Rural

COOPERA COOPERATIVES

USDA / Rural Development May/June 2005

Organic co-ops:

Keeping families & 

farms together

Organic co-ops:

Keeping families & 

farms together

SPECIAL SECTION

Organic Co-ops

Taking Root

page 11
2 May/June 2005 / Rural Cooperatives

For 72 years, USDA (or, in its

early years, the Farm Credit

Administration) has been publishing Rural Cooperatives magazine to

help increase public understanding

of the co-op business model and to

improve the operations of the

nation’s cooperatives. The name

and format have changed over the

years, but the mission has always

been the same: to help strengthen

rural America by ensuring that

farmers maintain a significant

ownership position in the marketing and processing of their crops

and livestock, and in securing

quality, affordable farm supplies

and services for members. 

Whether it’s an article on good

co-op governance practices, a Legal

Corner about an important court

decision impacting co-ops, a feature

on an innovative co-op or an analysis of a co-op failure, each issue

contains information that can help

co-op leaders gain from the knowledge and experience of others. Since

changing the name of the publication from Farmer Cooperatives in

1996, we’ve also included more coverage of rural utility and consumer

co-ops, although the emphasis

remains on ag co-ops. 

Articles and photos are provided

not just by USDA staff, but by coops, universities, co-op trade organizations, extension offices and

commodity groups, etc. Thus, the

magazine is a cooperative effort of

USDA and the co-op sector we

work so closely with.

With many organizations having

scaled back or curtailed their co-op

education efforts in recent years,

this magazine has an even larger

role to play than it has in the past.

But it’s all for naught if we don’t

get the information into the hands

of the people who can most benefit

from it: co-op directors and other

leaders. 

To help increase readership

among co-op board members, we

can now offer seven copies of each

issue (free of charge), mailed in a

bundle, to your cooperative headquarters for redistribution to directors. See the back cover for details. 

For those comfortable accessing

large documents on the Internet,

our new list-serve subscription service may be preferable. Each time

a new issue is posted on our Web

site, an e-mail will go out with a

link to a PDF file. For those with

broadband Internet service, this

works particularly well. 

You may request both the hard

copy packs and the electronic subscription service. Typically, you’ll

get the Internet link about 10 days

before the hard copy.

While the primary target audience for the magazine is co-op

directors, managers, ag educators

and other professionals who work

with co-ops (including extension

agents, attorneys and accountants),

the magazine may benefit any coop member or anyone else thinking

of forming or joining a co-op.

Consider posting a link to the magazine Web site on your co-op Web

site: www.rurdev.usda.gov/

rbs/pub/openmag. 

Not only will you see the latest

issue of the magazine posted there,

but the previous six years of magazines are also on-line at that site,

making this a helpful co-op education and research tool. Back issues

are posted in both PDF an HTML

versions. If you have any questions

about either of these new services,

please don’t hesitate to call me at

(202) 720-6483, or send an e-mail

to: dan.campbell@usda.gov. 

— Dan Campbell, Editor 

COMMENTARY

Spreading the word 

The magazine is a

cooperative effort of

USDA and the co-op

sector we work so

closely with.
Rural Cooperatives / May/June 2005 3

Rural COOPERATIVES (1088-8845) is published

bimonthly by Rural Business–Cooperative Service,

U.S. Department of Agriculture, 1400 Independence

Ave. SW, Stop 0705, Washington, DC. 20250-0705.

The Secretary of Agriculture has determined that

publication of this periodical is necessary in the

transaction of public business required by law of 

the Department. Periodicals postage paid at

Washington, DC. and additional mailing offices.

Copies may be obtained from the Superintendent of

Documents, Government Printing Office, Washington,

DC, 20402, at $23 per year. Postmaster: send address

change to: Rural Cooperatives, USDA/RBS, Stop

3255, Wash., DC 20250-3255.

Mention in Rural COOPERATIVES of company and

brand names does not signify endorsement over

other companies’ products and services.

Unless otherwise stated, contents of this publication

are not copyrighted and may be reprinted freely. For

noncopyrighted articles, mention of source will be

appreciated but is not required.

The United States Department of Agriculture (USDA)

prohibits discrimination in all its programs and 

activities on the basis of race, color, national origin,

sex, religion, age, disability, political beliefs, sexual

orientation, and marital or family status. (Not all 

prohibited bases apply to all programs). Persons 

with disabilities who require alternative means for

communication of program information (braille, large

print, audiotape, etc.) should contact USDA’s TARGET

Center at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA,

Director, Office of Civil Rights, Room 326-W, Whitten

Building, 14th and Independence Avenue, SW,

Washington, D.C. 20250-9410, or call (202) 720-5964

(voice or TDD). USDA is an equal opportunity

provider and employer.

Mike Johanns, Secretary of Agriculture

Gilbert Gonzalez, Acting Under Secretary,

USDA Rural Development

Peter Thomas, Administrator, 

Rural Business-Cooperative Service

Roberta D. Purcell, Deputy Administrator,

USDA Rural Business-Cooperative Service

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or

Fax (202) 720-4641, Information Director,

This publication was printed with vegetable oil-based ink.

Rural COOPERA COOPERATIVES

May/June 2005 Volume 72 Number 3

p. 4

p. 7

p. 15

p. 24

FEATURES & NEWS

4 Innovation a necessity, not a choice,

for 21st century co-ops

By Kimberly Zeuli & Judy Turpin

11 Special Section: Organic Co-ops Taking Root

32 Trading Places

Fortunes of California rice co-ops took opposite trajectories

By Jennifer J. Keeling & Colin A. Carter

36 Soybean extruder opens new 

doors for Dakota co-op

By Pamela J. Karg

DEPARTMENTS

2 COMMENTARY 

7 VALUE-ADDED CORNER 

10 LEGAL CORNER 

37 NEWSLINE 

43 INSIDE RURAL DEVELOPMENT 

On the Cover:

Travis and Amy Forgues, Vermont dairy farmers, say organic farming and

co-ops play an increasingly important role in helping keep more family

farms, such as theirs, in operation. Photo by Carrie Branovan, courtesy

Organic Valley/CROPP

12 Going with the Grain

N.M. organic wheat co-op 

provides lift to farmers, rural

economy

By Catherine Merlo

15 Cream of the CROPP

Demand outstripping supply 

as CROPP dairy products 

go prime time

By Dan Campbell

20 Local-based, alternativemarketing strategy could help

save more small farms

By Thomas W. Gray

24 A Fresh Advantage

Co-op helps small farms 

market produce to high-end

restaurants

By Pamela J. Karg

27 Slice of the market

Penns Corner, Tuscarora co-ops

target growing restaurant trade

By Stephen A. Thompson 

30 Who you gonna call?

ATTRA output helps low-input

ag expand its market niche

By Paul Williams
ost of the business

innovation occurring

today is in response

to market pressure,

according to Chris Peterson, a professor at Michigan State University.

Co-ops, like their competitors, are

being “forced” to innovate. In

order to remain competitive,

Peterson warns, co-ops should be

implementing innovative ideas constantly. Florida’s Nat-ural Growers

is one cooperative that has clearly

heeded this counsel.

4 May/June 2005 / Rural Cooperatives

By Kimberly Zeuli, Assistant Professor;

Judy Turpin, student researcher 

University of Wisconsin-Madison 

Editor’s note: This is the third of a threepart series of articles with highlights from 

the seventh annual Farmer Cooperatives

Conference — Cooperative Innovation —

held in Kansas City in November. 

Innovation a necessity, not a

choice, for 21st century co-ops

M

The “grove to the glass” advertising

and promotion campaign of the

Florida’s Natural citrus co-op, stressing the grower-owned nature of the

business, has hit a receptive chord

with consumers. This has helped the

co-op compete with the giant beverage companies that dominate the

nation’s fluid orange juice trade.

Photos courtesy Florida’s Natural
Rural Cooperatives / May/June 2005 5

Citrus co-op competes 

with beverage giants

About 1950, the chairman of

Florida’s Natural said: “It is most discouraging to do everything possible to

maintain prices that will bring decent

returns to our growers and then have

these prices made meaningless by ruthless cuts of competitors.” If anything,

this situation is even more acute today.

Florida’s Natural is pitted against

the two biggest names in orange juice:

Tropicana, owned by Pepsi, and

Minute Maid, owned by Coca-Cola. As

a result, the co-op faces continuous

cut-throat competition while trying to

maintain a high return for its members. According to Walter Lincer, vice

president of sales and marketing at

Florida’s Natural, this is nothing new.

As manufacturers of a retail product,

Florida’s Natural has always faced a

challenging environment.

Florida’s Natural has constantly

revised and adapted its marketing

strategy in an attempt to gain and keep

customers. The acquisition of the

Tropicana brand by Pepsi and Minute

Maid by Coke was a “wake-up call” to

the co-op. Suddenly, the relatively

small co-op had to figure out how to

compete with the deep pockets of the

two giant soft-drink companies. 

The mid-1990s brought increased

retail consolidation and the co-op

worked hard to maintain shrinking

shelf space. Sales representation and

suppliers have also dwindled in the

past 20 years and the farmer’s return

on the retail food dollar has also

declined sharply. 

Florida’s Natural decided to take

advantage of its unique grower-owned

status, a distinction that companies

such as Pepsi and Coca-Cola can’t

claim. In 1987, it launched the co-op’s

first branded premium product: Fresh

‘n’ Natural orange juice. 

The “grove to the glass” promise of

Florida’s Natural is what Lincer

believes has made the company so successful that grocery stores want to

carry its product. He also suggested

that if co-ops work together, all would

benefit from a stronger position in the

market, a theme repeated by many of

the conference presenters. 

Most important innovation

resources are internal

“Innovation happens because you

intend it to,” Chris Peterson said.

“How are you going to innovate?”

Co-ops need to be prepared for

innovation. Innovation can occur in

products and services, processes and

technology, competencies and markets.

Echoing the

same sentiments

as Florida

Natural’s Lincer,

Peterson

reminded co-op

representatives

at the conference that “the

really important

innovation

resources are internal.” 

If no resources go into innovation,

nothing will come out. He recommended that cooperatives seek advice

on innovation from universities,

research & development firms, government agencies, trade organizations and

consultants. 

Cooperative leadership can make or

break the business. Mike Toelle and

Jim Rainey know this firsthand. Toelle,

board chairman of CHS Inc., outlined

the co-op’s board priorities: professionalism, oversight, vision, accountability and commitment to communication. Although the traditional director roles and responsibilities will

always be there, he argued that board

members need additional skills and

knowledge to “stay the course” in

today’s business environment. “21st

century leadership requires cultivating

a visionary, innovative and entrepreneurial mindset,” Toelle said. 

According to Toelle, the CHS board

is always “in the process of learning.”

Being a board member with CHS cultivates a desire to gain knowledge and

skills both in business and professional

development. The CHS board hears

presentations from outside experts four

or five times each year on topics such

as energy, health care and grain markets, among others. 

Other professional development

opportunities for board members

include international exchanges and

trips to Washington, D.C. In addition

to in-house training, board members

are required to attend external development workshops and conferences

three or four times annually. 

Jim Rainey, who has served on a

number of boards throughout his

career, retired in 1991 as CEO for

Farmland Industries. He said he had

learned many lessons over the years on

how co-op leadership can be improved,

but perhaps the most challenging issue

is achieving and maintaining an effective board-management relationship. 

Evaluation of management essential

Rainey provided a list of what he

considers 13 basic management disciplines, but he chose to focus on just

three: accountability in management;

strategic management and planning;

and management of change. 

The really important

innovation resources

are internal. If none

go into innovation,

nothing will come

out.
He said evaluation of management

is essential to maintaining integrity

while also promoting constructive criticism and improvement in management techniques during a board’s term.

Audit committees are another way to

evaluate management and provide

feedback on improvements and

changes. 

The management of change is perhaps the most important element in

co-op leadership, according to Rainey,

and also the most difficult to achieve.

Managing change means less surprises

and a greater sense of trust among

members, employees and management. 

“It is imperative that management

and the board become fully committed

to recognition that survival will depend

upon proactive change, Rainey said. 

Strategic management planning

should consist of a “timeline action

plan” that separates short- and longterm goals, Rainey advised. An objective third party can help the co-op

construct such a plan. The goals then

need to be communicated to members

and employees to help maintain trust

and to gain additional perspectives on

the viability of the plan. The action

plan should be reassessed annually in

order to make adjustments and additions. 

David Barton, director of the

Arthur Capper Cooperative Center at

Kansas State University, closed the session by offering six keys to a successful

board: (1) bring the right people

together; (2) set high objectives and

have an ambitious vision; (3) educate

the board on how to work together; (4)

set policy at the board level; (5)

understanding is more

important than speed

— the board

needs to get the decision right; (6)

slow is fast and fast is slow in relationships. If you take the time, you

will achieve more effective relationships.

Co-ops play important role 

in presidential swing states

Jean-Mari Peltier, president and

CEO of the National Council of

Farmer Cooperatives, reminded the

group that co-op leaders should also

maintain a dialogue with their local

and national policy makers. She presented some data on the 2004 presidential election electoral map to

illustrate how the “toss-up states” in

the election were states with strong

co-op roots, bringing co-ops to the

attention of both candidates. 

Many upcoming changes in the

House and Senate will also be influential in deciding how agriculture

and co-ops are treated in laws

Congress will act on in coming years.

Peltier suggested coalitions, education

and grassroots activism as tools to

combat the lack of knowledge on the

overall benefits of co-ops for the economy.

“We must all hang together...or

assuredly we shall all hang separately!”

Peltier said, using the words of

Benjamin Franklin to stress the need

for cooperation among co-ops to

ensure their future success. 

William Nelson, president of CHS

Foundation and The Co-op

Foundation, wrapped up the conference by encouraging co-op leaders to

“take the conference lessons with

you,” and not end their discussions

when the meeting adjourned. He

stressed the merits of bringing new

ideas and perspectives to co-op boards

from academics, industry, foundations

and co-op councils. “Co-ops should

be learning organizations,” Nelson

counseled, “with dynamic processes leading to constant

innovation and

revitalization.” ■

Peterson’s

Resources for

Innovation

A sampling of business/

management books:

Senge, “The Fifth Discipline,”

Currency/Doubleday, 1990

McGrath & MacMillan, 

“The Entrepreneurial Mindset,”

HBS Press, 2000.

Godet, “Creating Futures,” 

Economica, 2001.

Christensen & Raynor, “The Innovator’s Solution,” HBS Press, 2003.

6 May/June 2005 / Rural Cooperatives
Rural Cooperatives / May/June 2005 7

By Tony Kindelspire

Editor’s note: This article is reprinted

courtesy of The Daily Times-Call,

Longmont, Colo. All rights and control

remain with the Times-Call.

tour through Gerard’s

Bakery is like observing a

carefully choreographed

version of “The

Nutcracker” — performed seven days a week, 365 days a

year. The dough must be just the right

consistency and temperature before it

runs through the cutting and molding

machines, which must be constantly

monitored to make sure the resulting

hoagie rolls or hamburger buns coming out the other end are just right for

baking. 

Meanwhile, at the other end of the

plant, while the loaves rising in the

proofing ovens must be removed at the

precise time, the packaging department

is running like a well-oiled machine.

“We make 150 different types of

breads and rolls out of this plant,” said

Gary Knight, Gerard’s president and

CEO. 

The bakery makes what are known

as “artisan breads.” Unlike mass-produced breads bought in the grocery

store, the bread batches are smaller

and the ingredients are much higher

quality. But you couldn’t walk into a

store and buy a loaf of Gerard’s if you

wanted to. 

The company’s customers are primarily restaurants, wholesalers and

franchises; Quizno’s and IHOP are two

of its better-known clients. Though

the client base already spreads from

coast to coast, it’s about to get a lot

bigger: Gerard’s has just invested $7.5

V ALUE-ADDED CORNER

No loafing

Booming business leads wheat cooperative 

to expand Gerard’s Bakery to East Coast 

A

Mario Orozco takes bread dough off a giant

mixer hook at Gerard’s Bakery. The bakery,

owned by wheat growers through their

Mountain View Cooperative, is investing in a

North Carolina plant to bolster its Colorado

and California operations. Photo by Joshua

Buck, courtesy Longmont Times-Call

Since the co-op 

purchased the bakery

in ‘96, growth has

been explosive: 

20 percent per year.
8 May/June 2005 / Rural Cooperatives

million in a plant in North Carolina as

a counterbalance to its West Coast

presence in Livermore, Calif., just outside Oakland, which opened in 2001. 

The company will keep its headquarters here [in Colorado], on the Interstate

25 Frontage Road, but expansion into

larger population areas is a natural evolution of the company, Knight said. 

And the growth has been explosive.

Since Gerard’s French Bakery — a

longtime local staple — was bought by

Mountain View Harvest Cooperative

in 1996, the company has grown 20

percent a year. 

