USDA / Rural Development May/June 2010

Rural

COOPERATIVES COOPERATIVES

Page 4

A Legacy of Cooperation & Innovation

USDA / Rural Development May/June 2010

O U T O F D A R K N E S S

Page 18
By U.S. Agriculture Secretary Tom Vilsack

n

o

A

O

R

impact on rural America, credited with transforming a life of

challenge into one of productivity and prosperity.

As important as establishment of the REA was, it almost

certainly would not have been a success without a vibrant

partnership between USDA and America’s electric

cooperatives. Since 1940, over 900 rural cooperatives have

partnered with USDA to bring services to rural communities.

O ur partnership is deep and lasting.

T he REA case is just one of a series of examples of the

cooperative model providing a way for producers or buyers to

band together to provide essential member services. USDA—

through programs that include the Intermediary Relending

Program, Rural Business Enterprise G rants, and Rural

Economic D evelopment Loans and G rants — promotes

collaboration and capital formation that encourages job

creation through economic opportunity. Cooperative

ownership of business not only creates wealth, but also makes

it more likely that capital will remain and circulate repeatedly

in local communities.

Cooperatives work. Because of the essential service that

cooperatives provide to farmers and rural communities,

USDA will continue to support cooperatives through

research, education, technical assistance and promote the

cooperative business model through efforts such as the

publication of the magazine you hold in your hands today or

are reading on the Internet. O ur support for America’s

cooperatives is firm and unwavering.

T he cooperative model has worked well since Congress

enacted the Capper-Volstead Act in 1922 (see page 9). USDA

supported then, and will continue to support, the ability of

producers to join together to collectively market their

products. Because of this, the Capper-Volsted Act and other

cooperative statutes need to continue to serve America’s

rural citizens.

You may have heard that the series of agriculture

competition workshops that USDA is jointly hosting with the

U.S. D epartment of Justice are somehow focused on

weakening the cooperative model. T his characterization is

not only wrong, but it is

180 degrees from the goal

of the workshops. T hese

workshops are designed to

consider the competitive

environment of the

agricultural and food

sectors to ensure that

farmers, ranchers and

consumers are getting a fair shake. As the audience for this

publication well knows, one of the main purposes of the

cooperatives statutes is to increase farmers’ bargaining power

to level the playing field in agricultural markets.

T here is no doubt that cooperatives, including electric,

farmer, rancher and fisheries, have an enormous impact on

the American economy. In a USDA-funded study, the

U niversity of Wisconsin Center for Cooperatives in 2008

identified 29,000 cooperatives employing more than 850,000

people and controlling $3 trillion in assets. T he nation’s

cooperatives are strong, vibrant and engaged. Farmer,

rancher and fisheries cooperatives alone employ 178,000

people.

But there are challenges. O ver the past 40 years, rural

America has lost over 1 million farmers and ranchers. Rural

America is aging, and those living there earn less than their

urban counterparts and are more likely to live in poverty.

Today, more than ever before, we need the help of our

cooperatives to turn things around.

T he American Recovery and Reinvestment Act of 2009,

signed by President O bama over a year ago, is a resounding

success, improving water quality, supporting business growth

and renewable energy development and bringing broadband

to rural communities. H owever, as with the REA 75 years

ago, its impact would be greatly diminished without the

support of the thousands of men and women who belong to,

or run, America’s cooperatives.

Since President O bama took office, I have traveled across

America, from remote communities in Alaska and N ew

Mexico to Midwest farms and western ranches. Everywhere I

go, I meet with cooperative members. T hey agree with me

that while production agriculture remains at the heart of the

rural economy, we have to build a thriving companion

economy to complement production agriculture in rural

2 M ay/June 2010 / Rural Cooperatives

USDA: C ommitted to C o-ops

I

continued on page 43

May, USDA observed the 75th anniversary

the founding of the Rural Electrification

dministration. Established by an Executive

rder signed by President Franklin

oosevelt, REA has made an immeasurable

f
Features

Rural Cooperatives / May/June 2010 3

Volume 77, Number 3

May/June 2010

Rural Cooperatives (1088-8845) is

published bimonthly by USDA Rural

Development, 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, articles in this

publication are not copyrighted and may

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

necessarily reflect those of USDA or its

employees.

The U.S. Department of Agriculture

(USDA) prohibits discrimination in all its

programs and activities on the basis of

race, color, national origin, age, disability, and where applicable, sex, marital

status, familial status, parental status,

religion, sexual orientation, genetic

information, political beliefs, reprisal, or

because all or part of an individual’s

income is derived from any public

assistance program. (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

to USDA, Director, Office of Civil Rights,

1400 Independence Avenue, S.W.,

Washington, D.C. 20250-9410, or call (800)

795-3272 (voice), or (202) 720-6382 (TDD).

USDA is an equal opportunity provider

and employer.

Tom Vilsack, Secretary of Agriculture

Dallas Tonsager, Under Secretary,

USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

Have a cooperative-related question?

Call (202) 720-6483, or email:

coopinfo@wdc.usda.gov

This publication was printed with vegetable oil-based ink.

p.4 p. 10

04 A Legacy of Cooperation & Innovation

Blue Diamond marks 100th anniversary as co-op that made U.S. world leader for almonds

By Gray Allen

10 Filling the Gap

At 25, Arthur Capper Co-op Center a major force for co-op education

By Seleise Barrett, Alicia Goheen and Gloria Holcombe

14 Project Pathway

4-H sees science, technology as crucial to building competitive workforce

By Jim Erickson

17 Celebrating the greatest public-private partnership

By Glenn English

18 Out of Darkness

Against industry opposition, REA helped ‘wire’ farms, rural areas at remarkable rate

By Anne Mayberry

24 $122 billion in ’08 sales sets record for Top 100

By David Chesnick

26 Heat by the Bushel

New co-ops supplying members with corn for home-heating fuel

By Stephen Thompson

30 Uniquely Cooperative: Equity Redemption

Survey tracks trends in how co-ops redeem member equity

By E. Eldon Eversull

34 Organic farmers increasingly turn to cooperative business model

By Alan Borst

Departments

2 COMMENTARY

9 LEGAL CORNER

32 CO-OP DEVELOPMENT ACTION

37 NEWSLINE

46 PAGE FROM THE PAST

p. 18 p. 26

ON THE COVER: One hundred years ago, California almond growers

formed a cooperative that eventually made California the world leader

for almond production (see page 4). Photo courtesy Blue Diamond

Growers. Inset: In this issue we also celebrate another major co-op

milestone: the 75th Anniversary of the Rural Electrification

Administration (see page 17). Library of Congress photo
By Gray Allen

Editor’s note: Allen is former editor of

“Almond Facts,” Blue Diamond’s

bimonthly magazine for co-op members

and customers. This article is excerpted

from a series of articles appearing in

“Almond Facts” to mark the co-op’s

centennial year. For more information on

the history of the almond industry and

Blue Diamond, visit:

www.almondhistory.com.

4 May/June 2010 / Rural Cooperatives

Blue Diamond marks 100th

anniversary as co-op that made

U.S. world leader for almonds
he goal in 1910 was straight forward

and vital to growers: to bring order

and prosperity to a chaotic and often

unprofitable almond market.

Founded by almond growers as the

California Almond Growers Exchange (now Blue

Diamond Growers), the co-op put growers in the

drivers’ seat of their industry, propelling California

from being a small player in the almond industry

into the world’s major almond producer.

Blue Diamond today is a processing and

marketing cooperative of more than 3,000 California

almond growers with annual sales approaching $1

billion. From that seedling planted 100 years ago,

Blue Diamond has grown into the world’s leading

supplier of high-quality almonds, with its products

sold in 95 markets around the world. It achieved this

status through constantly pushing the technology

curve forward, and with product research and

marketing efforts that expanded the ways, and

places, in which almonds are consumed.

Along the way, Blue Diamond has adhered to the

core co-op principles: member-owned, membercontrolled and member-benefited. This has involved

an equally strong commitment to keeping members

informed and involved in their co-op (see sidebar).

Deep roots

The almond story began 6,000 years ago, when

early travelers in the Mediterranean region

discovered sweet almonds growing wild on rocky

mountainsides. They collected handfuls of the nuts

and carried them on their journeys for sustenance.

By 4,000 B.C., almonds were a staple of people’s

Rural Cooperatives / May/June 2010 5

Facing page: A Blue Diamond TV commercial; an array of almond

pasteries; an early co-op receiving station. This page: the need for handsorting almonds (seen here circa 1930) has been greatly reduced through

the use of “electric-eye” sensors; the co-op’s Sacramento almond

processing plant, the largest in the world; co-op pioneer T.C. Tucker; Blue

Diamond snack nuts. All photos courtesy Blue Diamond
6 May/June 2010 / Rural Cooperatives

diets in the region; 2,000 years ago,

farmers throughout the Mediterranean

region were cultivating almonds.

California growers first experimented with commercial almond

production in the 1840s. By the 1880s,

an industry had been born, but too

many growers with too many trees and

not enough marketing clout yielded

unprofitable results for growers.

In an effort to gain some marketing

leverage, growers tried pooling their

crops for sale through local dried fruit

associations. But the small associations

were no match for the handful of

buyers and speculators who played one

group of growers against another to

drive down prices.

J. P. Dargitz, an almond grower from

Acampo, southeast of Sacramento,

believed the necessary marketing power

could be achieved by forming a

statewide growers’ association. On May

6, 1910, in Sacramento, he organized

nine local cooperatives representing 60

percent of the state’s almond

production into a single marketing

cooperative: The California Almond

Growers Exchange.

The following year, Dargitz — who

had been hired to manage the fledgling

cooperative — reported: “We have sold

600 tons of unshelled almonds and 177

tons of shelled almonds. Our members

have been paid more than a quarter of a

million dollars.”

It hadn’t been easy. The first year

proved difficult. Dargitz reported:

“Growers who were outside [the co-op]

came under cover by selling out at

prices a little under our quotations...It

is regrettable when growers have their

output placed so that it competes with

other growers.”

Success breeds growth

While others attempted to sink the

co-op, the Exchange hired T. C. Tucker

to travel east to interview important

players in the nut trade, select brokers

to work with and to sell as much of the

crop as he could. Dargitz, meanwhile,

stood his ground with buyers who were

attempting to beat down the Exchange’s

prices. The market research he had

done the previous summer served him

well.

In the end, the Exchange sold its

first crop at fair and reasonable prices.

As news of the cooperative’s success

spread, membership grew to 14

associations representing growers in

southern, central and northern

California.

In 1912, Tucker introduced what

would become one of the world’s most

widely recognized food brands: Blue

Diamond almonds. Four-pound

cellophane packages of unshelled

almonds were sold in department stores

on both coasts “to increase demand for

California almonds and standardize the

price to growers and consumers year in

1840s Following failed attempts to grow almonds in the eastern U.S., crop proves well adapted to California climate.

1897 Davisville Almond Growers Association formed to help local growers pool their crops and bargain for higher prices. Their success encourages growers in other

districts to form similar associations.

1910 Nine grower associations – representing 1,200 tons of almonds and 60 percent of the California crop – form the California Almond Growers Exchange (CAGE) in

Sacramento.

1911 Co-op offers packages of in-shell almonds for retail trade through department stores, launching the Blue Diamond brand.

1914 CAGE erects an almond hulling and shelling plant on C Street in Sacramento.

1917 Co-op lobbies U.S. government to improve railroad rates and service for almond shippers, establishing co-op’s government relations function.

1918 CAGE invents an almond bleaching and drying system, salvaging rain-stained, in-shell almonds.

1922 “The Minute Book” introduced, a publication to keep members “informed of what their cooperative is doing, its decisions and the reasons for those decisions.”

1926-28 Co-op develops chocolate candy market for California almonds. Successfully blanches and salts California almonds to compete with imports.

1939-40 Creates an in-house advertising program; introduces seminars to help growers cope with rising insect damage in orchards.

1942 Adopts nutrition message for almonds, funds new research on almond benefits and distributes results nationwide.

1949 Smokehouse Cocktail Almonds introduced.

1950 Almond growers overwhelmingly approve almond marketing order.

1957 CAGE completes construction of 14-silo, bulk-storage complex to hold 9,000 tons of

almonds for processing.

1962 Electric-eye sorting technology developed at CAGE.
Rural Cooperatives / May/June 2010 7

and year out.”

In the early years, almonds were

strictly a holiday treat, when the vast

majority of sales were concentrated. In

1915, Blue Diamond introduced a novel

marketing scheme in hopes of

extending almond sales into the spring

months.

Working with a

major department

store in San

Francisco, Tucker

created elaborate

window displays,

developed an ad

campaign and

distributed samples

to attract consumers

during March. A

great success, the

promotion was

repeated in

following years,

with steady sales

growth. It evolved into a Blue Diamond

nationwide advertising and promotional

program that focused on lengthening

the traditional sales period and boosting

consumption, helping to move

mounting almond surpluses.

Co-op pioneers new products

From the beginning, the association

worked to improve grower income and

expand the market for California

almonds. It pioneered new almond

processing and manufacturing

technologies to produce products that

expanded the market and maximized

member returns. In 1914, the Exchange

opened a shelling plant on C Street in

Sacramento.

Told by many that California

almonds could not be satisfactorily

blanched and salted, Blue Diamond

proved them wrong. By 1926 the co-op

was offering blanched/salted almonds in

glass jars and in tins

for retail sale. It also

sold roasted almonds

in barrels for ice

cream manufacturers.

By 1928, the

product line included

Nonpareil almonds in

jars, as well as roasted, ground-roasted,

whole-blanched, split-blanched,

1964 California almond growers out-produce both Spain and Italy. Exports to Europe continue to set records.

1965 Smokehouse almonds take to the skies; at its peak, this effort sees every major airline serving the snack almonds on flights.

1966 Introduces new hulling system that provides high-volume hulling at relatively low cost.

1968 Salida almond receiving station opens.

1975-77 Blue Diamond is the first California almond company to visit People’s Republic of China; co-op also obtains lower tariff on almonds shipped into India, opening

that market to California.

1986 The “A Can a Week, That’s All We Ask” television campaign hits the airwaves.

1987 Official name of cooperative changed to Blue Diamond Growers.

2000 Purchases MacFarms of Hawaii, world’s largest macadamia producer.

2001 Board and management begin annual strategic planning sessions, resulting in new goals to increase competitiveness and expand global demand. CEO Doug

Youngdahl promotes “rational marketing” to reduce effect of speculation and let market prices reflect facts of supply and demand.

2003 After 2001 crop is declared the first 1-billion-pound crop, Youngdahl says: “We needed it to meet worldwide demand!” Growers enjoy higher prices. Almonds

approved by U. S. Food and Drug Administration for first qualified health claim on packages.

2004 Blue Diamond brand is the No. 1 snack almond, with a 43-percent market share. Grocery sales are up nearly 50 percent for second year in a row.

2006 Blue Diamond’s Natural Foods group (Almond Breeze and Nut*Thins) sees sales accelerate three years in a row. McDonald’s introduces Asian Salad with Blue

Diamond almonds. Construction begins on new Salida Distribution Center and state-of-the-art production line. Orchard plantings accelerate.

2010 Crops now averaging over 1.5 billion pounds, doubling in size since 2000. California is producing more than 80 percent of the world’s almond supply, but barely

keeping up with rising world demand. Blue Diamond’s array of new products continues to expand, creating greater demand for almonds, adding value for members.

Almond sorting in the 1930s (left) and

packaging in the 1950s (below).
8 May/June 2010 / Rural Cooperatives

blanched-pieces and sliced-blanched

almonds. It also sold almonds processed

for ice cream topping. By the end of the

1920s, the co-op’s own manufacturing

department had become Blue

Diamond’s largest customer for shelled

almonds.

High rail freight rates and unreliable

scheduling plagued the almond industry

from the start. With the outbreak of

World War I, those problems became

worse. Tucker, who had been appointed

general manager in 1913, led successful

efforts to remedy the situation. The

effort included the launch of the co-op’s

government relations program, which

to this day helps Blue Diamond

Growers to achieve its legislative,

regulatory and foreign trade goals.

The co-op continued to experiment

with new products and markets,

establishing a research lab to develop

new products and quality-control

methods. It made the initial sales of

shelled almonds to chocolate candy

manufacturers and began to produce a

variety of manufactured items for ice

cream, baking and confectionery

businesses. The co-op’s technicians

continued to design, build and patent

the equipment and processes to produce

these products.

All through the difficult years of the

Great Depression, the Exchange’s

pioneering efforts, superior grower

returns and stability attracted increasing

numbers of new members.

