

cooperative movement is a perfect fit

with the agenda of the bipartisan

Congressional Urban Caucus, and I am

pleased to provide this effort with a

strong voice in Congress. These

cooperatives will create jobs and wealth

by helping new local businesses that are

owned and controlled by their

members.”

The new initiative will include

seeking authorization of funds for

technical assistance for urban

cooperatives across the United States.

“A successful authorization of an

urban cooperative development

program could pass Congress in 2011

and could potentially be appropriated as

early as 2012, the year declared by the

United Nations as the International

Year of Cooperatives,” says Lisa

Stolarski, chair of CooperationWorks!

Urban Circle.

“NCBA looks forward to working

with Congressman Fattah and the coop community in developing an urban

cooperative development program,”

says Adam Schwartz, NCBA vice

president of public affairs and member

services.

Nilsestuen Fund to

promote co-op education

A new program being established in

memory of Rod Nilsestuen will

establish a fund to sponsor advances in

research, education and outreach in

cooperative business and development.

The fund was launched at the

Cooperative Network’s annual meeting,

which also honored the many

accomplishments of the former

Wisconsin state agriculture secretary

this week.

The Rod Nilsestuen Fund has been

organized as part of the Ralph K.

Morris Foundation, which shares a

dedication to the future of cooperatives

and leadership development. One of its

primary activities will be to establish a

symposium devoted to in-depth,

thought-provoking presentations on

issues affecting cooperatives,

conservation and leadership

development. The inaugural event is

slated for 2012 and will be held at the

University of Wisconsin-River Falls,

Nilsestuen’s alma mater.

For more information, visit:

www.ralphkmorrisfoundation.org and

click “The Rod Nilsestuen Fund.”

CHS names Casale

president and CEO

CHS Inc., a leading energy, grains

and foods company, has named veteran

agribusiness leader Carl Casale as its

new president and chief executive

officer, effective Jan. 1, 2011. Casale,

who most recently was executive vice

president and chief financial officer for

Monsanto Co., succeeds John Johnson,

who retired Dec. 31. In his previous

role, Casale was responsible for finance,

strategy and information technology

resources.

“The CHS board believes that in

Carl Casale we’ve found an individual

whose impressive depth of domestic and

global agribusiness knowledge, strategic

ability, financial acumen and leadership

experience will carry CHS forward,”

says Michael Toelle, CHS board

chairman and a Browns Valley, Minn.,

farmer. “Most of all, we believe we’ve

selected a candidate whose rural roots,

active involvement in agriculture,

personal style and values are compatible

with our culture and our strong,

producer-focused company.”

The CHS board selected Casale to

lead the nation’s largest producerowned cooperative following an

extensive search, which included both

internal and external candidates.

“I feel privileged and excited to be

part of a company owned by farmers

and ranchers and to help CHS embrace

new opportunities to add value for

producers in a dynamic global

marketplace,” says Casale. Casale is a

native of Oregon’s Willamette Valley.

He and his wife, Kim, operate a familyowned blueberry farm near Aurora,

Ore., which has done business with area

supply and marketing cooperatives for

generations.

Casale joined Monsanto in 1984 as a

sales representative in eastern

Carl Casale

Rural Cooperatives / January/February 2011 33
Washington. He has held numerous

sales, strategy, marketing and

technology-related positions with

Monsanto. Before assuming duty as

CFO in 2009, he was executive vice

president for strategy and operations,

overseeing its strategy, manufacturing

and information technology

organizations.

He holds a B.S. degree in

agricultural economics from Oregon

State University and an executive

M.B.A. degree from Washington

University in St. Louis, Mo. The

Oregon State University College of

Agriculture named Casale its 2009

alumni fellow. He has served on the

board of the National 4-H Council.

Jeff Solberg new

CEO at GROWMARK

Jeff Solberg assumed duty Jan. 3 as

the new CEO of Bloomington, Ill.-

based GROWMARK. Solberg succeeds

CEO Bill Davisson, who retired.

Solberg is a 1974 business

administration graduate of Illinois

Wesleyan and received an M.B.A.

degree from the University of Illinois in

1976. He has held the positions of

financial analyst, cash manager, assistant

treasurer, treasurer, vice president of

finance, and senior vice president of

finance for GROWMARK.