In 1999, Gerard’s had about $12

million in sales, a figure that had

grown to between $25 million and $30

million last year, Knight said. 

“We have been growing so fast that

most of our capital goes into buying

new pieces of equipment so we can

make another piece of bread,” he said.

The Mountain View Co-op, a group of

Colorado wheat farmers who were

interested in forming a value-added coop, rose from the ashes of the bankrupt

Farmer’s Marketing Association (FMA). 

“The whole value-added part of it is

farmers trying to get away from simply

producing generic quantities of commodities,” said Dave Carter, one of

Mountain View’s founding board

members. A national agricultural consultant on co-op development and

organic production, Carter was president of the Rocky Mountain Farmer’s

Union at the time of Mountain View’s

inception.

By making the co-op value-added,

Carter said, “the farmer maintains control throughout the whole process. In

the traditional systems, the farmer gets

cut out very quickly. They’re on the

bottom rung of the ladder.” 

Mountain View has 232 members,

or shareholders, most of whom are

wheat farmers, Knight said. Carter is

no longer involved with Mountain

View, other than as a shareholder. 

“One of the initial challenges that

we faced was that when producers

stepped into this value-added business,

there was the feeling that there would

be a quick turnaround in (return on

investment),” Carter said, explaining

that it took time to grow and any profits had to be put back into the business. 

“I think that was a real turnaround

for the cooperative, when the shareholders said, ‘Look, we are going to be

patient, and we’re willing to put in the

time it’s going to take to build this into

a successful business,’” he said. 

At the time it was moving away

from the FMA and becoming

Mountain View, the board received a

grant from the U.S. Department of

Agriculture to study the feasibility of a

co-op run by wheat farmers. 

The study they commissioned had

two main recommendations. One was

to partner with an existing company, in

this case Gerard’s, which had been

around for decades. The other recommendation was to specialize in what

are called “par-baked breads,” basically

high-quality breads and rolls that are

baked almost to completion and then

frozen for distribution. The end user

— a Quizno’s, for example — will

complete the baking, ensuring a fresh

taste every time. 

Four years ago, the Mountain View

board of directors tapped Knight, a

veteran of the food industry who had

run his own $100 million company and

a $1 billion division when he worked

for Frito-Lay, to come in and run the

company. 

Bread is moved to a cooling room at Gerard’s Bakery in Colorado. 
Rural Cooperatives / May/June 2005 9

Knight said the thump-thumpthumping of the dough mixers through

the walls was music to his ears. The

fact that Gerard’s is a smaller, leaner

company with the ability to make decisions quickly and room for an added

emphasis on customer satisfaction has

a great deal of appeal, he said. 

The American Institute of Baking,

he said, conducts 5,000 audits a year

worldwide, and only 3 percent of the

companies audited receive a “superior”

rating. 

“This one’s gotten those nine years

in a row,” Knight said with pride. 

Gerard’s employs about 170 at its

headquarters, 40 in administration and

the rest in the 19,000-square-foot bakery portion of the plant — which doesn’t include freezer space. 

About 100 more are employed in

California, and the North Carolina

plant is expected to add 108 jobs over

the next three years. 

The company’s current locations —

here and Livermore — produce about

350,000 bread items every day. If one

of the three lines that runs continuously is putting out baguettes, it’s making

2,400 of them an hour. For hoagie

rolls, that number is 7,200. “It takes

about four hours from the time the

ingredients are mixed to the time the

product is finished,” Knight said. 

He said that in Europe, he’s been to

bakeries roughly the same size that are

fully automated, every step of the way.

Unlike at Gerard’s, all of the ingredients and spices are not mixed by hand.

The temperature of the dough is not

monitored by humans. And the cornmeal on top of the hamburger buns is

not put there by hand. 

But Knight said the dance will continue as it has at Gerard’s, and customers will continue to be the better

for it. 

“We don’t have the demand for

automation, and we want to have the

flexibility in what we do,” he said. 

■

By Dave Carter

Editor’s note: Carter is one of Mountain View’s founding

board members and a national consultant on co-op development and organic production.

More than a decade has passed since a small group of

farmers huddled around a breakfast table in a Denver area

café to discuss opportunities to develop a new valueadded business. These farmers understood the difficulties

facing producer-owned businesses because they all

served on the board of directors of a grain handling and

feed milling cooperative that had been forced into bankruptcy from a series of disastrous events. Yet, they were

confident that a new producer-owned venture could capitalize upon the emerging opportunities in value-added agriculture.

The question they asked at the breakfast was: “Which

opportunity?” Discussion ranged from grain milling to straw

fiberboard processing. They realized they needed help in

finding the answer. With the assistance of the Rocky

Mountain Farmers Union, the group approached USDA Rural

Development and received a $100,000 Rural Business

Enterprise Grant, which they used to finance a feasibility

study into 14 potential opportunities for value-added processing for Colorado wheat farmers.

The studies funded by USDA Rural Development concluded that emerging developments in the baking industry presented a strong opportunity for a farmer-owned enterprise.

The studies also encouraged the producers to partner with

an existing business rather than construct a new facility. 

Armed with the feasibility results and an ensuing business plan, the key leaders organized a new cooperative in

1996 as Mountain View Harvest. They located an existing

state-of-the-art bakery north of Denver and successfully

negotiated an arrangement to purchase the business. An

equity drive conducted between November 1996 and

March 1997 generated $5 million in producer capital, and

on April 15, 1997, Mountain View Harvest Cooperative formally purchased Gerard’s Bakery. 

Gerard’s was a small regional company producing

roughly $6 million in baked goods that were sold primarily

in the food service channel. Under the ownership of 225

Colorado wheat farmers, Gerard’s generated $26.8 million

in sales and earned a net profit of $1.2 million for its shareholders in 2004. 

But that growth didn’t come without pain. 

At the time of purchase by the cooperative, the majority

of sales from Gerard’s went to one foodservice outlet. As

that outlet grew rapidly, the bakery cooperative struggled

to keep pace. Every dollar earned by the new cooperative

was poured back into expansion. And, because of the lowmargin business, the bottom line suffered significantly.

Again, the wheat farmers turned to USDA Rural

Development. In 2002, Mountain View Harvest successfully

applied for a $342,210 Value-Added Producer Grant (VAPG)

to finance the expansion of its product line and to fund

marketing efforts to diversify its customer base. With the

assistance of the VAPG funds, the board and management

were able to establish new products and outlets that

helped transform a $1.3 million operating loss in 2001 into a

$1.4 million net profit in 2003. ■

USDA helps Colorado farmers cook up profitability
10 May/June 2005 / Rural Cooperatives

By Donald Frederick

Program Leader for Law, 

Policy & Governance

USDA Rural Development

email: donald.frederick@usda.gov

t is often said that a person can find almost anything on the Internet, if

you just know where to

look. Finding information on cooperative and agricultural law is now easier,

using the restructured and expanded

Web site of the National Agricultural

Law Center:

www.NationalAgLawCenter.org.

Congress authorized creation of the

National Agricultural Law Center in

1987, which is part of the University of

Arkansas School of Law in Fayetteville,

Ark. The Center has been funded with

federal appropriations through the

National Agricultural Library, an entity

within the USDA Agricultural

Research Service. The Center conducts

legal research and provides information

on agricultural and food law. It is

staffed by a team of law and research

professors, lawyers, other specialists,

LEGAL CORNER

Web-based ag\co-op law 

library puts valuable 

resources at fingertips

I

Internal Revenue Code section 1401 imposes a selfemployment (social security) tax on the net earnings of

individuals who are in business for themselves as sole

proprietors, partners or independent contractors. The

U.S. Tax Court has reaffirmed its position that cooperative member-patrons must pay self-employment taxes

on distributions they receive from their cooperative.

(Eric Fultz v. Comm’r, T.C. Memo 2005-45 (March 10,

2005); Dennis Fultz v. Comm’r, T.C. Memo 2005-46

(March 10, 2005)). 

In these cases, a cooperative made two payments

to its member-patrons after the end of its fiscal year.

One was categorized as a payment to a patron for the

value added to the patron’s product during its processing by the cooperative (a “value-added payment”).

The other was called a patronage refund.

Some patrons did not report the value-added payments for self-employment tax purposes. The Internal

Revenue Service challenged the patrons’ position and

the dispute wound up in court. The patrons argued

that the “value-added payments” were investment

income not subject to self-employment tax. 

However, the court determined that the payments

were income derived from business conducted with

the cooperative and subject to self-employment tax.

The court also rejected an argument by the patrons

that since they had assigned the right to the funds

received from themselves to a family corporation, they

were no longer the recipients of the income for selfemployment tax purposes.

Some tax advisers have suggested that similar payments from an LLC to a member are not subject to selfemployment taxes. But the courts have looked at the

nature of the income (business, not investment

income), not the structure of the business, in holding

cooperative distributions to patrons are subject to selfemployment taxes. So, it seems possible that they

would also hold that payments from an LLC to a member, related to product delivered for processing and

resale, are subject to self-employment taxes. ■

Co-op payments to patrons subject

to self-employment tax

continued on page 42
Rural Cooperatives / May/June 2005 11

he organic food market has expanded and matured into

a $10 billion industry, with sales growing about 15 to 20

percent each year. Once the preserve of natural food stores,

even most mainstream grocery stores now have organic food

shelves or sections. And increasing numbers of restaurants are buying organic foods. 

Many of the early co-ops that sprang up to serve the market have

also matured, while new co-ops continue to be formed to meet the

growing demand for organic foods. In this special section, we profile

a number of organic co-ops that are finding success in the marketplace. While organic farms come in all shapes and sizes, some of

these co-ops say they are proudest of the fact that they facilitate

alternative production strategies that help keep more small, family

farms viable and supporting their rural communities.

g
12 May/June 2005 / Rural Cooperatives

By Catherine Merlo

very day, 200 to 300 customers line up at the

Cloud Cliff Bakery and

Café in Santa Fe, N.M.

They come to dine on

the popular eatery’s cinnamon rolls,

the roasted ancho chile rellenos, the

strong coffee. But mostly they come

for the bread.

The crunchy sourdough loaves are

made by hand and baked daily on a

stone hearth, giving the bread a flavor

similar to that cooked in a wood-fired

oven. Known as artisan bread, the

dough is made from water, salt, yeast

and a special organic wheat flour.

Cloud Cliff’s specialty is “Pan Nativo,”

Spanish for native bread. 

Pan Nativo has been Cloud Cliff’s

best-selling product for several years,

accounting for up to half of Cloud

Cliff’s wholesale income. The flour it’s

made from is high in protein and

gluten, and it comes from one place

only: the organic wheat fields of the

Sangre de Cristo Agricultural

Producers Cooperative.

Co-op helps boost rural incomes

One hundred miles north of Santa

Fe, along the New Mexico-Colorado

Going with the grain

New Mexico organic wheat cooperative 

provides lift to farmers, rural economy 

E

Del Jimenez, agricultural specialist with New Mexico State University’s (NMSU) Cooperative Extension Service, examines wheat grown by the

Sangre de Cristo Agricultural Producers cooperative in Costilla, N.M, north of Taos, just before harvest last November. The organic wheat is

milled into flour and sold to local bakeries and restaurants. Photos courtesy NMSU
Rural Cooperatives / May/June 2005 13

border, members of the Sangre de

Cristo Agricultural Producers

Cooperative have just planted their

11th grain crop. From September’s

expected harvest, they hope to produce

a record crop of more than 400,000

pounds of organic wheat, which will be

milled into flour and sold to local bakeries and restaurants like Cloud Cliff. 

The co-op has come a long way

since it was formed in 1995 with help

from New Mexico State University

and the New Mexico Department of

Agriculture. Organized to improve

economics and reintroduce grain production in the sparsely populated

Costilla Valley, the co-op has done

more than revive local wheat farming.

It has boosted incomes and hope in

rural Taos County, where the median

household income is less than $27,000

per year and nearly 21 percent of the

population lives below the poverty

line.

Unlike the co-op’s early years, when

members irrigated their fields from

ditch systems (or acequias), the nine

current co-op members now water

most of their fields with a center pivot.

They’ve also learned to use modern

tractors and combines, with assistance

from Costilla and Questa. 

Flour mill adds value to crop

The co-op has also just purchased

its own whole-wheat flour mill (albeit

used). Now, instead of paying to have

someone else mill their wheat, they

add value to their crop by grinding and

bagging it themselves. They’ve seen

production rise from 60,000 pounds

the first year, and watched their co-op’s

revenues climb to $100,000 last year.

But what hasn’t changed is the coop’s commitment to organic, chemicalfree, wheat production. It’s proved to

be a bonanza for the tiny co-op. Each

month, it sells 18,000 pounds of

organic wheat flour, including 10,000

pounds to Cloud Cliff, its best customer.

“We chose to produce and sell an

organic product because that’s what’s

happening all through this area,” says

co-op president Gonzalo Gallegos,

who farms 40 of the co-op’s 120 acres

near Questa. “Much of this land had

been fallow for so long, and people

had never used chemicals on it. Our

water comes directly from the mountains. What better place could there be

to grow organic?” 

By offering a locally grown organic

product, the co-op enjoys a profitable

niche market. Organic wheat here sells

for 11.6 cents a pound, compared with

about 3.3 cents a pound for conventionally grown wheat. The co-op mills

all of its wheat into organic flour,

which is sold to New Mexico customers at 30 cents a pound. After

deducting production, operating and

transportation expenses, co-op members earn a net profit of 16.6 cents a

pound for their organic wheat flour.

“That’s more than five times the

amount conventional growers earn

selling wheat on the open market,”

says Del Jimenez, agricultural specialist

for New Mexico University’s

Cooperative Extension Service. 

Jimenez has worked with the co-op,

named after the nearby Sangre de

Cristo Mountains, from its beginning.

“We never thought we’d get this far,”

he says.

“Demand for our flour is growing,

which is why we’re working so hard to

increase our production,” Gallegos

says.

New Mexico’s wheat growers are not alone in seizing opportunity in the organic foods market. Burgeoning consumer interest in organically grown foods has

not only opened new markets for farmers, but is transforming the organic foods industry.

“Organic foods have penetrated conventional

supermarkets with breathtaking speed since the late

1990s,” says Catherine Greene, agricultural economist

with USDA’s Economic Research Service. “Sales have

grown by 17-20 percent per year since 1997.”

Like the members of the Sangre de Cristo Agricultural Producers Cooperative, many small organic farmers also are selling directly to high-end restaurants,

she adds.

“Retail sales of organic foods totaled an estimated

$10.4 billion in the United States in 2003,” Greene says,

citing the Nutrition Business Journal, a nutrition industry publication.

That’s almost three times as much as the $3.6 billion

sold in 1997.

Produce remains the biggest category of organic

retail sales. Soy beverage and organic dairy products

(see page 15) have been among the fastest-growing

segments.

“The increasing availability in conventional supermarket channels has played a major role in expanding

organic food sales,” Greene says.

Through the 1990s, natural foods stores were the

dominant venue for purchasing organic foods. “Today,

conventional supermarkets sell as much organic product as the natural foods sector,” says Greene.

Direct marketing of organic produce is still a vibrant

segment of organic foods distribution, she adds.

“Organic food remains a bright spot of opportunity

for farmers,” says Greene.

For more information, visit:

http://www.ers.usda.gov/briefing/organic/. ■

—Catherine Merlo

Organic food sales growing at ‘breathtaking’ speed
14 May/June 2005 / Rural Cooperatives

Proud of their product

Like many locals,

Gallegos, 54, holds two

to three jobs to support

his family. He has seasonal work as a meat-cutter, high school

football coach and physical education

instructor. Like other locals, he could

have left for better-paying jobs in Santa

Fe, Albuquerque, Los Alamos or

Denver. But he stayed, and Sangre de

Cristo Agricultural Producers Cooperative has rewarded him in ways he

never imagined.

“This experience has meant quite a

bit to me,” says Gallegos, once an

inexperienced farmer. “It’s put food on

people’s tables, but it’s also the quality

of our product that I like. We got people together. And it’s taught me a lot

about running a business.”

Through the Sangre de Cristo

Agricultural Producers Cooperative,

members have added roughly $12,000

extra to their individual yearly incomes.

Cloud Cliff produces 8,000 to

9,000 loaves of its Pan Nativo each

month, which it sells for a wholesale

price of up to $3 a loaf to natural food

stores and other retailers in northern

New Mexico. Cloud Cliff owner

Willem Malten thinks there’s room for

growth in the Sangre de Cristo

Agricultural Producers Co-op.

“It’s taken them a long time to get

where they are now,” Malten says. “It’s

been quite a learning curve for them.

Now, they’re taking a harder look at it

as a business.”