Establishing a

beachhead in Europe

Blue Diamond also led the way in

establishing quality grading, setting up

a formal system in the early 1930s.

Later, it used its proprietary grading

techniques and equipment — developed

on the spot by the association’s staff —

to salvage salable almond meats from

the 1938 crop, which had been badly

damaged by peach twig borer. More

than 70 percent of the damaged

material was salvaged.

That same year, Blue Diamond

ventured into the European market,

Communications plays

a major role in co-op’s success

T.C. Tucker, Blue Diamond’s general manager from 1912 to 1936, believed that

a cooperative can succeed only if its members are well informed.

Knowledgeable, engaged members make better decisions and are more loyal

and committed to the co-op, he believed. He communicated prodigiously

through his board of directors, in letters to members, detailed annual financial

reports, member meetings and — beginning in 1922 — through a member

publication, now titled Almond Facts. It has been in continuous publication ever

since, except for a few years during the depths of the Depression.

Tucker’s tireless communication about what the cooperative was doing, its

methods of operating, its decisions and the reasons for those decisions held

the membership together during some of the most turbulent times in the

nation’s and cooperative’s history.

His example was followed by each of his successors, but perhaps with no

greater effect than by Doug Youngdahl, president and CEO from 2000 to the

present (he is retiring at the end of 2010). Youngdahl’s use of accurate

information and open discussion of global almond market fundamentals has

benefitted not just co-op members, but all California almond growers.

Today, Blue Diamond communicates in both traditional and new ways. A

revamped website uses the latest technology to communicate in real time with

members, customers, news media, regulators, legislators and consumers. The

cooperative’s magazine has been judged in surveys as the “most read”

publication dealing with the almond industry.

A monthly newsletter, annual report, news releases, a variety of grower

meetings throughout the year and periodic management and field

representative visits to the members’ farms maintain a constant flow and

exchange of information.

Market intelligence vital to co-op

Youngdahl’s use of market intelligence to shape sound marketing strategies

was a technique used by J. P. Dargitz to successfully market the cooperative’s

first crop in 1910. Subjected to relentless pressures from buyers, speculators

and competing almond marketers to lower prices, he stood firm, confident in his

position because he had done his homework as the crop was being harvested.

Dargitz knew that the rumors swirling in the marketplace were inaccurate

and that prices would eventually rise to reasonable levels.

His position proved correct and the membership enjoyed

superior returns that year and most years thereafter.

Blue Diamond continues to adhere to the principle that

sound information, intelligently applied, produces

superior results. Youngdahl’s annual address at the

International Nut Congress — in which he analyzes

the supply, demand and market outlook for all tree nuts

— is eagerly anticipated by nut marketers around the

world. Those speeches and periodic updates throughout

the year help stabilize an otherwise unstable industry,

made up of hundreds of sellers and few buyers, proof of

the value of knowledge appropriately applied.

T. C. TUCKER

continued on page 42
By Stephanie M. Smith,

Senior Legal Advisor for

USDA Cooperative Programs

he Department of Justice (DOJ) and the U.S.

Department of Agriculture (USDA) are

jointly hosting workshops for the public to

discuss issues affecting competition in the

agricultural marketplace. These issues

include antitrust immunity laws and the Capper-Volstead Act

(see page 2).

These are the first joint DOJ/USDA workshops ever held

to discuss competition and regulatory issues in the agriculture

industry. The first two workshops were held in March (in

Iowa) and May (in Alabama), with three more still slated (see

sidebar).

Each workshop features keynote speakers, general expert

panels and/or break-out panels that address more narrowly

focused issues. The attendance and participation of the public

are encouraged throughout the series of workshops.

Opportunity is provided for comments and questions.

The goals of these sessions are to generate further

dialogue among interested parties and to improve

understanding of the legal and economic aspects of antitrust

issues. The workshops have generated interest in the CapperVolstead Act, the law that provides certain cooperatives

limited antitrust immunity.

Following are some of the most commonly asked

questions about Capper-Volstead:

• What is Capper-Volstead, and why was it enacted? The

law was enacted in 1922 to allow farmers to form for-profit

associations, with or without capital stock, to collectively

market their products. From a historical point of view, before

Capper-Volstead became law, farmers who joined in stockholding cooperatives were being prosecuted under the antitrust laws for illegal combinations and price-fixing. Congress’

goals for the Capper-Volstead Act included increasing

producers’ bargaining power, bringing consumers and

producers closer together, eliminating unnecessary

middlemen in the marketing of agricultural products, and

providing the same benefits in capital acquisition that are

available to corporations.

• How does this law provide limited antitrust exemptions for

farm co-ops? Capper-Volstead legally permits farmers to join

together to process, prepare for market and market products

of their own production. Also, a group of producers may act

together not only through their own association, but also by

joining with other associations of producers to create a

common marketing agency.

• Are cooperatives the only organizations protected under

Capper-Volstead? Capper-Volstead states, in part, that:

“persons engaged in the production of agricultural

products...may act together.” It does not use the word

“cooperative” or define “agricultural producers.” Further, it is

not an enabling statute under which cooperatives organize. It

uses the language “association of producers.”

• What conditions do farmer co-ops have to meet to qualify

Rural Cooperatives / May/June 2010 9

Legal Corner

Capper-Volstead Q&A

Ag Competition Workshop Schedule

The final three of five workshops are being held:

• June 25 — Madison, Wis. Focus: Dairy Industry. Specific

areas of focus may include concentration, marketplace

transparency and vertical integration in the dairy industry.

At University of Wisconsin, Great Hall, Memorial Union,

800 Langdon St.

• Aug. 27 — Fort Collins, Colo. Focus: Livestock Industry.

Specific areas of focus will address beef, hog and other

animal sectors and may include enforcement of the

Packers and Stockyards Act and concentration. At

Colorado State University.

• Dec. 8 — Washington, D.C. Focus: Producer Margins. This

workshop will look at the discrepancies between the

prices received by farmers and the prices paid by

consumers. As a concluding event, discussions from

previous workshops will be incorporated into the analysis

of agriculture markets nationally. At USDA headquarters,

Jefferson Auditorium, 1400 Independence Ave., S.W.,

Washington, D.C.

Additional updates and information, including agendas

and speakers, will be posted on the Antitrust Division's

events website at: www.usdoj.gov/atr/events.htm. ■

continued on page 45
By Seleise Barrett, Alicia Goheen

and Gloria Holcombe

Editor’s note: Barrett is educational

program manager for the Arthur Capper

Cooperative Center at Kansas State

University; Goheen is an agricultural

economics communications analyst, and

Holcombe is an editor for the College of

Agriculture at Kansas State University.

n Kansas and across the

Midwest, when most

people think of a

cooperative, they

picture grain elevators

— those tall, white “castles of the

plains.” Today, agricultural cooperatives

are usually much more than the grain

companies they began life as more than

100 years ago. Farmer co-ops have

evolved, along with the farmermembers who own and govern them,

and who accrue benefits based on their

patronization of co-ops.

Farmer co-ops are now typically

large, diversified agribusinesses. As

such, most of them not only market

their members’ grain, but also provide

them with fertilizer, fuel, feed and other

farm inputs. Many farmer co-ops also

provide agronomic services to members.

It is not uncommon for these co-ops to

have sales in the hundreds of millions of

dollars and to employ more than 100

people.

Large or small, these co-ops are a

vital part of the rural agricultural

economy. Agricultural cooperatives, and

co-ops in general, use a unique form of

business that also has unique

educational needs. For example, the

principles of governance, finance and

strategy must be adjusted and

integrated to fit the principles

underlying the cooperative business

model.

The Arthur Capper Cooperative

Center (ACCC or “Center”) at Kansas

State University (K-State) recently

celebrated 25 years of providing

education and research-based

information to students and to the

leaders, employees and farmer-members

of agricultural cooperatives and to

stakeholders in other types of

cooperatives.

During the past 25 years, ACCC's

education programs have also evolved

to help meet the needs of these modern

and successful cooperative

agribusinesses.

Successful public-private

partnership: Bridging the gap

“The Center was established in

1984, at the request of the cooperative

business community, as a public-private

partnership between K-State and the

Kansas Cooperative Council — the

agent for all types of cooperatives in

Kansas,” says Dr. David Barton,

professor of agricultural economics and

ACCC director.

In the early 1980s, cooperative

leaders felt there was a strong need for

more co-op education, and they wanted

K-State to significantly enhance its coop educational programs. The Council

offered to raise a $1 million endowment

and to provide in-kind advice and

support. The Center began operations

in 1985 once the minimum start-up

goal of $250,000 had been raised.

Kansas cooperative leaders had the

foresight to act before Kansas joined

10 May/June 2010 / Rural Cooperatives

I

At 25, Arthur Capper Cooperative Center

is a major force for co-op education

Filling the Gap
Rural Cooperatives / May/June 2010 11

the ranks of other states that lost their

cooperative education programs due to

faculty retirements, budget cuts and

changing priorities at universities. The

public-private partnership agreement

creating the ACCC was signed on June

11, 1984, and was witnessed by 14

founders, including cooperative leaders

and university faculty.

ACCC marked its 25th anniversary

in late 2009 at the annual Symposium

and Leadership Roundtable for

cooperative leaders. The silver

anniversary was chosen to celebrate and

honor the spirit of the Kansas

cooperative community’s effort to

enhance co-op education by

establishing the ACCC. Six of the

original founders of the Center

attended the gathering, which included

current co-op leaders, university faculty

and students.

Name and work honor

co-op giant

The Center bears the name of

Arthur Capper, a prominent figure in

the history of agricultural cooperatives

and Kansas, says Barton, who helped

found ACCC and has served as its

director since 1984. Capper was a fiveterm U.S. senator and leader of the

farm bloc in the Senate.

Capper co-sponsored the 1922

federal Capper-Volstead Act, which

clarified the antitrust status of

agricultural marketing cooperatives.

The law provides a limited antitrust

exemption allowing farmers to join

together to market their products

without violating antitrust laws. Capper

was also a two-term governor of

Kansas, newspaper publisher (“Topeka

Daily Capital,” among others) and a

philanthropist (Capper Foundation for

Crippled Children).

“The Center’s primary goal is to help

people understand the nature and role

of cooperatives in our society,” Barton

says. “We focus first on educating

students at K-State and leaders of

Kansas cooperatives, but we also work

with students and cooperative leaders in

many other states and in some other

countries.

“We are proactive in learning about

issues faced by a wide range of leaders

Facing page: Michael Boland, associate director of ACCC, integrates case studies when teaching about cooperatives. Photo by Seleise Barrett,

courtesy ACCC. Inset photo: Co-op pioneer Arthur Capper. Above: Ashley Guenther is an ag communications and economic major who received a

scholarship through ACCC. Photo by David Lundquist, courtesy CHS Inc.
12 May/June 2010 / Rural Cooperatives

and organizations, searching for and

constructing research-based educational

programs to address those issues, and

sharing that knowledge with a very wide

audience,” Barton continues. “In

doing so, we promote understanding

of the unique cooperative business

form, including its advantages and

disadvantages, and then helping

cooperatives be successful.

“It is clear to me that if we didn’t

have co-ops, we would need to

invent them.”

Positioned for the future

An advisory council — comprised

of cooperative leaders and university

faculty — meets annually to discuss past

accomplishments and set future goals

for the program. This is done with an

eye on the Center’s mission and vision:

to serve as a premier center of

excellence in cooperative education and

to be the first choice of those interested

in cooperative education.

These expectations, in combination

with the guidance and

accountability built

into the organizational

culture, have helped

the ACCC become

recognized as a

leading center of

excellence in

cooperative education.

The Center’s

programs are now in

high demand in Kansas and in many

other states.

“For the last 10 years, finance,

strategy and governance have been the

most significant issues [being focused

on by the Center],” Barton says. “Now,

risk management and human resource

management have risen in importance

for both cooperatives and their

members. We share our knowledge on

these critical issues with cooperative

leaders in many states, at the request of

educational and industry organizations

in those states, through our curriculumoriented educational programs and

special assistance projects.”

Dr. Michael Boland, professor of

agricultural economics and associate

director of the center, leads the studentrelated educational activities, conducts

research and participates in many of the

outreach programs.

“Cooperatives are a major employer

in rural Kansas communities,” Boland

says. “In my class, I integrate case

studies to help educate students about

cooperatives. I also prepare case studies,

conduct research projects and

participate as an organizer and

instructor in the extension-oriented

leadership education programs.”

Three-dimensional program

ACCC’s portfolio of educational

programs span all three dimensions of

land-grant universities — teaching,

research and extension, or outreach —

and focus primarily on two audiences:

students and cooperative leaders.

Programs for students include

scholarships, internships, cooperativestudy tours, development of case

studies, development of a textbook on

cooperatives, integration of cooperative

knowledge into university

courses, and supervision of

graduate students writing

theses on cooperative

topics.

Programs for co-op

leaders include a

symposium, CEO

roundtable and

cooperative marketing

leader roundtable, all of which are held

annually. It also facilitates board

retreats, financial planning projects,

one-day seminars on governance,

finance and strategic thinking, and

other special projects addressing current

issues.

An on-going challenge will be the

retention and recruitment of faculty to

lead, develop and deliver cutting-edge

programs. The current director, David

Barton, is approaching normal

retirement age and says he expects to

hand over the leadership reins to a

successor in the near future. Boland,

professor in agricultural economics and

“Kansas cooperative leaders had the

foresight to act before Kansas joined

the ranks of other states that lost

their cooperative education

programs...”

Art Driscoll II, president and CEO of

Sunsweet Growers, speaks to KState students in the Food and

Agribusiness Management Strategy

class. Left: The Kansas Cooperative

Council Education Committee meets

to plan the Annual Symposium on

Cooperative Issues. Photos by

Seleise Barrett, courtesy ACCC

continued on page 45
Rural Cooperatives / May/June 2010 13

Jeff Bechard was the first ACCC coop student intern in 1985. He completed

his internship at Farmway Co-op in

Beloit, Kan., and is now president of

AgMark LLC, a grain marketing

company in Beloit owned by several

co-ops, including Farmway Co-op.

“While at K-State, I worked for Dr.

Barton and took his class on ag

cooperatives,” Bechard says. “I

learned a lot about cooperatives,

thanks to him. I appreciate being able

to attend the center’s high-quality

educational programs, such as the CEO

Roundtable for Cooperative Managers.

Also, the generous scholarships

provided to college students are

another terrific benefit.” The ACCC has

awarded $314,700 in scholarships on

behalf of the cooperative community

since 1985.

Ashley Guenther, a senior majoring

in ag communications and journalism

and ag economics, is one of the

students benefiting from ACCC

scholarships and a co-op internship.

She received a CHS Foundation

University Scholarship in 2008 and the

Otis and Mary Lee Molz Cooperative

Scholarship in 2009.

“The Molzes are well-known,

respected leaders in the state, national

and international co-op community,”

Barton said. “Now, they’re

encouraging the next generation to

plan a future with cooperatives. They

established their annual scholarship in

2005 and actively participate in the

scholarship interview and selection

process.”

“Having Mr. and Mrs. Molz involved

in the interview process made

receiving this scholarship more

valuable to me,” Guenther says. “I was

able to openly share my career

passions and lifetime goals and visit

with two amazing stewards of the

cooperative education community. My

hope is to work with agriculturalists in

third-world countries, as the Molzes

have done. I was very impressed by

their care and concern for me as a

student and as a future leader in

agriculture.”

Last summer, Guenther interned at

CHS Inc., a Fortune 500 company and

the largest regional agricultural

cooperative in the country, owned by

U.S. local agricultural cooperatives

and agricultural producers. “During my

summer at CHS Inc. in Minnesota, I

split my time between the marketing

communications group and the CHS

Foundation,” Guenther says.

As part of her duties, she helped with

the filming of a tribute to the Arthur

Capper Cooperative Center and the

educational partnership with CHS,

shown at CHS’s annual meeting.

Terry Kohler, general manager of

Farmers Cooperative Elevator in

Cheney, Kan., became directly involved

with the ACCC while serving on the

Kansas Cooperative Council (KCC)

board. When he became board

chairman of KCC, he also became

chairman of the 15-member ACCC

Advisory Council. After leaving the

KCC board, he continued as a member

of the advisory council and also

became chair of the KCC's

Development Campaign to increase

the financial resources in the

endowment supporting the ACCC.

