Rural COOPE

January / February 2015

RATIVES

Page 22

CONFERENCE CO-OP FARMER

Stacks of Ideas at
By Dan Campbell, editor 

In its effort to help increase understanding

and use of the cooperative business system,

USDA Cooperative Programs distributes

more than 100,000 co-op education

publications annually. One day we might be

shipping 100 copies of “Co-ops 101” and “How To Start a

Co-op” for a university agribusiness

class or for a co-op youth conference;

the next order could be for half a

dozen copies of our five-volume set of

books on co-op tax law needed by a

law office representing cooperatives,

or it could be 20 copies of our guide

on co-op bylaws and extra copies of

Rural Cooperatives magazine for the

directors of a newly formed co-op. 

Orders come from around the

world, as was the case a few weeks

ago when two teachers in East Africa

requested co-op publications for

classes they were leading. 

USDA has been producing and

distributing co-op education and

research materials for about 97 years

in an effort to make more people

aware of the many ways cooperatives

can help them and to help improve the operations of existing

co-ops. In addition to hard copies, all of our publications are

now posted on the Web, which has vastly expanded our

outreach across the nation and all around the globe. 

It’s not surprising then that a recent survey by the

Cooperative Foundation found that USDA is the nation’s

major source for co-op education materials (see page 26).

But, it also found that many co-op educators feel that many

of our publications are in need of updating, especially when it

comes to graphic presentation. Survey respondents also saw a

need for simulations and other interactive materials and for

greater use of diversity in examples. 

Great minds think alike! We have just completed major

overhauls on our three most widely circulated co-op

publications and plan to do the same with others. This is

especially important for publications used in schools and for

youth groups, where visual appearance is so important to

capturing and holding their attention. 

“Co-ops 101” recently got a complete makeover, with

expanded editorial content and color illustrations on nearly

every page spread. We’ve just produced a companion volume,

called “Co-op Essentials,” which revamps some older

publications, again with attractive photos throughout. Within

the next month or so, we will also be offering a revamped

version of “How To Start a Cooperative,” with expanded

editorial content and improved graphic presentation. 

A recent report about food hubs is

another example of a publication

produced with an eye to visual

presentation; there will be more

publications dealing with food hubs

in the year ahead. 

Like many of your co-ops, we are

working with reduced staffing levels

and travel budgets, so the willingness

of co-ops all across the nation to

share their photos for these booklets,

and for use in USDA’s “Rural

Cooperatives” magazine, is making

this effort possible. 

One interesting finding of the Coop Foundation survey was that co-op

educators see a major need for more

“mid-level” education pieces —

information that goes beyond co-op

basics, but not written at a research

or academic level. The survey found that there is demand for

more information on cooperative legal framework, financial

and human resources issues. 

Of course, co-op education takes many forms, not only for

students and co-op novices, but also for the men and women

who run established co-ops and who need to keep on top on

industry trends, changes in the marketplace, new regulations,

etc. 

There is no better way to do that than by attending the

annual Farmer Cooperatives Conference. This has become a

“must see” event for agricultural co-op leaders since it was

launched in 1998. You can read highlights of the most recent

conference beginning on page 22 of this issue. 

The conference was established in 1998 by the University

of Wisconsin Center for Cooperatives. It annually provides a

forum for cooperative directors, management and those

doing business with agricultural cooperatives to learn and

2 January/February 2015 / Rural Cooperatives

Commentary 

Spreading the word about co-ops

continued on page 36
Features

Rural Cooperatives / January/February 2015 3

Volume 82, Number 1

January/February 2015

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

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of public business required by law of the

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

send address change to: Rural

Cooperatives, USDA/RBS, Stop 3255,

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signify endorsement over other

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Unless otherwise stated, articles in this

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

necessarily reflect those of USDA or its

employees.

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status, familial status, parental status,

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To file a complaint of discrimination, write

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USDA is an equal opportunity provider

and employer.

Tom Vilsack, Secretary of Agriculture

Lisa Mensah, Under Secretary,

USDA Rural Development

Dan Campbell, Editor

Stephen A. Thompson, Assistant 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.

04 Forging a Self-help Network 

Co-op principles help bring local meat to market

By Kathryn Quanbeck and Lauren Gwin

08 Investing in Knowledge 

Sunrise Cooperative voplume builds digital resource center for members

14 Farmer Co-op Conference ‘14 

Demand for sustainably produced foods among key issues confronting co-op leaders

By Lynn Pitman

19 Proposed changes in USDA’s B&I program could aid in

development of new co-ops 

By Bruce J. Reynolds

22 Survey results shed light on dairy co-op financial performance

By Carolyn Liebrand

26 Required Reading

Study sees need for updating co-op education publications, more mid-level materials

By Margaret M. Bau

28 Resolving Member Conflicts 

Stakes are raised when an unhappy customer is a member-owner

By Thomas Gray

Departments

02 COMMENTARY

11 CO-OPS & COMMUNITY

12 IN THE SPOTLIGHT

20 LEGAL CORNER

30 UTILITY CO-OP CONNECTION

32 NEWSLINE

p. 4

ON THE COVER: Cheese is aged at an Arla Foods

facility. The Scandinavian-based dairy foods co-op

shared insight into its equity structure, board governance

and approach to sustainability during the most recent

Farmer Cooperative Conference in Minneapolis.

Conference coverage begins on page 22. Photo courtesy

Arla Foods

p. 8 p. 22
By Kathryn Quanbeck and Lauren Gwin

Editor’s note: Quanbeck is program

manager and Gwin is director with the

Niche Meat Processor Assistance Network

at Oregon State University in Corvallis,

Ore.

Farmers, ranchers and

others seeking to build

markets for local meats

often say that limited

processing

infrastructure is a significant bottleneck

that restricts the flow of local meat and

poultry to market. This belief usually

results in a call for more processing

plants to be built. 

At the same time, existing small meat

processors say that they often lack the

steady, consistent business required for

profitability. All too often, new

processing ventures struggle or fail due

to lack of enough livestock to process. 

What is to be done to overcome

these issues? 

The Niche Meat Processor

Assistance Network (NMPAN) has

found that cooperation across the local

meat supply chain is essential for its

success. Farmers, ranchers, processors,

distributors and supporting

organizations that adhere to cooperative

principles are the most likely to be

successful. 

NMPAN is a national network of

people and organizations creating and

supporting appropriate-scale meat

processing infrastructure for niche-meat

markets. Its mission is long-term

stability and profitability for both

processors and the producers who

depend on them to market sustainably

raised meats. NMPAN combines an

information hub with a multi-faceted

community of practice and peer-to-peer

learning (see sidebar for more about

NMPAN). 

What are niche meats? Locally

raised, certified organic, grass-fed, no

hormones or antibiotics, certified

humane — we use “niche” very broadly

to refer to many types of market

differentiation.

While not always organized in

formal cooperatives (although many are,

such as Country Natural Beef, Organic

Prairie and the Island Grown Farmers

Cooperative, to name just a few), most

of those involved in local meats say that

operating on cooperative principles is

very important in forging business

relationships of commitment. 

What do we mean when we refer to

“relationships of commitment?” Our

recent research report, Local Meat and

Poultry Processing: The Importance of

Business Commitments for Long-Term

Viability (published by USDA’s

4 January/February 2015 / Rural Cooperatives

Co-op principles help bring

local meat to market

FORGING A SELF-HELP NETWORK
Rural Cooperatives / January/February 2015 5

Economic Research Service), explains

why a shift from relationships of

convenience to relationships of

commitment is essential for the longterm persistence of processors and the

local meat sector. 

For farmers, relationships of

convenience can be thought of as: “I’ll

call you when I have animals to

process.” For meat processors, their

perspective in such a relationship often

is: “I’ll process for you if I have an

opening.” In a relationship of

commitment, on the other hand, each

party promises to deliver for the other,

and then consistently follows through

on the promise. 

With commitment the dialogue

might look more like: Farmer: “I’ll

bring five head every week.” Processor:

“I’ll process them to your specs, on

time, at high quality.”

Commitment requires

communication about needs, roles and

responsibilities — an “if you promise to

do X, I will promise to do Y” approach.

It also necessitates ways to measure

whether promises are met. Our research

strongly suggests that shifting toward

commitment, away from convenience, is

the key factor in maintaining and

expanding processing for local meats. 

We can see relationships of

commitment in action in processing

plants such as Lorentz Meats and with

co-ops such as the Island Grown

Farmers Co-op.

Lorentz Meats: anchor tenants

allow processors to serve

smaller producers

Lorentz Meats is a USDA-inspected

processor in Cannon Falls, Minn., that

offers slaughter, fabrication, packaging

and value-added production (portion

cutting, sausages and cured meats) on a

fee-for-service basis for niche meat

brands and independent farmers. It

processes beef and bison, currently

handling more than 8,000 head per

year. 

In 2000, believing that there was

enough local business to justify doing

so, it built a new, USDA-inspected

facility. Lorentz Meat’s first five years in

the new plant are now referred to as

“The Dark Days” by the plant owners.

Starting with a $2 million plant,

$500,000 in equipment and $100,000

operating capital, the business lost more

than $1 million in three years. It was on

the brink of bankruptcy in early 2005. 

“We went into this with a ‘build it

and they will come’ mentality, and that

was a terrible idea,” explains Mike

Lorentz. “You cannot base a facility of

this size only on what small-scale, direct

marketers bring you. You need key

customers that will be there every week

with real volume.”

The Lorentzes found their first key

customer in Organic Prairie, the meat

brand of the Organic Valley/CROPP

Cooperative. They began by processing

a dozen cattle per week for Organic

Prairie, gradually increasing to the

current 35-40 per week. Yet, it took the

addition of two other key customers —

High Plains Bison and Thousand Hills

Cattle Co. — and the gradual growth in

business with all three of these key

customers to create a positive cash flow

for Lorentz Meats (achieved in late 2005).

Today, Lorentz Meats knows it will

have livestock to process each week

because its three largest meat company

customers must deliver fresh product

on a weekly basis to their retail and

wholesale customers. This pressure,

Mike Lorentz says, is “better than any

contract,” because “market pressure is

stronger than legal pressure.” 

For its part, Lorentz Meats not only

delivers high-quality products, but also

goes through a number of third-party

audits annually to meet the needs of key

customers. Passing audits, maintaining

certifications and meeting retailer

specifications have required investments

in specialized equipment — including a

metal detector and packaging machines

— as well as in new expertise.

The three key customers make up

about 65 percent of Lorentz Meats’

business volume. About 200 local direct

marketers make up about 20 percent of

the business volume. The other 15

percent comes from a handful of

smaller brands and co-pack sausage

customers. Lorentz Meats is committed

to working with small-scale local

farmers, yet is very aware that it could

not offer this level of service and

sophistication without having “anchor

customers” that sell comparatively large

volumes, regionally and nationally.

A cooperative approach to

scheduling — ensuring that throughput

is consistent and steady — is also

essential to success. Lorentz Meats and

its three key customers are in constant

communication about scheduling and

have verbal agreements regarding how

many head of livestock each customer

will bring for processing each week.

These customers do their best to give

Lorentz as much lead time as possible if

“If you have enough capital, you can lose money

in the first year. We had to break even because

we didn’t have money to lose.”

Processing sausage for a local market.
6 January/February 2015 / Rural Cooperatives

there will be a change in plans, because

they understand that if they give up

their weekly slots, Lorentz can give

them to someone else. 

Thursdays are dedicated entirely to

processing for local direct marketers.

Lorentz Meats asks producers for a

commitment, but allows them

flexibility. Six months out, producers

must choose the month they will bring

their livestock. One month out, they

must choose the specific week. Even

with 200 local processing customers,

“Local Thursdays” are not always full.

Every February or March, at least one

Local Thursday is skipped.

Island Grown Farmers Co-op:

processing facilities need

committed scheduling 

While it is largely known for

operating the first USDA-inspected

mobile slaughter unit (MSU) in the

nation, the Island Grown Farmers

Cooperative (IGFC) has been successful

for reasons beyond its MSU operation.