Malten has offered ideas to the coop: figure out a way to sell organic

wheat berries; think about growing different varieties of wheat, such as spelt,

amaranth or quinoa; look into the use

of straw for the region’s popular strawbale housing; consider growing rotational crops. 

“They’re still trying to find their

bearings,” Malten says. “But I’m glad

they’re still motivated to remain in

business. That, in itself, is a success.”

Reviving northern N.M. ag 

Jimenez would like to see the co-op

eventually produce its own unique product, probably bread. “It would be ideal

to have an integrated system,” he says.

The co-op has brought more than a

high price for the locally grown organic

wheat. It’s revived farming in northern

New Mexico, a major wheat-growing

area before World War II. It’s improved

incomes and added jobs here. 

“The co-op has done wonders for

the community,” says Jimenez. “Every

dollar that comes into northern New

Mexico is turned over seven times in

the community.” 

The co-op has received significant

financial support, Jimenez says. The

New Mexico Legislature has given

some $50,000 in funding over the

years to help the co-op operate.

Expertise has not only been provided

by Jimenez, but also by the New

Mexico Department of Agriculture

through staffer Craig Maple.

Even so, the co-op has had its share

of troubles, Jimenez admits. “Our

biggest challenge is getting cooperation within the group to follow the

same procedures and growing techniques,” he says. “We have had some

leadership problems and the growing

pains every group goes through.”

Drought is a regular visitor to the

area, making water a valuable, precious

resource. “We’ve been hit hard by

drought three out of the last 10 years,”

says Jimenez.

For Gallegos, marketing the coop’s product and name has been one

of the hard parts. But he is taking a

business management class and

preparing to help draft a business plan

for the co-op “to turn this into a real

business,” he says. “It may take a couple of years, but we are going to

expand.” ■

Cloud Cliff bakery owner Willem Malten (left) and baker Luis Chavez make Pan Nativo (Native Bread) from organic wheat flour supplied by the

Sangre de Cristo Agricultural Producers cooperative. Pan Nativo is Malten’s best-selling product, accounting for one-third to half of the Santa

Fe bakery’s annual sales.
Rural Cooperatives / May/June 2005 15

By Dan Campbell, editor

ravis Forgues, who with

his father runs an 80-cow

dairy farm near Alburg,

Vt., can still recall the

dire warnings they heard

after deciding to have their farm certified organic in 1997. Too many dairy

producers were going organic, and the

market would soon crumble, they were

told. 

But the Forgues were undeterred,

having been virtually organic since

1991 anyway. “‘Trav,’ my dad said, ‘we

are going to get on this mule and ride

it until it’s done.’ Well, we’re not riding a mule anymore; now we’re on one

of those big Budweiser Clydesdales,

and we’re enjoying the ride,” Forgues

says. “The market is screaming for

more organic milk.” 

Indeed, with an annual industry

growth rate of 20 percent, organic

dairy foods seem to be on the verge of

busting out of niche-market status.

There were maybe 30 organic dairy

farmers in the state when they went

organic, vs. about 100 today. 

The Forgues belong to the nation’s

largest organic co-op, CROPP

(Cooperative Regions of Organic

Producer Pools), which outpaced the

category’s envious growth rate, with its

sales surging 36 percent last year.

Overall sales of the co-op’s Organic

Valley Family of Foods label are projected to hit $265 million for 2005, up

from $204 million for 2004. 

About 85 percent of CROPP’s sales

are fluid milk, although it also markets

other dairy products, eggs, orange

juice, produce and meat. The LaFarge,

Wis.-based co-op owns only one plant,

a butter factory in Chase-burg, Wis.,

which produces an unsalted, Swissstyle butter. Otherwise, it co-packs

with other dairy co-ops and companies around the nation and contracts

with them for milk hauling and related services. 

Nationally, CROPP has more than

500 dairy producer-members who

belong to one of 24 milk pools nationally. It added two new pools in the past

year. In December, it opened for business in the Fort Collins, Colo., area

and in April started its first pool in

Texas (see sidebar, page 19).

Economics and philosophy

contribute to going organic 

The Forgues’ motivation for going

organic was “probably driven 75 percent by economics, 25 percent by the

philosophy of it,” Travis recalls. He

was 23 at the time, just out of college,

“and the idea of owning our own

brand of organic milk was really cool.” 

The biggest attraction was that they

were guaranteed a stable price of $18

per hundredweight (cwt) for two years.

“That was really exciting — to not

have to worry about the hills and valleys of milk pay prices.” That remains

the main selling point helping CROPP

recruit about 100 dairy farmers per

year.

“Our claim to fame as a co-op is

stable milk prices,” says CROPP Chief

Marketing Director Theresa Marquez.

“When farmers started the co-op in

1988 that was the goal, and stable pricing remains a steadfast rule today. It

was unheard of at that time, but it has

worked.”

CROPP started out offering $2 or

$3 per cwt more than the market for

conventional milk and has been gradually pushing up the differential ever

since. 

This year, Forgues averaged $24 per

cwt for his milk vs. $15 for conventional milk. That was earned on a $22

base price in Vermont, plus about $2

per cwt in various incentives.

The biggest downside to producing

organic milk is that for those farmers

who have to buy feed, the cost of

organic grain is much higher — about

double the cost of conventionally

grown grain in Vermont, Forgues says. 

Drought in portions of the Midwest

and some other regions this year drove

up organic grain prices. “Producers

who don’t grow most of their feed

Cream of the CROPP

Demand outstripping supply as CROPP 

organic dairy products go prime time 

T

Travis Forgues and his family not only love

life on their organic dairy farm, but the premium price they receive allows them to

support two families with only 70 cows in

their herd. Photos courtesy Organic Valley
16 May/June 2005 / Rural Cooperatives

have been hurting a bit,”

Marquez says. 

Less stress boosts 

herd health

Forgues does not push his cattle to

try to squeeze every last drop of milk

out of them. Keeping them under less

stress helps keep the herd healthier, he

believes. That is doubly important on

an organic farm, since antibiotics cannot be used (unless an

animal’s life is threatened by sickness; if

treated with drugs, the

cow then has to be

moved to a conventional dairy farm and cannot return). 

This approach also

keeps cows in production longer than on

most conventional

dairy farms. His annual

cull rate is only about 8

percent of the herd vs.

an industry average of

close to 30 percent, he

says. 

The average cow on

his dairy is six years

old, and he has a number of cows still

in production that are 10 or older.

“And no, we don’t wait for them to

become a broken-down animal that is

all used up before we cull them,”

Forgues says, although he admits that

the older cows require a bit more

patience. 

This approach makes good economic sense, he says. “When you figure out

the cost of replacement cattle, it’s pretty darn expensive to cull cows after

two or less lactations.” 

Forgues’ herd average is about 40

pounds (of milk per cow per day), the

same as before the family went organic. “There are other organic producers

around us averaging 70 pounds. It all

depends on how you want to run your

farm; we like a low-input approach and

we’re very happy with what we are

earning.” 

While his herd is just slightly larger than the co-op’s average of 65, the

co-op has members with as many as

500 cows. 

Prior to Organic Valley, the

Forgues were members of St. Albans

Cooperative, which Travis calls “a

great cooperative.” He still considers

himself part of St. Albans, since

CROPP contracts with it to truck and

lab-test member milk. “They do our

paperwork and we still use the co-op

store,” he says.

Minn. organic dairy

was ahead of curve

CROPP’s stable milk pricing policy

is also what Pam and Jeff Riesgraf like

best about the co-op. The Riesgrafs

keep their 60 cows on 50 acres of pasture most of the year, and also grow

corn and alfalfa near Jordan, Minn.

Their herd average is about 50 pounds,

but they too say their management

style is “to not push the cows too hard;

we believe they stay healthier when on

pasture and can get their own feed,”

Pam says.

The co-op’s base price in the Upper

Midwest is $19.20 but will soon bump

up to $20. With various incentives, the

Riesgrafs earned $23 per cwt this year. 

“With stable pricing, we can set a

pretty accurate budget,” she says. And

with the farm supporting a family of

five (her eldest son recently got married and moved to Florida), that’s

important. 

“CROPP re-evaluates pay price at

the end of every year,” says Riesgraf,

one of the co-op’s seven board members. “The farmer always has a voice in

what pay price is going to be,” she

adds. 

The farm has been organic since

her father-in-law bought it about 1950.

“My father-in-law didn’t even know

what “organic” meant. It was just the

way he farmed because

he didn’t believe in farming with chemicals. He

instilled that in Jeff, and

we’ve carried on that tradition,” Riesgraf says. 

Most of those years,

the farm’s milk netted no

more than conventional

milk. “It wasn’t until the

late 1980s that we even

realized there was a market out there that would

pay us more for our

milk,” says Riesgraf.

The Riesgrafs grow

most of their own feed,

but their farm was

impacted by drought this

year, forcing them to buy

more organic alfalfa hay at inflated

prices. Organic corn and soybean

prices were also up sharply this year.

In addition to drought, more organic

beef and poultry is being raised in the

Midwest, which further increases competition for organic feed grains. 

“High-cost feed grain definitely

puts a dent in your paycheck,” Riesgraf

says. If there is a bright side to the feed

situation, she says, it is that it may trigger more interest among grain farmers

in converting acres to organic. “I think

we’ll see corresponding growth in the

organic grain industry.”

Another type of growth Riesgraf is

less fond of is the urban growth coming their way. “We’re starting to get

crunched from two sides,” Riesgraf

says. “The city [Jordan] sent out a

notice three years ago that city limits

will be moving out to the back of our

farm by 2015. We hope we can hang

on to the farm for the kids if they want

Pam and Jeff Riesgraf say what they like best about being CROPP members is

the stable milk prices they receive, which has allowed them to accurately budget for the needs of their family and farm. 
Rural Cooperatives / May/June 2005 17

to farm [and it appears that at least

some do, she says]. If not here, hopefully we can set them up somewhere

else.”

Under a program of the Minnesota

Dept. of Transportation, the Riesgrafs

have set aside 18 acres of the farm as

wetland wildlife habitat, which is

home to ducks, geese and other wetland critters. 

“The best thing about farming is

what it offers our kids — a chance to

be outdoors, to explore and

enjoy the environment and

spend time with the animals.

Most kids do not have that

opportunity.” 

Co-op mentoring program

The Riesgrafs participate

in CROPP’s farmer-tofarmer mentoring program

to help conventional farmers

transition to organic. “Jeff

and I have been mentors, not

just to help Organic Valley

farmers, but any farmers who

want to transition to organic.” The co-op encourages

farmers interested in organic

farming to talk to producers

who have already made the

transition. 

“This helps them better

understand what organic

dairy farming is all about and

its economic and environmental benefits, says

Riesgraf. “Any farmer can do it if the

desire is there. The best thing they can

do prior to making the transition is

educate themselves about USDA

organic standards, (for more information on USDA’s organic marketing

programs, visit:

http://www.ams.usda.gov/nop/ProdHa

ndlers/ProdHandhome.html). 

Transition rules include adhering to

a three-year period with no pesticide

applications on crops or pasture, no

use of antibiotics or hormones in the

herd for one year, compiling a log of

all farm invoices and related records

for the previous five years, and developing an organic farm plan. There’s

also an annual inspection to verify

organic standards are being adhered to. 

If a cow is organic from birth, it can

be sold for organic meat when culled.

But if it was transitioned into organic,

it cannot be sold as organic. 

Organic Valley is marketing organic

beef, with a 1-pound pack of its branded hamburger now available in most

Safeway stores. Marquez calls beef the

toughest market to crack for organics. 

Organic Valley products are made

in 60 plants, including 10 cheesemaking plants in Wisconsin. “Our business

is keeping a lot of small cheese plants

operating, which in turn is important

to the economies of many rural

towns,” Marquez says. “That too fulfills our mission, which is about far

more than organic food — it’s about

keeping rural communities healthy and

keeping more families on their farms.” 

Produce sales totaled just under $1

million last year, but that was double

the year before, and sales are expected

to double again this year. Marquez says

some exploratory talks are underway

about a possible produce-marketing

federation with a Central American coop to supply year-round produce. 

But fluid milk remains CROPP’s

main engine. There are two lines of

Organic Valley fluid milk: ultra pasteurized (52 percent of all sales) and

high temperature, slow time (or

HTST) pasteurized, which is 12 percent of its business. Cheese and butter

represent 10 percent of sales and eggs

6 percent. About 13 percent of its business is private label.

Organic Valley last year introduced

a soy beverage. It is just a blip on the

radar screen at this point — sales are

only 0.2 percent of the co-op’s total.

But interest is growing. “We’re not

looking for a huge market share with

our soy milk, but we offer it as a compliment to organic milk for lactose

intolerant people.” Soy beverage cartons have a code on them that can be

typed onto a Web page, which will

then pull up a page about the farmer

who grew the beans it was made from.

Competition welcomed

One sign of the health of the organic dairy market is the rising interest of

large dairy foods corporations in it,

Chart and data provided by Organic Valley/ CROPP 
18 May/June 2005 / Rural Cooperatives

Marquez notes. Dean

Foods has acquired the

Horizon organic brand,

and HP Hood has the

Stonyfield brand. 

“This has pluses and minuses for

us,” Marquez says. It is obviously harder to set the category price with more

players. “But you need players to make

a category. So it’s nice to see some big

firms entering it — it shows that you

have arrived as a real category that is

here to stay.

“Our competition is probably outspending us 10-1,” Marquez says. “But

we view competition as healthy. It’s

reality and it’s the American way. If

you can’t get in there and duke it out

with the best of them, then you probably shouldn’t be in business.”

Right now, the biggest competition

is for farmers. All organic brands are

looking for more milk, Marquez says.

“This is the first time demand has outstripped our ability to convert farmers.

It’s an unprecedented time for us —

we’ve never hit up against a wall this

hard before. We took on 100 more

farmers last year but can’t convert

them fast enough to meet demand.”

CROPP is in the design stage of

building a 100,000-square-foot distribution center, with occupancy targeted

for January 2007. The same site may

also become the home of a fluid milk

bottling operation in 2010.

It also has a brand new headquarters

in LaFarge, which USDA Rural

Development helped provide financing

for (see “Inside Rural Development”

column, page 43). 

Offering farmers &

consumers an option

Forgues makes one trip a month

promoting the co-op and its products

as a member of Cropp’s farmer ambassador team. “I love bringing more

farmers into the co-op,” he says.

The fact that organic producers can

make a living on smaller farms helps

keep more farms in business and supports more rural communities, Forgues

says. “We’re giving more farm kids —

and I’m one myself — a chance to

come back to farm who might not otherwise be able to. We’re offering them

an opportunity.”

At this point, rather than growing

his herd, Forgues says there is much he

and his father can do to improve their

herd average by trying different forages, etc. “That’s the fun part of farming — trying different things and seeing how the cows respond.

“I don’t feel pressure to have to

grow the farm. I’d get out of farming

before I’d go down the road of industrial farming; it just wouldn’t be worth

it. When Dad and I can’t do the work,

or if our children don’t want to do this,

we’re not going to bring in labor. Do

that, and then you’ve got to milk an

extra 50 cows to pay the labor. And

then you need a bigger parlor —

there’s another $200,000 loan. That’s

the trap — they got you.

“I feel very happy and blessed to be

in the position we are, being paid like

we are, in a market that is growing

with stable farm prices.” ■

CROPP is directed by a seven-member board, all of

whom are farmer-members elected at large. Elections are

strictly one member, one vote. 

Key to the co-op’s functioning are eight executive committees (ECs), one for each of the primary commodities

CROPP handles (dairy, eggs, beef, pork, poultry, soy, juice

and produce). The ECs in turn make recommendations to

the board. Representation on the ECs is by region, based on

(in the case of dairy) being in one of 24 regional milk pools. 

Each dairy pool averages 30 farmers. Their milk is loaded

onto the same truck and delivered to the same plant.

CROPP’s Dairy EC holds monthly conference calls and meets

face-to-face at least annually, sometimes twice each year. 

They discuss everything from farm pay price, to feed

cost, to herd health issues, to proposed changes to national

organic standards. Co-op Marketing Director Theresa Marquez says it is unusual for the board to reject an EC recommendation. “But it does happen. Then they go back and

forth.” 

“It’s like our own House of Representatives,” says Travis

Forgues, a former Dairy EC member from Vermont. “We talk

things out every month. It really is the voice of the farmers

that makes this co-op run.” 

Having both a CEO (George Siemon ) and board chairman (Wayne Peters) who are active farmers helps build

trust and understanding between headquarters and the

members, Forgues says. “George came to Vermont and

helped get our first milk on the truck,”says Forgues.

Members’ equity investment in the co-op is one month of

their estimated annual sales, or 8.3 percent of projected

annual income. “That investment goes into a CD, with the

initial investment earning 8 percent interest,” Marquez

says. Equity is paid to members upon retirement or upon

leaving the co-op.