Kohler is a strong supporter of

education for cooperative leaders,

noting that the KCC, with assistance

from the ACCC, offers the Director

Development Program, a four-course

leadership education program. The

board of directors at his cooperative

requires all new directors to complete

the courses during their first threeyear terms on the board

“The Center has been very important

in the education of cooperative

leaders in dealing with timely issues

and subjects,” Kohler said. “I have

especially appreciated the annual

Symposium on Cooperative Issues

targeted at Kansas co-op leaders, and

the special assistance projects the

center offers to individual co-ops to

improve their financial planning, such

as income distribution and equity

management strategies.” ■

Students and co-op leaders

reap lasting

benefits from

program

Ashley Guenther hopes to someday work with

farmer co-ops in developing nations. Photo by

David Lundquist, courtesy CHS Inc.

Jeff Bechard president of AgMark LLC, a grain

marketer, was the first ACCC co-op student

intern in 1985.
14 May/June 2010 / Rural Cooperatives

4-H sees science, technology as crucial to building competitive workforce

Project Pathway

Top: Participants in 4-H National Youth Science Day gain

skills that could put them on a course for a career in

agricultural science. Above: The 4-H robotics program lets

participants put their ideas on the road. Photos courtesy

National 4-H Council
Rural Cooperatives / May/June 2010 15

By Jim Erickson

ericksonjim@att.net

Editor’s note: This article is reprinted

from the January issue of “AFC

Cooperative Farming News,” the member

publication of the Alabama Farmers

Cooperative, one of the many farmer co-ops

across the nation that support youth

organizations such as 4-H and FFA.

Erickson is a freelance writer based in

Missouri who has worked for several of the

nation’s major farmer co-ops.

ore than a half-century

ago, the launch of the

Sputnik satellite by the

former USSR sparked a

dramatic increase in the

number of U.S. students opting for

studies and, ultimately, careers in

science, math and engineering.

Today, nearly a decade into a new

century, the importance of those fields

has increased. But as challenges in

biotechnology, alternative energy,

genetics and other fields have come to

the forefront, members of the Sputnikinspired generation of scientists and

engineers are retiring. And experts say

replacements aren’t coming fast enough

to maintain the nation’s technology

leadership in the future.

Agricultural science is a notable case

in point due to its diverse impact on so

many aspects of people’s lives, both here

and throughout the world. Everything

from the foods we eat and clothes we

wear to the fuels we use have a link to

agriculture.

With that reality in mind, and with

its decades of experience with and

commitment to America’s young

people, the national 4-H Youth

Development Program has embarked

on Project Pathways, a research-based

learning system for youth ages 9 to 19.

To be available online and in CD sets,

the new program is designed to take

advantage of how young people learn

and communicate today.

Early exposure is crucial

Inventive new 4-H out-of-school

programming, such as Project

Pathways, will allow youth to be

exposed to, and engaged in, the sciences

earlier in life. This approach has been

shown to motivate youth to pursue a

career in the sciences as adults, notes

Donald T. Floyd, Jr., National 4-H

Council president and CEO.

A look at some key education

statistics underscores the need for the

Pathways initiative:

• Only 18 percent of U.S. high school

students are proficient in science,

according to the National Assessment

of Educational Progress.

• Just over 32 percent of U.S.

undergraduates are enrolled in

science-related degree programs,

according to the National Science

Foundation. That compares with 63.3

percent in Japan, 62.1 percent in

China and 56.2 percent in Germany.

• Of all science-related degrees now

awarded, only 3.7 percent are in

agriculture.

The clear conclusion is that if

America is unable to keep up with the

increasing demand for professionals

trained in science, engineering and

other technological fields, it faces a

daunting task of competing effectively

in today’s global marketplace.

4-H is positioned to play a key role

in encouraging young people to develop

an interest in science and engineering.

The 4-H mission says that the

organization “empowers youth to reach

their full potential, working and

learning in partnership with caring

adults.”

Achieving that goal involves a team

effort that includes the U.S.

Department of Agriculture, 106 landgrant universities and the National 4-H

Council. The end result is what ranks

today as America’s largest youth

organization, encompassing some 6

million young people, 4,500 4-H

educators, 500,000 volunteers and 60

million alumni.

Going digital

With Pathways, 4-H has set

aggressive targets of fostering 1 million

new scientists and 1 million new ideas.

It will assess progress toward those

targets by measuring literacy in ag

science, engineering and technology

(SET), the number of ag SET majors

and the number of college graduates

pursuing ag SET careers.

In designing the Pathways effort, 4-

H leaders recognized that the

organization faced a number of

challenges, including greater demand

for 4-H project materials, the need to

respond rapidly to changes in ag

science, today’s tech-savvy youth and

the need to connect with a larger

community of learners.

The obvious solution: Going digital

and making materials available online.

Work now under way aims to offer a

curriculum with some 1,000 learning

activities dealing with cutting-edge
16 May/June 2010 / Rural Cooperatives

plant and animal science content.

A “Project Builder” interface will

enable prospective users to find the

content-driven activity they want to

pursue. Projects will be customizable

according to a user’s age, where he/she

lives, the

identity of any sponsor(s) supporting a

particular activity, etc.

According to Roger Olson, 4-H

Council vice president of rural and

agribusiness development, the number

of possible combinations will be

virtually unlimited.

Project activities will be entered and

tracked in a "V-Book," an online virtual

project book replacing printed project

and record books.

Overall, the online content will

provide a blueprint for self-guided

learning, with additional information

including online videos, accessible to

enrich the learning experience.

Questions a user will be asked to

answer will reinforce important

concepts in each project.

In addition, a protected online

community at the 4-H website will

provide opportunities for social

networking, free online collaboration

with subject matter experts and a

searchable database of relevant project

information from land-grant

universities and industry sponsors.

Online goal: late 2011

Partnerships developed with

sponsors and other content providers

will affect how the ultimate cost in

dollars and man hours will be borne.

But there’s no doubt it will be a multimillion-dollar project involving many

thousands of staff hours.

According to Dr. Bob Horton,

professor of educational design at Ohio

State University and chief architect of

the Pathways initiative, the

development plan timetable is for the

initial content to be completed and

online by late 2011, assuming all

necessary funding is obtained. Updating

will be continuous after the Pathways

debut.

Olson noted industry sponsors will

be able to gain added visibility by

providing branded online content such

as “Ask the Expert,” simulations and

moderated chats, podcasts, news tickers

and blog centers and tracking and

reporting journals.

“Project Pathways will be designed

to accommodate, inspire and empower

a wide variety of learners,” Horton said.

“This is the first time the efforts of

industry, academia and youth

development are combining to create a

robust curriculum blending the latest

interactive online programming with

offline, hands-on work alongside

passionate, expert mentors.” ■

The Alabama Farmers Cooperative and its member Quality Co-op stores have had a long-standing

relationship with the youth of 4-H and FFA. This manifests through sponsorships of events, trips, a youth

scholarship program and financial support for students who participate in state and local livestock shows and

other agricultural competitions.

Each month, an article written by representatives of 4-H and FFA is published in the co-op’s newspaper,

“AFC Cooperative Farming News,” which salutes the accomplishments of each organization’s young people.

“The youth of Alabama

who venture a future in

agriculture are our destiny,

and we will continue to do

what we can to bring their

endeavors to fruition,” says

Jim Allen, editor-in-chief of

“AFC Cooperative Farming

News.”

AFC sees 4-H, FFA as key to future of ag

With Pathways, 4-H

has set aggressive

targets of fostering

1 million new scientists

and 1 million new

ideas.
Rural Cooperatives / May/June 2010 17

By Glenn English, CEO

National Rural Electric Cooperative

Association (NRECA)

Editor’s note: This guest commentary is

provided courtesy NRECA, which

represents 865 electric co-ops that serve 37

million consumer-members. The views

expressed are the author’s, and do not

necessarily reflect those of USDA or its

employees.

n May 11, 1935,

President Franklin

Roosevelt signed an

Executive Order

creating the Rural

Electrification Administration, now the

Rural Utilities Service (RUS). That was

75 years ago, when 90 percent of farms

and rural communities had no

electricity.

We should be celebrating. The

phenomenal success of this partnership

is self-evident in the poles and wires

spanning the continent.

I believe cooperatives and RUS can

best honor the legacy of this program

by reminding the American public of

what government and citizens

accomplished together in the early part

of the last century.

Many engineers point to rural

electrification — the task of creating

the electrical grid that now spans the

continent — as the greatest engineering

feat of the 20th century. This feat

would not have been possible without

the Rural Electrification

Administration: one of the most

successful public-private partnerships in

the history of this country.

The government supplied loans and

administrative support; private citizens

banding together to form cooperatives

made it happen. The not-for-profit,

consumer-owned cooperative business

model lies at the heart of this

achievement.

President Roosevelt acknowledged

as much in a Jan. 19, 1943, wartime

letter celebrating the first annual

meeting of the co-op’s nationwide

service arm, the National Rural Electric

Cooperative Association: “I think that

the forward march of the electric

cooperatives has an even more

profound significance in terms of our

fight to preserve democracy. For it

represents what is perhaps the most

democratic form of business enterprise,

one in which the individual finds his

greatest gain through cooperation with

his neighbor.”

The fruit of this partnership was

not simply electrification, but a

profound social transformation. Quite

simply: the availability of affordable

electric power changed every aspect of

life in rural America.

President John F. Kennedy, like

Roosevelt, understood cooperatives and

the cooperative model as a tool for

building infrastructure and, just as

important, for promoting democracy.

In 1962, Kennedy signed an

agreement stipulating that NRECA, at

the request of the Agency for

International Development, would

provide managers, engineers and other

specialists needed to start cooperatives

in other countries. Kennedy believed

that the United States could fight

communism abroad by exporting the

rural electric cooperative model and

access to affordable electric power.

Fostering cooperatives abroad

accomplished two goals: building an

understanding of democratic

governance and raising the standard of

living, making these populations less

open to communism.

Under the RUS model, government

provides a hand up — not a hand-out.

The RUS loan program provides

financing necessary to sustain and build

needed infrastructure to meet the rural

America’s growing energy demands.

The principal along with the interest

payments go back into federal coffers.

After 75 years, the RUS mission to

provide affordable electric power has

not changed and the need for this

program has not abated.

As the nation moves to repair its

aging infrastructure, build a smarter

grid and reduce carbon emissions from

electricity generation, these loans are

still vital to protecting affordable power

“President Kennedy,

like Roosevelt,

understood cooperatives and the

cooperative model as

a tool for building

infrastructure and,

just as important,

for promoting

democracy.”

Celebrating

the greatest

public-private

partnership in

American history

continued on page 43

Rural students learn about the “wonders

of electricity” from an REA employee.

Archival photos courtesy Library of

Congress
Against industry opposition,

REA helped ‘wire’ farms,

rural areas at remarkable rate

By Anne Mayberry

Rural Utilities Service

USDA Rural Development

Editor’s note: This is the

second of two articles

marking the 75th

anniversary of the Rural

Electrification

Administration (forerunner

of today’s Rural Utilities

Service). The first article

appeared in the MarchApril issue and is available

online at:

www.rurdev.usda.gov/rbs/

pub/openmag.htm
“In 1936, we witnessed the most spectacular increase of rural

electrification in the history of the United States.” That was how

Morris Cooke, the first administrator of the Rural Electrification

Administration, began his 1936 report to Congress.

May 2010 marks the 75th anniversary of the creation of the Rural

Electrification Administration (REA), established in 1935 by executive

order as an independent agency to deliver electric service to rural

areas. Cooke had headed the Committee on the Relation of Electricity to

Agriculture, established by the electric industry to address rural power issues

before being named administrator to the agency.

Despite Cooke’s experience, his was no easy task. The new agency was

overwhelmed with requests to bring electricity to farms nationwide. And

while Cooke tried to work with the electric industry, opposition by utility

companies to building electric infrastructure in rural areas remained strong.

Cooke understood that the new agency needed permanent status and

worked with Senator George Norris of Nebraska, often referred to as the

champion of public power, on legislation to make REA a permanent agency.

The bill passed Congress May 11, 1936. Cooke’s next task was to find a

successor.
That successor turned out to be John Carmody, who came to

REA from the National Labor Relations Board. He also had

experience in the coal and steel industries. Under Carmody’s

leadership, the number of farms with electric power tripled.

The REA’s 1937 report noted: “The demand for rural

electrification projects far exceeds our ability to supply it...We

here at REA believe in the social soundness of the program set

up by the Congress...We believe in the economic wisdom of

bringing farm families out of the dark into the light...We are

fully conscious that the Congress gave us an extremely difficult

task....

“We have reminded borrowers that they and REA are really in

partnership...We are dealing with public funds, and we must

keep our affairs in the open and on the highest possible plane of

efficiency.”

Despite challenges, the new agency achieved rapid success.

The report noted that one farm in 10 had electricity when

President Franklin D. Roosevelt established the REA in 1935. By

1937, the gap was beginning to close — electricity had been

extended to one farm in six, or about 18 percent of all farms.

REA sets standards

Reducing the costs of bringing electric power to the

countryside was crucial to the success of the effort. REA’s

research section looked for ways to reduce costs and

implemented standards to make bulk purchases. These standards

would also facilitate the ease of working on equipment so that

linemen in rural areas nationwide would all use the same

materials.

REA was established as an independent agency, but on July 1,

1939, it was transferred to the U.S. Department of Agriculture.

The transition was not a smooth one, as the independent agency

was not accustomed to

following government

procedures.

Yet REA continued

to loan funds for

construction of electric

power in rural areas.

By the end of 1939,

nearly all of the $40

million appropriated

to REA had been

allotted, most of it to

the new rural electric

cooperatives which it

worked closely with.

At this point, 25

percent of the farms in

the country had

electric service.

20 May/June 2010 / Rural Cooperatives

Bringing farm families out of the dark

With electric power in their

barns and homes, electricity

revolutionized life in rural

America. Library of Congress

photos

A family of farm

workers prepares

to travel from

Florida to New

Jersey for the

potato harvest.

The Great

Depression

turned many rural

people into

migrants, adding

more urgency for

rural

electrification

and the economic

stimulus it

sparked.
Rural Cooperatives / May/June 2010 21

Electrification stimulates

rural economy

“REA, its borrowers and the farmers

themselves are turning more and more

to the productive uses of electricity,

tending to reduce farm costs and

increase farm income,” the 1939 report

to Congress noted.

Among the challenges the new

agency faced was how to deliver power

to poorer farmers. “As construction

lines move forward, REA systems

necessarily move from areas which are

not densely populated but reasonably

prosperous to thinner territory, where

low income and limited resources offer

a new challenge. REA aims to make

that service a reality.”

One solution REA adopted was for

farmers to work with REA crews for

“payment in kind.”

By 1940, REA assisted rural electric

cooperatives in the purchase of electric

generating facilities. The 1940 report of

the REA administrator noted: “The

wholesale power bill is a rural electric

system’s heaviest single item of expense.

A difference of a few mills per kilowatt

hour in the cost of wholesale energy

may spell the difference between

success and failure of a system.”

From July 1948 to July 1949, the

greatest expansion of rural

electrification in history was achieved.

Nearly 80 percent of all farms in the

country now had electricity. Power

consumption climbed as rural residents

increased their use of electric

equipment, both on the farm and in

their homes.

By 1950, the newly established rural

telephone program was underway and

nearly $3.5 million in loans helped

provide telephone service as rapidly as

the procurement of trained personnel

would permit.

In testimony to the House

Agriculture Committee on May 3,

1951, REA Administrator Claude

Wickard said: “In both the rural

telephone program and the electric

program, the government is helping

local people and small business

enterprises help themselves.”

REA looks for capital

By 1969, REA’s focus shifted from

expansion of service to finding sources

of funding. The administrator’s report

that year noted that: “Few projects of

the federal government have created

benefits to equal those which have

flowed from these two programs....

Despite these accomplishments, the

need for new investment capital in the

two programs is greater now than at

any previous time....

“Like the farmer, rural electrification

and [telephone service] are never caught

up on their work. There is always the

next phase of growth to be planned for,

financed and carried out.”

The demand for rural electric

financing grew rapidly. The

administrator’s 1972 report noted that

for the first 30 years of REA history,

borrowers enjoyed favorable conditions

for increasing sales and declining costs.

By the 1970s, those conditions had

changed radically. The investment per

kilowatt of capacity had doubled,

environmental standards required

additional investment, transmission

costs had increased and the price of

fossil fuels had climbed.

On Dec. 29, 1972, REA announced

that it would no longer make loans.

Instead, funding would be made at

higher interest rates under new Farm

Bill provisions that created a Rural

Development Act. That announcement

triggered a strong reaction from rural

electric cooperative members, who

feared that the change would result in

sharply higher rural electric costs.

Electric co-op members traveled to

Washington to discuss the decision with

their members of Congress.

These efforts culminated in the

passage of legislation that expanded

financial resources available to both

rural electric and telephone

cooperatives, which was signed by

President Richard Nixon in May 1973.