Solberg is past president and

chairman of the Institute for

Cooperative Finance Officers and

serves on the board of directors for

Citizens Savings Bank.

“GROWMARK is a $6 billion

organization that is experiencing a

period of significant growth. Selecting a

chief executive is among the most

important and impactful actions we are

charged with taking,” says Dan Kelley,

chairman of the board and co-op

president. “Jeff has the skills,

knowledge, experience and support to

lead GROWMARK successfully into

the future.”

In other co-op news, GROWMARK

has agreed to acquire Lamb’s Seneca

Terminal at Seneca, Ill. The acquisition

includes 45,000 tons of dry fertilizer

storage, dock and acreage.

GROWMARK plans to add liquid

nitrogen storage at the site. Financial

details of the transaction were not

disclosed.

Rod Wells, the co-op’s director of

agronomy sales and operations, says

acquisition of the facility will enable

GROWMARK to sustain its ability to

supply fertilizer products to local FS

companies and other customers

throughout the region into the future,

expand storage capacity and product

offerings from Seneca with the addition

of nitrogen solution storage.

April class slated

for co-op developers

CooperationWorks! is accepting

registrations for session one of “The

Art and Science of Starting a New

Cooperative Business,” to be held April

18-22 at the University of Wisconsin in

Madison. The five-day, intensive

training will address the key steps to

starting a new co-op enterprise. The

program is designed for new co-op

development practitioners, community

organizers, economic developers and

others who will put the training in

cooperative strategies to use in their

communities.

Using some of the best practitioners

in the country, the program includes

lectures, interactive sessions, case study

analysis of existing co-ops and tours to

local co-ops to talk directly with co-op

stakeholders about the development

process.

Registrations are due by March 31

and are accepted on a first-come, firstserved basis. Some partial scholarships

are available. For more information,

contact Audrey Malan at: (307) 655-

9162, or cw@vcn.com.

Landmark names

Bob Carlson as CEO

Landmark Services Cooperative’s

board has selected Bob Carlson as its

new CEO. Carlson succeeds CEO

Larry Swalheim. Carlson had served as

Landmark’s chief operating officer since

February of 2007. During that time, he

has been a part of the leadership team

that has overseen the creation of Verity

Resources LLC, an ag lending and

insurance partnership with AgQuest of

Morgan, Minn., as well as a large

expansion of Landmark’s grain storage

facilities and several other strategic

growth projects.

Prior to joining Landmark, Carlson

was a national sales director for Cofina

Financial in St. Paul, Minn., where he

managed all aspects of its $82 million

producer lending program. During his

25 years as part of the ag cooperative

system, he held several key leadership

Jeff Solberg

Bob Carlson

34 January/February 2011 / Rural Cooperatives
positions in cooperatives in Minnesota

and South Dakota.

After high school, Carlson served

four years as a military intelligence

analyst in the U.S. Army. He earned a

bachelor’s degree in business and public

administration from the University of

North Dakota and an M.B.A. degree

from St. Thomas in St. Paul, Minn.

Recently, he completed the two-year

Leadership Wisconsin development

program for leaders at the local, state

and international level.

TFC enjoys turnaround

year in 2010

When Tennessee Farmers

Cooperative held its annual meeting at

the newly reopened Gaylord Opryland

Resort and Convention Center in

Nashville in November, the event’s

theme of “Fresh” applied to more than

just the remarkable recovery the hotel

made after historic spring floods shut it

down for nearly six months. “Fresh”

also was a good way to describe the new

products, programs and growth

opportunities that led to a profitable

financial performance for TFC and its

subsidiaries in fiscal year 2010, co-op

leaders say.

More than 800 co-op directors,

managers, employees and guests

attending the meeting heard TFC

Board Chairman Lowry “Whitey”

Dougherty and CEO Bart Krisle report

consolidated sales of $567 million for

the cooperative, with a net margin of

$10.6 million. Those results were a

huge turnaround from fiscal year 2009,

when TFC only made a minimal net

profit of $147,000, due to inventory

write-downs and lower gross margins

caused by drastic devaluations in

commodities like fertilizer, feed

ingredients and glyphosate.