The other factors include overall farmer

commitment to the co-op’s success and

its scheduling system, ensuring that: (a)

the unit is fully utilized, and (b) farmers

can get the slots they need. These

aspects of their business are not at all

limited to mobile units. 

IGFC’s MSU serves five northwest

Washington counties, as well as a small,

fixed-location cut and wrap facility in

Bow, Wash. IGFC is a service

cooperative, providing processing on a

fee-for-service basis for members. 

The co-op handles beef, bison, lamb,

goat and hogs. IGFC has 60 members,

all located within a 50-mile radius of

the plant (or a 1–2 hour drive), the

largest area the MSU can serve

efficiently. About half of the livestock

are raised on the mainland, while the

other half are raised on three of the San

Juan Islands, off the northern coast of

Washington. 

Most members raise and sell fewer

than 50 head of beef per year, while a

few members market 100 to 200 head

per year. Most sell through the standard

set of local retail and wholesale

channels (farmers’ markets, restaurants,

grocery stores and farm stands).

In 1996, livestock farmers in San

Juan County, Wash., became interested

in local meat marketing but lacked a

cost-effective way to transport their

animals to mainland processing

facilities. They considered building a

small slaughter and processing plant on

one of the islands, but at each site they

considered, a neighborhood group

immediately formed in opposition.

They learned about the MSU

concept from Broken Arrow Ranch in

Texas and partnered with the Lopez

Community Land Trust (LCLT) to

have an MSU built. The farmers

formed the Island Grown Farmer’s

Cooperative to lease the MSU from

LCLT and operate it for IGFC

members, who market independently. 

The co-op received a USDA grant of

inspection in 2002 and began operating

the MSU, along with a leased cut-andwrap facility.

Central to IGFC’s success is that its

members have very few other options

for inspected slaughter and processing.

They all need the system to work and

have been willing to provide financial

support. The broader community also

provided start-up financing and

support.

Once the MSU was built, the 30

original IGFC members each made an

initial equity investment of $600. Since

then, the MSU has been financed solely

by processing revenues, including a perhead “equity retain,” or surcharge,

which can be used for capital

improvements. Early on, members also

made loans to IGFC to purchase

equipment and for other needs when

banks — which judged the venture

quite risky — only offered financing at

very high interest rates.

This commitment extends to paying

the true cost of services. The fee

structure is set to break even or

generate a small profit, which can be

reinvested in the business. Annual

revenues and operational costs are

balanced at about $500,000. 

IGFC’s original prices, based on

what other plants in the region were

charging, were too low. After six

months, the co-op was losing money

and had to raise prices, as has been

done several times since. For example, a

10-percent fee increase in 2008 covered

rising fuel costs and health insurance

and raises for employees. 

As IGFC farmer Bruce Dunlop

explains, “If you have enough capital,

you can lose money in the first year. We

had to break even because we didn’t

have money to lose.”

The Island Grown Farmers’ Cooperative (IGFC) mobile slaughter unit makes a stop at a ranch in

northwest Washington. IGFC is a service cooperative, providing processing on a fee-for-service

basis for members. Photo courtesy IGFC 
Rural Cooperatives / January/February 2015 7

Like most processors, IGFC needs

steady throughput of livestock to make

the best use of its facilities and skilled

employees. As a local processor that

handles a large number of grass-fed

livestock, it also faces significant

seasonal variation in demand for

services. 

IGFC has addressed these problems

with a scheduling system that takes

advantage of the fact that, as a

cooperative, it must hold an annual

meeting. At this meeting, the co-op sets

the entire slaughter schedule for the

coming year. Members who attend the

meeting get to choose their dates first.

Members who don’t attend the meeting

must choose from the remaining dates.

The system necessarily requires

guesswork on the part of farmers.

“Sometimes, particularly with hogs,”

Dunlop explains, “you’re scheduling

slaughter dates for animals that have

not yet been born.” 

Beef farmers must estimate when

their cattle will be fat enough for

slaughter. If necessary, the schedule is

adjusted about a month before a set

date, working through the scheduler to

swap dates with another member.

Larger farmers are often able to

accommodate shifts needed by smaller

farmers. This is helpful, allowing

producers some flexibility. “When

[smaller farmers] don’t have flexibility,

[others] recognize that and... move

[their] stuff to the front of the line,”

says Dunlop

IGFC also uses financial incentives

to spread the work over the year,

offering a 10-percent discount for any

slaughter in the slow period —

February through April — and a flatrate discount to process animals

(typically herd culls) that will be

processed into ground meat or that can

be held past the busy fall period. 

“We recognize that it costs

something to do that, and it’s a bit of a

hassle. But the discounts work,” Dunlop

says. IGFC also penalizes farmers who

aren’t ready when the MSU shows up at

their farms. 

“If we have to turn around and leave,

they get billed,” he explains. “We don’t

like assessing penalties, but as soon as a

producer knows that he’s going to get

charged for not having his animals

ready, the problem tends to go away.”

At this time, IGFC intends to stay at

its current size, both in terms of the

number of members and the number of

livestock/pounds of meat processed

annually. A processing capacity has been

reached that fits the scale of the MSU,

the cut-and-wrap operation, the staff

and the members’ needs.

Cooperation and commitment

The relationships in place at both

Lorentz Meats and IGFC represent

relationships of commitment: strong,

reliable and consistent business

commitments between small processors

and livestock producers. Steady

throughput is what supports local

processing plants and helps them to

expand their services and their

businesses. 

The two case studies shared here are

an excerpt from a longer report, Local

Meat and Poultry Processing: The

Importance of Business Commitments for

Long-Term Viability. The report includes

12 case studies, including 7 successful

processors and 5 public-private

collaborations that support local meats

processing. The case studies and full

report are all available on the NMPAN

website: www.nichemeat

processing.org/research. ■

Operating since 2007, the Niche Meat Processor Assistance Network

(NMPAN) is a national network of processors, producers, universities, agencies

and non-government organization (NGOs) working together to build the

processing infrastructure essential to local and regional niche meat markets.

NMPAN’s advisory board is drawn from industry, academia, NGOs and

government. 

NMPAN, which is housed at Oregon State University within the Center for

Small Farms and Community Food Systems, helps support: 

• Peer learning and information sharing – for processors, producers and

technical assistance providers – through a dynamic listserv, advisory board,

and newsletter;

• Online resources and tools for processors, including business planning and

management, dealing with federal and state regulations, food safety issues,

and other essential operations (www.nichemeatprocessing.org and NMPAN

webinars);

• Applied research to identify systemic challenges and solutions for this sector,

most recently: Local Meat and Poultry Processing: The Importance of

Business Commitments for Long-Term Viability (published by USDA’s Economic

Research Service);

• Targeted technical assistance for small plants and their producer-clients

engaged in local and regional markets for sustainable meat and poultry.

To receive the NMPAN monthly newsletter and other e-mails, subscribe via

its listserv. Go to its website — www.nichemeatprocessing.org — and enter

your e-mail address where it says “NMPAN on Google Groups” (on the right

hand side of the web page). Then click “subscribe.” 

How NMPAN supports local infrastructure
8 January/February 2015 / Rural Cooperatives

Editor’s note: This article was provided

courtesy Sunrise Cooperative, a full-service,

farmer-owned cooperative in northwest

Ohio. Sunrise serves about 3,100 memberowners. The co-op operates multiple

agronomy, grain, energy and feed locations

in Ohio. 

Farmer cooperative

leaders know keeping

pace with their

members is vital to

staying successful in a

competitive environment. Making

investments in operations, facilities and

people is crucial in the quest to remain

competitive. 

But what about the less tangible

services of a cooperative? Does

investing in information and data

services yield the same results as

investments in infrastructure? Sunrise

Cooperative of Fremont, Ohio, invested

in developing its information services

two years ago, and today the co-op is

seeing the return.

Filling a service gap

In 2012, Sunrise took a close look at

the competitive landscape in its region,

looking for a service gap the co-op

could fill. Farmers’ need for improved

data management services soon became

apparent. There was no lack of available

information. Rather, the need was for a

system of organizing and providing

relevant information to farmers in an

easy-to-use way. 

Sunrise developed a new approach to

gathering and disseminating

Investing in Knowledge

Sunrise Cooperative builds digital 

resource center for members
Rural Cooperatives / January/February 2015 9

information to its key customers, which

it calls the Sunrise Knowledge Network

(SKN). SKN is an innovative digital

platform that provides timely

agronomic and marketing information

through ipads, smartphones or desktop

computers. The suite of information

contains everything from real-time

weather and market news, to weed and

pest identification, farm management

tips and advice, and a host of other

topics relevant to producers in

northwest Ohio.

“Traditionally, when we invested to

keep up with our members, we invested

in facilities or equipment, looking to

deliver speed and efficiency to our

growers,” says George Secor, CEO of

Sunrise Cooperative. “While these

investments are necessary, we

discovered there was a need for

investment in education and resources

as well.”

The Sunrise staff, along with its

marketing agency — Farmer, Lumpe +

McClelland (FLM+) — produced more

than 140 educational videos which it

has posted on the SKN website, all of

which are relevant to farmers in its

region. Members see and hear a local

approach on specific topics, making the

information relevant to their farms.

This approach is especially helpful

when developing weed- and diseasemanagement strategies. 

“When we identify a new or

emerging plant disease in our area, or

we find that growers are struggling with

particular pests, we can post

information directly to the SKN to help

our growers address the problem in real

time,” says Bill Bever, Sunrise sales

agronomy manager.

“Pinning” feature 

relays local data 

A unique feature allows growers to

use the SKN website to gather growing

and harvesting information about

specific fields. Using test plots and

individual member data, Sunrise drops

“pins” on a digital map that is

populated with current field data.

Members simply click on a pin in their

region to see local activity. 

“One of the greatest advantages of

the SKN is getting our information in

the hands of the people who need it —

our members,” Bever adds. We have the

information, like yield data, pest and

weed identification. The challenge is

getting it to our members in a timely

way. The SKN creates a quick and

efficient way to disseminate the

information.” 

SKN is used as an incentive

program, offered to those members

who do a substantial portion of their

business with Sunrise. These key

members are given an ipad and

exclusive access to the SKN.

“Offering the SKN to only key

customers is a bit of a different

approach for us, but we felt the

investment in the technology was too

great to not give it a sense of value

among the users,” Secor says. “Loyalty

incentives are nothing new in our

business; this is just a different approach

— using information.” 

It’s an approach that is paying off. In

the first year offering SKN, the co-op

had 40 members enrolled. By 2013, the

number had doubled to 80.

“We believe customer loyalty is

important and something to be

To help meet farmers’ need for improved data management services,

Ohio’s Sunrise Cooperative developed the Sunrise Knowledge Network.

Facing page: Grower Doug Keegan (left) scouts his corn field with coop agronomy consultant Joe Steinberger. Above, grower Roger Perkins

(left) and agronomy consultant Brian Rhodes discuss strategies for

improving his crop. Photos courtesy Sunrise Cooperative
10 January/February 2015 / Rural Cooperatives

rewarded,” Secor says. “The SKN gives

us a chance to say ‘thank-you’ to our

most loyal customers, with an

innovative tool they can use to stay

current in their business.”

Sales and training

In addition to the member service

side of the digital platform, a platform

has also been built for co-op employees.

The videos serve as training guides for

the agronomy team, as well as offering

ongoing information and dialogue for

the sales and marketing team.

“Our employees need to be kept

informed, just like our members,” Secor

says. “Giving the employees access to

the SKN and building an employee side

allows them to stay in step with our

members. The employees can also use

the SKN on member farms that may, or

may not, currently be in the program.”

Sunrise employees also work with

members to help them use the ipads,

showing them how to navigate through

the SKN and explaining the unique

features of the program.

“We quickly learned that our first

role in customer service was teaching

growers to use the ipads,” Bever says.

“We met with members at their farm

offices or homes to show them how to

use the ipads and how to get the most

from the SKN.” 