The result was that more than $1.2

billion in financing was available to

rural cooperative utilities in 1973,

resulting in the highest amount of loans

made in the program’s history. “Fiscal

1973 was a remarkable year in the

history of the Rural Electrification

Administration,” the administrator’s

report noted.

By the close of 1980, more than 30

million rural residents were receiving

electric power as a result of REA

financing. By 1985, 99 percent of farms

had electricity and 96 percent had

telephone service. The agency’s focus

had turned to financial and

administrative improvements.

REA to RUS

Reorganization of USDA during the

1990s emphasized rural economic

development, established new programs

and revised funding and regulatory

provisions. In October 1994, the REA

merged with water and wastewater

programs to become the Rural Utilities

Service (RUS).

Today, RUS is part of USDA Rural

Development, working in partnership

with the Rural Housing Service and

Rural Business-Cooperative Service to

offer a variety of funding programs for

rural areas.

The RUS portfolio has grown to

more than $50 billion and includes

federal financing for electric and

renewable energy, water and

wastewater, telecommunications and

broadband infrastructure projects.

Today, the RUS electric program

funds an increasing number of

renewable energy projects — such as

wind turbines — and new technologies

to reduce emissions, including carbon

sequestration. “Rural electrification

fueled the economy 75 years ago and

greatly improved the quality of life in

rural America. Actions that USDA

Rural Development takes today will

continue to drive progress in rural

communities,” says RUS Administrator

Jonathan Adelstein. ■


24 May/June 2010 / Rural Cooperatives

Table 1—Consolidated income statement for

Top 100 cooperatives 2007-08.

$122 billion in ’08 sales

sets record for Top 100

Sales 2008 2007 Change

Marketing Sales $82,445,535 $61,615,555 $20,829,980

Farm Supply Sales 39,463,809 27,222,348 12,241,461

Total Sales 121,909,344 88,837,903 33,071,441

Other Operating Revenue 838,222 1,023,066 (184,844)

Total Sales and Operating Income 122,747,566 89,860,969 32,886,597

COGS 112,324,901 81,171,195 31,153,706

Gross Margins 10,422,665 8,689,774 1,732,891

Expenses 7,027,904 5,802,267 1,225,637

Net Operating Margins 3,394,761 2,887,507 507,254

Interest Expense 662,815 555,221 107,594

Interest Income 53,173 62,053 (8,880)

Other Non-operating Income 854,295 544,486 309,809

Other Non-operating Expenses 38,782 146,603 (107,821)

Patronage RefundsReceived 176,814 116,050 60,764

Net Margins From Operations 3,777,446 2,908,272 869,174

Other Margin Interests and

Extra Ordinary Items (74,339) (194,984) 120,645

Taxes 315,601 175,691 139,910

Net Income After Taxes 3,387,506 2,537,597 849,909

—————————— In thousands ———————————
Rural Cooperatives / May/June 2010 25

By David Chesnick, Ag Economist

Cooperative Programs

USDA Rural Development

he nation’s largest farmer-owned co-ops

enjoyed a banner year in 2008, ringing up a

record $122 billion in sales, due primarily to

sharply higher prices for many key

commodity markets. The 2008 sales total was

up $33 billion from 2007.

While higher sales don’t always translate into high profits,

the 2008 sales picture did provide a solid boost to the bottom

line for most co-ops. Table 1 shows the change in the

consolidated income statement for the nation’s 100 largest

agriculture cooperatives (Top 100) between 2007 and 2008.

The diversified, farm supply and grain cooperative subgroups of the Top 100 posted the largest gains. These three

groups accounted for 89 percent of the overall sales increase.

Only sugar cooperatives saw sales slip in 2008, primarily due

to lower sales volumes.

With grain and other commodities selling at record-high

prices in 2008, cost of goods also climbed sharply, up 38

percent, to $112 billion.

Gross margins were up $1.7 billion, to $10.4 billion.

Conversely, gross margins as a percent of total sales were

down slightly, dropping from 10 percent in 2007 to 9 percent

in 2008.

While most investor-owned businesses strive for higher

gross-margin percentages, cooperatives are different. Paying

members more for their commodities will mean higher costs

of goods sold and thus lower gross-margin percentages.

Expenses, debt also up

Expenses were up 21 percent, to $7 billion in 2008. Dairy

cooperatives accounted for more than one-third of that

increase. Part of higher costs for dairy cooperatives was

higher labor expenses, which were up 17 percent.

Labor expense increased 11 percent for all Top 100

cooperatives. While labor expenses were up, they only

accounted for one-third of the total increase and represent

about 42 percent of total operating expenses.

The largest cooperatives held more debt in 2008, which

pushed interest expense up 19 percent, to $663 million.

Diversified and grain cooperatives accounted for nearly 73

percent of the total increase in interest expense.

Interest income was generally lower across the board for

all commodity groups of the Top 100, declining to $53

million for 2008, a drop of $9 million.

Non-operating revenue — which includes revenue from

rent, investment income and other items not related directly

to a cooperative’s main operations — jumped 57 percent, to

$854 million in 2008. However, much of this $310 million

increase can be attributed to a single farm supply cooperative.

Non-operating expenses declined 74 percent. These

expenses are similar to non-operating revenue in that they

are not directly related to operations. Much of this decline

can be attributed to dairy cooperatives, which were able to

control their non-operating expenses.

Higher patronage refunds

Patronage refunds received were up $61 million in 2008.

Cooperatives receive patronage refunds because of business

done with other cooperatives, including federated farm

supply co-ops and financial co-ops, such as CoBank. Grain

cooperatives received more than half of the total patronage

refunds received by the largest 100 agriculture cooperatives.

Net margins for the Top 100 were up 30 percent, to $3.8

billion. All commodity groups had positive gains in net

margins with the exception of sugar cooperatives, which saw

their net margins slip 56 percent, to $78 million.

Other marginal interests and “extraordinary” items include

minority interest payments, gains/losses on discontinued

operations, changes in accounting practices, and other

revenue or expenses that are outside the normal cooperative

operations. These items generally are costs to the

cooperative. In 2008, these extraordinary item expenses were

reduced by $120 million, to $74 million.
26 May/June 2010 / Rural Cooperatives

Margins and taxes up

Margins are generally passed through the cooperative to

members, who are liable for paying income taxes on them.

However, cooperatives do pay income taxes on retained

income.

Cooperatives retained more of their income in 2008,

generating an increase in their income tax liability. The

largest cooperatives paid $316 million in income taxes in

2008, up 80 percent from the year before.

Net margins after taxes were $3.4 billion in 2008, up $850

million from 2007. This is a new record for net income after

taxes for the Top 100. Every sub-group (again, with the

exception of sugar cooperatives) had solid increase in net

income for 2008. Sugar cooperatives net margins were down

53 percent, to $60 million.

Consolidated balance sheets comparing 2007 and 2008 for

the Top 100 agriculture cooperatives are presented in table 2.

Total assets jumped 22 percent in 2008, to $42 billion.

Leading this increase once again were current assets,

which were up $6.8 billion, to $27.3 billion. Current assets

account for 64 percent of total assets in 2008, up from 59

percent in 2007. Current assets are those assets considered

most liquid. These include cash, accounts receivable,

inventory and other assets that can be sold quickly.

The largest part of the increase in current assets was a

Table 2—Consolidated balance sheet for

Top 100 cooperatives 2007-08.

2008 2007 Difference

Cash $987,750 $1,143,794 ($156,044)

A/R 9,230,002 7,519,061 1,710,941

Inventory 12,877,427 9,355,259 3,522,167

Other Current Assets 4,200,635 2,481,796 1,718,838

Current Assets 27,295,814 20,499,911 6,795,903

Investments 3,596,335 3,621,583 (25,248)

PP&E 9,009,800 8,424,962 584,838

Other Assets 2,490,730 2,206,229 284,501

Total Assets 42,392,679 34,753,550 7,639,129

Short-term Debt 6,399,867 4,707,664 1,692,203

Accounts Payable 6,268,488 4,964,928 1,303,559

Amounts Due Members 1,360,529 1,404,443 (43,914)

Patron and Pool Liabilities 4,650,871 3,484,442 1,166,429

Other Current Liabilities 2,757,854 2,061,158 696,696

Total Current Liabilities 21,437,610 16,622,636 4,814,974

Long-term Debt 5,732,730 4,684,418 1,048,312

Other Liabilities 2,073,774 1,756,981 316,793

Total Liabilities 29,244,114 23,064,035 6,180,079

Minority Interest 497,594 473,168 24,426

Preferred Stock 1,012,522 925,990 86,532

Common Stock 200,301 198,258 2,043

Equity Certificates 8,125,104 7,408,382 716,722

Unallocated Equity 3,313,045 2,683,717 629,328

Total Equity 12,650,971 11,216,347 1,434,624

Total Liabilities and Equity 42,392,679 34,753,550 7,639,129

continued on page 47

—————————— In thousands ——————————
Rural Cooperatives / May/June 2010 27

hen most people think of corn,

they don’t usually think of

burning it as a fuel. But that’s

exactly what some urban energy

pioneers are doing in and around

Maryland.

Farmers have known for years that dry feed

corn makes a good heating fuel. Years ago, they

began building and modifying stoves to burn it as

a convenient source of heat, both for animal

enclosures and in their own homes. After all, why

pay someone to truck in heating gas when you

can save money using something you already

have on the farm?

Heating with corn in cities and suburbs is a

much newer phenomenon. The incentive is twofold: First, many people have been looking for

ways to reduce their “carbon footprint” — the

amount of carbon dioxide their activities produce

and exhaust into the air. Second, they’d like to

save money on their heating bills.

Corn, it turns out, can not only heat your

house for less money than more conventional

means — such as natural gas, oil or electricity —

but can reduce carbon emissions as well. Pound

for pound, corn generates more heat energy than

wood, and like wood, it’s renewable.

For Jodi Beth McCain, the lower cost was

icing on the cake. McCain lives in suburban

Maryland, just outside the Washington, D.C.,

line. When she and her husband bought their

house, they were faced with the necessity of

upgrading its creaky, old forced-air heating

system.

Not only were they concerned with efficiency

and environmental impact, but, based on

experiences while living in Bolivia, they saw U.S.

dependency on oil as a source of international

Heat by the Bushel

New co-ops supplying

members with corn for

home-heating fuel

By Stephen Thompson, Assistant Editor

stephenathompson@wdc.usda.gov
conflict. Thus, they were looking for a

way to avoid using fossil fuel.

Buying a corn-burning stove wasn’t

difficult; the problem was how to obtain

the fuel. But McCain knew about Save

Our Skies, a cooperative based in

Takoma Park, Md., that provides

members with corn for home heating

fuel.

Co-op starts with four families

Save Our Skies was founded in 2002

by four families in the Takoma Park

area who were looking for a way to heat

their homes while minimizing their

carbon emissions. They began by

picking up their corn from a friendly

farmer an hour’s drive away in Mt. Airy,

Md.

The farmer is a Mennonite who uses

no-till farming methods and fertilizes

his crops with manure from his hogs

and poultry houses, instead of synthetic

fertilizers. It was the farmer who

suggested that the urban corn burners

erect a hopper bin near their homes to

serve as a central storage and

distribution point, which serves as the

drop-off point for deliveries by truck.

Fortunately, the Takoma Park

municipal government was sympathetic

to the new co-op. It not only allowed

the bin to be built on public land, but

helped out with permits and insurance,

saving the fledgling organization much

time and money.

Cash grants from the county and a

corn stove manufacturer helped pay for

erecting the bin. “It’s the world’s first

urban corn bin,” says Sat Jiwan Khalsa,

the co-op’s current president.

Today, more than 70 members

purchase corn from the Takoma Park

bin and from a new bin located 4.5

miles away in Mt. Rainier, Md. At least

half use their corn stoves as their

primary heat source; at least one

member has no other source of heat.

Baltimore Biomass

Meanwhile, an hour away in

Baltimore, another new cooperative,

Baltimore Biomass, is bringing corn

heat to that city. George Peters,

president of a nonprofit called

Sustainable Urban Infrastructures

(SUI), says that the organization was

looking for a project to encourage

“green” practices. “The point of our

organization is education,” he says.

SUI became interested in corn heat

after talking to members of the Takoma

Park co-op. Founded in 2008, under

SUI’s aegis, Baltimore Biomass has 21

members, but “Our membership has

been more than doubling every year,”

says Peters. At the current rate of

growth, he thinks SUI will soon be the

largest co-op of its sort in the area.

Peters sees big advantages from corn

heat: “It’s cheaper, it’s cleaner, it’s grown

in Maryland and we know the farmer.”

The nonprofit currently manages the

cooperative and shoulders the cost of

administration. Peters hopes that future

growth will make the cooperative selfsustaining.

While much of Save Our Skies’

recruitment comes by word of mouth,

Baltimore Biomass actively proselytizes

for the cause, with volunteers

dedicating three days a week to

outreach. The co-op is putting together

a “mobile classroom” designed to be

taken to gatherings such as festivals and

church fairs.

“If you can ensure us a crowd, we’re

happy to come out,” says Peters. “We’ll

tell you all about corn heating; we’ll

demonstrate how it works and how to

get started. And we don’t charge a fee.”

Both Peters and Khalsa stress the

economic advantages of corn heat.

“Typically, the cost of the stove and

installation will pay for itself in five to

ten years,” says Khalsa. “By contrast,

solar panels might take 25 years or

more.”

They also note that a federal tax

credit is available until the end of 2010

for the purchase of 75-percent efficient

biomass stoves. Depending on the cost

of the stove, buyers can get as much as

$1,500 back under this program

Financing new bins

is a challenge

Unlike Save Our Skies, Baltimore

Biomass has no distribution bin as yet.

Instead, a truck makes deliveries to the

co-op’s headquarters, which is located

in an old, “re-purposed” industrial

28 May/June 2010 / Rural Cooperatives
building that houses a number of small

enterprises, including the Baltimore

Biodiesel Cooperative (see “Baltimore

Biodiesel” in the May/June 2008 issue

of this magazine).

Members must meet the truck to

pick up their fuel. The co-op has drawn

up plans to install two 20-ton grain

bins, but faces hurdles its Takoma Park

counterpart did not.

While the Takoma Park bin cost

only $7,000 to install – in part because

of a sympathetic attitude on the part of

municipal authorities — the Baltimore

co-op faces a steeper cost curve.

Building code and permit requirements

raise the estimated cost for two bins to

about $45,000.

“We’ve been looking for grant

money,” says Peters. “We got an

enthusiastic response from the

Maryland Grain Producers. But their

grants are more in the $5,000 range.”

Until a source of funds can be

located, the bins will remain on hold.

“We keep hoping that if we keep

asking, someone will say: ‘you’re adding

income to rural areas,’ and give us a

grant,” says Peters.

The Baltimore co-op’s members are

enthusiastic, despite the relative

inconvenience. “It’s terrific. I can’t say

enough about it,” says one member who

uses a corn stove to heat her small

business.

However, even under the best of

conditions, corn heat demands a level of

involvement that most consumers aren’t

used to.

“It’s definitely more complicated

than just turning on a thermostat,” says

McCain. Stoves, while fed by an

electric-powered internal auger, still

need to be filled and cleaned out

periodically.

McCain has a single corn stove that

keeps the entire house comfortable

most of the time during cold weather,

but keeps the old heating system as a

backup. “If it gets really cold, we’ll turn

on the old furnace,” she says.

The “gentle heat” of the stove,

which is located on the lowest floor,

circulates naturally through the house.

“It’s a much more comfortable heat

than forced-air.”

McCain says she loads the stove

every two days and cleans out the ash

pot every three or four days. She

vacuums out the stove every 10 to 14

days, which takes just minute or two.

Her husband makes a trip to the bin

every week in cold weather to pick up

fuel.

Self-serve system

The Save Our Skies co-op operates

on an honor system. The bins are selfserve: the corn is measured in fivegallon bucket loads, and members note

on a clipboard register how much they

have taken.

Members are required to pay $100 to

join and an additional $25 to renew

their memberships every two years.

They deposit money into their co-op

accounts, which are then debited as

they take fuel. Current price is $4 for

each bucket of fuel.

Billing and other housekeeping are

done by volunteers through an e-mail

list: periodic e-mails contain a

spreadsheet noting each member’s

current balance. The cooperative went

through 120 tons of corn in the winter

of 2008-09, with members typically

using from one to three tons.

The Takoma Park bin is located at

the end of a peaceful, tree-lined

residential street on municipal land

used for storing mulch. The Mount

Rainier bin has a place next to a

municipal fire station.