“In 2009, TFC was barely in the

black, which was very disappointing,”

said Krisle. “We anticipated and

budgeted for improved results in 2010,

and I am happy to report that our

optimism was warranted.”

In 2010, all TFC product

departments were profitable, Krisle

reported, and total patronage paid to

member co-ops was $10.25 million,

with 30 percent paid in cash.

Chairman Dougherty, a Madisonville

dairyman, said he and his fellow

directors had asked some hard questions

over the past year as they, along with

TFC management and employees,

worked hard to create new

opportunities for the system. “Our

TFC board of directors is by no means

perfect — no board is,” said Dougherty.

“But I can assure you with complete

confidence that we don’t make a single

decision without asking the question, ‘Is

this good for the membership?’ If we

can honestly answer ‘yes,’ we move

forward. If the answer is ‘no,’ we move

on to something else.”

Dougherty’s seven-year term on the

TFC board ended with the annual

meeting. Larry Rice, a row-crop farmer

from Covington, was selected by fellow

board members to succeed Dougherty

as chairman. Wayne Brown, a tobacco

farmer from Chuckey, was selected as

board vice chairman.

LO’L updates social

responsibility report

Land O’Lakes has adopted a 2010

Corporate Social Responsibility Report

(CSR) to demonstrate how the farmerowned food and agriculture cooperative

is carrying out its commitment to

community and family, protecting

natural resources and working to

achieve its goals through cooperation

and highly responsible business

practices.

“This publication is Land O'Lakes’

second CSR report, and I am proud of

the strides we have made — both in

reporting on our commitments and in

the tangible progress we have achieved

throughout the organization,” says

Chris Policinski, LO’L president and

CEO. “Although the report covers

many aspects of CSR, one underlying

theme comes through: at Land

O’Lakes, the principles of corporate

social responsibility are focused and

integral to the way we conduct business

and set our priorities.”

Rural Cooperatives / January/February 2011 35

Tennessee Farmers Cooperative (TFC) CEO Bart Krisle addresses the co-op annual meeting.

Photo courtesy TFC
Adelstein said. He notes that the RUS telecommunications

portfolio of over $4 billion was built on more than 60 years

of experience in funding rural telecommunications

infrastructure. RUS’ Community Connect and Distance

Learning and Telemedicine Programs have invested about

$500 million in rural underserved areas.

The Kit Carson Electric Cooperative (KCEC) “fiber-tohome” project will allow greater bandwidth, providing the

quality necessary for applications such as telemedicine,

teleconferencing and video sharing for education, business

and entertainment. Once completed, the co-op’s project will

make broadband service available to 29 communities,

reaching about 20,500 households, 3,600 businesses and 183

community institutions, including hospitals, schools and

other government facilities. Two Native American pueblos

will also receive broadband service once the project is

complete.

Telecommunications industry experts note that bandwidth

requirements increase rapidly every year, so deploying fiber

will provide the capacity needed to meet future needs. For

example, KCEC’s fiber network will be used to enhance

“smart grid” technologies, which can include energy

monitoring, load control and automated metering systems.

The electric cooperative utility anticipates the network

will also assist with electric power projects and

communications between their operations center and

regional power substations. In all, the network will span

nearly 3,000 square miles of rural New Mexico.

KCEC will use its existing right-of-way to build a fiber-tohome network capable of at least 100 megabits per second for

residential customers and 1gigabit per second for broadband

service for anchor institutions, such as schools, libraries and

other community facilities. The smart grid functionality will

assist the cooperative utility and its consumer members with

monitoring energy consumption, while the broadband

network will provide the backbone for supporting smart

appliances and managing peak power demands through the

use of automated meters at both residential and commercial

sites.

“Kit Carson’s broadband project is an investment that will

boost economic development by attracting new businesses,

jobs, health care services and educational opportunities,”

Adelstein noted. “This will enable the cooperative to further

deploy smart grid technologies and help with sustainable

energy development. It will better connect New Mexico and

the rest of the world.”