With few physical assets to maintain, the co-op business philosophy is based on paying the best upfront milk

and crop prices it can, Marquez says. Patronage is thus

less than with many co-ops. 

At the end of each year, 1.25 percent of co-op income

goes back into the co-op to cover debt service, inventory,

etc. Between 1.25 and 2 percent of income goes into patronage and profit sharing, allotted: 45 percent to farmers, 45

percent to staff and 10 percent to the community. Local

scholarships and county fairs have benefited from these

community investments, and more than a million dollars has

been donated to children’s health organizations. ■

Executive committees key to CROPP governance
Rural Cooperatives / May/June 2005 19

Editor’s note: This article is

reprinted courtesy Organic Valley

Family of Farms.

When Organic Valley dairy

farmer Harry Lewis tells the story

of how his family’s 287-acre Texas

dairy farm came to be, it’s clear

why he’s so passionate about preserving it today. 

It started with a stroke of luck

in 1940. The United States government had purchased about 1,575

acres of farmland near Sulphur

Springs for nine African-American

families, who would produce food

for World War II troops.

Harry’s father, a newlywed looking to get his own start in farming,

happened to be plowing his family’s land when government officials

drove up and offered him a farm. 

“He got the land, the feed and

the dairy cows,” Harry recalls. 

“The only thing he had to buy was sugar and flour. My

father and his farm were just as much a part of the war. It

was a service.” 

One generation to the next

Harry’s family, including his brother, Robert, survived

the ups and downs of farming in the 1940s, 50s and 60s: a

war effort that provided income; larger, mechanized postwar farms that started to squeeze out small family farmers; and Texas drought.

Both Robert and Harry left the farm at different times to

pursue their own careers. Robert moved to California and

Harry attended Texas Southern University. But both men

eventually returned to the farm, where they worked

together. Harry also married his wife, Billye, and the couple raised their children: Annette, Angela, Erica and Wynton. Robert passed away in 2000.

By 2001, like many farmers in his community and

across the nation, Harry was frustrated by fluctuating

prices for the conventional milk produced by his 75-cow

herd, as well as the increasing role of large corporations

in agriculture, which he feels threatens farmers’ independence.

Eager to make a change that would keep his family’s

farm intact, Harry had his own stroke of luck. 

Organic Valley: ensuring

the future

In 2002, representatives of

Organic Valley visited Texas

to recruit farmers to produce

and sell milk in the region.

Harry attended the presentation and accidentally left

behind his tape recorder.

After he arrived home,

two men from Organic Valley

— CEO George Siemon and

Wayne Shaker — were

standing on his doorstep

with his recorder. They had

surveyed Harry’s beautiful

land, which for years, in

keeping with the practices of

his father, had been farmed

without herbicides or pesticides. The men told Harry it

would be easy to transition

his farm to organic.

“Something in me said

‘this is it, this is the right thing to do,’” Harry recalls. “Then

they explained how I could do it. They didn’t lie, they didn’t

manipulate me, and I liked that.”

By Jan. 1, 2005, Harry’s herd and land were certified

organic. Since April, his cows’ milk has been sold under the

Texas PasturesTM label throughout most of Texas.

Organic ambassador

These days, Harry is a proud Organic Valley farmerowner and organic “ambassador,” spreading the word

about the co-op, organics and its environmental benefits

among his community and the state of Texas.

“I’ll do whatever I possibly can to get organics in

Texas,” Harry says. “My county was once called the ‘Dairy

Capital of the State of Texas.’ My plan is to bring it back as

the ‘Organic Dairy Capital of the State of Texas.’” 

Most importantly, Harry is happy knowing that he and

Wynton, 20, who will someday take over the farm, can

continue farming the way the family always has. “We put

in our work, but we also put in joy,” Harry says. “And

that’s what we receive — a rewarding, wholesome

organic lifestyle for my family and grandchildren, Joush

and Kandis.”

“We won’t make millions,” Harry continued, “but it’s a

great way of life.” ■

Texas dairy farmer ‘puts joy into his work’ 

“Something in me said this is the right thing to do,”

says Harry Lewis, with his wife, Billye, and grandchild. 
20 May/June 2005 / Rural Cooperatives

Thomas W. Gray, Ph.D.

Rural Sociologist

USDA Rural Development 

Author’s note: This article draws heavily

upon Growing Home: A Guide for

Reconnecting Agriculture, Food and

Communities, by Joanna Green and

Duncan Hilchey, Cornell Community, Food

and Agriculture Program, Ithaca, N.Y.

he long, historic trend in

U.S. agricultural development has been toward

ever-fewer, larger farms

— a process some have likened to

being on a treadmill. Cycle after cycle,

fewer farmers on larger farms account

for increasing proportions of total production. The process has been fueled

in-part by continued adoption of various mechanical and chemical innovations. 

These innovations (including

increasingly large tractors and machinery, pesticides, herbicides and fertilizers) permit greater tracks of land to be

farmed more intensively by fewer

farmers. 

The sheer volume of products

produced from this system has been

so large that, even in the face of population expansion and exports, prices

have tended to remain level or

decline.

Historically, farmers not able, or

unwilling, to get on the “industrializing treadmill” have found survival difficult. Many of these farms go fallow,

or are bought out by neighboring

farmers. 

As an aftermath of these processes,

farm families displaced from their

farms tend to leave the local community.

Local-based, alternativemarketing strategy could

help save more small farms

T

Cut flowers proved to be a popular item at this stall at a New Orleans farmers’ market. USDA photos
Rural Cooperatives / May/June 2005 21

An alternative path

Many rural sociologists — including

Thomas Lyson, Green and Hilchey of

Cornell, Steve Stevenson and Fred

Buttel of the University of Wisconsin,

Larry Yee and Gail Feenstra of the

University of California-Davis, among

others — say that an alternative to this

technologically intensive path of farming began to emerge in the late 1970s,

called “alternative agriculture.” 

This alternative farming path provides strategies linking local production to local and regional consumption, without employing technologies

that require an increasing scale of production. Ultimately, these approaches

seek to keep as many family farmers

operating as possible by improving

their economic returns. 

Less emphasis is placed upon production of commodities (de-commodification) and on diversification (less

specialization). It involves finding

local and regional market niches,

rather than national and global markets. This approach is often pursued

with an emphasis on producing nutritious, safe food in a manner that is

environmentally sound. Explicit consideration is given to the social, environmental and economic links to the

local community. 

This article has a twofold purpose:

1) to review some of the marketing

strategies used in these alternative

approaches, and 2) to draw implications for cooperative organization.

Following are some alternative

farm marketing approaches being used

successfully: 

• Community supported agriculture

— involves individual consumers in a

local community who pay an annual

membership fee to contract with a

local farmer, or farmers, for a share

of their harvest. Typically, this is for

fruits and vegetables, but may also be

for meat. This involves forging a

direct market link from the farmer to

the final consumer. 

Supporters of this approach suggest products can be harvested at

peak readiness (for flavor, texture,

vitamin and mineral content) for

consumption, and delivered within

hours of being picked. Farmer and

consumer come to know each other

and can develop mutual trust (and a

personal relationship) concerning

product quality, quantity, consistency and predictability. Those consumers wanting special handling

and organic production have much

greater assurances they are getting

what they pay for. 

Ideally, the farmer reaps the

greatest return of value from the

consumer, not having to pay wholesalers or retail middlemen. 

• Restaurant (or culinary) agriculture — refers to a food supply relationship between individual farmers

and managers, owners and chefs of

restaurants. The relationship is parallel to that described above between

farmers and final consumers. This

linking can be particularly lucrative

for the farmer when restaurateurs are

looking more for quality and are less

concerned about price. 

However, the farmer must be

able to provide products of top

quality, on short-notice and in a

reliable manner. Produce, meat,

baked goods and flowers are examples of local goods restaurants may

want. 

• Institutional food service & farmschool suppliers — Many communities across the nation have helped

local agriculture and their citizenry

by developing links between farms

and schools, hospitals, prisons and

nursing homes. Emphasis on nutritious food, and children’s health, has

been particularly useful in forging

direct links between farm and school

lunch programs. 

• Farmers’ markets — Less formally

organized than farm stores, farmers’

markets are generally held at designated locations within a community

— such as a community building,

village square or parking lot. Local

farmers, processors, artisans and

craftspeople bring their wares to sell

at designated times. Farmers’ markets have advantages over supermarkets in that food grown and harvested locally is likely to be at a peak for

freshness and nutritional value.

Many producers

want to remain in

farming, but not if 

it means industrialscale farming. There

are alternatives.
22 May/June 2005 / Rural Cooperatives

Local farmers retain

greater value by selling

directly to the consumer. Farmers’ markets can also provide a test market

for new products that, if successful

locally, might be expanded to a larger market.

• Cooperative farm stores — More

prevalent in Europe and Canada

than the United States, cooperative

farm stores are small grocery stores

oriented to carrying local products

from farmers and food processors.

Products carried may include dairy

foods, meats, fresh and canned fruits

and vegetables, root crops, mushrooms, dried beans and other

legumes, wine and liquors, freshbaked goods and condiments.

These stores are generally owned

by 10 or fewer farmers. Most

numerous in France, these stores

are vehicles for supporting and

enhancing the local culture with

local products, such as Roquefort

cheese from Roquefort, France,

and Kona coffee from Hawaii. 

• Produce auctions — While not

a new innovation, produce auctions have made resurgence in

recent years, with many filling a

niche demand for organic foods

and fresh, local food production.

Customers of these auctions are frequently roadside stands, grocery

stores and restaurants. The auction

houses typically provide not only the

facilities, but grading services, preboxing and/or pallets, as well as collections and overall management.

They represent an intervening link

between producers and consumers,

though they seek to emphasize

localism.

• Cooperative marketing — Green

and Hilchey argue that traditional

agricultural cooperatives (meaning

those formed in the 1930s and

1940s) have not been the choice of

farmers seeking alternative agriculture strategies. In order to compete

with large multinational investments

firms, many older cooperatives

increased scale and geographic reach.

This has occurred to the degree that

many have become large, bureaucratic organizations. 

Size and bureaucracy tend to

not easily lend themselves to experimentation with new “alternative

agriculture” farm production products. However, new and much

smaller cooperatives (those with

less than $500,000 in gross sales,

for example) are being formed in

response to the mutual interests

producers have in developing markets for crops and products that are

out of the mainstream of usual production, Green and Hilchey note.

This is particularly the case for

fruit and vegetable production in

the Northeast.

• Value-added activities — Valueadded activity, in which farmers

retain ownership of the product

post-processing, can enable farmers

to keep more value for their products. Value-added activities may

range from capital-intensive

ethanol plants and sugarbeet processing plants — which require relatively large investments from

farmers and large workforces — to

mobile meat processing units and

“kitchen incubators,” requiring

much smaller investments and, typically, less than 10 employees. 

• New-generation cooperatives —

These co-ops are a relatively recent

phenomenon, most being formed in

the past 10-15 years. They generally

are formed by farmers who want to

process locally produced commodities, although not necessarily for

local markets. Examples include

ethanol and corn syrup from corn,

biodiesel from soybeans, sugar from

sugarbeets, pasta and bread from

wheat, and beef and bison processing

plants. Output of these firms may go

into regional, national and international markets. 

Heffernan of the University

of Missouri estimates there are

approximately 200 of these

plants in the United States.

They tend to be associated

with industrialized agriculture

and farming systems that have

historically involved increasing

scale and use of technology. It

is a strategy that seeks to provide outlets for commodity

production while retaining

value (obtained from processing) for the local farmer. 

The local advantage 

Nearly all of these activities

involve some aspect of localism. Community supported agriculture, restaurant agriculture, farmers’

markets and farm-to-school and institutional buying programs all typically

have strong “buy-local” themes. Buylocal campaigns seek to expand the

consumption of local products, thereby

bringing greater economic returns to

the local area, rather than sending

those same consumption dollars “out

of town.” 

Farmers selling their products

directly to consumers do not have to

share value with middlemen. Dollars

spent locally for local products multiplies the economic benefits of this

spending. 

It also draws out the creativity of

local people. Part of buying locally

Produce auctions, farmers markets and communitysupported agriculture efforts are all well-adapted to the

producer-owned, co-op business structure. 
Rural Cooperatives / May/June 2005 23

may also involve products that are

almost emblematic of shared local values. For example, a rural town may be

known as the “pumpkin or blueberry

capital” of its state; or the highlight of

a town’s annual events calendar may

center on hosting the state’s sweet

potato, almond or turnip festival. In

some states, these are important

tourism events. Crops can become a

primary focus of community identity

— one which the entire population

wants to preserve.

This local identity can sometimes

be expanded to a regional or statewide

identity with a great deal of consumer

value. Green and Hilchey note such

marketing messages as: your familyfarm neighbors; keeping dollars in the

local community; knowing the farmer

who produced your food; preserving

open space in the community. These

types of appeals may be combined with

such regional identifiers as:

Pennsylvania Dutch, Appalachian, Blue

Ridge, Low Country, Up-Country,

Down East, Eastern Shore, TwinLakes, and countless others. 

Role for co-ops

While many of these strategies do

not rely on formal cooperative organization in their development, cooperative formation could be quite useful in

resolving some of the difficulties and

challenges. 

Cooperatives have been successful

in agriculture because relatively small

producers with similar production

operations and output had a strong

common need for marketing services

and production supplies. Farmers marketing to schools, nursing homes, hospitals and restaurants face similar

product assembly, marketing coordination and standardization problems.

These market niches require timely,

dependable and reliable delivery of

high-quality products. They also

require a diversity of products —

fruits, vegetables, dairy and meats.

However, the vagaries of farming —

weather being the largest — can make

the best of these links tenuous. 

A local cooperative organization can

provide a mechanism for drawing upon

several farmers for a variety of products,

while providing for assembly, delivery

and standardization that ensures quality.

This same cooperative might also provide a bargaining function. 

The larger the volume, the greater

the number of customers and cooperative members, the more formal relationships become. Beyond a certain

size — often thought to be about 100

members in a cooperative — relationships become much more “business

only,” and much less personal.

Developing trust with chefs and school

administrators, for example, becomes

more difficult. 

Smaller scale allows for more personal relationships, the development of

trust and true “localism.” However,

larger-scale operations may allow for

greater flexibility in terms of both

product diversity and processing. 

New-generation cooperatives are

slightly different from the above activities in terms of localism. They are

generally organized for much larger

markets than those found locally.

They are less experimental, in that

they focus on the development of new

markets for traditionally produced

commodities. However, they are oriented to capturing more value for the

local farmer and often do so while

emphasizing the regional and local

identity of the product. 

Lyson, and others, argue that any of

these alternatives should be pursued

for a number of reasons, not the least

of which are the rural development

goals of economic growth and quality

of life enhancement (see sidebar below

on community benefits).

This article has suggested possibilities for smaller cooperative organizations. However, larger cooperatives —

even if only in support of the activities of others — could help pursue

alternatives that are more directed

toward maintaining farmer traditions

and the survivability of farmers as a

group while sustaining small rural

communities. ■

Preserving small farms provides numerous benefits for

rural America. They help maintain the population base necessary to keep local schools, churches, restaurants and

retail stores operating. Green and Hilchey summarize this

series of benefits of alternative agriculture development.

They note that local farms: 

1) Provide jobs and purchase inputs and services from

other local businesses. They achieve a high “economic multiplier effect” by recirculating dollars in local

economies.

2) Preserve open space, beautify landscapes and attract

tourists, providing further economic benefits.

3) Provide fresh, wholesome foods with excellent taste

and nutrition.

4) Benefit the environment by protecting watersheds

and enhancing wildlife habitats and biodiversity.

5) As independent small businesses, they contribute to a

strong middle class and a healthy civil society.

6) Provide a wonderful environment for raising families.

7) Connect all people with the rich cultural heritage of

rural communities.

■

How small farms benefit communities
24 May/June 2005 / Rural Cooperatives

By Pamela J. Karg

Editor’s note: Karg is a Baraboo, Wis.-

based communicator who specializes in

agriculture and cooperatives. She also

serves as the Sauk County volunteer citizen on the Southwest Badger Resource

Conservation & Development Council.

hile on a business trip

for her off-farm job,

Laurie Moore was

reading an airline magazine when she came

upon a restaurant review of an eating

establishment back home. When she

returned home to Woodland, Ala.,

Moore stopped to see the chef and talk

some business. The meeting was the

start of a business relationship that

allows Moore and her husband, Will,

to sell fresh farm produce directly to

high-end restaurants, where chefs are

committed to “slow foods” cooked

from scratch with the freshest, locally

grown ingredients. 

In fact, the Moores grew their business to the point where Laurie quit her

off-farm job to work full-time on the

sixth-generation, 65-acre farm and cattle operation that has three acres planted to produce. By 2003, their income

had reached about $10,000 per acre for

that portion of the farm planted to

serve the specialty produce marketplace. 