Co-op sales consultants use SKN as

a resource when they are out in a

customer’s farm fields. Sales staff can

access relevant information about the

customers’ fields and readily access

variables needed to troubleshoot

problems or offer solutions to maximize

productivity. The SKN also hosts a

library of safety videos offering valuable

information for farm employees.

“Having real-time information gives

our agronomy team valuable

information to make accurate

recommendations to our members,”

Bever says. “In addition to the

information, if necessary, the agronomy

team member can use a supporting

video or neighboring plot information

to build on the recommendation — all

available in one spot through the SKN.”

Going forward, the Sunrise team

plans to continue enhancing the SKN

to meet changing customer needs. “We

feel we have just begun to tap the

potential of the SKN,” Secor says. “We

continually look for ways to enhance

the program and use it to help our

members be successful and productive.”

■

Sunrise Cooperative has produced more than 140 educational

videos that are posted on its website to benefit members such as

Rich Smith (left), seen here consulting with the Craig Houin, the

co-op’s lead data manager.
Rural Cooperatives / January/February 2015 11

Co-ops & Community

N. Dakota electric co-ops, USDA

help meet need for daycare center

By Mary Stumpf, Rural Development

Assistant

Rural Electric and Telecommunications

Development Center

Photos by Neal Shipman

Editor’s note: The “Co-ops &

Community” page spotlights co-op efforts

that fulfill the mission of commitment to

community. If you know of a co-op, a co-op

member or co-op employee whose efforts

deserve to be recognized on this page, please

contact: dan.campbell@wdc.usda.gov. 

Question: What do you

get when you combine

a small town with an oil

boom and an

immediate need for

childcare services? Answer: A mutually

owned day care center in the

community of Watford City, N.D. 

Wolf Run Village Inc., a nonprofit

corporation, is located in Watford City,

N.D., where it is in the heart of oil

country. Wolf Run Village was formed

in July 2012 by a group of local city,

county and school officials as a means

for providing affordable housing and

additional day care capacity. 

The city’s sudden increase in

population due to oil activity has

created a substantial shortage in

childcare services. There were no

private entrepreneurs stepping up to

the plate. So, to fill this need, Wolf Run

Village established Wolf Pup Daycare

center, a facility with enough capacity

to care for nearly 200 children, ages 6

weeks to 12 years old. 

As a nonprofit corporation, the goal

for the daycare center (other than

providing children with a safe learning

environment) is to keep the care fees as

low as possible while paying a living

wage to workers. Due to the high cost

of living in this area, the nonprofit will

be actively fundraising in order to

provide need-based scholarships in the

future to children of lower income

families. 

The new construction of this stateof-the-art daycare facility would not

have been possible without a USDA

Rural Economic Development Loan

secured by Reservation Telephone

Cooperative of Parshall, N.D. daycare

facilities in North Dakota have a

difficult time “cash flowing” due to the

high cost of labor. The zero-interest

loan helped achieve a positive projected

cash flow position. 

We were saved by the bell on this

one. The news was incredible,” says

Katie Walters, the daycare center’s

project manager. The facility includes a

commercial kitchen and a multipurpose indoor/outdoor play room.

The entire upper floor will be dedicated

to preschool classrooms to

accommodate about 80 children. 

“It’s almost a job development issue,”

says Walters. “If you don’t have

daycare, you can’t hire the people you

want to hire.”

Even though families of about 1,000

children are seeking child care, this new

facility will have a substantial impact in

the community.

The Rural Electric and

Telecommunications Development

Center’s vision is to help foster an

indispensable network of member

cooperatives that enrich the lives of

their consumers and the communities

in which they live. The center is a

North Dakota cooperative development

center hosted by the rural electric and

telecommunications cooperatives in the

state. The center (commonly referred

to as “statewide”) was formed in 1958

and works with the state’s network of

electric cooperatives to provide a

complete package of quality services in

communications, government relations,

safety training, professional

development and economic

development.

Membership in the association is

voluntary. It is offered to any electric

cooperative organized for the purpose

of operating electrical generating plants

or transmission and distribution systems

in the state of North Dakota. The work

focuses primarily on providing technical

assistance to emerging and expanding

rural cooperatives and mutually owned

businesses. ■
12 January/February 2015 / Rural Cooperatives

In the Spotlight 

Economist Charles Ling reflects on 

40 years of changes in dairy co-op sector

Dr. K. Charles Ling,

USDA Cooperative Programs’

lead dairy economist, retired

Jan. 2 after more than 40 years

of government service, most

of it spent working with dairy

cooperatives. He began his

career in 1974 as an

agricultural economist with

the then Federal Milk Market

Order No. 2 (New York-New

Jersey Milk Marketing Area).

Ling joined USDA

Cooperative Programs in

1978. 

He received a Superior

Service Award from

Agriculture Secretary John R.

Block in 1985 and was named

by his peers as the “2009

USDA Economist of the Year”

in January 2010. Prior to his

retirement, Rural Cooperatives

asked Ling to share some of

his reminiscences and

thoughts about four decades

of working with dairy co-ops.

Question: What are some of the most

satisfying aspects of your career

working with dairy cooperatives?

Answer: It has been a pleasure

working with dairy farmers, the staffs of

their cooperative organizations, and

colleagues, both inside and outside of

USDA. I am also grateful for the

longstanding support of Cooperative

Programs Administrator Randall E.

Torgerson (now retired).

There has never been a dull moment

working with dairy cooperatives in a

very dynamic industry. It gives me a

sense of accomplishment when they

take my work seriously and find the

information I provide useful. 

My work has taken me to numerous

small towns and large cities across the

country to visit cooperatives, farms and

dairy plants. It has been a privilege and

a wonderful opportunity that has helped

me to appreciate the vastness of this

land and the diversity of the people.

Being recognized for my work is also

satisfying — such as being called upon

to testify at a number of Federal Milk

Market Order hearings over the years.

Last year, I was surprised when the

Organization for Economic

Cooperation and Development

(OECD) invited me to make a

presentation on “Farmer Cooperatives

and Value Creation: The Example of

Dairy Farmers in the United States.”

The presentation was the culmination

of my lifetime experience working with

dairy cooperatives. (Editor’s note: a

summary of the presentation, “Essential

Economic Roles of Farmer Cooperatives”

can be found in Cooperative Information

Report 65, pages 4-8; a Web address is

provided later in this article.)

Q. What are some of the significant

changes in the dairy industry and

dairy cooperatives that you have seen

during your career?

A. It is probably not an

overstatement to say that the dairy

Charles Ling
Rural Cooperatives / January/February 2015 13

industry has changed beyond

recognition over 40 years. The main

driving force has been technology

advancements in producing, handling,

processing and manufacturing milk and

milk products. 

Briefly, these are the major industry

changes I have observed:

• The complete transition from milk

cans to bulk-milk deliveries, enabling

long-distance hauling, wide-area

coordination of milk movement, and

fewer, but larger scale, milk-processing

plants.

• A westward shift and expansion of

U.S. milk production. Dairy farms in

the West tend to have very large herds,

and it is now the nation’s major milkproduction region. 

• Revitalization of the dairy industry

in the more traditional (Midwest and

Northeast) dairy regions as a result of

new investment in dairy infrastructure

(including farms, plants, innovation,

technology, and public policy supports,

etc.) and new product development. 

• Fewer, larger dairy farms that

produce ever-larger amounts of milk.

• Farm-income support has evolved

from government support prices being

the “market-clearing” prices, to a

situation where farmers largely relied

on the market for support, and now to a

system where margin insurance and

protection programs have replaced the

price-support and related programs.

• Market orientation provides

incentives to the processors to diversify

milk product mix and gives the industry

its vibrancy.

• Shifts in consumer taste and

preference that spur the incipient

development and growth of the organic

milk market and artisan dairy products. 

• Growing commercial export sales

that now account for about 15 percent

of milk solids produced by farmers.

This is a far cry from when export

volumes were insignificant, mainly

viewed as an outlet for disposal of

surplus milk.

• Dairy cooperatives now handle

more than 80 percent of the nation’s

milk and have helped to lead industry

changes. Cooperatives have undergone

numerous mergers and consolidations

to rationalize their organizational

structures and to create highly efficient

operations, as necessitated by changing

market conditions.

• The nation’s largest dairy

cooperative has around 10,000 dairyfarmer members operating in all 48

contiguous states. It is the world’s

leading dairy firm, in terms of milk

volume handled.

Q. In the past several years, you have

produced a series of reports and articles

focusing on the nature of the

cooperative. What is the essence of this

work? (Editor’s note: Cooperative

Information Report 65 and Research

Reports 221 and 224 are posted at: http://

www.rurdev.usda.gov/BCP_Coop_Library

OfPubs.htm.)

A. In the past few years, I set out to

explore the possibility of clarifying

some widely proclaimed cooperative

principles and theories that had

confounded me for quite some time.

This work benefited from the real-life

perspective that I gained while working

with dairy cooperatives.

I systematically reviewed economic

literature and traced the evolution of

cooperative theory backward, until I hit

upon the first academic paper on

cooperatives: “The Economic

Philosophy of Co-operation,” published

in the American Economic Review, by

Edwin G. Nourse in 1922. Emerging

from this paper and his later work are

these two key roles cooperatives play in

the marketplace: (1) Cooperatives allow

farmers to create business organizations

of sufficient size to exercise

countervailing power; and (2)

Cooperatives are a means for farmers to

promote and maintain competition —

to serve as the competitive yardstick of

efficient operations.

In his 1942 book, Ivan V. Emelianoff

has this very clear definition of the

economic structure of cooperative

organizations: “Cooperative

organizations represent the aggregates

of economic units.” What naturally

flows from this definition are what are

often called “cooperative principles,”

such as: members own, members

control, members use and members

benefit from the cooperative. It also

follows that proportionality and service

at cost are two basic working principles

of cooperatives. Understanding this,

other cooperative practices also become

clear, a prime example being single

taxation on cooperative patronage

earnings (or net savings). 

As an aggregate of economic units,

the cooperative is a unique business

organization, with its own form of

corporate governance, equity financing

and member-oriented operations.

Variations of the cooperative business

model constitute a continuum onto

which each cooperative, and each type

of cooperative, falls. Starting with its

position in this continuum, a

cooperative can be further analyzed.

Being an aggregate, the cooperative

is neither vertically nor horizontally

USDA economist Charles Ling tours a

cooperative milk bottling plant.

continued on page 37
14 January/February 2015 / Rural Cooperatives

By Lynn Pitman, Outreach Specialist

University of Wisconsin Center for

Cooperatives

Editor’s note: Speaker presentations from

the 2014 Farmer Co-op Conference, as well

as information about the 2015 conference,

are available at: www.uwcc.wisc.edu.

Food and agricultural

issues are connecting

producers and

consumers all across the

supply chain in new,

and sometimes challenging, ways. The

17th annual Farmer Cooperatives

Conference, held in Minneapolis in

November, gave cooperative leaders the

chance to identify opportunities at the

intersection of sometimes radically

different perspectives on how food and

fiber should be produced. 

Increasing demand among many

consumers for food that can be branded

“sustainable,” for example, was a

primary topic addressed from a number

of perspectives during the conference. 

The two-day event attracted co-op

leaders from across the nation.

Presentations on other topics of vital

interest to cooperatives — including

transportation, equity- management

practices and cooperative governance —

rounded out the program.

Following are some highlights from

presentations made during the event. 

The “radical center”

How do you get diverse food and

agriculture groups, with seemingly

competing interests, to work together?

The conference kicked off with a

presentation by Deborah Atwood, the

executive director of the AGree project

at the Meridian Institute in

Washington, D.C., which is working to

answer that question. 

AGree brings leaders of stakeholder

groups together by first defining the

economic, environmental, health and

social goals of both farmers and

consumers. To find the “radical center,”

from which a consensus on these issues

can emerge, it’s important to identify

people who are willing to hear all sides

of an issue and identify opportunities

and challenges, Atwood said.