Bringing high-speed Internet service to unserved rural

areas helps meet Recovery Act priorities to invest in

infrastructure and technological development and promote

economic development and job creation. Kit Carson’s $63.8

million project — which includes additional funds from

private sector investment — is expected to create 330 jobs

directly, in addition to other jobs that will develop as a result

of the new networks.

Adelstein noted that, as with the other 320 RUS Recovery

Act broadband projects across the country, the rural New

Mexico project will both create immediate jobs and provide a

platform for job growth for years to come. “Reliable,

affordable broadband service is an essential, but too often

lacking, resource in rural communities. Increasing rural

broadband deployment and adoption in rural areas will

remain a top priority for USDA for the foreseeable future.”

■

Utility Connection

continued from page 29

Along with providing information

about Land O’Lakes and its businesses,

the CSR report discusses: the

cooperative’s environmental stewardship

and sustainability efforts; how the

company supports members through

financial returns and responsible

practices; and its efforts to influence

policies that promote Land O’Lakes’

CSR goals. The report also highlights

examples of the cooperative's

philanthropy and community service, as

well as international development

efforts around the world.

CWT launches membership drive

Cooperatives Working Together

(CWT) hopes a new membership drive

will expand participation in the selfhelp program during the next two years

to at least 75 percent of the nation’s

milk supply, enabling it to fully fund an

export assistance program.

“Focusing CWT’s efforts exclusively

on helping sell U.S.-made dairy

products into foreign markets will have

a positive impact on all dairy farmers,”

says Jerry Kozak, president and CEO of

NMPF, which manages CWT. “With

the investment in CWT at two cents

per hundredweight by all dairy farmers,

we believe the export assistance

program will be extremely effective in

enhancing and maintaining producers’

margins.”

An analysis of the program by Peter

Vitaliano, NMPF vice president of

market and economic research,

demonstrates the effectiveness of the

export assistance effort in enhancing

dairy farmer revenue (his presentation

can be viewed at: www.cwt.com). Over

the life of the program, every dollar

spent helping members export dairy

products has returned $15.53, he found.

CWT expects to carry over more

than $30 million from its 2009-2010

budget to provide funding in 2011 and

2012. These funds will be supplemented by the revenue generated from

a two-year commitment by cooperative

and individual producers. Kozak says

CWT needs a commitment from at

least 75 percent of the nation’s milk

supply at the two-cents-perhundredweight level in order for the

assessment to go into effect. ■

36 January/February 2011 / Rural Cooperatives
agriculture. Hillside Farmers hopes to tap into that valuable

experience to develop small-scale, sustainable farms that are

competitive in a regional economy. The project also aims to

help Latino families increase income, improve their

community, eat healthier and develop valuable leadership

skills.

“We did not come into this with the perspective that

someone else will do this for us,” says Reginaldo “Regi”

Haslett-Marroqui, director of the Rural Enterprise Center (a

program of the nonprofit Main Street Project) in Northfield,

Minn. He provides technical assistance and guidance to co-op

members.

“We've got all these ideas and all of this experience, but

we need to turn it into something more competitive,”

Haslett-Marroqui says.

So far, Hillside Farmers Cooperative “agri-preneurs” have

sold about 35,000 chickens. As each immigrant farmer

continues to gain experience and train other agripreneurs,

Haslett-Marroqui envisions the co-op expanding into grains

production, vegetables, medicinal herbs, soil composting and

other areas.

“I didn’t think this would ever be possible,” says Maria

Sosa, board chair of Hillside Farmers. “Now it seems

possible, with hard work and a little bit of investment.”

Income can lead

to land ownership

Poultry allows for quick turnaround times from chick to

market, which means families can earn some income

relatively quickly — possibly leading to a position in which

they can purchase their own land and develop their own

farms. The key is convincing people that it can happen.

“We’ve been successful early and people see that,” says

Haslett-Marroqui. “We feel our vision will result in an

economic model that empowers people and changes

communities.”

Chickens raised by co-op farms are free-range and are fed

without antibiotics. As much as possible, the birds are fed

with grains and grasses raised directly on co-op farms.