Production did not keep up with

demand, however. That’s when they

decided to form a cooperative —

Farmer’s Fresh Food Network — to

help small Alabama and Georgia farmers tap into this growing, niche-marketing trend.

Co-op spreads benefits 

Proprietary businesses have their

advantages: no board; no bylaws. A

person can see a need and respond

quickly. Owners can retain earnings.

There are many other reasons the

Moores could have kept the business

for themselves.

W

Laurie and Will Moore wash and

bag ‘certified naturally grown’

produce from their farm for

delivery to restaurant chefs who

appreciate the quality, flavor and

nutritional value of their crops,

often delivered within hours of

harvest. Photo by Von Williams,

courtesy Birmingham News

A Fresh Advantage 

Co-op helps small farms market

produce to high-end restaurants
Rural Cooperatives / May/June 2005 25

“We’ve thought about the decision to form a cooperative

many times while developing bylaws, electing a board and

so on,” she says. “There are times when another [business]

option would have been personally easier for us. But I

think the cooperative was the right way to go because it

will benefit local farmers. What we’ve

gone through so far are just the initial

steps of putting everything together,

but once we’re through that, we think

it will prove to be a good move,” she

adds.

The Network is just one example of

farmer cooperatives forming across

America to meet the needs of small

farmers who want to serve specific market niches. In fact, the Network itself

grew out of several local initiatives

specifically started to help the area’s

smaller farmers deliver their goods to

unique marketplaces.

Marketing bolsters

farmland preservation

In a region where agriculture is experiencing pressure from urban encroachment, higher property taxes and limited

marketing opportunities, there is a

trend of farmland loss, says Cindy

Haygood, executive director of Rolling

Hills Resource Conservation and Development

Council, which operates under USDA’s Natural

Resources Conservation Service. Farmers in

the area, especially those with small operations,

say they want to keep farming. 

This trend resulted in the creation of a

locally led farmland preservation effort. It has

made great strides in preserving farms and educating people on the importance of farmland

preservation.

“But once you preserve farmland, then

what?” asks Haygood. “The group decided it

also needed to create marketing opportunities

for local producers.”

That’s when they created Cotton Mill

Farmer’s Market, in Carrollton, Ga., which

today attracts hundreds of customers. With its

success came more discussions and brainstorming ideas that led to the Moores cooperating with other producers to create the

Network to serve their growing list of Atlantabased chefs. 

Through the Network, farmers pool products to market to restaurants, as well as educational and medical institutions. Farms eligible to

participate in the cooperative are located in and

around the Carroll County region, including

some counties just over the state line in Alabama. 

Moore says the farmers involved tend to have between

three and five acres of produce crops in production. The

goal of the Network is to “keep it local,” she adds.

Atlanta Chef Joey Masi shares cooking tips with the Green Market at Piedmont Park.

Photo courtesy Green Market at Piedmont Park

Amy Bentoski of D & A Farms is one of many farmers who market fresh Georgia-grown produce to urban consumers through Green Market at Piedmont Park, Atlanta. Photo courtesy of

Green Market Piedmont Park
26 May/June 2005 / Rural Cooperatives

‘Smart farms’

Moore describes these

small farms as ‘smart

farms,’ and says they are

being operated by a new breed of

farmer. “We use technology that will

allow us to make a living from the

land, even when we get to be 70 and

older, without killing ourselves. On

our farm, for example, we literally have

no tractor. We use a mulch composting system and have a very low impact

on the environment. That’s how many

of these farms are operating.”

Moore says members are reducing

their household living cost and simplifying their lives. “We believe you cannot just look at the land and the soil as

what it can do for you today without

putting anything back into it

for the future. So our overriding goal with the Network

is to allow small, sustainable

farms to make a living by

supplying the community

with quality products.”

The farmers trade food to

feed their families. In addition, they’re working with

human services departments

to allow low-income families

and the elderly to use existing

food stamp vouchers to purchase fresh fruits and vegetables through the farmers’

market or Network. 

The Moores have also

joined the Pepper Place

Saturday Market in

Birmingham, Ala., a farmer’s

market which attracts up to

3,000 people weekly. That

gives Laurie 200 to 300 additional customers per week.

Through the Network, the

Moores and other cooperative members also continue to

participate in the Piedmont

Park Greenmarket in Atlanta.

USDA, other funds 

bolster co-op

In early 2004, the Rolling

Hills RC&D acquired a

$2,500 grant from the West Georgia

Community Foundation to get the

Network started. In the fall of 2004,

Rolling Hills acquired a $105,000

grant from USDA’s Community

Foods Grant Program. The funding

helped meet start-up needs for the

Network for the first three years.

Purchases included a refrigerated

truck, walk-in coolers, a commercialgrade salad spinner and other equipment. 

The RC&D Council administers

the funds for the Network. In addition,

the Network uses the services of the

University of Georgia’s Center for

Agribusiness and Economic

Development to provide board training to its directors.

Combined with the increasing number of farmers’ markets in

the area, along with trading between producers,

the Network has added a

community-supported

agriculture (CSA) component to the mix to allow

some producers to extend

their seasons. Under the

CSA arrangement, customers buy subscriptions

in the farms for fall or

winter; subscribers share

in the bounty as crops are

harvested. 

Moore says the

Network has also attracted a few farmers with pasture-fed beef, eggs and

greenhouse operations.

These allow the Network

to market a greater variety of products for a

longer timeframe

throughout the year. 

In its first year of

operation, the Network

marketed some $30,000

in products. As the newly

hired project manager for

the Network, Moore

anticipates that figure

will grow to $100,000

this year.

■

Wendy Crager, who owns Crager/Hager Farm in Bermen, Ga., grows

strawberries, garlic, lettuce, mesclun greens, potatoes, tomatoes, blueberries, peas and beans which are marketed through Farmer’s Fresh

Food cooperative network. The Cragers plan to make Gonzo Gourmet

Pesto and other sauces when the area’s certified kitchen is built at the

agriculture center in Carrollton. Photo courtesy Farmers Fresh Food Co-op 

“Our over-riding

goal with the

Network is to allow

small, sustainable

farms to make a living by supplying the

community with

quality products.”
By Stephen A.Thompson

Assistant Editor

any mainstream farmers see organic growers as little

more than hobbyists, depending on ladybugs, manure

and luck to grow crops. But successful organic producers make their own luck. They are coming into

their own by using innovative agricultural techniques

to protect their crops while also developing their business skills.

Many are finding small, but profitable, niches by growing high-quality crops and catering to restaurant chefs and other customers who

demand the best.

Pennsylvania is home to a growing number of such farmers who

have joined forces to make their operations work with the help of

niche-marketing cooperatives. The Tuscarora Organic Growers

Cooperative, based in Hustontown, sells mainly in the BaltimoreWashington area to restaurants and some small high-end retail outlets. Growing for markets in the Pittsburgh area are the members of

Penns Corner Farm Alliance, a co-op that does not exclusively sell

organic produce, but which shares Tuscarora’s commitment to highquality products and sustainable agriculture.

Harvesting coordination crucial to co-op success

Tuscarora Organic Growers Cooperative was organized in 1988,

when Jim Crawford, the owner of an organic operation called New

Morning Farm, decided to spin off his produce wholesaling business, and to build new markets for his crops and those of his neighbor organic producers. 

In the beginning, members had little idea how to make the operation work. The cooperative puttered along for a few years, selling “a

few cases of this and that,” says Tony Ricci, sales and marketing

manager. What was needed was a comprehensive marketing and

organization plan. They got it when they hired Chris Fullerton as

general manager. Fullerton’s efforts turned the co-op into a professional organization with a constantly-growing customer base and

sales.

The heart of the operation is a system under which each of the 17

member farms commits to supplying a certain amount of a given

crop at a given time. During the winter, Fullerton talks with each

farmer; together they draw a plan based on the producer’s past

record, preferences, projected demand, etc. A grower’s commitment

may include new crops, and it may make up only a portion of his

projected output, since each member is free to sell produce through

M

Heirloom variety tomatoes, such as these, are in demand

by a number of chefs who look to co-ops such as

Tuscarora and Penns Corner in Pennsylvania for their

supply. Photos courtesy Tuscarora Organic Co-op

Rural Cooperatives / May/June 2005 27

Slice of the market

Penns Corner, Tuscarora co-ops

target growing restaurant trade
other channels. 

Growers’ commitments are loaded into a

computer relational

database, which every

week generates a list of the crops

expected from each grower. “We had

to get the database developed especially for co-op,” says Ricci. “Nobody

offered a database system that did what

we needed.” Off-the-shelf systems

were centered on keeping track of

available produce, but didn’t keep track

of individual growers.

The custom-built database was put

into service 10 years ago, but was

given an overhaul beginning in 2002,

using lessons learned in the interim.

The revamped system was inaugurated the following year. The new database has turned what used to be a

headache into easy work. “We used to

do everything using spreadsheets,”

Ricci says. 

Once commitments are entered into

the system, they are not carved in

stone. The co-op keeps in constant

touch with members, and figures are

updated as necessary. 

“We have to be flexible,” says Ricci,

“so we can deal with changes in the

market and with our own changing

conditions.” If the co-op is unable to

sell all of the committed produce, the

loss is split evenly among the growers. 

Quality, reliability

are co-op’s lifeblood

The ability to present customers

each week with a list of available products is a big advantage. Another is the

high quality of the co-op’s produce.

“We sell quality, not quantity,” Ricci

says. 

The co-op’s focus on building close,

one-on-one relationships with its customers is another strong point. As the

person in charge of marketing, Ricci

spends much of his time cultivating his

relationships with chefs and other

buyers. 

Part of building those relationships

is providing what they ask for, even if

the co-op doesn’t currently have it. “If

we don’t have what they want, we get

it from somebody else,” says Ricci.

The decision to keep the co-op

open all year has also been key in

maintaining its customer base, says

Ricci. “Staying open means we keep

the trucks running, and our customers

loyal.” 

The problem is what to sell during

the lean winter months. Winter root

crops take up some of the slack, and

some of the members have greenhouses. The co-op also sells mushrooms

from a Pennsylvania grower, citrus

fruits from Florida and even organic

olive oil. 

The ultimate goal is to run the coop in the black in the winter — a goal

that remains unmet. But last winter’s

figures were conspicuously better than

those of the winter before, with sales

higher every week — and one week

showing an increase of 40 percent over

the same week a year before.

Along with the professionally-run

marketing operation, the growers use

the latest in certified organic pest- and

disease-control methods. “People don’t

know it,” says Ricci, “But organic

farming is one of the most innovative

sectors of agriculture. There are new

products coming out all the time.”

The secret to successful organic

farming, according to Ricci, is to

maintain a proper environment in the

fields, and to not depend on “quick

fixes.” Instead, he says, organic farmers

monitor the conditions of their fields

and attempt to keep things in balance.

When problems do occur, there are

products available, such as a hydrogen

peroxide mixture, that control bacteria

and fungus while still meeting organic

standards. 

“A lot of people think we just howl

at the moon and hope for the best,”

Ricci chuckles. “But we just use different tools.”

Ricci believes that operations like

Tuscarora can offer desirable alternatives for farmers who today find themselves caught in the price-cost squeeze

endemic to mainstream farming.

“There are too few options for farmers

due to all the consolidation and centralization,” he says. “We don’t depend

on government guiding the market; we

take the risks ourselves.” 

So far, the approach seems to be

working.

Penns Corner co-op

pleases choosy chefs 

About 70 miles to the north, the

members of Penns Corner Farm

Alliance are using a similar approach.

Penns Corner was founded after current president Pam Bryan and other

produce farmers in the State College,

Pa., area attended a meeting held by

the Pennsylvania Association for

Sustainable Agriculture (PASA) to discuss a proposed local farmers market. 

The upshot of the meeting was that

such a market would be about five

years away. Bryan and her friends were

disappointed. “We wanted to sell

things now,” she remembers. 

They found start-up funding from

PASA, but with a catch. PASA would

not fund a purely organic organization.

The result was that, while most of the

cooperative’s members are certified as

organic, the co-op is open to other

farmers that practice sustainable agriculture.

After the co-op’s launch in 1999, the

next step was pure serendipity. At a

PASA meeting, Bryan met the executive chef for a large Pittsburgh restau28 May/June 2005 / Rural Cooperatives

“Organic farming is

one of the most

innovative sectors of

agriculture. New

products are coming

out all the time.”

—Tony Ricci
Rural Cooperatives / May/June 2005 29

rant chain called (The Big Burrito.).

Bill Fuller was looking for a source of

high-quality fresh produce. Trained in

California, Fuller had returned to his

home state only to run into trouble

trying to find good-quality vegetables

for his dishes. It was a match made in

heaven. 

Fuller, says Bryan, “took us by the

hand.” He suggested crops to grow,

and offered business advice. They also

received technical assistance from the

Keystone Development Center — a

cooperative development service,

which, among other things, paid for

Tuscarora’s manager, Chris Fullerton,

to come out and talk about his co-op’s

marketing database system. 

The co-op offers an interesting

variety of produce in addition to the

familiar vegetable staples. Edible flowers are produced by one operation,

including nasturtiums and squash blossoms. Bryan sells young whole plants

called “micro-greens” and “demigreens.” Growing and packaging the

tiny plants is labor intensive she says,

but customers pay a premium for these

top-quality additions to salads and

other dishes.

Customers request new crops

Other items sold by the co-op

include free-range eggs, turkeys, grassfed lamb, honey, blueberries, asparagus, and even pasta and tofu, which

along with mushrooms are supplied by

outside sources. Some of the crops

were originally unfamiliar to co-op

members when asked for by customers. 

Others were all too familiar. “We

found that people were asking for

things we thought of as weeds,” Bryan

says. Those edible “weeds” include

chickweed, lambs quarters and stinging

nettles.

About six years after its founding,

the cooperative has 14 members located in nine counties surrounding

Pittsburgh. The co-op’s customers are

a little more varied than Tuscarora’s.

They include about 19 restaurants and

other establishments — some of them

members of the “slow food” movement

— and the Pittsburgh Food Bank. 

But the co-op also sells through a

kind of “produce basket of the week

club.” Part of a nation-wide movement

called Community Supported

Agriculture (CSA), the program allows

individuals to buy subscriptions to four

or eight weekly deliveries of fresh produce, usually beginning in June. Other

sales venues include a farmers market

in College Station, begun when a

friend of the co-op invited members to

use the parking lot of building he

owned, and local country

and golf clubs. 

Like the Tuscarora

co-op, Penns Corner stays

open in winter, and for the

same reason. “We originally wanted to close during

the winter, but Big Burrito

convinced us that staying

open would help us keep

customers,” says Bryan.

Some members sell most of

their produce through the

co-op; others use it mainly

as a backup when they’re

unable to sell their entire

output to regular customers

or other venues.

Bryan believes that

future growth will come

mainly from CSA subscriptions. “We can drop off a

lot of boxes at one point,

she says, “and if we have a

crop failure — say, due to

deer — we can substitute

another crop.” The main

problems with the program, she says, are the

logistics of putting the

boxes together and keeping everything

refrigerated until delivery.

Things are going well enough that

Penns Corner recently hired a fulltime manager, with an eye to expanding sales. “If we can sell all we grow,”

she says, “we can double our sales.” ■

Eric Lichty, a member of Tuscarora, based in Hustontown, Pa., delivers his organic watermelons to customers throughout the Baltimore-Washington, D.C.-area. 
30 May/June 2005 / Rural Cooperatives

By Paul Williams, ATTRA

Publications Editor

n Amish

farmer in Iowa

drives his

buggy to the

nearest pay

phone and orders the latest

free publications about

organic pest control for corn

and soybeans. A peanut

grower in Georgia dials the

same number to find out

how to get by using fewer

purchased inputs, such as

pesticides, herbicides and

fertilizer.

In Oklahoma, a group of

Cherokee ranchers goes online at www.attra.ncat.org to

learn how goats can be used

to reclaim grazing land. In

California, Montana, New

York — all across the United

States — farmers and ranchers are looking for reliable

information on sustainable

and organic agriculture, on

how to qualify for government programs that reward

land stewardship and

resource conservation, or on

how to pursue profitable

niche markets, such as organic meats

and grains or ag tourism.

The answers to these and many similar questions are theirs free from the

ATTRA National Sustainable

Agriculture Information Service — a

project of the nonprofit National Center

for Appropriate Technology (NCAT),

headquartered in Butte, Mont. 

Since 1987, ATTRA has been providing American farmers, ranchers,

Extension personnel, educators and

others involved in commercial agriculture with information and research

services related to low-input, sustainable and organic production. Thanks

to continued support from USDA

Rural Development, ATTRA can offer

all its publications and services for

free.