AGree is initially focusing on

initiatives relating to immigration

reform, production practices and the

environment, food and nutrition, and

international development. 

Chuck Connor, president and CEO

of the National Council of Farmer

Cooperatives in Washington, D.C.,

took a look at how sustainability issues

are affecting farmer cooperatives. For

many farmers, “sustainability” translates

as “governmental regulations,” he

noted. Farmers often perceive

environmental-related regulations as

being impractical and handed down by

people who don’t understand the

economics of food production. 

The three pillars of sustainability —

environmental stewardship, long-term

economic viability and good

neighbor/community responsibility —

are all areas in which farmers and their

co-ops are already active, Conner said.

Farmers are quick to adapt new

technology that can support both

production efficiency and sustainable

natural resources management. 

Conner noted that markets, not

government agencies, are driving the

demand for different food systems.

Farmer co-ops must find a way to

respond to this market demand on their

own terms, and they have much to

contribute to the conversation on

sustainability.

Bill Buckner, president and CEO of

the Samuel Roberts Noble Foundation

in Ardmore, Okl., reminded the

conference attendees of the strategic

role that soil health plays in

sustainability practices. The “Green

Revolution” brought increased

productivity through plant breeding

and soil inputs, but, in the long run,

this occurred at the expense of soil

health, he said. The Soil Renaissance

program, a joint project with the Farm

Foundation, focuses on soil health as

the cornerstone of land-use

management decisions. 

Questions about sustainable

production practices are here to stay,

and it is up to the producers to help

define these standards, Buckner noted.

As soil research continues and soiltesting standards change, cooperatives

have an opportunity to provide trusted

agronomy and related services to

support farming practices that support

healthy soils.

“You can’t sell what 

customers won’t buy”

Greg Wickham, senior vice president

for business development at Dairy

Farmers of America (DFA), described

how an industry-wide Sustainability

CONFERENCE CO-OP FARMER

Demand for sustainably

produced foods among

key issues confronting

co-op leaders
Council has responded to sustainability

demands by developing a guiding vision

for the dairy food system. These

principles are based on supporting the

health and well-being of consumers,

farmers, communities and the

environment in an economically viable

way. 

To put these principles into practice,

an industry-wide set of science-based

tools is available to “measure what

matters.” These tools can help farmers

make decisions about management

practices and can be used to measure

the resulting improvements in

sustainable practices across the supply

chain. Communicating the results to

consumers and retailers can

demonstrate the progress the dairy

industry is making in a transparent and

credible way. 

Wickham reiterated that these types

of environmental issues are here to stay,

and that the public is increasingly

concerned about sustainability. 

Sourcing “sustainably”

When a food company like General

Mills commits to sourcing 100 percent

of 10 priority ingredients grown with

sustainable production practices by

2020, what does that mean? Is this goal

achievable, and how does it affect

producers?

Rod Snyder, president of Field to

Market: Alliance for Sustainable

Agriculture (FTM) in Washington,

D.C., described how the alliance

brought together a wide-ranging group

of collaborative stakeholders, including

producers, agribusinesses, food and

retail companies, conservation groups

and universities. Increasing productivity

to meet future food and fiber needs

must not be at the expense of the

environmental, health, and economic

and social needs of agricultural

communities — and vice versa, he

noted. 

FTM has been analyzing trends and

collecting field-scale production data to

develop the Fieldprint Calculator, an

online educational tool for crop

farmers. The calculator helps to

evaluate farming decisions in areas such

as water, energy and land use by making

comparisons to past yield data or

regional and national averages. 

FTM now is widening its

benchmarking and data collection

efforts. The tools support a continuousimprovement approach for on-farm

sustainable practices, rather than setting

and following a static standard that may

not be appropriate for local growing

conditions. FTM is also helping its

members along the supply chain

substantiate their claims relating to

sustainability. 

Snyder suggested that sustainability

may soon become a market-access issue

for producers, as food companies look

for partners to meet sustainability goals.

Other agribusinesses are beginning to

work with consumer product

companies, posing a competitive risk to

farmer cooperatives that do not meet

their sustainability criteria. 

Farmer co-ops are well positioned to

develop long-term relationships with

companies along the supply chain to

meet the demand for sustainably

produced product, depending on what

practices producers adopt. Farmers can

start with those sustainable production

practices that save money, and then

evaluate what practices make sense at

the next stage.

Rural Cooperatives / January/February 2015 15

Participating on a panel talk that addressed “Exploring Non-Qualified and Unallocated Equity”

were (from left): Doug Ohlson of Frenchman Valley Cooperative, Art Duerksen of Farmway Co-op

Inc. and Phil Kenkel of Oklahoma State University. Photo courtesy University of Wisconsin Center

for Cooperatives
Technology based on “big data”

holds the potential for farming more

sustainably, efficiently and profitably

through the maximization of output per

unit of input. David Muth, senior vice

president of analytics at AgSolver Inc.,

pointed out that improvements in data,

and in control systems and equipment,

do not by themselves produce better

decision-making. He described

AgSolver’s services and products that

use multi-sourced data to assess the

return on investment of inputs on

farmland through appropriate nutrient

management.

Mike Vande Logt, executive vice

president and chief operating officer of

WinField, a Land O’Lakes business,

emphasized the role “big data” tools

play in the growing demand for food in

the face of limited resources. While

genetics will continue to improve yield

potential, Vande Logt suggested that

the potential in a bag of seed is ahead of

the ability to manage it. Plant breeding

has also increased the drought tolerance

of many crops, supporting production

practices that are based on rainfall. 

Winfield offers tools that combine

multi-sourced data and modeling to

support grower decision-making, from

planning through harvest. Winfield

works with local co-ops to build

grower-owned data silos and to offer a

member-owned solution that is locally

branded. 

“If you aren’t at the table, 

you are on the menu”

The National Initiative for

Sustainable Agriculture (NISA) is a

farmer-led, university-based program

formed in response to consumer and

retailer demand for sustainably

produced food. Paul Mitchell, professor

at the University of WisconsinMadison, said farmers bear the social,

economic and resource costs of

unsustainable practices. Thus, they

should be at the table when defining

sustainability. 

NISA provides farmers with sciencebased, self-assessment tools to develop

sustainable practices at the farm level.

Using whole-farm data, growers can

create a grower scorecard that

benchmarks results against those of

other participants. These tools have

been developed for a number of crops,

including soybeans and potatoes, and

may soon be expanded for corn.

Grower groups can use the aggregated

results to communicate with retailers

and consumers about their on-farm

sustainability practices. 

Terry Fleck, of the Center for Food

Integrity in Gladstone, Mo., took a

closer look at consumer trust — how

people form opinions about where their

food comes from and what drives their

buying decisions. His group is

interested in identifying opportunities

for delivering information to consumers

that will make them feel more

comfortable making choices in a diverse

food system. 

Consumer perceptions are powerful

drivers in today’s global markets, said

consultant Andrea Bonime-Blanc. Risks

to land, assets and sovereign political

stability are often the basis for a riskmanagement strategy. However, a more

global view — one that includes

reputation and integrity — is now

A look at cooperative governance in other countries can provide

a fresh perspective on perennial co-op issues here in the United

States. As part of the Farmer Cooperative Conference program,

Michael Boland, professor at the University of Minnesota, talked

with Ake Hantoft, chair of Arla Foods in Denmark, about Arla’s

approach to issues such as patron equity structures and board

governance. 

Arla was created by a merger in 2000 between the largest

Danish dairy cooperative and its Swedish counterpart. Over the

past 50 years, the many small, cooperatively owned dairy

production facilities in both Denmark and Sweden have

consolidated. Arla has continued its cross-border merger activity

and now has more than 13,500 co-op owners in Denmark,

Sweden, Germany and the United Kingdom. It has acquired

businesses, or has joint partnerships, in Canada, the United

States, Finland, China and Russia. 

These mergers were part of a strategy to secure the highest

value for its members’ milk while creating opportunities for

members’ growth. Hantoft stressed that successful mergers must

be based on fairness to all parties. So, all members receive the

same milk price in the currency of their own nation. However,

managing exchange rate fluctuations to achieve this has been a

big challenge. Arla currently uses an approach based on

averages for the last eight quarters. 

A 75 percent majority of Arla’s members must vote to approve

international mergers. Growth is financed by the producers.

Equity targets to reach goals are met through membership fees

and retained patronage. After these targets have been reached,

How do they do it in Denmark?

16 January/February 2015 / Rural Cooperatives

Seven countries are now represented on Arla’s board.
necessary, she said. 

Higher risks to a company’s

reputation result from the far-reaching

nature of today’s supply chains, the size

and reach of global companies, and

social media’s ability to amplify and

speed communications. A strong code

of conduct, beginning at the top, is thus

imperative.

Infrastructure challenges

Conference speakers tackled another

current issue affecting agricultural

cooperatives: the ability to transport

products and inputs

on schedule,

including how

cooperatives are

responding to this

issue. 

Patrick Hessini,

CHS Inc. vice

president of

transportation and

distribution,

described how

infrastructure is not

keeping up with the

shifts in supply-chain

logistics. Several

major factors are

causing these

changes: manufacturing’s return to North

America, underinvestment in infrastructure, labor

shortages and a supply chain that is

increasingly truck dependent. To

manage the supply chain risk, CHS is

developing a systems-wide approach,

with an emphasis on planning and

forecasting, as well as ongoing

investment in both infrastructure and

staff.

Todd Ludwig, CEO of WFS

Cooperative, based in Truman, Minn.,

described how his local co-op has

responded to the broader macrotransportation situation. WFS has

locations served by both trucks and rail.

This network supports the cooperative’s

automated fuel delivery (AFD) program

and the movement of commodities.

Peak demand for services has increased

recently as the window for planning and

harvesting has grown smaller while

volume has grown. 

WFS is adding to its truck fleet each

year, instead of buying a company or

committing to a one-time large increase

in fleet size. It is also developing nonharvest/non-planting hauling business

opportunities. Ludwig noted that in the

patronage is no longer retained. Retained patronage is returned

within three years of retirement, with the co-op treating the

commitment like a pension obligation.

All members of the cooperative receive one vote that is

exercised at the local district council level. Councils elect a 165-

member board of representatives (BOR) which makes income

distribution decisions and appoints the 10-person board of

directors. This board monitors the cooperative’s activities and

management. Seats on these boards are determined by capital

shares. 

With seven countries now represented on the board, Hantoft

described the importance the cooperative places on facilitating

good communication. English is now the language used at board

meetings, but board members can also speak their own

language. Translation services during meetings and of

documents continues to be an important component of board

interactions.

Both employee and gender representation on the board are

required in Denmark and Sweden. Employee representatives

who are loyal to farmer-owned Arla, as well as to their unions,

provide a bridge between the two organizations. To boost the

number of women directors, Arla offers board-training programs

to encourage women candidates to run for election.

Arlagarden, Arla’s sustainability program, was initially resisted

by producers, but sustainable farming methods have now been

widely adopted on member farms. Hantoft mentioned that there

is always room for improvement in this area, and that using an

approach of continuous improvement can be an effective

alternative to policy-driven requirements. ■

Rural Cooperatives / January/February 2015 17

Workers keep an eye on the processing line at an Arla Foods

dairy plant. The co-op has grown from its base in Denmark

and Sweden to include facilities throughout Europe, North

America and China. Photo courtesy Arla Foods
18 January/February 2015 / Rural Cooperatives

past, barge transportation has provided

a “relief valve” for co-ops facing rail

congestion. But the barge network is

now at capacity, and costs are rising. 

Dan Mack, vice president of

transportation and terminal operations

at CHS, provided insight into the

current rail transportation bottlenecks.

He described the increase in demand

for rail service, which is driving new

capital investment to address the

capacity deficit in tracks, trains and

crews. Expansion is disruptive while it

occurs, and it will take some time for

the overall situation to improve. 