On both sites, the bin and a small

enclosure used to store measuring

buckets and the clipboard are kept

scrupulously clean. “We don’t want to

be accused of fostering vermin,” says

McCain.

Typically, members pick up their

corn in bags or buckets carried in the

trunks of their cars. Khalsa, however, is

serious about reducing carbon

emissions, and transports his corn home

on a bicycle modified to carry two fivegallon buckets.

“I’ve talked to people who raise the

question of using food for fuel,” he says,

“But most corn is used to produce

meat, which is a very inefficient use of

resources. So I put the issue in the

context of heat use vs. meat use.” ■

Rural Cooperatives / May/June 2010 29

The Save Our Skies cooperative grain bin serves more than 70 members who use dried

corn kernels as a home-heating fuel. Above, co-op president Sat Jiwan Khalsa loads up.

USDA photos by Stephen Thompson
30 May/June 2010 / Rural Cooperatives

E. Eldon Eversull, Agricultural Economist

Cooperative Programs

USDA Rural Development

llocating net income and redeeming equity

are unique practices of cooperatives. The

bylaws of the cooperative govern its net

income allocation and equity redemption.

The board of directors is responsible for

determining the allocation of net income, equity redemption

and capital accumulation, subject to adherence to the

cooperative’s bylaws.

User-owners finance the cooperative through the

accumulation of equity capital by direct investment,

patronage refunds and per-unit retains. Without equity

accumulation, the cooperative cannot grow. To maintain

investment proportionality among current users, equity

redemption is used by most cooperatives.

USDA Cooperative Programs last studied equity

redemption practices of cooperatives in 1991. A new equity

redemption study was undertaken with a survey of 2,473

farmer, rancher and fishery cooperatives for their fiscal year

ending in 2008. One of the desired goals of the new study

was a comparison of differences and similarities of equity

redemption over time. The focus of this article will be on the

cooperatives that responded to both surveys. (The entire

report, “Cooperative Equity Redemption,” Research Report

220, will be posted on the Internet: www.rurdev.usda.gov/

rbs/pub/research.htm; for a hard copy, send an e-mail to:

coopinfo@wdc.usda.gov.)

There were 439 local cooperatives and 21 regional

cooperatives that responded to both the 2008 and 1991

surveys. Local cooperatives generally have sales and members

in one or two states. Regional cooperatives have sales in

many states, and some have nationwide sales. Regional

cooperatives usually have other cooperatives as members but

can also have individual farmer, rancher and fishery members.

Co-ops getting larger

In 1991, the median co-op respondent had between $2.5

million and $4.99 million in assets. Almost 20 years later the

median respondent to the 2008 survey was much larger, with

$5 million to $9.99 million in assets.

Between 1991 and 2008, the most used method of equity

redemption changed from redeeming equity based on

patrons’ estates to redeeming it based on a revolving fund.

Both methods are used by many cooperatives, but in 2008, 50

percent of the cooperatives used the revolving fund method,

with only 46 percent using the patrons’ estates method. This

is a major shift from 1991, when 69 percent of the same

cooperatives used patrons’ estates method and only 53

percent used revolving fund method.

The reduced use of redeeming patrons’ estates may be due

to a change in the ownership of family farms. More family

farms are now held in corporate or partnership ownership,

rather than owned by individual farmers or ranchers. A

corporation does not cease to exist when one owner dies, so

the lowered use of patrons’ estates redemption in 2008 may

be due to the change in ownership form of family farms.

Type differences found

Cotton and cotton gin cooperatives mainly use the

revolving fund method of equity redemption.

Dairy cooperatives’ use of the revolving fund fell about 20

points between 1991 and 2008, while redeeming patrons’

estates fell 10 points. In 1991, only two local dairy

cooperatives used a base-capital plan. This increased to seven

cooperatives in 2008.

Fruit, vegetable and nut cooperatives mainly redeem

equity with a revolving fund. In 2008, only one of these coops redeemed patron’s estates, down from two co-ops in

1991.

About one-third of service cooperatives are regional

Uniquely Cooperative: Equity Redemption

Survey tracks trends in how

co-ops redeem member equity
Rural Cooperatives / May/June 2010 31

cooperatives. Virtually all of these cooperatives use revolving

funds.

Most use combination of redemption methods

Most cooperatives use a combination of methods for

equity redemption (table 2). In 2008, local cooperatives that

used revolving funds also used patrons’ estate redemptions 48

percent of the time. They based redemption on a patron’s age

17 percent of the time; as a percent of all equities, 10 percent

of the time; and on base-capital, 4 percent of the time. A

revolving fund for redemption alone was used by 94 local

cooperatives.

In 1991, 82 cooperatives only redeemed patrons’ estates.

This had fallen to 32 cooperatives in 2008.

For regional cooperatives, it appears there is a large

increase in the use of percent-of-all-equities redemptions in

2008, but this information is missing for 1991. The 1991

survey did not list the “percent-of-all-equities” redemption

method. Its use had to be hand written in by the respondent

as an “other redemption method.” Thus, this 1991

information is no longer available, so an accurate comparison

cannot be made.

Redemption differences between surveys

When comparing the 2008 and 1991 responses of the

same cooperatives, there were a number of differences:

• A revolving fund is now used by 54 local cooperatives that

did not do so in 1991, while 162 co-ops used a revolving

fund in 1991, but did not do so in 2008 (or had a blank

response). In 2008, 51 local cooperatives said they do not

redeem estates, while they did in 1991; an additional 22 coops said that they redeemed estates in 2008 but did not do

so in 1991.

• Using a patron’s age as a method of redeeming equity is

now used by 45 local cooperatives that did not do so in

1991. Seventeen cooperatives no longer use this method; an

additional 17 co-ops that used a patron’s age in 1991 left a

Year and cooperative

asset size

Patrons’

Estates

Revolving

Fund

Redeem

Equity

YesN All Oldest First % to All

Percent

of All

Equities

Base

Capital

Plan

Table 1—Equity redemption methods of local and regional cooperatives reporting in both 2008 and 1991

Redemption Methods

2008 Number Percent

< $1 million 30 53.33 26.67 16.67 6.67 0.00 0.00 16.67 0.00

$1 mill. to $2.49 mill. 46 60.87 34.78 36.96 19.57 13.04 2.17 4.35 2.17

$2.5 mill. to $4.99 mill. 54 75.93 44.44 37.04 31.48 14.81 5.56 18.52 1.85

$5 mill. to $9.99 mill. 71 76.06 52.11 32.39 26.76 14.08 1.41 11.27 4.23

$10 mill. to $19.99 mill. 85 83.53 50.59 50.59 32.94 20.00 2.35 12.94 2.35

$20 mill. to $49.99 mill. 77 92.21 53.25 59.74 31.17 20.78 3.90 16.88 3.90

≥$50 million 97 87.63 61.86 58.76 31.96 19.59 7.22 16.49 12.37

All 460 79.57 49.78 45.87 28.26 16.52 3.70 14.13 4.78

1991

< $1 million 57 87.72 26.32 56.14 5.26 n.a. n.a. n.a. 0.00

$1 mill. to $2.49 mill. 123 99.19 54.47 71.54 32.52 n.a. n.a. n.a. 0.00

$2.5 mill. to $4.99 mill. 95 98.95 53.68 72.63 23.16 n.a. n.a. n.a. 0.00

$5 mill. to $9.99 mill. 96 98.96 53.13 78.13 32.29 n.a. n.a. n.a. 2.08

$10 mill. to $19.99 mill. 39 100.00 66.67 74.36 33.33 n.a. n.a. n.a. 5.13

$20 mill. to $49.99 mill. 18 100.00 61.11 61.11 33.33 n.a. n.a. n.a. 5.56

≥$50 million 32 100.00 71.88 40.63 12.50 n.a. n.a. n.a. 15.63

All 460 97.83 53.04 68.91 25.87 n.a. n.a. n.a. 2.17

N=Number of respondents

1 Oldest first and percent to all are a form of redemption by patron’s age, these two responses should add to “all”, except all respondents did not answer all

questions. Patron’s age, oldest first and percent to all, and percent of all equities were not collected in the 1991 so are listed as n.a., not available.

Patrons1Age

continued on page 44
32 May/June 2010 / Rural Cooperatives

Co-op Development Action

High Plains Food helps consumers

gain access to local/regional foods

By Susann Mikkelson

Co-op Development Specialist

Rocky Mountain Farmers Union

usiness has never been

stronger for the Rocky

Mountain Farmers

Union Cooperative

Development Center,

which has been serving Colorado, New

Mexico and Wyoming for almost 15

years. The Center provides technical

assistance, helps find funding and

provides other general support to

individuals and groups seeking to start

cooperative businesses and similar

enterprises in rural communities. Its

efforts support everything from food

production and consumption interests

to renewable energy initiatives, and

from rural health care to preschool

development.

In the past two years, demand for the

Center’s services has grown

exponentially. Though the Center has

not formally tracked the reasons behind

this trend, it is likely a result of a

combination of factors, including the

Center’s continued outreach efforts and

growing interest in cooperatives as coop success stories surface around the

country. The recession, which left many

looking for new ways to generate

income, is another likely factor.

This trend includes rising interest in

new-generation and “blended”

cooperatives. There is a great deal of

ingenuity revolving around ways the

cooperative model can be adapted to

form successful businesses and other

ventures. Times have changed, and no

longer is the cooperative seen simply as

the town grain elevator or the feed and

seed supply store.

‘Local’ is a relative term

In the West, distances can be vast

between agricultural production areas

and population centers. Urban and

suburban expansion during the past two

decades has effectively converted almost

all of the farmland located adjacent to

these cities into residential or

commercial development.

There is growing consumer demand

in the Denver metro area and all along

the Front Range (the region’s main

population center) for locally and

sustainably produced foods. While this

interest in returning to a food system

that better sustains local economies

opens exciting possibilities for

producers, it also creates challenges.

Consequently, even with the growth of

farmers markets, it is difficult to find

enough local farmers to meet the

growing demand. Now more

Consumer-members of High Plains Food Cooperative (HPFC) enjoy seeing how their food is produced on the farm of a co-op

producer-member. Facing page: HPFC member Chris Leibbrandt (far left) and son Kenny prepare a food distribution to fill preplaced orders that are made online by consumer-members of the co-op. Photos Courtesy HPFC
Rural Cooperatives / May/June 2010 33

restaurants, retail food stores, food

distributors, schools and other

institutions are also seeking

local/regional foods.

For small farms and ranches on the

high plains of eastern Colorado and

western Kansas, the Denver metro area

is the primary direct market. Still, this

represents a one- to four- hour drive for

producers in the region, making it very

hard for them to participate in multiple

farmers markets, which most would

need to do in order to generate enough

profits to justify the travel.

Thanks in part to the Internet and

the willingness of producers and

consumers to work cooperatively,

producers and consumers in the Rocky

Mountain region have identified a

viable alternative: a blended cooperative

that serves as a “virtual” farmers

market.

High Plains Food Co-op

The High Plains Food Cooperative

(www.highplainsfood.org) is an

excellent example of the creativity and

innovation being used by the new

generation of co-ops to meet this

demand for local food.

It all began with a small, but mighty,

group of producers that became

acquainted with consumers along the

Front Range who wanted more

local/regional foods. Ogallala

Commons, an organization incubated

through the Rocky Mountain Farmers

Union Cooperative Development

Center five years ago with the support

of USDA Rural Development funding,

introduced these producers to the

Oklahoma Food Co-op, an online

cooperative market.

These small-scale producers —

including cattle ranchers, hog farmers,

vegetable and herb growers, and even a

natural foods processor

— began to research

the model that was

being used successfully

in Oklahoma. They

made several visits to

the Oklahoma Food

Co-op’s distribution

facility.

They enlisted the

assistance of the Center

and began to develop a

plan for their own

cooperative. Three

years later, in May of

2008, the High Plains

Food Cooperative managed its first

food distribution, filling about 15

orders from consumer-members in the

Denver metro area; each order averaged

about $25.

At the end of 2009, the average

monthly order with the High Plains

Food Cooperative was just under $75.

In less than two years, the number of

producer-members grew by almost 50

percent, while consumer-memberships

soared 200 percent. Products available

through the online marketplace also

more than doubled.

Two levels of membership

The High Plains’ co-op model is

fairly simple. There are two classes of

membership: voting members (which

includes all producer-members) and

non-voting members. Although it is a

“blended” cooperative of producers and

consumers with the goal of meeting

consumers’ needs, production is still the

essential component at the core of the

co-op. Thus, providing these small

producers with access to an expanding

market is a key goal.

Consumer-members have the option

of joining as full, voting members and

taking on an active role in the

organization and management of the

co-op. Or they can be non-voting

consumer-members if they prefer to

simply gain a source of quality, local

foods while supporting small farmers in

their region.

The co-op board includes both

producers and consumers representing a

broad region of the service area.

The High Plains Food Cooperative

shows how the cooperative model can

successfully build a bridge between the

needs and interests of producers and

consumers. It is a cost-effective,

alternative model to the traditional

market.

School supply

and service co-op

The Rocky Mountain Cooperative

Development Center is currently

working with a private fund of a

community foundation in the Roaring

Fork River Valley near Glenwood

Springs, Colo., to help develop a service

and supply cooperative for independent

preschools in the area. These

preschools are usually located in resort

communities and primarily serve lowwage, often single-parent workers.

The cooperative will help the

independent preschools share staffing

resources, such as nurses, dieticians and

substitute teachers. It will also provide

bulk order services and, possibly, offer

insurance pools, among other options.

If the effort is successful, the co-op will

help some of these much-needed

preschools remain in business.

The Center regularly receives calls

regarding concerns or interests for

which the cooperative business model is

a viable solution. In addition to the

examples discussed above, these

interests may be from budding

entrepreneurs or civic-minded investors

looking for alternative ways to invest

their money to support local economies

and people.

There continues to be much to learn

and explore in the world of cooperatives

— and many more bridges to build! ■
34 May/June 2010 / Rural Cooperatives

Alan Borst, Ag Economist

Cooperative Programs

USDA Rural Development

alan.borst@wdc.usda.gov

he organic food market

has expanded and

matured into a $10

billion industry, with

sales growing about 15

to 20 percent each year. 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.”

— Excerpt from “Organic Co-ops

Taking Root,” Rural Cooperatives, MayJune 2005.

Since 2005, the U.S. organic

products industry has continued to

experience remarkable growth, and

organic farmers have continued to

increase their use of marketing

cooperatives. In 2009, U.S. organic

food and beverage sales grew 5.1

percent, to $24.8 billion, according to

the Organic Trade Association’s (OTA)

2010 Organic Industry Survey.

OTA estimates the total U.S.

organics product market — including

food and beverages and non-food

products, such as supplements, personal

care products and clothing — grew 5.3

percent, to $26.6 billion. In 2008, OTA

found that organic food sales had grown

15.8 percent from the previous year.

In 1991, the USDA Agricultural

Cooperative Service (now the

Cooperative Programs office of USDA

Rural Development) conducted a survey

of U.S. organic producer marketing

cooperatives (OPMCs) and found that:

there were 10 operating in 1987, with

gross sales of $3.3 million; 15 of these

co-ops were operating in 1991, with

gross sales of $6.38 million and 384

producer-members.

In 1989 there were an estimated

5,328 U.S. organic growers, of which

2,264 were certified. No OPMC data

was collected after 1991.

When USDA Cooperative Programs

put together an informal OPMC

directory in 2010, it found that there

Organic farmers increasingly

turn to cooperative business model

Organic Valley is one of four producer-owned, organic food co-ops that have surpassed their 20th

birthdays, providing dramatic evidence that the organic food market is much more than the

passing fad some predicted it would be. Photo courtesy Organic Valley
are about 45 OPMCs operating. While

there has been no actual survey, a few

numbers indicate the magnitude of

growth. The largest OPMC — Organic

Valley — had sales of $520 million in

2009 and a membership of 1,652

farmers in 33 states and three Canadian

provinces. In 2008, there were 12,941

certified organic producers in the

United States, according to the USDA

Economic Research Service. There are

certified organic farmers in all 50 states.

Although some skeptics predicted

that organic food was a passing fancy,

four OPMCs have now each been

operating for longer than 20 years:

• Organic Valley of LaFarge, Wis., was

originally organized as the Coulee

Region Organic Produce Pool in

1988. Organic Valley produces milk,

soy, cheese, butter, spreads, creams,

eggs, produce and juice, which are

sold in supermarkets, natural foods

stores and food cooperatives

nationwide.

• Deep Root Organic Cooperative,

headquartered in Johnson, Vt., was

founded in 1986. It consists of 19

member vegetable farms from

throughout Vermont and the eastern

townships of Quebec.