How ATTRA works

NCAT employs about two

dozen specialists in agronomy,

horticulture, animal science and

health, soils, water, food systems,

agricultural energy and economics. These specialists research and

write ATTRA publications that

feature the latest developments in

sustainable agriculture, leadingedge research and the results of

studies and practical innovations

from America’s most progressive

farms. Many of NCAT’s ag specialists are themselves farmers and

market gardeners who apply the

practices and information on their

own farms that they suggest to

others.

While ATTRA’s publications

and other services are only offered

to American producers, the scope

of ATTRA research is worldwide.

Its specialists travel to Europe,

Asia and South America to study

advances being made there and to

determine how these practices

may be adapted to the needs of

American farmers and ranchers. 

ATTRA has about 250 publications and other materials (such

as PowerPoint slide shows and CDROMs) that cover a wide variety of

topics, including horticultural crops,

field crops, soils and composts, pest

management, water quality and conservation (including irrigation), and

livestock (cattle, hogs, small ruminants,

and poultry). Other publications

address grass farming, marketing and

Who you gonna call?

ATTRA output helps low-input

agriculture expand its market niche 

Sheep ranchers can learn about controlling noxious weeds from

ATTRA. USDA photos

A
Rural Cooperatives / May/June 2005 31

business strategies, risk management

and agricultural energy. All of these

publications share a common perspective: sustainable farming for a sustainable future in rural

America.

While these publications are ATTRA’s mainstay, there is another

ATTRA service that is

unique: a toll-free helpline —1-800-

346-9140 (English); 1-800-411-3222

(Spanish) — that producers can call to

talk to an ATTRA agriculture specialist. Often, a caller’s question can be

answered by one of the ATTRA publications. But when it cannot, a specialist

takes the question, researches it, and

sends the client a report on the findings, including sources of

more information. The

process usually takes a

week or less.

ATTRA has a Web site,

www.attra.ncat.org, which

was redesigned two years

ago, and has evolved into a

robust, interactive Web

resource. You can read or

download all the ATTRA

publications, find breaking news and

sources for grants and other funding

and find announcements for conferences. It contains hundreds of links to

other ag-related resources. You can

even submit questions about sustainable agriculture on-line, through the

“Ask a Sustainable

Agriculture Expert” feature.

In 2004, the NCAT

staff working on the

ATTRA project wrote or

updated more than 50 of

their publications and

responded to some 35,000

questions and requests for

materials, while visitors downloaded

more than 300,000 publications from

the ATTRA Web site.

Other NCAT activities

In addition to publications and

research, NCAT’s ATTRA project can

provide speakers (English, Spanish and

Laotian) for conferences and workshops. ATTRA is also translating many of its publications

and field-ready pest management materials into Spanish. 

Research projects

include whole-farm planning

for grass-based beef production and how to protect water

quality while using chicken litter fertilizer. NCAT’s ag-energy program is researching

issues that surround the emerging

markets for biofuels (ethanol,

biodiesel, methane) and what they

mean for rural development and sustainable farming, with plans underway

for a national conference on agricultural energy in 2006.

To find out more about ATTRA’s

publications, research services, and

other NCAT resources, call (toll free)

1-800-346-9140, or visit the ATTRA

Web site, www.attra.ncat.org. ■

Cattle waiting to be rotated to a fresh grazing paddock.

Low-tech hoop houses help vegetable

farmers extend their growing season.
32 May/June 2005 / Rural Cooperatives

By Jennifer J. Keeling 

and Colin A. Carter 

Editor’s note: Keeling is a Ph.D. candidate

in the Dept. of Agricultural and Resource

Economics, University of California, Davis.

Carter is a professor in the Department of

Agricultural and Resource Economics,

University of California, Davis.

fter nearly 80 years of

operation in California’s

Central Valley, the Rice

Growers Association of

California (RGA) closed

its doors in August 2000. Once a dominant cooperative that handled more

than 70 percent of the total California

rice crop, RGA’s market share had

dwindled to just 5 percent in its last

year of operation.

While RGA’s performance and market share began to decline in the early

1980s, the cooperative’s primary competitor and sometimes ally — Farmers’

Rice Cooperative (FRC) — steadily

increased in size and significance in

California. This article is based on

interviews with members and management of the failed RGA and the surviving FRC. In addition, historical documents and comparative financial analyses were used in recounting the story

of two cooperatives and explaining

what factors may have contributed to

FRC’s success and RGA’s closure, while

operating side-by-side.

Shared history

In the spring of 1912, USDA sent

agriculturalist Ernest L. Adams to

California’s Central Valley to develop a

commercial rice variety. By 1915, a

strain of short grain rice was profitably

grown in California, and regional rice

growers had formed a marketing cooperative known as the Pacific Rice

Growers Association (PRGA).

Fractionalization of the membership

eventually led PRGA to reorganize in

1921 as the Rice Growers Association

of California (RGA). In its first year of

operation, RGA marketed 43 percent

of the California rice crop; by 1926,

nearly 75 percent of the California rice

crop was grown by RGA members. 

The young cooperative experienced

tough times during the Depression,

when RGA lost its first mill to a fire.

To complete a second mill, growers

were charged higher fees, resulting in

the defection of many Depressionweary members. Once the new mill

was brought on line, RGA began an

advertising campaign to increase

domestic demand for its rice. The

campaign only met with limited success. Most consumers preferred the

fluffy, long-grain rice that was produced in Southern states, to the sticky

medium- and short-grain rice grown in

California’s Central Valley. 

Following the unsuccessful domestic

promotion attempts, the co-op began

to focus more attention on Pacific Rim

markets, Puerto Rico and Hawaii, as

well as the domestic brewery and

breakfast cereal markets. These channels would eventually become important market outlets for RGA.

Following the end of the

Depression, RGA experienced several

years of sales and membership growth

Trading places 

Fortunes of California rice co-ops took opposite 

trajectories; as RGA faded, FRC ascended

A

Farmers Rice Cooperative (FRC), with the Sacramento skyline on the horizon, is California’s

largest rice processor and marketer. Photo by Don Satterlee, courtesy FRC
Rural Cooperatives / May/June 2005 33

that eventually prompted RGA’s board

to cap the cooperative’s membership.

In part due to these restrictions, a

group of RGA members left the co-op

in 1944 and formed the Farmers’ Rice

Cooperative (FRC), along with other

Central Valley rice growers. Through

the 1950s, RGA built or purchased a

number of rice processing facilities.

However, it was RGA’s purchase of the

S.S. Rice Queen vessel in 1960 that

marked the cooperative’s integration

into the shipping industry. 

Model of success

By 1965, then RGA president and

San Francisco mayor Joseph Alioto

reported that “RGA’s sea-going vessels

have transported 9.3 million hundredweights of milled rice” and contributed

to the creation of “the largest milling

organization in the world” (Westlund,

1968). Affirmation of RGA’s influence

came in 1971, when Eric Thor, then

administrator of the Farmer

Cooperative Service of USDA said

“RGA is one of the leading cooperatives in the United States today. The

leadership of RGA is a model for all

cooperatives to follow” (Westlund,

1971).

Rumors of a possible RGA/FRC

merger surfaced in mid-1970.

Reportedly, only informal conversations between management and board

members of each organization

occurred, but a joint statement

released by management of both cooperatives initially seemed to express a

favorable view: “For some years we

have been making shipments of rice in

the same vessels and, by arrangement,

have been using the same loading and

unloading facilities. As a result of this

close association, it is only natural that

some thoughts should be directed

towards merging operations”

(Grundmand, 1970). 

In addition to sharing facilities and

shipping expenses, RGA and FRC routinely brokered their rice through the

same agent, Grover Connell of

Connell Rice & Sugar. However, no

merger occurred, and the two cooperatives remained separate entities.

War, drought and flood-damaged

crops in Asia during the 1973-74 and

1974-75 crop years ensured RGA of

good export sales through the Food for

Peace, or PL-480, program. In fact,

demand for rice was so great that, in

his 1973 annual meeting address, RGA

Executive Vice President Robert

Freeland said “demand far exceeds

supply.” 

However, the elimination of U.S.

domestic acreage controls in 1975

resulted in an estimated California surplus of 18-23 million hundredweight —

or more than 50 percent of total U.S.

medium-grain rice production. By

1980, RGA’s members were again

enjoying good returns and prices that

were described by one manager as “The

best we’ve had. The best in the industry. The best in the world”(Kirk, 1981).

Surpluses create challenges 

Without acreage controls, however,

large rice surpluses accumulated once

again in the early 1980s. RGA entered

this critical decade by warehousing rice

in whatever space was available. At

times, these locations included a vacant

Safeway shopping center and an idled

Libby’s canning plant.

Piles of rice contributed to the

development of an international scandal that became known as “Koreagate.”

Comet Rice, a private mill in Colusa

County, contracted with the South

Korean government to deliver 370,000

tons of medium-grain, 1981-crop rice,

but the firm only had 120,000 tons

available. The only other firms that

had sufficient stocks of this type of rice

were RGA and FRC. 

The two cooperatives refused to sell

rice to Comet unless Grover Connell

was allowed to act as their agent.

However, the Korean government

declined to do business through

Connell because he had earlier accused

a high-ranking Korean official of taking bribes.

A two-year stalemate ensued, ending in 1983 when Ralph Newman, the

newly hired president and CEO of

FRC issued a public apology to the

Korean government and brokered a

deal through a third party. By breaking

ranks with RGA and negotiating the

sale of rice without the involvement of

Connell Rice & Sugar, the tradition of

collaboration between FRC and RGA

ended and a new era of competition

began. 

Soon after the resolution of the situation in Korea, RGA purchased the

facilities of Pacific International Rice

Millers Inc. (PIRMI) of Woodland,

Calif. However, an anti-trust suit filed

by the Department of Justice “(sought)

to prevent RGA’s acquisition of the

PIRMI rice milling facility and other

assets.” The Department of Justice

argued that RGA and PIRMI represented two of the five largest rice mills

in California and RGA’s purchase of

the PIRMI facilities would “substantially increase concentration in the

purchase of paddy rice in California”

(U.S.A v. RGA). RGA lost the case on

grounds that it had violated Section 7

of the Capper-Volstead Act and was

forced to promptly divest itself of the

mill. 

FRC’s new strategy

While RGA dealt with the fallout

from antitrust violations, FRC developed a new strategic direction that

Former managers

often said the RGA

board was passive

and ill-equipped to

scrutinize the complex business decisions it was charged

with supervising.
34 May/June 2005 / Rural Cooperatives

focused on providing higher returns to

its membership. To meet that goal,

FRC’s management implemented new

programs in marketing, finance,

accounting, manufacturing, field services and communications. 

As part of the renaissance at FRC,

the cooperative eliminated its dependence on the Calrice Transport (CRT)

vessel that it jointly leased with RGA.

This proved to be a sound move, as

the ship became increasingly troubled

by maintenance problems. FRC also

ended “costly and ineffective discount

programs,” increased emphasis on

medium- and short-grain rice production and “established direct sales relationships with all international trading

firms and major foreign buyers of U.S.

rice” (FRC Annual Report 1983-1984).

Over the next few years, FRC prospered and was compelled to limit its

membership in 1985 as “any significant

additional volume will potentially have

to be allocated to lower return markets: it could also require additional

plant capacity” (FRC Annual Report

1985-1986). In contrast, RGA closed a

large mill in Biggs and, as a result of

poor sales, bills were issued in lieu of a

final pool return for growers’ 1985

crop. By 1987, RGA’s management

announced a change in its marketing

focus from bulk to value-added packaged rice products. Shortly after the

statement was made, RGA defaulted

on a $1.4 million lease payment on the

CRT shipping vessel. 

By 1989, RGA’s deteriorating financial condition and shrinking membership numbers obliged the cooperative

to mothball or sell facilities in

Williams, West Sacramento, Westside

and Willows. Meanwhile, FRC decided

to close an unprofitable operation in

Puerto Rico, which was consistent with

the cooperative’s stated goal to change

from being “primarily an export-oriented seller...to a sophisticated marketing firm concentrating in stable, valueadded, high-volume U.S. markets”

(FRC Annual Report, 1989-1990). 

In this same year, as the last CRTrelated lawsuits were resolved, RGA

was sued by PIRMI for trademark

infringement and Cal Rice Bran Inc.

sued the co-op for contract violations.

In 1989, David Long replaced outgoing president and CEO Mike Cook. 

The next year, RGA was nearly

forced into receivership when the

cooperative’s major lender, CoBank,

moved to close the firm after stating,

“We believe it would be better to have

an outside party assume control of the

company” (Martin, 1990). RGA’s line

of credit was cut off, preventing RGA

from paying dozens of employees and

leading to a protest outside the Sacramento CoBank offices. CoBank alleged

that RGA owed $42 million in overdue

debt and interests. In order to stave off

imminent closure, RGA sold assets in

Puerto Rico, West Sacramento, Biggs

and Cheney.

Bill Ludwig assumed the presidency

of RGA in 1993 after David Long was

terminated. RGA’s workforce was substantially cut and the cooperative was

estimated to control just 5-10 percent

of the California rice crop, down from

70 percent just 10 years earlier. RGA’s

membership now numbered 250, compared to 2,200 in early 1986. In contrast, FRC’s membership had grown

over time from an initial base of 60

members in 1944 to 1,350 in the cooperative’s 50th year.

RGA clings on with niche plans

In 1996, a new Farm Bill stipulated

an end to “government-bankrolled

crops and direct grower subsidies by

2002” (Gardner, 1996). Growers at the

FRC’s annual meeting were warned by

Ralph Newman to reduce planting by

at least 25 percent or “go out of business” (Gardner, 1996). At the same

time, Central Valley rice farmers were

dealing with increased costs of rice

straw disposal, decreased water availability and sagging world prices. 

While market conditions eroded,

RGA tried to stay alive by exploiting a

niche-marketing strategy. In February

1997, RGA announced that it would

form a business, Ap-Rice, with Applied

Phytologics Inc. (API) of Sacramento.

As part of the agreement, some RGA

growers would produce genetically

modified (GM) rice that would be

milled and malted so that proteins

could be extracted for industrial and

medical use. Amid controversy, RGA

reportedly ended the agreement for

undisclosed reasons, but API continued to contract with independent

growers in the Sacramento Valley.

Over the next three years, RGA’s

membership base continued to decline;

by May 2000, only 120-150 members

remained. During this time, RGA

maintained its focus and marketing

efforts on supplying niche markets. In

mid-2000, the cooperative announced

that it had reached a series of novel

trade agreements with the Philippines.

The deal had two parts, the first part

stipulating that RGA would help the

Philippines grow organic rice, which

RGA would then buy and resell in the

United States. The second part of the

deal required RGA to ship processed

rice to the Philippines, where it would

be traded for canned fruit, fruit juices,

tuna and other agricultural products,

which RGA would then sell in America.

Benefits from the trade agreement

likely came too late for RGA. In

August 2000, RGA announced that it

had missed payments to employees due

to credit-line problems. Later that

month, Bill Ludwig announced that

the cooperative was going to be disIf others are able

to identify and

address these problems and issues in

their own cooperatives, they may

avoid the same

fate as RGA.
Rural Cooperatives / May/June 2005 35

solved and restructured as a “for-profit” company, a move managers of the

cooperative had reportedly been considering since 1997. 

Ludwig said that the cooperative

was simply unable to compete in the

marketplace and he aimed to re-open

the new company in November of

2000. However, prior to the proposed

restructuring, several lawsuits would

need to be resolved. Among the pending lawsuits were claims by L&S

Distributors, RGA’s largest California

distributor, that it was owed $51,000.

The California Rice Commission also

alleged that it was owed more than

$100,000 in back assessments from the

1995-96 crop years. Takenaka and

Co., an investment-consulting firm

from Los Angeles, also sued the cooperative for $15,000 in unpaid expenses. 

In November, Pacific Basin Rice

Products LLC agreed to

buy RGA’s Woodland mill

and rights to the Hinode

brand name. Upon the

dissolution of the cooperative he had run since

1993, Bill Ludwig

summed up the struggles

of RGA stating, “There is

no future and no ability

to truly make a profit in

the rice industry in

California” (Ferraro and Schnitt,

2000).

Financial consequences

Effects of the very different goals

and business strategies pursued by the

RGA and FRC boards and management are evident when financial

records for the two cooperatives are

compared. Analysis of financial statements from the critical 1980s shows

the different paths that the cooperatives embarked on. 

A measure of net proceeds — the

amount of money received from sales

after deducting all transaction costs —

is regularly used to evaluate cooperative performance; it is the closest co-op

figure to business profits. In Figure 1,

net proceeds for both FRC and RGA

are compared from 1983 to 1991.

After 1983, RGA’s net proceeds continually decreased as the co-op lost business and gave-up market share in

California to FRC. 

In 1990, RGA’s net proceeds were

just 1/16th the size of a decade earlier.