Service is improving as projects in

the northern tier and farther west near

completion, Mack said. But new

investment in projects between Fargo

and Chicago will affect Minnesota,

Iowa and Wisconsin, in particular, and

service volatility will remain a problem

for some time. Federal and state activity

in the legislative, industry and

regulatory arenas, as well as with the

Canadian government, can help to

address a coordinated response to the

situation.

“Not so much what you 

earn, but what you keep”

The conference also focused on

current co-op governance and equity

issues. Phil Kenkel, professor at

Oklahoma State University, discussed

how cooperatives might approach the

choice between qualified and

nonqualified allocated equity. 

Unallocated equity as a percent of

total cooperative equity has increased

over the past five years. Historically,

profit has been apportioned between

unallocated equity and qualified

allocations. Since the patron pays the

tax on the entire qualified allocation,

including the retained portion, there is

pressure to redeem that retained equity. 

If the allocation is nonqualified, the

patron pays taxes only on the portion

that is distributed. The co-op pays the

tax on that portion that is retained. 

Using nonqualified allocated equity

to meet longer term equity needs might

be a useful alternative. This removes

some of the pressure on the co-op to

redeem that equity in the shorter terms,

and can be used to reestablish a balance

between unallocated reserves and

retained equity allocated to patrons. 

Kenkel described a research project

that analyzed allocation type and the

best interest of the member over time,

using an internal rate of return based

on historical and case study data. The

difference between patron and co-op

tax rates drives the results, even with

the current Section 199 tax deduction.

Whether these strategies can help to

remove incentives to demutualize a

cooperative with large ratios of

unallocated equity is an open question.

Art Duerkson, CEO of Farmway

Co-op in Beloit, Kan., described how

the co-op’s equity management

program was changed to include

nonqualified allocations. The shift to

nonqualified was driven by a board of

directors’ decision in 2011. An analysis

showed that the unallocated ratio was

significantly increasing, and the bylaws

did not adequately address equity

distribution in the case of dissolution of

the business. 

To correct this imbalance, more

earnings were designated as

nonqualified allocations and retained

without increasing patron tax liability.

Member education efforts that included

cash flow examples were effective, and

the new program has been well

received. The changes have also

provided greater flexibility in balance

sheet management.

Another equity strategy that included

nonqualified allocations was described

by Doug Ohlson, general manager of

Frenchman Valley Cooperative,

Imperial, Neb. The co-op’s recent

efforts to build assets and infrastructure

resulted in an equity structure that was

more than 50 percent unallocated. This

raised questions about co-op ownership

and what kind of buyout offers might

lead to demutualization. 

The tax liability with qualified

allocations is a hard sell to younger

producers, and often appears to be a

disincentive to them. So, Frenchman

Valley shifted to using nonqualified

allocations for retained earnings and

designating 10-20 percent of retained

earnings as unallocated, to serve as a

buffer against losses. Again,

communication with members was

essential to making this transition.

Agricultural outlook

Mary Bohman, administrator at

USDA’s Economic Research Service

(ERS), described how ERS interacts

with its many stakeholders so that it

produces the research and analysis that

is relevant to them. She provided an

overview of current trends in

agriculture and noted that globally

driven price volatility is expected to

continue — along with the likely longer

term need for risk management

services.

The majority of U.S. agricultural

production comes from a small percent

of larger family farms, she said, and

ERS expects to see continued farm

consolidation and an increase in farm

size. The food and farming sector will

continue to change in response to

consumer demands for convenience and

healthy foods, the expansion of market

opportunities in developing countries,

and new technologies.

Next year’s Farmer Cooperatives

Conference will again be held in

Minneapolis, Nov. 5-6. The annual

program is presented by the University

of Wisconsin Center for Cooperatives.

Inquiries about the program should be

addressed to Anne Reynolds at:

atreynol@wisc.edu. ■
By Bruce J. Reynolds, Economist

Cooperative Programs

USDA Rural Development

On Oct. 15, 2014, USDA’s Rural BusinessCooperative Service published a

comprehensive proposal for revising and

updating the Business & Industry Loan

Program (B&I). The last such revision was

done in 1996, so the current proposal is long overdue.

Lending practices and the rural economy experience

continuous change, and the rural business sector faces many

challenges that are more salient today than in 1996. 

Shortly after the proposed B&I revisions were published

in the Federal Register, the National Cooperative Business

Association (NCBA) suggested a webinar be held to discuss

sections of the proposals that specifically apply to

cooperatives. On Oct. 23, a webinar was held at USDA with

presentations from the RBCS staff and Alan Knapp from

NCBA. The webinar drew 30 participants.

The largest part of the proposed B&I revision involves

improvements to servicing and securing this loan guarantee

program, but a new section to the rules contains three

applications for cooperatives. First, cooperatives can use the

farmer stock purchase program to finance new projects with

stock offerings members can purchase with loans backed by a

B&I guarantee. 

When the farmer stock program was first initiated in

1987, it was restricted to new, start-up cooperatives. Yet, in

looking back at the history of farmer cooperatives, most were

started with relatively modest operations and gradually

developed large-scale capital projects. The initial farmer

stock program was ambitious but difficult to collateralize

among numerous farmers who had no experience working

together in the same cooperative. 

Many cooperatives have the challenge of financing new

projects that may only serve a subset of their membership. In

those cases, they will issue stock to those members who want

to benefit from a new project. Some of those members,

particularly younger farmers, may want to borrow from a

bank with loan guarantees to help finance such stock

purchases.

Second, a provision for cooperative equity security

guarantees, which was authorized in the 2008 Farm Bill, is

given proposed regulatory guidance. Such securities carry no

governance or control rights. They might be purchased by

both members or by non-members in a community who are

interested in financially supporting a cooperative and earning

a modest return. 

This type of stock is frequently referred to as “preferred.”

The 2008 Farm Bill provided that a cooperative can issue

such stock that would be eligible for purchase with a loan

backed by a B&I guarantee. It also provided for a fund that

primarily invests in cooperatives, to be an eligible loan

guarantee borrower for purchases of preferred stock. 

A third special provision for cooperatives would support

succession of ownership to the employees of a business when

the owners are looking ahead to retirement. A business could

be re-organized as a worker cooperative or it could establish

an Employee Stock Ownership Plan (ESOP) that would have

the requirement of fully transferring 100 percent of its

ownership within a set period of years, yet to be determined

in the final rule. 

The potential for financing worker ownership in stages is

the most significant change being proposed for the new B&I

regulations, as indicated by the public response to publication

of the program proposals. Out of 236 public responses on the

Federal Register web page, Regulations.gov, 183 were

directed to cooperative applications, and all enthusiastically

supported this provision. 

Of the many changes that have occurred in the U.S.

economy since the B&I program was last revised, none are

more salient in rural America than the plans of baby-boomer

business owners to retire and the desire of employees to

operate their workplaces as democracies. The opportunity to

finance a gradual succession of ownership to employees will

not only save businesses, and hence jobs, but will also create a

new working environment where more individuals can share

in ownership and business decision-making. ■

Proposed changes in USDA’s B&I program

could aid in development of new co-ops

Of the many changes that have occurred in the U.S. economy

since the B&I program was last revised, none are more salient

in rural America than the plans of baby-boomer business

owners to retire and the desire of employees to operate their

workplaces as democracies. 

Rural Cooperatives / January/February 2015 19
20 January/February 2015 / Rural Cooperatives

By John C. Monica, Jr.

Editor’s note: Monica is a partner at Porter Wright Morris &

Arthur LLP in Washington, D.C., where he is part of the firm’s

agricultural antitrust practice group. The firm has represented

farmers and cooperatives in agricultural antitrust matters

nationwide, including in the potato and eggs cases referenced in this

article.

The Capper-Volstead Act is a powerful 1922

law that allows farmers and their cooperatives

to act together for “collectively processing,

preparing for market, handling, and

marketing in interstate and foreign

commerce.” “Marketing” includes price-setting and other

conduct that would otherwise violate antitrust laws, if not for

Capper-Volstead. 

Large lawsuits have been filed that challenge the CapperVolstead Act (Act) status of cooperatives of mushroom,

potato, egg and milk producers. These lawsuits claim that

certain cooperatives do not qualify under the Act and/or that

their activities are not protected. Understanding the basics of

these lawsuits can help avoid potential liability. 

‘Producer’ membership requirement

To take advantage of the Capper-Volstead Act, a

cooperative’s members must be “persons engaged in the

production of agricultural products.” Cooperatives with nonproducer members are ineligible for Capper-Volstead

protection. This “producer” membership requirement has

been targeted in lawsuits when a cooperative strives to make

sure that all of its members are actual producers but fails to

achieve perfection. 

One U.S. Supreme Court case indicates that “it is not

enough that a typical member qualify, or even that most of

[the] members qualify.” Plaintiffs argue that this language

means every cooperative member must be a “producer” at all

pertinent times. Some plaintiffs scour cooperative records

going back many years — sometimes more than a decade —

to determine whether any non-producers have ever been

listed as members, even for only a brief period. Should they

find such an inadvertent error, they argue that the

cooperative’s Capper-Volstead Act protection is forfeited.

The mushroom case in Pennsylvania provides an example

of this approach. The court found a cooperative lost its

Capper-Volstead status because a farmer mistakenly allowed

the wrong corporate entity to sign its cooperative

membership agreement and it was not an actual producer.

The court also found that the cooperative acted with two

members’ affiliates that were not themselves producers. The

court rejected the arguments that (1) the various entities were

so interrelated that they should be considered one economic

unit and not separate entities, and (2) the members’ good

faith belief and reliance on advice of counsel that the

cooperative was properly structured preserved the

cooperative’s Capper-Volstead status.

Should it survive any potential appeal, the foreseeable

impact of the mushroom case would be immense. In the

court’s view, even minor membership record-keeping errors

could disqualify a cooperative from being a proper CapperVolstead entity, thereby subjecting it and its members to

liability that could bankrupt the co-op. Given this

uncertainty, cooperatives should have a rigorous process in

place to thoroughly vet their members’ producer status.

Vertically integrated producers

A related membership-qualification issue is whether

vertically integrated farmers — those conducting activities

beyond simply owning and raising animals or crops — are

considered true “producers” under the Act. This issue has

been raised in numerous recent agricultural antitrust cases.

The Idaho potato case provides a good example of the

opposing views on this topic. 

The potato plaintiffs claimed that any type of vertical

integration destroys a producer’s eligibility, because it is no

longer a true “pure” farmer. The producers countered that

even fully integrated farmers do not destroy eligibility, as

long as they all legitimately own and raise crops. 

Legal Corner

Protecting cooperatives from antitrust liability

Farmer cooperatives should be cognizant of recent lawsuits challenging

the Capper-Volstead Act status of some potato (seen during harvest,

above), mushroom, egg and milk co-ops.
Rural Cooperatives / January/February 2015 21

The court rejected both arguments,

and in a non-binding “advisory

opinion,” it adopted an amorphous

middle ground requiring a “factuallyintense inquiry” into the economics and

history of the industry, functions of the

cooperatives in questions, and degree of

farmer integration — all with an eye

towards determining whether

recognizing the exemption in each

particular instance is “consistent with

the legislative intent to create an

environment in which farmers can

compete on a level playing field.”

Under this standard, there is no bright

line as to how far a cooperative member

may deviate from simply owning and

raising animals or crops and still be

considered a “producer” under the Act.

If ultimately adopted, this test would

require extensive factual investigation,

as well as testimony from multiple

experts — a very expensive proposition.

Additionally, such a “factually-intense

inquiry” may not be subject to

resolution short of a full-blown trial.

Finally, it is likely that most of today’s

farmers are vertically integrated to

some extent. Should the trial court’s

“advisory-opinion” become law, it may

cause many farmers to reconsider

joining certain cooperatives in the first

place.

Benefit of 

‘members’ requirement

Another fundamental CapperVolstead requirement is that the

cooperative must be “operated for the

mutual benefit of the members

thereof.” The Southeastern Milk

Antitrust Litigation in Tennessee

addressed this issue. Some of the

plaintiffs in that case were farmers suing

their cooperative for purportedly using

its milk-bottling subsidiary to slash the

prices the farmers received for their

milk. The cooperative also allegedly

attempted to force producers to sell to

bottlers it controlled at reduced prices

through mandatory membership in the

cooperative or its subsidiaries. 