• Tuscarora Organic Growers was

established in 1988. Today, it has 28

fruit and vegetable farm members

from South-Central Pennsylvania.

• Finger Lakes Organic Growers

Cooperative of Rose, N.Y., was

organized in 1986 as a wholesaler of

fruits, vegetables, herbs and nuts. It

has 17 member farms.

These four OPMCs stand out as

successful examples of organic farmers

effectively marketing through

cooperative associations. Their

longevity is remarkable in the relatively

young and turbulent organic sector.

OFARM fills bargaining role

Some OPMCs have been organized

to increase member market power

through bargaining and informationsharing. The Organic Farmers Agency

for Relationship Marketing (OFARM)

is an association with eight OPMC

members. It is an information-sharing

cooperative that does not directly

negotiate prices or contract terms for its

member co-ops. But it allows individual

cooperatives to act in concert as they

price and market products.

Thus the market power of each

individual cooperative is enhanced

because buyers are prevented from

playing the marketer for one

cooperative against that for another.

OFARM collects information on

inventories, production, marketing and

pricing, then shares this information

with its members.

OFARM members have recently

confronted a very challenging market

situation with escalating input costs, the

global economic crisis, a softening of

organic sales, unfavorable weather and

some quality and storage issues.

At its March 2010 annual meeting,

OFARM leaders said they would focus

on increasing communication with

organic farmers, enlisting more

membership and improving target

prices. Their strategy is to educate the

organic sector on the importance of a

marketing plan.

Its 10-year track record shows that

the financial performance of OFARM

members has been in the upper third of

the marketplace.

One of OFARMs members — the

Kansas Organic Producers Association

— is a bargaining cooperative for about

60 organic grain and livestock farmers

located primarily in Kansas, with some

members also in bordering states.

KOP’s purpose is to help build markets

for organic grain and livestock and to

represent its members in negotiating

sales and coordinating deliveries of

organic products. These two kinds of

cooperatives complement each other in

promoting grower market power.

Co-op model used

in many ways

Since the 1991 survey, organic

farmers have used the cooperative

business model in a variety of

innovative ways. With the rapid growth

of community supported agriculture

(CSA) operations, some CSAs have

joined with others in OPMCs to lower

their production risk, diversify their

offerings to consumers and extend their

seasons.

Cooperative CSA operations have

been established in Washington, Ohio,

New York and Pennsylvania.

Some OPMCs specialize in a specific

product — such as almonds or cotton

— while others have a broader

commodity focus in grains, dairy and

livestock products or produce. A few

OPMCs are distinguished by the nature

of their membership, such as the Amish

or a specific minority group.

Some OPMCs were organized with

significant outside assistance. Among

the organizations that have provided

such help are the National Farmers

Organization, Rocky Mountain Farmers

Union Cooperative Development

Center, New Mexico Department of

Agriculture and New Mexico State

University Cooperative Extension.

Over the past few decades, USDA

Rural Development, through its

Business and Cooperative Programs,

has also provided several OPMCs with

both financial and technical assistance.

Some of these co-ops are in the very

beginning stages of organizing, while

others are over 20 years old. Some have

membership from all over the country,

and even Canada, while others have

only local members.

Organic farmers are marketing

through cooperative associations more

than ever. Beyond this, many more

agricultural cooperatives have both

conventional and organic farmer

members. In the 20 years since the

Organic Foods Production Act of 1990

was passed and USDA organic

certification was authorized, OPMCs

have grown along with the organic

market by almost all measures.

OPMCs have performed all of the

same functions as their conventional

counterparts. It will be interesting to

see what the next 20 years holds. ■

Rural Cooperatives / May/June 2010 35
36 May/June 2010 / Rural Cooperatives

Editor’s note: This article is reprinted from the annual report

issue of “Michigan Milk Messenger,” the membership magazine of

the Michigan Milk Producers Association.

or three-and-a-half decades, Michigan Milk

Producers Association (MMPA) has benefited

from the steadfast and dedicated leadership

of John Dilland. He has successfully led

MMPA through a continuously changing

path. MMPA’s journey through volatile markets, changing

leaders and evolving industry issues was guided by a man

with the integrity and intelligence needed to be successful for

generations.

As the controller, director of finance and then the general

manager of MMPA, Dilland's leadership ability helped direct

the cooperative through some challenging times. As the

largest milk marketing cooperative based in Michigan,

MMPA has a great deal of influence on the milk marketing

climate within the Great Lakes region. As the “numbers

man” behind the cooperative, Dilland helped shape MMPA

into one of the most financially stable cooperatives in the

country.

Dilland’s initial challenge when he began his career at

MMPA was to restructure the balance sheet of the

cooperative. He then helped lead the transition from the fluid

market into a high-quality line of value-added dairy products.

This move, coupled with streamlining plant production,

strengthened the overall economy for Michigan dairy

farmers. The overall effect generated additional earnings,

which gave the cooperative the ability to pay higher

premiums to members.

While he was serving as the director of finance, Dilland

helped craft one of the first dairy cooperative partnerships

with Leprino Foods Inc. This initial agreement helped both

parties become successful in Michigan. The MMPA-Leprino

partnership helped assist MMPA in becoming more

diversified and, ultimately, financially stronger.

In 2003, Dilland was appointed MMPA’s general manager.

Since taking over the leadership reins of the cooperative, he

has again worked to fine-tune the cooperative’s marketing

structure. In 2005, another landmark arrangement between

Leprino Foods, Dairy Farmers of America and MMPA was

signed, further solidifying the milk-supply agreement. As he

gets ready to leave MMPA, a new chapter of milk processing

at the MMPA Ovid plant will begin.

Dilland’s ability to project long-range goals in a turbulent

business environment has allowed the cooperative to take

advantage of changing market trends without sacrificing the

cooperative’s mission to market members’ milk to the

greatest possible advantage.

His leadership abilities have also been tapped by national

organizations. He has served in leadership capacities on

several national organizations, including the National

Council of Farmer Cooperatives, National Society of

Accountants for Cooperatives and the National Milk

Producers Federation. On the state level, he served on the

board of directors for the Michigan FFA Foundation and

Michigan Dairy Memorial and Scholarship Foundation.

The members and employees of MMPA will miss the

leadership, experience and friendship Dilland has provided

this past 35 years. We wish him and his wife, Barb, well in

retirement. ■

Galarneau new

MMPA leader

Clay Galarneau has

been selected as the new general manager

of Michigan Milk Producers Association

(MMPA), succeeding John Dilland. Co-op President Ken

Nobis announced the selection at MMPA’s annual

meeting. Galarneau is a 25-year employee of the

cooperative, having served in the accounting and sales

departments, and most recently serving as director for

manufactured product sales and plant operations.

“Clay has a strong financial background and has led a

successful manufactured products sales team that has

expanded sales and increased returns to the dairy farmer

members of MMPA,” said Nobis. “He has supervised the

co-op’s manufacturing plants and most recently has led

the MMPA team responsible for planning and

implementing the successful expansion of our plant at

Ovid. We are confident that Clay will manage our

cooperative in a manner that will continue to build on the

successes we have enjoyed in the past.”

Galarneau was chosen from a slate of six candidates

following an executive search led by a Washington, D.C.-

based executive search firm that specializes in

cooperative, agricultural and food industry businesses.

Founded in 1916, MMPA is owned and controlled by

more than 2,100 dairy producers in Michigan, Indiana,

Ohio and Wisconsin. ■

Dilland built stronger MMPA,

able to adapt to market trends

John Dilland, left, on a recent

visit to a member’s farm.

Photos courtesy Michigan

Milk Producers Assoc.
SDWG launches

$66 million project

South Dakota Wheat Growers

(SDWG) has begun work on a $66-

million project to add grain drying,

storage and receiving capacity at 11 of

its facilities in South Dakota and North

Dakota. The project will double the

cooperative’s system-wide drying

capacity, increase its storage capacity by

12 million bushels (or 21 percent) and

increase its grain-receiving capacity by

2 million bushels per day (or 30

percent).

The project will also create two new

shuttle-loading facilities in Roscoe and

Andover, S.D. The new shuttle loaders

will relieve pressure on SDWG’s

existing shuttle loaders, reduce

producer costs and provide better access

to grain markets, says Roger Hansen,

vice-president of business development

for the cooperative.

All construction is expected to be

completed in time for row crop harvest

this year.

South Dakota Wheat Growers has

plans to add capacity at Highmore and

Melette, build a new shuttle loader at

Tulare and add more bin storage at

Wolsey in 2011 or 2012. South Dakota

Wheat Growers is the nation’s 12th

largest grain handler and has more than

5,000 active members.

Southern States reports

sales of $1.8 billion

“Not many companies will look back

on 2009 as a year they care to

remember. But for Southern States, it is

a year we will reflect on with pride,”

Southern States CEO Thomas Scribner

and Chairman John East said in the coop’s 2009 annual report. While

Southern States sales dropped from

$2.1 billion in 2008 to $1.8 billion in

2009, they lauded the co-op’s employees

for making the best of what was a very

stressful year for agriculture as the

economic recession played havoc with

many markets.

The drop in sales for the regional

farm supply and services cooperative

was primarily the result of decreased

sales of fertilizer and dramatic increases

in petroleum prices. But the co-op’s

other major divisions — retail, feed,

farm and home, and Agway — generally

maintained sales at near 2008 levels.

Earnings before taxes, depreciation

and amortization dropped from $82.5

million in 2008 to $44.3 million for

2009. Devaluation of fertilizer was the

major reasons for the decline. Fertilizer

sales volume dropped from 1.2 billion

tons in 2008 to 846 million tons. Feed

sales dropped from 979 million tons in

2008 to 838 million tons, and

petroleum sales slipped from 290,000

gallons to 282,000 gallons.

Some of the highlights of the year

cited in the report include:

• Fourteen stand-alone retail

petroleum stations were transferred to

the Retail Operating Division, helping

to create staff efficiencies and to

consolidate facilities and equipment;

• Pet food sales climbed 9.3 percent.

Southern States’ new branded dog and

cat food line was expanded to offer a

wider assortment of products. New

Rural Cooperatives / May/June 2010 37

Newsline

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

Co-op developments, coast to coast

2010 Hall of Fame Inductees

The latest Cooperative Hall of Fame inductees, seen here May 5 during the induction

ceremony at the National Press Club in Washington, D.C., are (from left): Glenn English, CEO

of the National Rural Electric Cooperative Association, for championing sweeping changes

to the electric co-op financing program and improving life in rural America; Yemi

Demmelash, accepting on behalf of her late husband, Werqu Mekasha, who helped to

revitalize ag co-ops in Ethiopia; Larry Blanchard, who helped to shape today's credit union

landscape; David Thompson of Twin Pines Cooperative Foundation, for advancing the causes

of co-ops in many sectors. Photo courtesy Cooperative Development Foundation
formulas and packaging were also

adopted.

• A new customer service program

called “Will Your Customer

Recommend You?” was launched to

help gain market share through

member recommendations.

• Customers using Global Positioning

Satellite (GPS) technology for nutrient

applications expanded by 128,000 acres,

to more than 250,000 acres. Plans are

to expand retail locations offering GPS

services from 15 to 25 this year.

Farmers save money with environmentfriendly GPS technology because

applications are more precise, based on

actual crop needs.

Ag co-ops have billion-dollar

impact in Texas, study finds

A Texas AgriLife Extension Service

study that sampled 96 agricultural

cooperatives across the state found that

the co-ops generate $1.7 billion in

annual sales and create 20,000 jobs.

Agricultural cooperatives, which

provide everything from livestock feed

to apparel, are vital to rural economies,

says Dr. John Park, AgriLife Extension

Service economist, and Roy B. Davis,

professor of agricultural cooperation.

The economic values co-ops generate

would be higher “if you considered

more than the operational activities”

that support the selling of goods and

services, Park notes.

“People don’t realize how valuable

that little [co-op] is out there on the

highway, selling feed and other supplies

to a local, rural economy,” Park says. “I

really believe the cooperative structure

will be the last thing in rural Texas to

go away.”

“They [co-ops] are the backbone of

rural Texas,” adds Jonathan Baros,

Extension program specialist, who coauthored the study with Park and Dr.

Rebekka Dudensing, AgriLife

Extension economist.

The Texas Agricultural Cooperative

Council commissioned AgriLife

Extension to conduct the study. “We

initiated this study so that we could do

a better job of telling our story,” said

Tommy Engelke, president of the Texas

Agricultural Cooperative Council.

“Many don’t realize the multiplier effect

an agricultural cooperative has. Not

only do agricultural cooperatives

provide goods and services to produce

food and fiber, but they also have

tremendous spinoff effects in term of

job creation.”

Of the 20,000 Texas jobs supported

by ag cooperatives, every two of those

jobs in turn support five more jobs in

the economy, according to the study.

When considering only retail sales,

warehousing and store-front activities,

the cooperatives in the study accounted

for more than $631 million in

additional sales across the economy for

2007.

“These sales increased the region’s

value-added or gross domestic product

component by $233 million, income by

$117 million and employment by 2,001

jobs for 2007,” Park says. The study

also found that 30 cooperatives were

among the top three property taxpaying entities in their counties.

Park says the study found that

cooperatives provide an additional 9.2

percent to total output when compared

to non-cooperative businesses. “Also,

we found an additional 11.6 percent in

value added to the economy and an

additional 82.8 percent to personal

income when compared to a traditional

corporate structure that is less likely to

Amid one of the most challenging

operating environments in its 26-year

history, Ag Processing Inc. (AGP)

generated excellent cash flow in 2009,

which turned out to be one of its top years

for earnings, CEO Marty Reagan reported

at the Omaha, Neb.-based co-op’s annual

meeting in January.

AGP had $3.38 billion in sales in 2009,

generating cash flow in excess of $127

million. Earnings from operations (before

income taxes) were $66.8 million in fiscal

2009, with cash patronage of $21.8 million

returned to members. Over the past five

years, AGP has returned more than $221

million to its members. Due to a new

interpretation of a ruling on Section 199 of

the tax code, AGP was also able to pass

through $32.4 million in tax deductions to

members.

AGP is the world’s largest farmerowned soybean-processing cooperative

and is a leading supplier of refined

vegetable oil. Its members include 184

local and five regional cooperatives

representing more than 250,000 farmers

throughout the United States and Canada.

Board Chairman Brad Davis said that

Despite market challenges, AGP enjoys strong earnings

AGP’s extraction capacity at its soy-processing plant in Hastings, Neb., was expanded with an upgrade project last year. Photo courtesy AGP
this year’s earnings, patronage refunds,

equity redemptions, cash flow and tax

deductions represent a “great

cooperative success story.” In his address

at the annual meeting, Davis stressed

sustainability and the importance of

communication with members.

“Communication is not only informing

you about the business of your

cooperative, but — more importantly —

listening to your expectations and what

we can do to bring value back to your

cooperative,” he said.

While the year started out strong, with

excellent market conditions carried over

from the summer of 2008, market

fundamentals then began to shift for the

worse as high prices hurt demand. The

two sectors representing the majority of

domestic soybean meal demand — the

poultry and swine industries — were hit

extremely hard, and dairy also suffered

from falling milk prices and higher input

costs.

Refined soy oil demand was down 15 to

20 percent due to lower biodiesel demand

and a drop in the consumer “casual

dining” sector, he reported. “AGP met the

protein and soy oil demand challenges by

adjusting crush and refining schedules to

operate at a level that matched market

demand,” said Meyer.

AGP is involved in ethanol and soy

biodiesel production, and — along with

the rest of the renewable fuels industry —

it encountered extremely difficult market

conditions in 2009. John Campbell, senior

vice president for industrial products and

government relations, noted that ethanol

demand has grown, but plant capacity has

grown faster, leading to poor margins,

although they improved in the first quarter

of fiscal 2010.

AGP completed a waste-water

treatment facility, a corn oil-recovery

system and a methane-recovery system at

its corn-processing plant in Hastings, Neb.

AGP’s biodiesel operation was well

positioned early in the year to remain

profitable and generate solid flow,

Campbell said, noting that this was a

major accomplishment, given the difficult

market in 2009. ■

retain its income at a local level.”

The 96 cooperatives studied provide

services to members in an area of

130,435 square miles — nearly the size

of Montana, Park says. “They have the

potential to impact the lives of 8.2

million people or about every one of

three Texans.” For more information,

visit: http://cooperatives.tamu.edu.