During the same period of time, FRC’s

net proceeds steadily increased at an

annual rate of 10.82 percent, and

remained relatively stable compared to

RGA. Increases in net proceeds at

FRC were driven by gains in net marketing pool proceeds, a term analogous

to RGA’s net sales, indicating that

growth in net proceeds at FRC were

driven by increased sales and market

share gain. Continued decreases in

RGA’s net proceeds may in part be

attributed to the co-op’s decision to

implement a capital-intensive, nichemarketing plan in 1987.

Prior to RGA’s decision to change

its marketing focus to serving valueadded markets, the cooperative’s

debt/equity ratio was relatively stable

and low. To illustrate, between 1964

and 1982, RGA’s average debt/equity

ratio was 1.63, with a standard deviation of .79. However, in the decade

that followed, RGA’s average

debt/equity ratio more than doubled,

to 4.95, with a standard deviation of

3.9. Major sources of variation in the

debt/equity ratio can be attributed to

fluctuations in liabilities. RGA accrued

a large amount of debt that was used to

finance the co-op’s value-added marketing plan. 

A big jump in the debt/equity ratio

occurred in 1989 when RGA divested

itself of two valuable assets, one in

Colusa County and another in West

Sacramento, without paying down a

significant portion of the co-op’s debt.

In addition, the cooperative lost several

lawsuits, the most expensive of which

required RGA to pay $4.5 million to

settle a suit involving the CRT shipping vessel. These factors, in addition

to an over-valuation of

RGA’s inventory, resulted in a very high

debt/equity ratio that,

among other things,

prompted CoBank to

attempt foreclosure of

the cooperative in 1990. 

FRC’s debt/equity

ratio between 1983-1991

is reminiscent of an

RGA of earlier years, as

the ratio was both relatively stable and low,

averaging 2.73 (with an average standard deviation of .51). During the past

25 years, FRC’s average debt/equity

ratio has generally declined as strong

sales have allowed the cooperative to

pay down debt and an increased memcontinued on page 40
36 May/June 2005 / Rural Cooperatives

By Pamela J. Karg

Even large farms and organizations are finding they

need to make changes to adapt to new market realities.

Influences such as population patterns, transportation

costs and weather trends were among the factors Cooperative Agricultural Services (CO-AG) in Kansas started

to examine in 2001. This study eventually led the co-op to

add a soybean extruder to its operations to produce its own

feed and oil. This not only helps to boost producer income,

it is helping strengthen the local economy. 

“Farmers were aging and retiring, and the next generation was moving elsewhere for non-farm jobs,” says CO-AG

feedmill manager Mike Bucher. “We needed to make some

changes to keep farming viable in our area and to keep the

economic infrastructure that was slowly

crumbling away.” He worked diligently on

the project to bring it to fruition.

Soybeans are a good clean-up crop

after corn. However, corn requires more

water than soybeans. With parts of the

area experiencing nine years of drought,

the Ogallala aquifer (the underground

water supply) is showing signs of decline.

Water restrictions make the future of irrigation here iffy, at best, explains Duane

Cheney, coordinator for the Western

Prairie RC&D Area Council.

“I think we all saw a need for a change,” Cheney says.

“Even though there’s an ethanol plant just down the road,

we needed an alternate crop to corn that required less

water as well as a way to add value to what we were producing here. With the majority of the soybean crop being

exported from the area for processing, we needed to add

something that would keep the dollars in our community.” 

The cooperative has always transported its members’

soybeans 300 miles to a terminal. It then hauled soybean

meal from 400 miles away to meet the needs of cattle feedlots, corporate hog farms and large-scale dairies in northwestern Kansas and eastern Colorado, explains Bucher.

At a board retreat, he suggested adding a soybean

extruder to make soy meal and oil. The cooperative had

room in its existing Grinnell, Kan., feedmill, which made it

easier and less expensive to construct. But more research

was needed to determine if it was the right investment for

the area. 

The co-op turned to the Western Prairie RC&D for assistance, which eventually garnered the cooperative nearly

$1.2 million from a USDA Rural Development’s Value-Added

Producer Grant, and funds from the Kansas State Department of Commerce, and a local utility. About half the 

 $1.2 million — $520,000 — came from USDA. 

The money was used in part to study the market as well

as the feasibility of converting an unused portion of the

cooperative’s existing processing facilities for bean crushing. The studies determined that soybean processing could

be a solid business venture for the co-op.

Bucher and Cheney agree the extruder has not only

helped the cooperative, but the economy of the entire area.

First, it helped farmers change

their thoughts about what crops to

plant at an important time. Now, with

soybeans that require less irrigation

and rain, farmers are hoping the odds

are in their favor. 

Second, the extruder allows producers and the cooperative to lower

transportation costs and create jobs —

it initially added four jobs in this town

of 339 people. Bucher, the son of a

retired truck driver, notes that while

corn needs little or no processing for

use as livestock feed, soybeans must be converted into a

more edible form. Locally grown soybeans are now delivered to the local mill for processing. 

“One of our concerns was how to slow down the outmigration we were seeing in this area,” Cheney says.

“Could we draw in big industry? That would be hard to do

with little water to support it.” But it can certainly support

smaller, less-water-demanding industries. 

Third, the extruder created more agricultural infrastructure to serve the livestock farms already here, as well as

those looking to expand or even relocate to the area. As an

example, Bucher points out that the cooperative’s fleet of

semitrucks now haul finished soy meal — rather than raw

soybeans — 300 miles to eastern Colorado’s expanding

livestock farms.

“I don’t know if this one project is saving the family

farm,” says Bucher. “It’s going to take more than just this —

like getting a break in the weather pattern around here. But

I think the cooperative’s move to put in the extruder is part

of the solution for a lot of issues we’re facing.” ■

Soybean extruder opens 

new doors for Kansas co-op

“We needed to make

some changes to keep

farming viable in

our area ...”
Rural Cooperatives / May/June 2005 37

Record-breaking year for DFA 

Dairy Farmers of America (DFA)

payments to members increased 29

percent, to a record $5.8 billion in

2004, up from $4.5 billion in 2003.

DFA also reported a record $8.49 billion in sales, up from $6.93 billion in

2003, for an increase of 23 percent.

DFA marketed 57.2 billion pounds of

milk for member and non-member

dairy farmers in 2004.

For the sixth consecutive year,

DFA’s members shared in its earnings.

Members received $25.1 million in

patronage, with $6.6 million of it paid

in cash to 16,501 farmers. The financial results for 2004 “demonstrate that

we have the right strategy in place, and

that it is being solidly executed by our

talented, farmer-focused management

team,” DFA Chairman Tom Camerlo

told delegates attending the co-op’s

annual meeting Kansas City. 

Other financial highlights include:

• Cash flow generated from operations increased to $90.2 million,

compared with an $800,000 use of

cash from operations in 2003.

• Selling and administrative expenses decreased 9 percent, to $76

million, down from $83.1 million

in 2003. As a percentage of revenues, selling and administrative

expenses declined 30 basis points.

• Net savings grew 17 percent,

from $55.6 million in 2003 to

$65.1 million in 2004.

• Total members’ equity

increased 5 percent, to

$691.1 million, compared

with $656.5 million at the

end of 2003. In 2004, DFA

retired $21.1 million of equity.

• For the fourth consecutive year,

DFA issued a special allocation to

dairy farmers of $10 million from

the gain on the sale of Suiza

Foods Group, L.P., one of the coop’s fluid milk joint ventures.

• DFA ended 2004 with investment-grade credit ratings of

BBB+ from Standard & Poor’s

and BAA1 from Moody’s Investor

Services, ensuring access to capital

at competitive interest rates.

Camerlo challenged dairy farmers

to tackle three new bridge-building

projects in the coming years. The first

is understanding and meeting the

needs of the diverse DFA membership.

He also challenged dairy farmers to

lead the industry in creating alternative

ways to price milk, acknowledging that

this is a controversial issue. He

expressed concern over the role world

trade multilateral agreements will play

in the way milk is priced and products

marketed.

Cheese sales drive 

record AMPI revenue

Cheese sales drove a record $1.3

billion in total revenue for the member-owners of Associated Milk

Producers Inc. (AMPI) in 2004. AMPI

produced a record volume of natural

cheese, AMPI General Manager Mark

Furth said. “That volume, coupled

with a record-setting cheese market,

resulted in strong milk prices for our

members — the highest ever,” he told

more than 500 AMPI member-delegates at the co-op’s annual meeting in

Bloomington, Minn.

The cooperative earned $4 million

and revolved $10.6 million in equity,

according to the audited financial

statement. Earnings were impacted by

a Dec. 1, 2004, fire that shut down the

cooperative’s butter processing and

packaging plant in New Ulm, Minn.

Construction of an improved facility

on the same site is expected to begin

this spring. The butter plant is one of

13 manufacturing facilities across the

Midwest owned by AMPI members.

The cooperative manufactures 80 percent of its members’ milk and markets

a growing share of it in consumer

packages. 

“We know the work to secure

strong milk prices doesn’t stop with

dairy products,” said AMPI President

Paul Toft, a dairy producer from Rice

Lake, Wis. “AMPI is active in the

dairy policy arena. Curbing milk protein imports and securing a better

dairy price safety net are top priorities.”

Cairo Co-op building new elevator 

Cairo Co-op Equity Exchange is

building a new, 300,000-bushel grain

elevator about seven miles north of

Zenda, Kan. Co-op Manager Ed Laing

says the new facility should be operating by July 1. It replaces an older elevator, the Cairo Co-op Calista facility,

about seven miles further north.

“The old facility was on the edge of

grass country, whereas the new one is

right in the heart of wheat country,”

Laing says. “We’re very excited about

it. It’s a fantastic place for an elevator.”

The new location is closer to Cairo

NEWSLINE

Compiled by Dan Campbell

Send items to: dan.campbell@USDA.gov

Work is progressing on the new DFA /Glanbia PLC

cheese plant in New Mexico .
38 May/June 2005 / Rural Cooperatives

Co-op customers, and can facilitate

getting grain trucks back into the fields

faster.

The elevator will handle wheat and

corn and can load 15,000 bushels per

hour. It will employ five during harvest

season. The new facility will bring the

Cairo co-op’s total storage capacity to

3.7 million bushels. Its elevators handle wheat, corn, soybeans, milo and

sunflowers. The Cairo co-op has about

1,400 members and does about $25

million in annual sales. It operates in

three counties in Kansas.

Dakota Prairie Beef to dissolve

Hampered by drought and the

impact of the Canadian border closure

on the calf market, the Dakota Prairie

Beef Cooperative feedlot in Gascoyne,

N.D., is dissolving, according to

Agweek magazine. It reported that

Lance Larsen, a board member from

Dunn Center, N.D., confirmed that

the membership voted unanimously to

dissolve the cooperative in a Feb. 23

annual meeting. The 6,500-head

capacity feedlot was launched to feed

cattle with local feed, thus keeping

more value in North Dakota, rather

than shipping cattle to the Corn Belt

for fattening. About 130 members

bought some 8,000 shares at about $60

a share. 

Two co-ops semifinalists

for prestigious award

Harvard University’s John F.

Kennedy School of Government has

announced the top 50 programs for the

2005 Innovations in American

Government Awards. The School of

Government released the list of “50 of

the most creative, forward thinking,

results-driven government programs at

the federal, state, county and city levels.” 

The awards are often referred to as

the “Oscars” of government prizes.

Eighteen finalists will be chosen from

the 50; on July 27 six winners will

each be awarded $100,000 grants. Two

cooperatives are among the 50 semifinalists, including the Teacher

Professional Partnership in the Le

Sueur-Henderson Independent School

District, Minn. This is an unconventional program that challenges the traditional role of teachers as employees;

it empowers teachers to organize and

manage their school as a collegial

group. 

Cooperative Care, Waushara

County, Wis., is a worker-owned home

care cooperative that provides dependable, cost-effective care to the elderly

and disabled while assuring the workers’ living wages and access to benefits.

Margaret Bau, USDA Rural Development’s cooperative specialist in Wisconsin, has played a major role in the

development of the cooperative.

USDA offers $22.8 million 

for renewable energy projects

Agriculture Secretary Mike Johanns

in March announced the availability of

$22.8 million to support investments

in renewable energy systems and energy efficiency improvements by agricultural producers and rural small businesses. “Enhancing our energy efficiency is a key goal of the Bush

Administration,” said Johanns.

“Renewable energy is an exciting

growth frontier for American agriculture. Implementing an innovative

energy policy, which the President has

proposed, provides an opportunity to

strengthen both our national security

and the rural economy.”

Section 9006 of the 2002 Farm Bill

established the Renewable Energy

Systems and Energy Efficiency

Improvements loan and grant program

to encourage agricultural producers

and small rural businesses to create

renewable and energy efficient systems. The funds will be available to

support a wide range of technologies

encompassing biomass (including

anaerobic digesters), geothermal,

hydrogen, solar, and wind energy, as

well as energy efficiency improvements. To date, the Bush Administration has invested through this

program nearly $45 million in 32

states.

The $22.8 million will be made

available in two stages. One-half, $11.4

million, is available immediately for

competitive grants. Renewable energy

grant applications must be for a minimum of $2,500 and a maximum of

$500,000. Energy efficiency grant

applications may range from $2,500 to

$250,000. The grant request may not

exceed 25 percent of the eligible project cost. Applications must be submitted to the appropriate USDA Rural

Development state office, postmarked

no later than June 27, 2005. Detailed

information about application and program requirements were included in

the March 28, 2005 publication of the

Federal Register.

The remaining $11.4 million will

be set aside through Aug. 31, 2005,

for renewable energy and energy efficiency guaranteed loans. Final details

on how to apply for these funds will

be published in the Federal Register

later this year. Any funds not obligated under the guarantee loan program

by August 31 will be reallocated to

the competitive grant program as of

that date. Further information on

rural programs is available at local

USDA Rural Development offices, or

Wind power, biomass, geothermal, hydrogen and solar are all among the technologies eligible for funding under USDA’s

Renewable Energy Systems and Energy

Efficiency Improvements loan and grant

program.
Rural Cooperatives / May/June 2005 39

by visiting USDA’s Web site: 

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

Foremost sets sales/earnings record

Foremost Farms USA closed its

tenth year of operations with record

sales and earnings for fiscal 2004. Net

income after taxes was $28.3 million,

compared to $7.6 million in 2003. The

Baraboo, Wis.-based dairy cooperative

posted sales of $1.4 billion in 2004

compared to $1.2 billion in 2003. 

Duaine Kamenick, vice presidentfinance, cited “unprecedented high

market prices, a stronger economy and

the business decisions of prior years,”

as contributing the co-op’s strong

showing. The cooperative’s current

debt-to-asset ratio was $1.48 in assets

to $1 in liabilities.

Foremost issued $23.9 million in

2005 patronage refunds, with $7.2 million in cash to member-owners who

marketed milk through the cooperative

in 2004. The remainder will be distributed in the form of allocated equity

credits. The cash payments represent

30 percent of total patronage refunds.

This year’s patronage allocation is 3.04

percent of gross milk receipts. 

“Our 2004 returns have allowed us

to move more dollars into the hands

of our present and past member-owners,” President Dave Fuhrmann said.

“We will continue to put emphasis on

producing the right mix of dairy products for the marketplace and growing

the cooperative’s diverse business into

the market of choice for dairy producers.” Foremost manufactures a wide

variety of cheese (representing 54.2

percent of sales in 2004), fluid and

condensed milk products (20.3 percent

of sales), packaged milk products (15.8

percent) and whey and whey ingredients (6.3 percent). It also produces

sour cream, butter and chilled, readyto-serve fruit juices. 

The cooperative operates 20 manufacturing facilities and one milk transfer station for its 3,600 dairy farmermembers in Wisconsin, Minnesota,

Iowa, Illinois, Indiana, Michigan and

Ohio. Foremost employs 1,487 people.

Colorado local co-ops merge 

M&M Cooperative Inc. and

Horizon Co-op Inc. merged operations on April 1. The merger was

approved by 89 percent of M&M

members and 84 percent of Horizon

members, according to the Brush

(Colo.) News & Tribune. The paper

quoted M&M executive Ben Weitzel

as saying that many thousands of dollars in cost savings is expected to result

from the merger, as well as additional

marketing opportunities. He noted

that the agriculture world continues to

change, and that it is necessary to position the locally owned cooperatives

beneficially to ensure its members with

competitive prices and a more financially healthy company.

Court approves MCP settlement 

A judge has approved a $5.75 million settlement of a class action lawsuit

brought by farmers against executives

of Minnesota Corn Processors, according to a report in the St. Paul Pioneer

Press. The suit alleged the executives

breached their responsibilities to the

co-op’s shareholders and misled them

regarding the worth of Marshall,

Minn.-based ethanol co-op during its

sale to Archer Daniels Midland in

2002. The suit alleged that shareholders were not provided full details of

how eight executives would personally

benefit from the sale. The executives

agreed to pay $5.75 million to end the

dispute. Nine farmers had filed objections to the settlement. 