Plaintiffs claimed that this benefited

the cooperative financially, but reduced

the prices farmers received for their

milk, creating a conflict of interest. The

plaintiffs further argued that because

the bottling operation required an

ongoing supply of low-cost milk from

members, the cooperative had allegedly

put its own interests first and was no

longer truly operating “for the mutual

benefit of its members.” 

Given the complex structure and

nature of the activities in question, the

issue would have been hotly contested

at trial, had the case not been settled. A

similar “benefit of members” issue will

be decided in the National Milk

Producers Federation herd-retirement

litigation pending in California, where

it will be litigated in full.

While most cooperatives operate for

the general benefit of their members,

they should closely examine their own

business activities to determine whether

they are vulnerable to the contention

that they are not fully operating for the

benefit of their members.

Pre-production 

supply management

Perhaps the biggest question raised

in recent lawsuits is whether preproduction supply-management

activities — such as jointly agreeing not

to plant crops or to raise fewer animals

— is a protected “marketing” activity

under the Capper-Volstead Act. The

resurgence of this issue is surprising,

since prior courts have already found

that protected “marketing” under the

Act includes direct price setting and the

actual destruction of products to

remove them from the marketplace. If a

farmer can legally destroy products,

why cannot it simply decline to produce

them in the first place?

However, in its “advisory opinion,”

the Idaho potato court found that the

Capper-Volstead Act does not protect

such pre-production supply

management activities. The court noted

that no prior courts had explicitly

approved pre-production supplymanagement activities, that the Act

itself does not expressly endorse them,

and that a 1977 Federal Trade

Commission statement indicated that

these activities were not protected. 

Additionally, the court noted that

farmers had an incentive to increase

production if prices rise due to a

cooperative’s activities, but that this

incentive is missing if pre-production

supply-management activities are

permitted and future production is in

effect “shut off.” Accordingly, the court

concluded that pre-production supplymanagement activities are not protected

under the Act.

Whether the potato court will

ultimately adhere to the distinction

between post-production and preproduction supply-management

activities remains to be seen. A similar

argument is being made by plaintiffs in

the Pennsylvania eggs cases, in which a

cooperative’s employee allegedly made

what plaintiffs argue were voluntary

pre-production supply-management

recommendations in the cooperative’s

newsletter. Additionally, the issue is the

centerpiece of California litigation

involving the National Milk Producers

Federation’s herd retirement program.

Clearly, the issue greatly interests

plaintiffs’ attorneys. Cooperatives

considering engaging in pre-production

supply-management efforts should

closely watch these cases and plan

accordingly. Caution may be warranted

until the matter is decided by federal

appellate courts.

Conclusion

While the Capper-Volstead Act is

the lifeblood of antitrust protection for

agricultural cooperatives, recent legal

developments present a difficult needle

to thread. The parameters of a nearly

100-year-old law should be well settled,

but that is rarely the case where large

class action lawsuits are involved.

Cooperatives and their members should

keep apprised of ongoing trends in the

area and take preventive steps to avoid

potential liability. ■
22 January/February 2015 / Rural Cooperatives

Carolyn Liebrand, Ag Economist

USDA Cooperative Programs

e-mail: carolyn.liebrand@wdc.usda.gov

Editor’s note: This article is based on the

dairy portion of USDA’s annual survey of

agricultural cooperatives. More of the

financial results can be found in USDA

Research Report 233, “Financial Profile of

Dairy Cooperatives, 2012,” available at:

www.rurdev.usda.gov/supportdocuments/R

R233.pdf. For a hard copy, call 202-690-

1414, or e-mail: coopinfo@wdc.usda.gov.

The marketing information and some broad

financial figures were presented in the

March/April 2014 issue of USDA’s Rural

Cooperatives magazine (“Dairy co-ops’

milk volume up, but market share down

slightly”).

USDA’s annual survey

of U.S. farmer co-ops

reveals a wealth of data

that can be used as a

yardstick for

cooperatives to compare their financial

ratios and overall performance to

averages for their sector. The full 2013

statistics report (and those for earlier

years) is posted on the USDA Rural

Development website at: http://www.

rurdev.usda.gov/BCP_Coop_Data_Dair

yFinancial.html.

The following article focuses on

dairy co-op data derived from USDA’s

2012 survey. It presents findings that

dairy cooperatives can use to compare

to their own financial records from

2012 to determine how their performance stacks up to the aggregate data. 

Overview

Dairy cooperatives surveyed by

USDA devoted, on average, $10.90 in

total assets per hundredweight (cwt) of

member milk. These co-ops averaged

$8.12 per cwt in liabilities, while

member equity was $2.78 per cwt in

2012. Total revenue reported for 2012

was $30.56 per cwt of total milk

handled, with net margins of 19 cents

per cwt. 

Dairy cooperatives are surveyed by

USDA Cooperative Programs every five

years. This latest survey collected

information for cooperatives’ fiscal

years ending in calendar 2012. The 89

cooperatives that provided detailed

financial data represent more than twothirds of the cooperatives that handled

milk from cows in the United States.

These 89 dairy cooperatives handled 80

percent of the total milk volume

handled by U.S. cooperatives. Further,

these cooperatives employed an

estimated 93 percent of the total assets

of all dairy cooperatives during 2012.

Assets

Current assets of $6.74 per cwt of

member milk made up 62 percent of

total assets of these dairy co-ops in

2012 (table 1). A unique characteristic

of a dairy cooperative’s balance sheet is

the components of its current assets and

current liabilities. Dairy cooperatives

typically pay members for their milk

twice a month. A large proportion of

the current assets and current liabilities

are related to such periodic cash

payments to members.

Dairy cooperatives employed $4.16

per cwt in fixed assets (including

investments in other cooperatives of 74

cents per cwt) in 2012. Fixed assets and

investments represented 38.1 percent of

total assets.

On the other side of the balance

sheet, two-thirds (66 percent) of total

liabilities were current liabilities, or

$5.38 per cwt. Long-term liabilities

Survey results shed light on dairy

co-op financial performance
Rural Cooperatives / January/February 2015 23

were $2.74 per cwt in 2012. 

Equity

Member equity was 26 percent of

total assets, or 67 percent of the value

of fixed assets and investments. Member

equity at 102 percent of long-term

liabilities was enough to cover longterm debts. 

Allocated equity comprised the bulk

of member equity value — 

84 percent of total equity — while

retained earnings/unallocated equity

represented just 8 percent in 2012. 

Preferred stock amounted to 7

percent of total equity, while noncontrolling minority interests and

common stock represented a slight

amount of the total value of members’

equity in the cooperative. Common

stock was issued by 39 percent of the

profiled dairy cooperatives. Typically, it

carries only a token value and is issued

to signify membership. As a result, it

comprised a negligible amount of co-op

equity.

Operating statement 

Milk and dairy product sales, which

averaged $23.69 per cwt of total milk

handled by the 89 co-ops, were the

largest single sales and other income

item, accounting for 78 percent of total

revenue in 2012 (table 2). Other sales

and income averaged $6.68 per cwt. 

Expenses averaged $30.38 per cwt,

leaving net margins before taxes of 19

cents per cwt. The profiled dairy

cooperatives’ net margins before tax

represented 0.6 percent of total revenue

in 2012. These net margins represent a

2-percent return on assets and an 8-

percent return on equity.

In addition to marketing their own

members’ milk, some cooperatives may

also handle milk received from nonmember producers, other cooperatives

and/or other firms. This milk equaled

about 20 percent of the total milk

volume handled by the 89 dairy

cooperatives in 2012. 

The volume of milk going through a

cooperative’s operations has an impact

on efficiency and per-unit costs, so the

operating statement items are expressed

on a “per-cwt of total milk handled”

basis. This is in contrast to the balance

sheet, which is based only on member

milk (excluding non-member milk

handled).

Different approaches to

marketing member milk

Dairy cooperatives face marketing

situations unique to their location,

membership and the co-op’s philosophy

or organizational culture. As such,

structural and operational differences

between dairy cooperatives arise as they

position themselves to best market their

members’ milk. 

The alternative methods

cooperatives use to market milk require

different levels of capital and yield

differing returns. 

Diversified dairy co-ops

Diversified cooperatives sell a

portion of their members’ milk as bulk

raw milk but also own and operate

plants to make a variety of commodity

and/or differentiated products (such as

butter, dried dairy products, cheese,

packaged fluid milk, sour cream, dips,

yogurt, cottage cheese and ice cream).

These cooperatives represented 28

percent of the profiled cooperatives (by

number), but they accounted for 97

percent of the assets and 91 percent of

milk and dairy product sales. 

Thus, the financial statements for all

profiled cooperatives are heavily

influenced by the performance of

diversified cooperatives. 

The diversified cooperatives

employed the highest level of assets per

cwt of member milk in 2012: $12.15.

Current assets accounted for 62 percent

of total assets — a higher proportion

than for the other types of cooperatives.

Total liabilities were also higher for this

group: $9.08 per cwt in 2012. Longterm liabilities represented 34 percent

of total liabilities, the highest level

among the different operational types

of dairy co-ops. Furthermore, longterm liabilities were nearly equal to the

equity members held in their diversified

cooperatives. In contrast, the other

types of profiled cooperatives had much

more equity relative to their long-term

liabilities.

Milk and dairy product sales for

diversified dairy cooperatives were

$24.06 per cwt of milk handled in 2012.

Farm supply and other sales made up

23 percent of total revenue for

diversified cooperatives. That’s well

above the less-than 5 percent of

revenue that farm supplies and other

sales represented for the other types of

dairy co-ops. 

Net margins before taxes for

diversified cooperatives averaged 20

cents per cwt and 1 percent of total

sales in 2012. The net margins-to-total

assets ratio was 2 percent in 2012, while

net margins-to-members’ equity was 8

percent. 

Bargaining-only dairy co-ops

Bargaining-only cooperatives operate

at the first-handler level, assisting

members in the marketplace by

negotiating prices, facilitating

arrangements between milk buyer and

seller, ensuring accurate milk weights

and tests, etc. They differ markedly

from diversified cooperatives in that

they do not own or operate plants to

further process member milk. 

These cooperatives represented 67

percent of the profiled cooperatives, but

accounted for 9 percent of their milk

and dairy product sales and just 3

percent of total assets. 

Bargaining-only cooperatives had

fewer assets than the other types of

cooperatives. Their assets equaled just

$2.31 per cwt of milk handled in 2012.

A majority of their assets were current

assets. 

Likewise, bargaining-only

cooperatives also had the lowest total

liabilities and member equity – $1.49

and 82 cents per cwt of member milk,

respectively. Long-term liabilities of 43

cents per cwt equaled 29 percent of

total liabilities.
At the same time, bargaining-only

cooperatives generated the lowest milk

and dairy product sales among the

different operating types: $20.42 per

cwt of total milk handled. Net margins

before taxes of 7 cents per cwt were

well below those of the diversified

cooperatives. 

Net margins before taxes were less

than 1 percent of total sales, lower than

the diversified dairy cooperatives.

However, their net margins-to-equity

ratio of 9 percent was above the average

for all profiled dairy cooperatives.

Likewise, return to assets (3 percent)

was higher than for the other types of

cooperatives.

Niche-marketing dairy co-ops

Niche-marketing cooperatives use

most, or all, of their members’ milk to

make specialty dairy products, such as

artisan or branded cheese, and/or they

market organic or specialty products on

the basis of how the milk was produced.

Only 33 percent of niche-marketing coops provided complete financial data for

2012. So, niche-marketing cooperatives

were a small segment — just 5 percent

— of the dairy cooperatives examined

in this study. Their member milk, assets

and dairy product sales were each less

than 1 percent of all profiled dairy

cooperatives. 

The reporting niche-marketing

cooperatives had assets of $8.04 per cwt

of member milk — about $4 per cwt

less than for diversified cooperatives.