“Hillside Farmers Co-op is the ideal recipient for the first

SSDPG in Minnesota,” says Colleen Landkamer, state

director for USDA Rural Development. “I believe Hillside

Farmers Co-op is helping create the next generation of

Latino farmers and entrepreneurs.” ■

Climbing the Hill

continued from page 13

Rural Cooperatives / January/February 2011 37
— one of my loan account customers — offered me a

position as controller of the cooperative. I later became its

director of finance and, subsequently, its general manager. In

all, I served more than 35 years with the company.

I have been asked to respond to three related questions.

They are:

1. What is the most important thing I learned about

maintaining a strong working relationship with the co-op

board of directors?

The development of trust and integrity with board

members is critical to a strong working relationship with a

co-op board. That can be achieved through full transparency

and disclosure of company operations that will illustrate one’s

efforts to maximize the financial return for the co-op’s

membership. That means sharing the bad news along with

the good news. There should be no surprises at your board

meetings.

It is often challenging for some co-op boards to separate

the operating responsibilities from the monitoring and

policy-establishing responsibilities. Through the

establishment of trust and integrity, the board is assured you

are working in their best interest to achieve the direction and

goals they established for the cooperative.

Including key staff members for direct reporting to the

board at its meetings also helps develop confidence in the

management team, which further strengthens relationships.

The board needs to know that the success of the co-op is not

dependent on just one individual, but dependent on a broadranged management team and a committed employee effort.

2. What is the most important thing I learned about

meeting the needs and expectation of co-op members?

Members of milk marketing cooperatives have many

expectations, with one key requirement being the desire for

the co-op to have the highest possible pay price for their

monthly milk shipments. That price expectation is usually

measured by comparing prices with their neighbor who may

ship to a different company.

Management must balance those expectations with the

need to maintain a sound financial base for the co-op. The

reality is that no co-op can always be at the top of the pay

price list.

Every co-op has a different source for its operating

revenues. Co-ops with processing facilities can benefit from

rising dairy commodity markets one year and have significant

financial burden in years when the dairy commodity products

decline in price. Large swings in dairy commodity prices can

have significant impacts on the co-op’s operations and on

producer pay prices.

Management must manage pay price expectations by

winning the confidence of the membership with the understanding that the co-op is being run for the members’ benefit

and every effort will be made to pay the highest possible

price while maintaining the financial integrity of the co-op.

That requires looking out for both the short-term and longterm company interests.

Milk marketing co-ops also provide many other services

and benefits for co-op members, such as field and testing

services, supplies, legislative and lobbying service, all of

which can greatly aid and enhance a producer’s ability to

maintain a profitable dairy farm. A manager that understands

the mission of the cooperative and is personally available to

respond to all member inquiries also develops a sense of

confidence with the members that he is working for their

best interests.

3. What is the most important thing I learned about how

running a co-op differs from running another type of

business?

All successful businesses must create value for their owners

and their customers. In public companies, the owners are

investors and expect to gain returns from profitable company

operations that provide services or products of value to the

company’s customers. Cooperative owners are the members

of the co-op who not only provide the equity (ownership)

capital for the co-op, but are also customers of the co-op

through the marketing of their farm’s product and the

purchasing of necessary farm supplies.

Thus, co-op management has the dual responsibility of

serving its co-op member-customer with valued services and

products and also providing a long-term return on the

members’ invested capital. This long-term return of member

capital in a dairy cooperative generally involves the

retirement of member capital on a revolving basis or after

members exceed their base-capital target investment.

A co-op must have consistent annual earnings to revolve

member capital on a regular and reasonable term basis. This

assures that the financing of the co-op is primarily in the

hands of those producers who are currently users of the coop’s products and services. Member commitment of equity

capital is also essential for the co-op to develop strong

banking relationships, which are necessary for any successful

long-term business venture.

In addition to the members’ ownership interests, the

products being marketed by the co-op must also be of value

to the end customer buying the products or services, just like

the business of a public company. Co-op management is

responsible for balancing these expectations of owners and

customers while assuring the long-term preservation of the

co-op for current and future member-owners. ■

Management Tip

continued from page 17

38 January/February 2011 / Rural Cooperatives

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