Walnut growers to vote

on co-op conversion

For 93 years, Diamond of

California has been a processing and

marketing co-op owned by California

walnut growers. Today, its 1,800 members account for about half the state’s

crop. Later this summer members will

be asked to vote on a proposal to convert the co-op into a publicly traded

corporation. Backers of the proposal

hope it will raise $70 million to $85

million through the sale of more than

5.3 million shares of stock at $14 to

$16 per share; members will be offered

an additional 6.7 million shares. 

Members will have to weigh the

incentive of a payout in company

stock, which they could sell to “cashout” of the co-op, vs. the prospect of

having outside stockholders take control of a company they have directed

for nearly a century. Filings with the

SEC indicate that an estimated $18.6

million will go to growers who want

cash rather than stock. 

Holstein-suited Foremost Farms USA volunteers pass out samples of Golden Guernsey

chocolate milk. The Baraboo, Wis.-based co-op had record net income of $28.3 million, and

record sales of $1.4 billion in 2004. Photo Courtesy Foremost Farms USA
40 May/June 2005 / Rural Cooperatives

A letter to members from Board

Chairman John Gilbert and CEO

Michael Mendes says “the conversion

to a corporation will allow Diamond to

build a financially stronger company

and issue equity to grower owners. It

will enable Diamond to improve our

ability to get the financial resources we

need to meet the challenges of the

future, to convert the ownership interests into transferable and marketable

shares of stock in the new Diamond,

and to provide cash to members.” 

Papers filed with the Securities and

Exchange Commission say proceeds

from the possible stock sale would also

provide funds to pay down debt, develop new products or acquire other companies. 

Diamond reported sales of $359

million for its last full fiscal year. It

recently launched the Emerald line of

snack nuts, which it hopes can compete against Planters for a larger share

of the snack nut market. The co-op

recently settled one of the longest protracted labor disputes in California history by agreeing to certify the

Teamsters union to present employees

at its plant in Stockton, Calif.

A series of member meeting were

held in April to explain the proposal to

members. Press reports out of

California show mixed reaction by coop members. The Stockton Record

quotes Diamond member Kenny

Watkins, of Linden, Calif., as saying

“It is all going to come down to dollars

and cents, and the faith the growers

have in the leadership.” The Record

also quotes Stockton producer Jon Brandstad

as saying “I went up

to Linden to the

hardware store and

there were about

four growers outside

talking about that, and

every one of them was against it.” 

The Fresno Bee quotes Richard

Carstens of Fresno, a co-op member

for more than 40 years, as saying

“What bothers me about this whole

thing is that if it happens, what say will

the growers have? I’ll be a stockholder,

but will they listen to me anymore?”

Others have noted that the worse-case

scenario would be growers losing control to outside investors who could

choose to source walnuts from cheaper

overseas suppliers, or even move the

entire operation offshore. 

Ocean Spray taps former Pepsi

R&D chief to push innovation 

Ocean Spray has chosen one of the

food and beverage industry’s leading

product innovators — Dr. Geoffrey

Woolford, who has held

the top research and

development posts

at Pepsi-Cola and

Mead Johnson

Nutritionals — to

help write its brand’s

recipe for a new generation of healthy beverages and snacks.

Woolford joined Ocean Spray as vice

president of research and development. 

Woolford, a native of Great Britain

who began his career at Quaker Oats

in the late 1970s, was a driving force

behind Pepsi’s “total beverage company” strategy in the 1980s and ‘90s. He

bership base contributed to the cooperative’s growing equity. 

Why did RGA fail as FRC succeeded? 

By studying the history and finances

of RGA and FRC, great differences in

the management style and strategic

direction become evident. The consequences of pursuing divergent plans

are clear as one cooperative was successful while the other failed. 

However, questions still remain

about what specific factors led to the

closure of RGA and how the same fate

may be avoided at other cooperatives.

For answers to these questions, former

members and management of RGA

were interviewed and surveyed.

Interestingly, several of the main

reasons cited for joining RGA are

directly related to what members perceive to be the causes of RGA’s failure.

This indicates a fundamental gap

between what growers expected

through cooperative membership and

what was borne out in reality. For

instance, some members indicated that

RGA had an appealing, differentiatedproduct strategy. Ironically, former

members cite poor decision making by

management and the board — including the decision to pursue a differentiated-products strategy — as a chief

contributor to RGA’s failure. 

Former affiliates also identify the

high cost of maintaining both the

cooperative’s assets and the contract

with the CRT ship as key factors in

RGA’s failure. Expenses from maintaining numerous assets and the problematic shipping vessel no doubt

diminished the higher-than-industryaverage returns that initially attracted

members to RGA. Consequently, many

members left RGA after realizing

higher returns could be earned by

marketing through competitors such as

FRC, or through private mills.

Lack of attention by the board of

directors was reported as another

important contributor to RGA’s

decline. This survey finding was supported by interviews with former managers, who said the board was passive

and ill equipped to scrutinize the complex business decisions it was charged

with supervising. 

Moreover, both members and former directors acknowledged that

RGA’s board was in need of greater

management and financial expertise.

Furthermore, our survey findings indicate that RGA’s management was perTrading Places continued from page 35
Rural Cooperatives / May/June 2005 41

led the development of Aquafina, the

nation’s No. 1 brand of bottled water

and oversaw product innovations and

introductions for Pepsi’s domestic

brands, including Lipton Iced Tea. In

1999 he went to Mead Johnson

Nutritionals, where he led a series of

innovations in infant formulas, other

nutritional products and specialty

packaging. 

Ocean Spray has been the top-selling brand name in the bottled juice

category since 1981. The co-op,

owned by 800 cranberry growers, 

posted fiscal 2004 sales of $1.4 billion.

Sunkist marks 111th year

with higher sales, grower pay

Citrus co-op Sunkist Growers’ total

revenues in 2004 topped $975 million,

up 3.5 percent from 2003. The co-op

marketed 71 million cartons of fruit,

down 3 million cartons from the previous year. Payments to grower-owners

jumped more than 11 percent. 

In 2004, returns for most citrus

crops were substantially higher.

“While Mother Nature helped, to my

mind this accomplishment was largely

due to the improved sales and marketing, accomplished by Sunkist management pulling the industry together,”

Sunkist Chairman David W. Krause

told the more than 800 Sunkist grower-owners attending the citrus cooperative’s 111th annual meeting in Visalia,

Calif. “The success can be seen in

grower returns; in record royalties for

Sunkist licensed products; in a growing

list of customers, and in extremely

strong market shares in major export

markets. The Sunkist brand is the

centerpiece of our cooperative, the

most valuable asset we own.”

Sunkist President and CEO Jeff

Gargiulo cited four new initiatives the

citrus marketing cooperative is implementing: more consistent product

quality; uncompromised food safety

systems; aligning growers, customers

and end consumers, and uniting

Sunkist and the industry to grow the

citrus category.

“Radical changes in the retail business — globalization, consolidation,

technology-driven innovations, shifting

buyer-seller relationships — require

new business models to seize competitive advantages,” Gargiulo said.

“Sunkist is on the move with a new

vision — making strategic changes to

leverage its brand,

expand global market

share and increase

grower returns.”

“Long-term,” he said,

“Sunkist is dealing

with the political

dynamics of our world.

We have completed a

study of citrus production in China and are

developing ways to

address the opportunities and challenges

there. We are sourcing global product

to keep our customers supplied year

round.” 2004 saw the united effort of

the California Citrus Growers

ceived to have been deficient in the

skills necessary to guide the cooperative through tough times that included

periods of low world rice prices, industry scandals and high costs of maintaining the co-op’s assets and shipping

vessel contract. 

Ultimately, the survey and interview findings support the notion that

RGA’s closure was primarily the result

of a lack of board oversight and

expertise coupled with an ineffective

management. Other cooperatives

may empathize with the experience of

the Rice Growers Association.

However, if these organizations are

able to identify and address the above

problems and issues in their own

cooperatives, they may avoid the same

fate as RGA.

Bibliography

Gardner, Michael. “Rice Grower Get

Wake-Up Call: You Must Adjust to

Survive.” Chico Enterprise-Record 24

Nov. 1996: E4.

Farmer’s Rice Cooperative. Annual

Reports 1983-1990. 

Ferraro, Cathleen, and Paul Schnitt.

“Troubled Rice Co-op to Restructure,

RGA Will Be For-Profit, May

Diversify Products.” Sacramento Bee 31

Aug. 2000: E1.

Kirk, Ray. “ ’80 Rice Prices Are Tops;

But ’81?” Chico Enterprise-Record 23

Nov. 1981: A6.

Martin, Patricia. “RGA Sues Bank

Over Debt Spat.” Sacramento Union 30

May 1990: Page 1.

Grundmand, J.E. “Merger Rumor

Denied.” Willows Daily Journal 19 June

1970: Page 2.

Rice Growers Association. Annual

Reports 1922-1991.

United States of America vs. Rice

Growers Association of California,

Pacific International Rice Mills, Inc.,

Wallace and Anderson, Inc., and Yolo

Petroleum, Inc. No. S-84-1066 EJG.

US District Ct. for the Eastern

District of California. 31 Jan. 1986.

Westlund, Harold. “Alioto Reports:

Big Rice Sales Made to Korea,

Okinawa.” Chico Enterprise-Record 3

Sept. 1968: A10.

Westlund, Harold. “Top Cooperative:

RGA Praised by USDA Official.” Chico

Enterprise-Record 22 Nov. 1971: D2. 

■

Fruit shipments were down marginally, but Sunkist revenue

climbed past $975 million and grower payments were up 11

percent in 2004. Photo courtesy Sunkist Growers
42 May/June 2005 / Rural Cooperatives

Association (CCGA) benefit both the

consumer and the industry, Gargiulo

added. The California citrus industry

cooperated in strategically marketing

the season’s orange crops. 

ACE Institute set for N. Virginia 

“Cooperative Education:

Understanding Cooperation as a

Strategic Business and Community

Asset,” is the theme for the 2005

Association of Cooperative Educators

Annual Institute, to be held Aug, 3-6,

in Alexandria, Va. The ACE Institute

is the only annual conference dedicated solely to highlighting innovative

programs in cooperative education. 

The conference provides a unique

opportunity to network with educators

across cooperative sectors and national

boundaries. The institute results in a

synergistic sharing of programs, experiences and ideas in the cooperative

education arena. The event will

include workshops, study tours and an

awards banquet

The Institute is attended by about

100 cooperative educators and members; university faculty, researchers and

graduate students as well as development specialists and government officials from Puerto Rico, Canada and

the United States. The program is

simultaneously translated in Spanish

and English. 

ACE is a membership organization

that brings together educators and others across cooperative sectors as well as

national boundaries. For more than 40

years, the resulting cross-pollination of

ideas has enhanced cooperative development, strengthened cooperatives,

promoted professionalism and

improved public understanding. 

For more information about ACE

and attending the 2005 Institute go to:

http://www.wisc.edu/uwcc/ace/ace.html

■

and graduate assistants from the

University of Arkansas School of Law’s

Graduate Program in Agricultural Law.

The Center’s Web site offers a variety of resources that will be useful to

both the lawyer and the non-lawyer

looking for information on developments in agricultural and cooperative

law. Key components of the library

are described below.

Reading rooms

The heart of the new Web site is a

series of subject-based “reading

rooms” that provide access to a comprehensive list of electronic resources

on agricultural and food law topics.

The Cooperatives Reading Room,

one of 28 such “rooms,” provides

links to 11 major statutes governing

cooperatives, the regulations for

Subchapter T of the Internal Revenue

Service, Federal Register rules open

for comment, recent court decisions

impacting cooperatives, Center

research papers on cooperative law

and a variety of reference resources.

Other reading rooms provide similar

information on topics important to

cooperatives, such as farm credit, food

safety, international ag trade and marketing orders.

National AgLaw Reporter

The National AgLaw Reporter is a

regularly updated electronic newsletter

covering developments of interest to

cooperatives and others in the agricultural and food law communities. It

currently has four sections:

• In the News contains summaries and

analysis of recent developments in

agricultural and food law.

• Case Summaries describe recent

judicial opinions in agricultural and

food law.

• Federal Register Digest provides

brief summaries and links to some of

the more significant regulatory

changes affecting agriculture published in the Federal Register since

Jan. 1, 2002.

• Judicial Officer Decisions links the

user to all major decisions rendered

by the Office of the USDA Judicial

Officer since January of 2002.

Other features

The library contains other sections

that lead to legal research prepared by

both the Center and other scholars

working on agricultural and food law

issues.

• Reference Desk has links to bibliographies, glossaries, law journals,

trade associations, and other law

school Web sites. It has a General

Ag Resources area with links to additional federal agency and university

sites, news sites, publications and

sources of statistics.

• Farm Bills provides the text of all

United States Farm Bills since 1933,

legislative history of Farm Bills

since 1973, and other resource links

for the 1996 and 2002 Farm Bills.

• Congressional Links offers direct

access to Web sites for the U.S.

Senate and House of

Representatives, the Congressional

Record and other Congressional

resources, including the

Congressional Research Service and

the General Accountability Office.

■

Legal Corner continued from page 10

USDA-supported

Web site offers 28

legal ‘reading rooms.’ 
Rural Cooperatives / May/June 2005 43

By Peter J.Thomas, Administrator 

Business and Cooperative

Programs

USDA Rural Development 

ne of the foundations

that helped build

America has been cooperatives. The Pilgrims

who settled in Plymouth,

Mass., formed a cooperative to harvest

the land in which the first Thanksgiving was celebrated. 

Cooperatives have come a long way

since the days of the Pilgrims, but

what has not changed is the value that

each cooperative brings to the local

economy. 

One such cooperative that USDA

Rural Development’s Business &

Cooperative Service division has provided financial support to is CROPP

(the Cooperative Regions Organic

Production Pools Cooperative).

Featured on the cover and page 15 of

this magazine, CROPP was founded in

1988 by a group of seven family farmers who had a love of the land and

believed in sustainable agriculture. 

It has grown into the largest organic

co-op in the United States, with 689

farmer members — including more

than 500 dairy farm members — in 17

states. Its Organic Valley brand milk,

cheese and other foods are sold nationally. What a success story CROPP has

become! 

On the dairy side of CROPP’s business, farmers currently average $20 per

cwt, far more than conventional farmers average. Co-op members are

actively involved with the direction

and decisionmaking of the company. 

USDA Business & Industry (B&I)

Guaranteed loans financed about 70

percent of the capital needed to construct CROPP’s new headquarters.

The first loan, for $4.2 million, was

made in 2001 for working capital and

refinancing of working-capital debt.

The co-op had been experiencing

rapid growth, but needed a long-term

solution to its working capital needs. It

requested a seven-year term loan to

assist with these needs. 

The second loan was made in 2004

for the construction of a new office

building. As the co-op grew, it added

personnel and rented more office space

in LaFarge. The co-op offices were

spread throughout LaFarge in various

buildings and trailers. 

Co-op leaders desired a more centralized location, and thus decided to

build an office building to bring everything under one roof. The facility is a

70x200-foot, two-story building with a

walkout basement. It gives CROPP

45,000 square feet of space. 

The facility encompasses just under

three acres and can accommodate up

to 279 employees, which is the expected staff growth through 2008. There

is ample parking. 

USDA also provided a $500,000

Value Added Producer Grant in 2001

to the Organic Meats Co., a CROPP

subsidiary. 

In 2004, Rural Development made

463 loans worth $972 million in B&I

guaranteed loans to support new and

expanded rural businesses. This program stimulates rural economies and

creates jobs. Under it, business owners

(including cooperatives) arrange a B&I

loan through a local, participating

financial institution. USDA Rural

Development then can guarantee up to

80 percent of the loan amount. 

Loans of up to $10 million (more in

some cases) can be guaranteed by

USDA under the B&I program. 

For more information on the B&I

program and other USDA financial

programs for rural businesses and

cooperatives, I encourage you to visit

our Web site at: www.rurdev.usda.gov,

then click the “Business-Cooperative”

program buttons. Or call (202) 720-

4323 to be connected to your USDA

Rural Development state office.

USDA Rural Development is committed to providing determined leadership to increase economic opportunities and improve the quality of life for

citizens living in America’s rural communities. With 47 state offices and 800

field offices, we look forward to working with you to bring opportunities to

you, your cooperatives and businesses,

and to your communities. ■

USDA B&I program supports 

growth of organic cooperatives

USDA helped finance the new CROPP

headquarters in LaFarge, Wis. 

INSIDE RURAL DEVELOPMENT

O
44 May/June 2005 / Rural Cooperatives

United States

Department of Agriculture

Washington, DC 20250

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