Fixed assets and investments made up a

majority of their assets (51 percent).

Niche-marketing cooperatives had total

liabilities of $6.29 per cwt and member

equity of $1.75 per cwt in 2012.

Member equity amounted to 43 percent

of fixed assets and investments — the

lowest level among the different

operating types.

Niche-marketing cooperatives

generated the largest milk and dairy

product sales on a per-cwt basis: $32.29.

That’s $8.23 more per cwt than the

diversified cooperatives and $11.87

more than bargaining-only

cooperatives. However, they had very

little other sales income, which

narrowed the gap to $1.10 per cwt

when comparing their total sales to

those of diversified cooperatives.

Performance by size 

of cooperative

The financial performance of dairy

cooperatives was also calculated

according to the annual volume of milk

handled: 

• Small — less than 50 million pounds;

• Medium — 50 million to 1 billion

pounds;

• Large — more than 1 billion pounds.

Total assets ranged from $4.07 per

cwt of member milk for the mediumsize cooperatives to $11.52 for large coops, with small cooperatives having

$8.20 per cwt in total assets in 2012.

The small cooperatives’ investments in

other cooperatives represented a much

greater percentage of total assets (23

percent) than for the larger size groups

(9 percent for medium and 7 percent

for large cooperatives). Conversely,

fixed assets (other than investments in

other cooperatives) were a larger

proportion of total assets as group size

increased (12 percent for small, 25 for

medium and 32 percent for large

cooperatives).

Total liabilities ranged from $2.63

per cwt for medium-sized cooperatives

to $8.63 per cwt for the large

cooperatives in 2012. Member equity

was smallest for medium-sized

cooperatives ($1.44 per cwt), while the

small cooperatives had the most

member equity ($4.06 per cwt). 

Milk and dairy product sales per cwt

only varied by $3.13 among the size

groups in 2012. Large cooperatives had

the highest milk and dairy product sales

per cwt, $23.75. Small cooperatives

ranked lowest, $20.62. 

The range for total sales was much

wider, ranging from $24.64 per cwt for

the medium co-ops to $37.93 per cwt

for the small co-ops. Most of the

difference can be attributed to supply

and other sales that made up 44 percent

of total revenues for the small

cooperatives, $16.74 on a per cwt of

milk basis.

Net margins for the small

cooperatives were $1.67 per cwt, far

more than for the medium and large

cooperatives (19 cents and 18 cents per

cwt, respectively). Consequently net

margins before taxes were less than 1

percent of total sales for the large- and

medium-sized cooperatives, but were 4

percent for small cooperatives. 

Finally, the small cooperatives

showed the highest net margins-toequity ratio, at 41 percent, and net

margins-to-total assets, at 20 percent.

Large cooperatives had the lowest

return on equity, at 8 percent, and to

total assets, at 2 percent.

Sales of supplies and other

items made a difference

While a majority of the profiled

cooperatives did not report any sales of

farm supplies or other items, 8 percent

of the cooperatives had more than half

of their total sales and income from

supplies. For these few cooperatives, the

provision of farm supplies to members

was a principal focus of cooperative

operations and amounted to $72.93 per

cwt of milk handled. A majority of these

cooperatives were small, bargainingonly cooperatives. (“Bargaining-only”

here refers only to a co-op’s milkmarketing operations, not their

operations for the sale of farm supplies.)

Accordingly, substantial supply

operations affect the structure of the

cooperatives’ financial statements. For

these co-ops, milk and dairy product

sales made up just 29 percent of their

total revenue of $103.44 per cwt. In

contrast, for the rest of the profiled coops, supply and other sales came to just

41 cents per cwt of milk handled, 2

percent of total revenue.

Cooperatives with a majority of total

revenue from supplies and other sales

reported net margins before taxes of

24 January/February 2015 / Rural Cooperatives

continued on page 37
Rural Cooperatives / January/February 2015 25

Table 2—Operating statement items per hundred weight of milk handled, profiled dairy cooperatives, by type and by size, 2012

Milk and dairy product sales 23.69 20.42 32.29 24.06 20.62 23.11 23.75

Supply and other sales 6.68 1.08 .12 7.33 16.74 1.40 7.02

Service receipts and other income .19 .06 .27 .20 .32 .08 .19

Patronage refunds received .00 .04 .00 .00 .25 .05 .00

Total revenue 30.56 21.61 32.69 31.59 37.93 24.64 30.96

Costs of goods sold 28.48 20.92 30.54 29.34 33.81 23.34 28.83

Expenses 1.71 .61 2.08 1.84 2.46 1.18 1.75

Non-operating income .19 .01 .07 .21 .00 (.07) .21

Costs and expenses 30.38 21.54 32.69 31.39 36.26 24.45 30.78

Net margins before tax .19 .07 .00 .20 1.67 .19 .18

Total milk volume handled (million pounds) 160,005 16,483 261 143,261 531 10,701 148,722

Note: Totals may not add due to rounding.

All Bargaining

Only

Niche

Marketing

Diversified Small

(less than

50 million

pounds)

Medium

(50 million

to 1 billion

pounds)

Large

(over

1 billion

pounds)

Type of cooperative Size of cooperative

Dollars per hundredweight of member milk

Item

Table 1—Balance sheet items per cwt of member milk, profiled dairy cooperatives by type and by size, 2012

Current assets $6.74 1.24 3.94 7.55 5.29 2.70 7.11

Property, Plant & Equipment and other assets 3.42 .80 3.59 3.80 1.01 1.02 3.64

Investments in other cooperatives 0.74 .27 .51 .81 1.89 .35 .77

Total assets 10.90 2.31 8.04 12.15 8.20 4.07 11.52

Current liabilities 5.38 1.06 5.22 6.01 3.65 2.35 5.66

Long-term liabilities 2.74 .43 1.07 3.07 .49 .28 2.97

Total liabilities 8.12 1.49 6.29 9.08 4.14 2.63 8.63

Equity 2.78 .82 1.75 3.07 4.06 1.44 2.89

Total liabilities and equity 10.90 2.31 8.04 12.15 8.20 4.07 11.52

Member milk (million pounds) 127,942 16,232 261 111,449 531 10,481 116,929

Number of cooperatives 89 60 4 25 27 40 22

Note: Totals may not add due to rounding.

All Bargaining

Only

Niche

Marketing

Diversified Small

(less than

50 million

pounds)

Medium

(50 million

to 1 billion

pounds)

Large

(over

1 billion

pounds)

Type of cooperative Size of cooperative

Dollars per hundredweight of member milk

Item
26 January/February 2015 / Rural Cooperatives

Required Reading 

By Margaret M. Bau,

Co-op Development Specialist

USDA Rural Development 

To support the

continued formation

and growth of

cooperatives — and to

promote greater co-op

literacy — many existing co-op

education publications need to be

updated, and more “mid-level” co-op

education materials should be

developed, according to the results of a

recent study sponsored by The

Cooperative Foundation. 

The study, which focused on co-op

education materials available in the

United States, involved compiling an

inventory and analyzing existing

materials, followed by interviews with

13 cooperative educators to “drill more

deeply into themes that surfaced during

the survey research.” Another 368

cooperative educators were polled on a

number of questions, resulting in 102

responses. 

“Enthusiasm for the cooperative

form of business seems to have

increased in recent years among nontraditional communities,” says Leslie

Mead, president of The Cooperative

Foundation. Growth in grassroots

cooperative organizations has seen a

corresponding rise in the number of

requests for grants to create new

educational materials, she adds.

USDA remains primary source 

The survey found that “the co-op

education training materials most

widely used are those of the USDA,”

which is “the one area in the U.S.

federal government that has dedicated

resources to support cooperative

education.” Many of the USDA co-op

publications, however, need to be

updated, according to survey results. 

“The USDA materials are a huge

resource and need to be selectively

updated,” said one survey respondent.

Another noted that while the content of

many USDA co-op publications is still

usable, they are “extremely dated in

their appearance.” Another noted that

some USDA publications had not been

updated in more than a decade. 

Some of USDA’s most popular

publications have been updated recently

(see sidebar, page 27). As they are

revised, “USDA is committed to

making its cooperative publications

more ‘generic,’ so that they will have

more value for non-agricultural

audiences,” the report notes. 

Some of the other most widely used

co-op education materials included the

Northcountry Cooperative

Foundation’s “toolbox” and the Coopoly game, developed by Toolbox for

Education and Social Action. 

Survey respondents overall felt that

existing documents and websites

provide good basic level co-op

information. On the other end of the

education spectrum, respondents felt

that academic-level information,

typically written by researchers and

published in peer-reviewed journals, is

also widely available. But the latter

materials are primarily targeted for

professional and academic specialists. 

“Practical, mid-level” 

material needed 

Where there is a general void, a

number of survey respondents stressed,

is in the availability of mid-level

educational materials that provide

practical information for those seeking

to start or improve their cooperatives.

Specific suggestions include developing

more human resource materials focused

on cooperatives, including leadership

challenges and conflict management

issues facing co-ops. 

A need was also seen for more

information on finance options for coops, including materials that focus on

various financial structures, guides to

help in financial decision-making (for

members and boards), and information

about internal capital accounts for

worker co-ops. 

Others saw a need for more

information on co-op law, including

state-specific guides and resources for

incorporation options. Others perceived

a need for detailed examinations of the

advantages and disadvantages of the

limited liability company (LLC)

structure, low-profit LLCs (also

referred to as “L3C” businesses), and

nonprofit vs. profit status for co-ops. 

Survey respondents also saw a need

for operations and governance

resources specific to co-ops. For

example, they would like information

on governance alternatives to Roberts

Rules of Order, which is commonly

used within agriculture co-ops, and to

the Carver model of policy governance

used among consumer food co-ops. 

Others saw a need for: 

• Current case studies on worker co-ops;

• A look at hybrid-business

organizational options for co-ops;

• An up-to-date college textbook on

cooperatives;

Study sees need for updating co-op

education publications, more mid-level materials
Rural Cooperatives / January/February 2015 27

• More materials about multistakeholder co-ops and housing co-ops;

• More materials specifically aimed at

youth;

• More Spanish language materials;

• More videos and computer-based

interactive materials; 

• A compendium of state incorporation

laws for cooperatives. 

Presentation is important 

The presentation of educational

materials is considered to be important.

Materials should use simple vocabulary

and less “text-heavy” layouts. Content

should be boiled down into manageable

units — but without oversimplifying the

information. This would allow material

to be more easily translated into other

languages and modified for use among

under-served groups. 

Such content could also be more

easily adapted for use on websites, could

be used in educational games (such as

Co-opoly) or incorporated into group

exercises and interactive co-op

simulation activities. Those interviewed

recommended using participatory and

interactive methods of presentation. 

Study participants suggested that

those with experience in co-op

development should be involved in

creating new educational materials.

Those authors must have demonstrated

skills in curriculum development and

popular education techniques. 

Of vital concern is the availability of

material. While all USDA cooperative

publications — both in hard copy and

on the Internet — are available free of

charge, those interviewed encouraged

the Foundation to fund organizations

willing to share materials for free or at

nominal cost (rather than seeing

materials become proprietary

information). 

The report includes an annotated

bibliography and a full listing of

recommended resources. Study findings

were discussed during a national

webinar on Nov. 10. A summary and

the entire study are available on The

Cooperative Foundation website at:

http://thecooperativefoundation.org/.

The report was written by Eklou

Amendah and Christina Clamp of the

Center for Cooperatives and

Community Economic Development at

Southern New Hampshire University.

In addition to the Cooperative

Foundation, funding was also provided

by the CHS Foundation. The

Cooperative Foundation will consider

the study results when awarding future

grants. 

Since 1945, The Cooperative

Foundation has supported cooperative

development, research and education.

Through the awarding of relatively

small grants (ranging from $100 to

$10,000) the Foundation invests in

organizations at key moments to foster

cooperative growth and innovation.

The Federation of Southern

Cooperatives, the North American

Students of Cooperation and the U.S.