Farm Credit net income

tops $2.8 billion in 2009

The Farm Credit System (System)

reported combined net income of $2.85

billion for 2009, down from $2.9 billion

in 2008. The 2.3 percent decrease ($66

million) resulted from an increase in the

provision for loan losses of $517

million, an increase in non-interest

expense of $142 million and an increase

in the provision for income taxes of $42

million, which was largely offset by an

increase in net interest income.

Net interest income was $5.39

billion in 2009, an increase of $690

million (or 14.7 percent) compared to

$4.70 billion in 2008. Average earning

assets grew $8.62 billion (or 4.4

percent), to $203.45 billion for 2009.

“The System’s ability to deliver a

solid performance and maintain a

strong financial position in this

challenging environment reflects the

System’s efforts to actively manage the

credit quality of its loan portfolio and to

follow conservative asset/liability

management practices while continuing

to strengthen its capital position,” says

Jamie B. Stewart Jr., president and

CEO of the Federal Farm Credit Banks

Funding Corporation.

Capital as a percent of assets grew

from 12.7 percent in 2008 to 13.9

percent in 2009. The net interest

margin increased 24 basis points, to

2.65 percent for 2009, compared with

2.41 percent for 2008.

The Farm Credit System recognized

provisions for loan losses of $925

million for 2009 and $408 million for

2008, reflecting the adverse impact of

stress in the general economy on ag

borrowers.

Robert Beasley remembered

Robert L. Beasley, 81, the first

American to head the International

Cooperative Alliance (ICA), the world’s

second-oldest and largest nongovernmental organization (behind the

International Red Cross and Crescent),

died March 11 in Ohio, the Columbia

Daily Tribune reported. Beasley was a

graduate of the University of Missouri

School of Journalism and worked for

the Columbia Daily Tribune in the 1950s.

He was a longtime executive at

Farmland Industries in Kansas City,

from which he took early retirement in

1984 to take the helm at ICA, which he

continued to lead until 1988.

Because the ICA included

cooperatives from both sides of the

then-crumbling Iron Curtain, it was a

stormy and difficult time for the

organization, which began in the 19th

century, according to the Tribune. By

the time Beasley stepped down as

director in 1988, the organization’s

deficit had been reversed and the staff

had become professional and skilled.

He was ICA’s director emeritus

1988-1989. Much of the year was spent

at The World Bank in Washington

where he worked to improve the bank’s

cooperative policies and procedures.

While working for Farmland, he

became a board member of the

National Cooperative Business

Association, twice serving as its

chairman. He helped the association

establish the National Cooperative

Bank, which has become a vital force in
modern cooperative development in the

United States.

He was also vice chairman of the

Kansas City Philharmonic Orchestra,

served on the board of the Kansas City

public television station and was on the

boards of the Kansas City United Way

and Kansas City’s first cable television

company. Beasley was an adjunct

professor in the University of Missouri

Peace Studies program and retired in

2009. Tributes can be left online at:

www.memorialfuneralhomeandcemetery

.com.

USDA grants promote

rural development

Agriculture Under Secretary for

Rural Development Dallas Tonsager in

April announced that USDA is

accepting applications for business and

community development grants to help

rural communities create wealth, attract

more residents and become

economically self-sustaining. The

funding is being provided through

USDA Rural Development’s Rural

Business Opportunity Grant (RBOG)

program, which provides grants for

technical assistance and planning

activities to improve economic

conditions in rural cities or towns of

50,000 people or fewer. Cooperatives

are among the eligible applicants.

“These grants can be the foundation

for implementing the President’s vision

of developing initiatives that emphasize

expanding exports, linking farm

production to local consumption,

producing biofuels and renewable

energy, capitalizing on broadband and

innovatively using natural resources as

wealth-building tools for rural places,”

Tonsager said.

Funding under the RBOG program

can be used to pay for economic

planning, technical assistance and

training for rural communities,

entrepreneurs or economicdevelopment officials. The amount of

funding available is $2.48 million.

Applications are due June 28, 2010.

More information on how to apply for

an RBOG, visit: www.rurdev.usda.gov/

rbs/coops/rbog.htm

To be eligible for funding, an

applicant must be a public body,

nonprofit corporation, Indian Tribe or

cooperative with members that are

primarily rural residents. Applicants

must also have significant expertise in

the activities proposed and the financial

strength to ensure the objectives of the

proposed grant can be accomplished.

Local co-ops approve mergers

Patrons of Farmers Co-op Grain of

Britton, S.D., have approved a merger

with Wheaton Dumont Cooperative

Elevator, in Wheaton, Minn., according

to a report in the Marshal County

Journal. The merger, which became

effective May 1, was approved on a vote

of 117 to 3.

Approval of the merger opens the

door for the possible construction of a

110-car rail-loading facility in Britton,

with a loop track just southwest of

Britton, assuming agreements can be

reached with a railroad, the newspaper

reported.

In Nebraska, Farmers Cooperative

Association stockholders have approved

a merger with Cooperative Producers

Inc. in Hastings, according to the

Associated Press. Farmers Cooperative

has locations in Red Cloud, Franklin,

Lawrence, Clay Center, Nelson,

Superior and Blue Hill.

Mooney new chairman at DFA

Randy Mooney has been elected

board chairman by the Dairy Farmers

of America Inc. (DFA), filling the

position formerly held by Tom

Camerlo, who died in December.

Mooney, of Rogersville, Mo., most

recently served as first vice chairman of

the DFA board.

Mooney is also a member of DFA’s

Executive Committee and chairs the

Southeast Area Council. In addition,

Mooney is chair of National Milk

Producers Federation and serves on the

boards of the Missouri Dairy

Association, Missouri State Milk,

Southern Marketing Agency, Dairy

Cooperative Marketing Association

Inc., Milk Processor Education

program and Dairy Promotion Inc.

“Randy has a strong history of

leadership in the dairy industry, and I

know that he will continue that

tradition as he takes on this new role

for the DFA board,” says Rick Smith,

DFA president and chief executive

officer.

The board has also named Wayne

Palla, of Clovis, N.M., as first vice

chairman. He previously served as vice

chairman of DFA’s board.

UVEC celebrates

wind-power project

Unalakleet Valley Electric

Cooperative (UVEC) celebrated the

completion of its six-turbine wind

power installation in Alaska through the

launch of a Web portal that provides

opportunities for the public to monitor

the project’s energy production.

UVEC’s 600 kilowatt wind-power

installation was completed in

November 2009 and is one of the first

implemented through the financial

support of Alaska’s Renewable Energy

Fund, a $250 million grant program

designed to support renewable energy

projects.

UVEC’s wind farm, developed and

constructed by Anchorage-based STG

Inc., was built over a four-month period

last summer. The project is expected to

deliver 1.5 million kilowatt hours of

wind-generated electricity to UVEC

annually, which is about 35 percent of

the community's electricity needs.

The six-turbine array is connected

40 May/June 2010 / Rural Cooperatives

Randy Mooney
into UVEC’s existing distribution

system and the utility’s diesel-powered

generation facilities. The project has

been online since November and has

produced enough electricity to save

21,000 gallons of diesel fuel for the

Unalakleet member-owned cooperative.

“Like most all rural Alaska utilities,

we have seen a dramatic increase in the

delivered price of our primary fuel

source — diesel — over the past five

years,” says Ike Towarak, general

manager of UVEC. “The wind

installation will help us be better

prepared to manage ongoing

operational costs at the utility.”

The wind project is fully operational

but will be running at a reduced

capacity until UVEC’s new power plant

is completed later this year. The project

used Northwind 100 wind turbines

from Vermont-based Northern Power

Systems.

The Web portal was launched

primarily to support educational

opportunities by illustrating how the

wind-generated electricity from

UVEC’s wind system is being used in

the community. The portal will also

support the implementation of handson and interactive curriculum designed

to teach Unalakleet students about wind

energy systems. The curriculum is

under development but is being

modeled after the National Renewable

Energy Laboratory's Wind for Schools

program.

Strong sales for Agri-Mark

boost member returns

Agri-Mark, a major Northeast dairy

farmer cooperative, has announced a

profit after taxes of $14.9 million for

2009. The co-op rang up $655 million

for the sales of its milk and cheese last

year, which include the Cabot and

McCadam cheese brands.

The importance of Agri-Mark

having its second best operating results

ever — as well as $17.5 million in

market premiums paid to members

throughout the year — was crucial for

members in a year that saw farmgate

milk prices plunge, the co-op says.

“It was a terrible year on the farm,

but fortunately 2009 was a very good

year for Agri-Mark; we generated $14.9

million in year-end profits, from which

we returned $5.6 million in cash back to

our members,” says Agri-Mark CEO

Paul P. Johnston. Because the business

was profitable throughout the year, the

co-op was able to make two cash

payments to farmers even before yearend, during a time when farm families

badly needed income.

Agri-Mark’s year-end profit

allocation to its 1,250 dairy farmers

from New England and New York is 45

cents per hundredweight, or roughly 3

cents per gallon for all of the milk each

farm family marketed through the

cooperative during the 2009 calendar

year. This represents earnings of

roughly $9,000 for the average AgriMark member milking 100 cows.

Agri-Mark’s CEO says the financial

results are particularly satisfying

because during the past three years the

business has generated $45 million in

year-end profits in periods of both high

and low milk prices and in up and down

economies. “The strength and diversity

of our farmer-owned business is

evident,” says Johnston.

USDA expands

support for broadband

Agriculture Secretary Tom Vilsack in

March announced the selection of

broadband infrastructure projects to

give rural residents in eight states access

to improved economic and educational

opportunities. Funding for the projects

is being provided through the American

Recovery and Reinvestment Act of 2009

(ARRA). In all, $150 million will be

invested in 12 projects through funding

made available by Congress in the

ARRA.

An additional $68.2 million in

private investment will be provided in

matching funds, bringing the total

funds invested to $218.2 million. As of

late March, $1.05 billion has been

provided to construct 67 broadband

projects in 30 states and one territory.

For example, in the Sonoran Desert

of Arizona, the Tohono O’odham

Utility Authority (TOUA) has been

selected to receive a $3.6 million loan

and a $3.6 million grant to design,

engineer and construct a digital

network to replace dial-up service. This

project will provide services throughout

the Tohono O'odham Reservation using

fiber-to-the-premises (FTTP) and fixed

wireless broadband.

In the rural towns of Madison and

Lamont, Kan., Madison Telephone

LLC (MTC) was selected to receive a

$3.5 million loan and a $3.5 million

grant to design, engineer and construct

an FTTP network. This project will

improve the existing copper-based

network that currently limits average

customer service speeds. MTC will

upgrade this network to FTTP facilities

and technologies, thereby eliminating

this last mile limitation. More

information about USDA’s Recovery

Act efforts is available at:

www.usda.gov/recovery. ■

Rural Cooperatives / May/June 2010 41

Co-op employee Reed O'Daniel helps

load bags of alpaca fiber donated by the

Alpaca Fiber Cooperative of North

America to help clean up the oil spill off

the Louisiana Coast. This compost-grade

fiber can't be used for the clothing

products made from higher grade

alpaca fiber, but it is still extremely

absorbant. The fiber was placed in

mesh-tube booms to help absorb the oil

spills. Photo by Jason Reynolds,

courtesy Daily Post-Athenian
42 May/June 2010 / Rural Cooperatives

which would eventually grow into the

No. 1 export market for California

almonds. A short crop in Europe had

opened the door to California’s surplus

almonds. The cooperative tested the

market with a small shipment, found a

good reception and discovered that

some buyers preferred the California

nuts because of the soft shell and high

quality. This sale set the stage for rapid

expansion of export markets following

World War II.

One of Blue Diamond’s most

successful innovations — and one that

prepared the way for tremendous

growth in consumption worldwide in

the decades to follow — occurred

beginning in 1940. Needing a way to

win back customers who had been lost

to high prices following two short

crops, D. R. Bailey, the co-op’s general

manager, took advantage of the U. S.

government’s New Deal program to

improve nutrition in America.

Bailey believed that “tremendous

benefit can be obtained from the

widespread dissemination of an almond

nutritional story.” Blue Diamond had

used the nutritional story in a modest

way in years past to promote almonds,

but the science of nutrition had evolved

and new studies were needed to update

the nutritional story on almonds.

Blue Diamond engaged the

California Foods Research Institute to

make a complete analysis of the

nutritive values of almonds, which

determined that almonds are rich in

vitamins, minerals, protein and energyproducing fats. The co-op took the

story to the media, cooking schools and

nutrition classes all across America, as

well as to the U.S. military and

scientific publications.

Soon afterward, the U.S.

government granted almonds an

“essential food” status, which gave Blue

Diamond and almond growers special

access to materials and supplies during

World War II. The public image of

almonds was forever enhanced and the

foundation was laid for future

campaigns based on nutrition.

Post-war almond boom

The post-war era saw almond

production boom as growers

mechanized their production with

mechanical tree shakers and almond

sweeping and pick-up machines. They

planted orchards in fertile bottomlands

and added improved irrigation systems.

To cope with the surge in supply, Blue

Diamond created new products and

more appealing packaging to build

retail sales.

One of the most popular and

enduring products introduced was the

6-ounce tin of Smokehouse Almonds.

To increase sales of its popular line of

consumer products, Blue Diamond

started a gift-pack business and opened

retail stores in several California cities.

In the plant, Blue Diamond

engineers and technicians continually

developed more efficient equipment

and processes that increased output,

lowered costs, produced a steady flow of

new products and raised quality levels.

Electric-eye sorters, faster packaging

machines, new roasting and drying

equipment and bulk delivery and

storage revolutionized almond

processing and handling.

Co-op seeks marketing order

Pursuing all avenues to deal with

rapidly growing crops, Blue Diamond

lobbied hard for an amendment to the

Agricultural Adjustment Act to include

almonds. In June of 1949, President

Harry Truman signed the bill to make

almonds and filberts eligible for federal

marketing programs. California almond

growers overwhelmingly approved the

marketing order.

Blue Diamond hoped an almond

marketing order would enable the

industry to bring supply into balance

with demand through set asides and to

set import quotas on the flood of cheap

almonds arriving each year from Europe.

Quotas were finally approved in

1951, and set asides as high as 25

percent of the crop helped balance

supply from year to year. Production

continued to soar, however, rocketing

up 375 percent in just over a decade.

Encouraged by the new machinery

that improved yields and took much of

the drudgery out of producing and

harvesting, growers continued to plant

new orchards. Throughout the 1940s

and 1950s, almonds were the fastest

growing deciduous tree crop in

California.

In the 1960s, Blue Diamond

pioneered almond paste and almond

flour, two important ingredients for

food manufacturers. The association

also offered buyers more than 40

blanched, sliced, diced and roasted

almond products – all produced with

equipment and processes developed by

Blue Diamond staff.

A revolutionary new shelling system,

developed and perfected by Blue

Diamond, was shared with growerowned hulling and shelling

cooperatives, helping to lower their

costs and increase the quality of nuts

and meats delivered to the co-op.

On the marketing front, Blue

Diamond stepped up its export sales

development, opening markets around

the world to provide an outlet for everincreasing crops. A sales coup put Blue

Diamond Smokehouse Cocktail

almonds on every major airline.

In the 1970s, American consumers

discovered health foods. Blue Diamond

jumped on the bandwagon, marketing

its almonds as a health food to cereal

makers, trail mix and energy bar

producers and directly to consumers.

In 1982, Blue Diamond almonds were

launched into outer space aboard the

Columbia space shuttle. In 1984, the

co-op introduced the first almond

cookbook to be published in the United

States.

Throughout the 1980s and 1990s,

Blue Diamond’s research department

pumped out a string of new snack

almonds and products for the food

service and manufacturing trades. All of

these efforts expanded the market for

A Legacy of Cooperation & Innovation

continued from page 8
almonds as bigger and bigger crops

poured in.

Expanding its market horizons to

special needs populations, Blue

Diamond developed Nut*Thins, a

gluten-free snack cracker, and Almond

Breeze, a lactose-free beverage based on

almonds and rice. Both product lines

were hits with the retail trade.

As the 2000s arrived, new emphasis

was placed on the co-op’s growing retail

business, giving rise to numerous new

products in the snack and natural foods

categories. Snack almonds for different

age and ethnic groups were developed

with great success; unsweetened

Almond Breeze appealed to those who

avoid sugar and new flavors of

Nut*Thins broadened the line’s appeal.

With nutrition again top of mind for

consumers in the 2000s, Blue Diamond

advertising and product promotions

built around the qualified health claim

labeling granted by the U.S.

government to California’s almond

industry. Consumers worldwide

responded as retail sales doubled and

doubled again.

Meanwhile, innovative products for

domestic and export markets, along

with more sophisticated processing

techniques that sorted out the best

meats for premium sales, elevated

product values in the industrial side of

the business.

The future

Blue Diamond’s founders back in

1910 would undoubtedly be amazed to

see how the California almond industry

has blossomed, and their crop has

grown from under 5 million pounds in

those early years to a crop that now tips

the scales at over 1.5 billion pounds and

accounts for over 80 percent of the

world’s almond supply. They would also

be gratified to know that the co-op they

founded still leads the industry in the

21st century.

No longer just a holiday treat,

almonds are today an important part of

the American diet, and of consumers

around the globe. Those co-op pioneers

would be amazed that sales of branded

products in the last decade alone

increased an amazing 600 percent, due

in large part to Blue Diamond’s work

with the natural foods market.

“In the years ahead, Blue Diamond

will continue to develop new products

and technologies and use the expertise

gained in its century in the business to

open new markets at home and abroad

for almonds. It will do this while

ensuring that growers are the major

beneficiaries of the value their co-op

adds to the crop,” says Doug

Youngdahl, the co-op’s current

president and CEO.

On its 100th birthday, Blue Diamond

remains a prime example of what

farmers can accomplish if they stand

united and invest their resources and

time to build a strong value-added

business with top-notch management,

governed by a board of growers with

strong business skills and who never

lose sight of their ultimate

responsibility to the membership. ■

Rural Cooperatives / May/June 2010 43

America.

To build this companion economy,

we need rural communities that:

• Create wealth

• Are self-sustaining

• Retain their citizens

• Thrive economically.

Cooperatives, and their members,

can — and must — play a crucial role in

all four of these goals.

In early June, I hosted a National

Summit of Rural America: A Dialogue

for Renewing Promise on the campus

of Jefferson College, near St. Louis,

Mo. It was an opportunity for rural

residents, including cooperative

members, to share their vision for

creating a more prosperous and

promising future for rural America.

The meeting was a step in the

continuing discussion of how USDA

and cooperatives can continue their

decades-long partnership and create a

new, vibrant rural America. I look

forward to continuing this mutually

beneficial dialogue. ■

Commentary

continued from page 2

for rural America. Co-ops use these

funds to build and maintain distribution

lines, make upgrades to substations and

transformers, improve environmental

performance at generation plants, install

natural gas-fired and renewable

generation and foster energy-efficiency

efforts.

One cooperative in Colorado, for

example, is using funds to finance the

underground loops for residential

geothermal heat pumps. A cooperative

in South Dakota is lending RUS funds

to consumer members to pay for energy

audits and efficiency improvements.

The 5-percent interest loans are paid

back to the cooperative within five

years.

The recession has hit rural America

hard. Cooperatives will continue to work

hard to keep rural communities viable.

The Rural Economic Development

Loan and Grant Program (REDLG)

can assist co-ops in this goal.

Too often, critics have made attacks

on these programs that are not based on

facts. We have, perhaps, made their job

easier by neglecting to tell this story as

it should be told. As our leaders

struggle for answers in an uncertain

economic environment, perhaps they

should take a second look at the

partnership between people and the

government. ■

Celebrating the greatest

public-private partnership

continued from page 17
44 May/June 2010 / Rural Cooperatives

blank response in 2008. In 2008,

the most common age used by

local cooperatives for redemption

was 65 (23 cooperatives), with age

70 ranking second (20

cooperatives). Forty-three

cooperatives used the same age in

both studies, while 21 now have a

lower age; 15 co-ops use a higher

age for redemption.

• In 2008, 22 local cooperatives

said they use a base-capital plan

for equity redemption, compared

to 6 in 1991.

• Only four local cooperatives in

both 2008 and 1991 said that they

did not redeem equity in the

current year because only small

amounts, or no allocated equities,

were held by patrons. Little or no

allocated equity was given as the

reason for not redeeming equity

by 112 cooperatives in 1991,

while only 16 gave that reason in

2008.

• Eleven cooperatives were

financially unable to redeem

equity in the current year in both

2008 and 1991. About an equal

number of cooperatives (though

not the same ones) were

financially unable to redeem

equity: 57 in 2008, and 65 in

1991.

With the economic recession of

2009, most experts are

recommending that businesses

maintain a stronger balance sheet,

which means more equity

financing. Cooperatives most often

accumulate equity capital through

net income allocated to members as

patronage refunds. To strengthen

their balance sheets with more

equity financing in uncertain

economic times, cooperatives may

need to lengthen their equity

redemption plans. ■

Cooperatives and

combination of redemption

methods

Patrons’

Estates

Revolving

Fund

Patron’s

Age

Percent

of All

Equities

Base

Capital

Plan

Table 2—Combinations of equity redemption methods for

cooperatives reporting in both 2008 and 1991

Percent Number

Local cooperatives, 2008

Revolving fund 100.00 47.69 16.67 9.72 4.17 94

Patrons’ estates 100.00 40.87 17.31 4.81 32

Patron's age 100.00 15.63 3.13 29

% of all equities 100.00 5.36 9

Base capital plan 100.00 3

Total (Number) 216 208 128 56 18

Local cooperatives, 1991

Revolving fund 100.00 63.76 13.97 n.a. 0.87 81

Patrons’ estates 100.00 35.90 n.a. 1.28 82

Patron's age 100.00 n.a. 0.00 4

% of all equities n.a. n.a. n.a.

Base capital plan 100.00 3

Total (Number) 229 312 117 n.a. 8

Regional cooperatives, 2008

Revolving fund 100.00 15.38 7.69 46.15 15.38 5

Patrons’ estates 100.00 33.33 100.00 33.33 0

Patron's age 100.00 100.00 50.00 0

% of all equities 100.00 11.11 2

Base capital plan 100.00 1

Total (Number) 13 3 29 4

Regional cooperatives, 1991

Revolving fund 100.00 33.33 13.33 n.a. 13.33 8

Patrons’ estates 100.00 40.00 n.a. 0.00 0

Patron's age 100.00 n.a. 0.00 0

% of all equities n.a. n.a. n.a.

Base capital plan 100.00 0

Total (Number) 15 5 2 n.a. 2

n.a. = Not available for 1991

Used

Alone

Uniquely Cooperative:

Equity Redemption

continued from page 31
Rural Cooperatives / May/June 2010 45

for the antitrust exemptions? An

association of producers must meet the

following two conditions: 1) It must be

operated for the mutual benefit of its

members insofar as they are producers

of agricultural products; and 2) It must

not deal in the products of nonmembers in an amount greater in value

than such products that it handles for

its members.

• Are there any other requirements?

Yes. Farmer cooperatives have a choice

of conforming to one or both of the

following requirements: 1) No member

of an association is allowed more than

one vote because of the amount of stock

or membership capital owned, or 2)

The association does not pay dividends

on stock or membership capital in

excess of 8 percent per year.

• What are the limitations of CapperVolstead? Capper-Volstead provides

limited anti-trust exemption. Thus,

Capper-Volstead will not protect farmer

cooperatives if they: engage in

predatory practices or unfair or coercive

conduct; combine or conspire with noncooperatives or persons other than

producers to monopolize or restrain

trade; allow non-producer members in

the cooperative; or monopolize or

restrain trade to the extent that the

price of the agricultural product is

unduly enhanced.

• How is the general public protected?

Capper-Volstead protects the general

public against potential monopolization

and restraint of trade. It states that if an

association should monopolize or

restrain trade to the extent that it

unduly enhances prices of agricultural

products, an administrative hearing can

be held before the Secretary of

Agriculture, and the Secretary can order

the association to “...cease and desist

from monopolization or restraint of

trade.”

• Is Capper-Volstead still relevant?

Capper-Volstead permits farmers to get

together to collectively market their

products, which otherwise — in the

absence of the Capper-Volstead Act —

could result in antitrust action against

them. Second, it protects the general

public against undue price enhancement

as a result of any monopoly position

that a group of producers could

otherwise legally achieve under the Act.

It is not hard to see why so many

farmer cooperatives and their trade

organizations are making their presence

known at the competition workshops,

where they are discussing the role of

Capper-Volstead in the agricultural

marketplace. It is an opportunity to

educate the public about this law, and

the importance of co-ops to the nation’s

farmers.

To view submitted comments and

other presentations made at the

sessions, visit: www.justice.gov/atr/

public/workshops/ag2010/index.htm. If

you have further questions about

Capper-Volstead, contact Stephanie

Smith at: stephaniem.smith@

wdc.usda.gov. ■

Capper-Volstead Q&A

continued from page 9

the associate director, is expected to be

his successor.

The hope is that additional faculty

can be hired to participate in the

educational programs of the center as

current faculty retire or leave, even

though budget pressures will make this

a challenge. A development campaign is

currently underway to enhance the

endowment fund and to create

distinguished faculty positions to recruit

and retain faculty.

Sources of success

The ACCC’s 25th anniversary

celebration event provided information

about why, and how, the Center was

organized, who was involved and what

it has accomplished.

At the event, Barton said there are

five key sources of the Center’s past and

future success:

• “First, people make the difference.

Money was, and is, important, but

much more important is the advice

and involvement of leaders in the

cooperative community.

• Second, the vision of the founders

and their passion to see it achieved

are critical.

• Third, partnerships and trusting

relationships are essential. The

written memorandum of

understanding laid the foundation by

promising service from the Center to

the cooperative community, assuring

autonomy to be creative and

independent, and establishing a

system of accountability.

• Fourth, to achieve a challenging

vision and mission requires more than

people and partnerships. It also

requires resources. The original

endowment goal of $1 million was

achieved in 2002 and the current

endowment stands at $1.7 million. An

ambitious development campaign is

currently under way. In addition,

monetary and non-monetary

resources have been, and will need to

be, provided by numerous partners.

• Fifth, all parties have expressed

gratitude for what has been

accomplished and agree the Center

has been, and continues to be, good

for K-State and for the cooperative

community.”

For more information about the

Arthur Capper Cooperative Center, go

to www.accc.ksu.edu. ■

Filling the Gap

continued from page 12
46 May/June 2010 / Rural Cooperatives

From the June 1960 issue of

News for Farmer Cooperatives

Farmers Exchange grows steadily over 30 years

Thirty years ago, in March 1930, 400 farmers organized

the Farmers Mutual Exchange, Durham, N.C., with $1,400

in operating capital and a $10,000 line of credit. Since

renamed Central Carolina Farmers Exchange Inc., this

cooperative in 1959 did over $21 million worth of business

for its members and patrons. Marketing services accounted

for $10 million and purchasing for $11 million of its business.

Over the years, the Exchange has added services to meet

its members’ needs. Through its eight service stores, farmers

market hundreds of thousands of dollars worth of grain every

year. These farmers own a total of 200,000 bushels of grain

storage at Durham, Oxford, Roxboro and Siler City. They

own and operate three feed mills: one at Durham, one at

Siler City and a new custom-grinding and grain-storage mill

at Oxford with push button operation.

In 1959 the co-op sold more than $2.2 million worth of

livestock for its members. At its well-equipped livestock

market, it also operates an approved slaughter house and

refrigerated chilling services.

Its hatchery, with a capacity of 200,000 chicks a week,

furnishes over $1 million worth of hatching eggs a year and

supplies over 8 million chicks to broiler and market egg

producers. Net investment of the 12,000 farmer members of

the Exchange amounts to nearly $3.6 million.

From the May/June 2000 issue of

Rural Cooperatives

Saving an industry: plant closure leads

Michigan growers to form turkey co-op

When the 25 turkey growers supplying the Sara Lee plant

in Zeeland, Mich., received notice that they no longer had a

market for their birds, tough decisions had to be made. With

no local market, these growers had to act quickly or suffer

great losses due to transportation costs.

Like most farmers, these growers had weathered tight

times in recent years. For some, the closure notice was the

final hurdle and they left the business. But for 15 of them,

this was just another challenge — another chance — to gain

control of their business.

“It was really a blessing in disguise,” says Dan Lennon,

chief executive officer and plant manager. “Many of the

growers knew they would be better off and have more

security if they owned their own processing facility. But until

they actually lost their market, the option wasn’t seriously

considered.

“Transportation is tough on the birds,” he explains. “They

needed a plant close to their farms. We saw a significant

mortality loss when the birds were hauled to facilities in

other states.”

Forming a cooperative was the first step in creating a

producer-owned processing business. In October 1998, just

four months after receiving their cancellation notices, the

growers formed the Michigan Turkey Producers

Cooperative. The 15 members operate 40 farms in west

Michigan and farm more than 15,000 acres.

Michigan State University (MSU) poultry economist Allan

Rahn supplied necessary market analysis and feasibility

studies. The Michigan Farm Bureau, MSU Extension, the

Michigan Department of Agriculture and USDA Rural

Development also stepped forward to help the cooperative.

Rahn reported that in 1998, western Michigan turkey

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

were growing nearly 8 million birds a year. It is estimated

that the turkey industry in western Michigan has an

economic impact of $60 million. Ernie Birchmeier, Michigan

Farm Bureau commodity specialist, says feed consumption

for 4 million turkeys each year equates to 50,000 tons of

soybeans, estimated at $6.5 million annually, and more than 4

million bushels of corn, valued at $8.6 million annually.

Additionally, more than 200 people are employed on the

farms and 300 at the plant with a combined payroll of $10

million. Over $6 million a year is spent on purchasing poults.

The group received a $95,000 grant from USDA Rural

Development to conduct feasibility studies. The grant was

part of USDA’s Rural Business Enterprise Grant Program.

Page from the Past

From the archives of Rural Cooperatives
Rural Cooperatives / May/June 2010 47

This program is designed to help public

bodies, non-profit corporations and

federally recognized Indian Tribal

groups finance and facilitate

development of small and emerging

private business enterprises located in

rural areas.

Taking processing into their own

hands was a good thing for the

producers, says Harley Sietsema, the

co-op’s board chairman. “It forced us to

look at where we were in the food

chain. I think it was just a matter of

time, and we needed to do this anyway.”

Currently the facility is equipped for

strictly raw processing. The products

from the Michigan plant will be

marketed under the name “Legacy,” or

Golden Legacy for top products such as

breast meat; Silver Legacy for secondtier products, such as thighs and

drumsticks; and Legacy for the ground

products.

Accompanying the brand and logo is

a history of the cooperative and the

name. This story captures the long

history of turkey production in

Michigan and lists the members of the

cooperative.

“I don’t think people realize how

close this industry was to being extinct

in Michigan,” Lennon said.” Without

the diligence and the commitment of

the turkey growers to raise additional

capital, this dream never would have

become a reality. ■

buildup of inventory value, which

jumped $3.5 billion, to $12.9 billion in

2008. Farm supply, grain and diversified

cooperatives had the largest increase,

accounting for 86 percent of the

increase. On the other hand, cash

balances were down $156 million, to

$988 million in 2008.

Asset values climb

Fixed assets increased $585 million,

or 7 percent, in 2008. Rice and sugar

cooperatives were the only commodity

groups that didn’t increase their

investment in fixed assets. Diversified

and grain cooperatives accounted for

the majority of the increase.

Current liabilities shot up 29

percent, ending 2008 at $21.3 billion.

With the exception of amounts due

members, all other accounts had

substantial increases.

Amounts due members include cash

patronage refunds, equity redeemed and

other cash payment to members that

have been declared but not yet paid out.

All other current liabilities were up

between 25 and 35 percent.

Long-term debt rose by $1 billion,

to $5.7 billion at the end of 2008. This

increase, along with an additional $1.7

billion short-term debt, increased

interest expense for most cooperatives.

Minority interest (the portion of a

cooperative’s subsidiary that is not

owned by the cooperative itself)

increased 5 percent in 2008, to $498

million. Diversified and sugar

cooperatives account for 85 percent of

the Top 100’s minority interest. The

outside interest has a claim to a

subsidiary’s assets and income generated

by that entity.

Total member equity in the largest

agriculture cooperatives increased 9

percent, to $9.3 billion in 2008.

Member equity includes preferred stock

and common stock as well as equity

certificates. Unallocated equity jumped

23 percent, to $3.3 billion.

Buoyed by high commodity prices in

2008, the financial performance of the

Top 100 agriculture cooperatives was,

on balance, very strong, despite a

downturn in the overall economy. The

plunge back to earth in commodity

markets in 2009 will show starkly

different results for many of these same

co-ops when we compile this article

next year. ■

$122 billion in ’08 sales sets record for Top 100

continued from page 26

Figure 1 — Total Sales Revenue for the Top 100 Agriculture Cooperatives:

2007

2008

50

45

40

35

30

25

20

15

10

5

Sales Revenue are in Billions $

Cotton

Dairy

Diversified

Fruit/Vegetable

Farm Supply

Grain

Poultry/Livestock

Rice

Sugar

Commodity Group
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