Federation of Workers Cooperatives

each received Foundation grants during

their formative years. ■

USDA is engaged in updating some of its most popular co-op education

publications, with improved graphic presentation and expanded editorial content.

The latest publication to get a “complete overhaul” is Co-op Essentials: What

They Are and the Role of Members, Directors, Managers and Employees. For

ordering purposes, it is Cooperative Information Report (or CIR) 11, the same

number as the publication it replaces (which also

carried a similar title, minus the “Cooperative

Essentials” part). 

“We scaled it down to handbook size, and the

look and feel are patterned on our Co-ops 101: An

Introduction to Cooperatives (CIR 55) booklet, with

the idea that these two publications can be used in

tandem,” says author James Wadsworth of USDA’s

Cooperative Programs staff. “Like Co-ops 101, the

new CIR 11 is heavily illustrated and we’ve made it

somewhat less agriculture-specific to make it easier

for other types of co-ops to use in their education

efforts. After all, the same principles that make for a

successful farmer co-op are just as applicable to

most other types of co-ops.” 

Both of these booklets are ideal for use in classrooms, at co-op organizational

meetings and even for long-time co-op members and directors who could benefit

from a “refresher course” as to why the co-op business model remains vital today

for so many people. 

One thing different about the new CIR 11 is that it no longer includes pages with

instructional slides for classroom use. However, those slides are still available and

they, too, have been updated. They can be downloaded from USDA’s website:

http://www.rurdev.usda.gov/supportdocuments/BCP_CIR11slides.pptx.

Another of USDA’s most widely requested co-op publications, How To Start a

Cooperative (CIR 7), has also been given an all new look, with updated editorial

content. It will be available from USDA in January. Hard copies of these

publications can be requested by e-mailing: coopinfo@wdc.usda.gov. All USDA coop publications are also posted to the Web at: www.rurdev.usda.gov/

BCP_Coop_LibraryOfPubs.htm. ■

“Co-op Essentials” available from USDA
28 January/February 2015 / Rural Cooperatives

By Thomas Gray, Ph.D.

Rural Sociologist

USDA Rural Development

Cooperative Programs

Editor’s note: The author welcomes

feedback on this article at: thomas.gray

@usda.gov. 

A phone call handled

poorly on a hectic day

at the co-op, or even an

invoice mistake on a

good day, may have the

same kind of impact on an unhappy

customer, potentially turning him or

her into an irate customer. Resolving

such conflicts amicably is crucial to a

business, especially if the customer is

also an owner of the business, as in the

case of a cooperative.

Employees in cooperatives need

skills to properly handle member

complaints, as will inevitably be faced

by all businesses. Member satisfaction

and loyalty will often depend on how

well complaints are handled. Hopefully,

they can be used not as indictments of

the organization, but rather as feedback

opportunities to improve cooperative

performance.

To respond to member complaints, it

is essential for co-op staff to become

intimately familiar with all products,

services and programs of the

cooperative, as well as those of its

competitors. “Knowing your product”

and the marketplace is a good base on

which co-op staff can build confidence.

But it may not be enough. 

Complaints can be divided into two

basic aspects: facts and the associated

frustrations. Frustrations can skew a

message disproportionately, obscuring

the original problem and leaving the

employee with little but difficult

feelings to respond to. 

Consider this message: “Everything

is backed up on my farm — I need this

part right away. And it’s supposed to

rain tomorrow.” Mounting frustrations

can change this message to: “How come

I have to wait around here all day

whenever I come in. You spend too

much time goofing off, drinking coffee

and not enough time serving members.”

Dealing with too many complaints such

as this can cause a conscientious, hardworking employee to lose heart and develop a genuine dislike for his or her

job.

A much harassed employee, on a

“bad” day, might respond in kind: “If

you think all we do is sit around and

drink coffee, you’re wrong.” Employees

are at a loss to know what to do in these

situations because the customer may

not be communicating real needs. Such

a situation is even more troublesome if

the member is also a board member.

Possible loss of business

The threat of lost business is real,

and patron complaints to the manager

or a board member could even lead to

employee removal. In such cases, both

the employee and member suffer; the

cooperative may be the biggest loser. 

Members have various reasons for

sending strong negative messages,

including their desire for full and

Resolving Member Conflicts

Stakes are raised when an unhappy

customer is a member-owner
Rural Cooperatives / January/February 2015 29

undivided attention, to gain

understanding of their situation, or just

to express the frustration of the

situation. 

Co-op staff should keep these

guidelines in mind when dealing with

an unhappy member: 

• Aversive feelings are transitory;

they’re like waves, and they tend to

subside if complainants feel like they

are at least being heard in a serious way. 

• Complaints, when not heard, can

frequently be exaggerated. Problems,

when put in perspective, may turn out

to be much less serious than they seem

at first. Realizing this can help an

employee respond to the situation

better. 

• Never minimize a patron-member’s

problem. It’s important for him or her

to “tell it like it is” and be given time to

finish expressing concerns about the

poor service or product he or she

received. 

• Respond quickly. Delay can fan the

flames when service is needed.

• The first response should be to

remain quiet and let the patronmember talk. Listening permits you to

give the customer your full attention.

Both the employee and customer get to

unwind.

• Try to avoid distractions while

dealing with the unhappy member. The

customer wants your full attention. If

possible, give it. Tapping fingers,

fumbling with papers or trying to carry

on another conversation at the same

time will convey the opposite

impression. Taking notes on the

member’s statements may help.

• Do not interrupt the customer. Let

him or her talk and fully express the

complaint.

• Resist the tendency to offer a

rebuttal. Argumentative postures may

only aggravate the situation.

• Look for a point of agreement.

The employee may be able to apply

technical expertise at this point and

resolve the problem. But it is quite

possible that the member’s message is

still vague and charged.

‘Active listening’

If you try the above approaches, and

are still receiving intense, aversive

reactions from the member, try “active

listening.” This technique involves

repeating the member-patron’s

complaint as accurately as possible.

Here is an example:

Patron: “How come I have to wait

around all day every time I come in

here? You spend too much time goofing

off, drinking coffee, and not enough

time serving your members.”

Employee: “Sounds like you’re pretty

fed up with us and all the waiting

you’ve had to do today.”

Patron:“You bet I am. Everything is

backed up on my farm. I need this part

right away — and it’s supposed to rain

tomorrow!”

Employee: “Sorry there was a delay.

OK, so this is an extreme rush. I’ll take

care of it now — what’s the number of

the part you need? When will you be

home so we can make delivery?” 

If an employee can’t resolve the

issue, facilitate in moving it “up the

line” to a supervisor or the manager. 

Diffusing a tense exchange

The type of exchange outlined above

has many advantages for the co-op.

You’ve acknowledged that there is a

reason the patron is upset and have

demonstrated attentiveness and

understanding of the problem.

Feedback you provided sends

responsibility for the negative message

back to the patron, who must then

decide if the response is satisfactory or

not. 

The employee is not forced to take

what could be a demoralizing position,

as in: “Yes, you are right, I have been

goofing off today.” Or to strike an

argumentative position: “That’s not

true, we’ve all been working non-stop

today.” There is subtle

acknowledgement of the affect being

felt by the patron. This often can be

quite powerful and disarming.

More suggestions:

• If “active listening” isn’t possible,

for whatever reason, sometimes the less

said the better until the customer is

really ready to hear the answer. 

• If the cooperative has erred, admit

it with an apology and promise better

service in the future. 

• Thank the member. It is his or her

cooperative. Other members may have

similar complaints. A resolved

complaint helps to improve cooperative

performance.

It is important to try to resolve

problems when they occur. A member

may carry and accumulate ill will for

long periods of time and eventually

drop out, pulling out other members.

Knowing techniques for dealing with

these problems develops a sense of

control and competency to help members articulate more fundamental needs. 

Once the “storm has passed,” an

employee can bring technical

knowledge and experience to the

problem and issues can be discussed

logically and clearly.

Dealing with member complaints is

not easy, particularly for those at the

receiving end of a blistering attack.

Early life-learning may predispose

many to adopt defensive, if not

aggressive, postures. For help in this

area, consult various “Leadership

Effectiveness Training” programs

available on the Internet for a complete

introduction to “active listening.” 

“Active listening” literature has often

focused on employer-employee or

student-teacher relationships. These

differ, in some respects, from member

and employee relationships. In a

cooperative, a customer is a member

and owner — and may even be a board

member. However, this multi-functional

position of the member makes handling

these difficult exchanges even more

critical. 

If “people make the difference,” as

many cooperative member programs

believe, then preparing employees for

these difficult situations cannot be

ignored. It may be a key element in a

co-op’s ultimate success. ■
30 January/February 2015 / Rural Cooperatives

Utility Co-op Connection

Utility co-ops helping members cut bills

with new USDA energy efficiency loans

By Anne Mayberry, Rural Utilities Service

USDA Rural Development 

anne.mayberry@wdc.usda.gov

Rural electric

cooperatives nationwide

have for many years

used energy efficiency

programs to better

manage energy systems and contribute

to economic development in their

communities. Now, with approval of

loans from the U.S. Department of

Agriculture’s Rural Utilities Service

(RUS), part of USDA Rural

Development, two rural electric

cooperatives are taking their energy

efficiency programs to the next level.

Agriculture Secretary Tom Vilsack

announced the awarding of energy

efficiency loans to Roanoke Electric

Cooperative in North Carolina

(Roanoke), and North Arkansas Electric

(North Arkansas). “This is a historic

new bond in the partnership between

USDA and our rural electric

cooperatives,” Vilsack said. 

Nearly every rural electric

cooperative utility nationwide has some

form of energy efficiency program as

part of its strategy to manage power

costs, meet consumer demand and

increase environmental regulatory

compliance. Expanding those programs

could reduce the need to purchase or

generate energy, reduce emissions from

generation of electricity and help

strengthen rural economies through

increased funding for energy efficiency

and conservation projects. In addition,

energy efficiency and conservation

programs meet one of the core

cooperative principles: “concern for

community.”

Co-ops can help 

residential members

The RUS Energy Efficiency and

Conservation Loan Program for the

first time allows rural electric utilities to

borrow funds to help their business and

residential consumers finance projects

to reduce energy use. 

“USDA’s Energy Efficiency and

Conservation Loan Program is a new

tool for rural electric utilities to use to

manage electric demand, address a

variety of challenges and provide

benefits to consumers and their

communities,” noted former USDA

Deputy Under Secretary for Rural

Development Doug O’Brien. “Those

rural electric cooperative utilities that

implement or expand energy efficiency

programs see benefits of funding home

and business improvements for their

consumers, while working to better

manage today’s challenges.”

USDA’s Acting Administrator of

RUS, Jasper Schneider, recognized the

CEOs of the Roanoke and North

Arkansas co-ops at the National Rural

Electric Cooperative Association’s

December board meeting. “We want to

thank you for all you do for rural

America,” Schneider said, noting that

the partnership between RUS and coops is approaching the 80th anniversary.

Upgrade to Save

The Roanoke co-op is using its $6

million loan to launch “Upgrade to

Save,” a voluntary program that will

allow their customers to invest in

energy efficiency improvements without

incurring a new debt. “With this

financing, we will be able to make

investments that cut waste, reduce

costs, support our local economy, and

Awards were presented to the nation’s first two rural utility co-ops to enroll in a new USDA

energy conservation loan program during the National Rural Electric Cooperative Association’s

(NRECA) December board meeting. From left are: Jo Ann Emerson, CEO of NRECA; Mel Coleman,

CEO of North Arkansas Electric Cooperative; Jasper Schneider, acting administrator of USDA’s

Rural Utilities Service; Curtis Wynn, CEO of Roanoke Electric Cooperative; and Curtis Nolan,

president of NRECA. 
Rural Cooperatives / January/February 2015 31

improve the quality and comfort of the

homes and businesses we serve,”

explained Roanoke’s CEO, Curtis

Wynn. 

Under Roanoke’s program,

participants agree to a tariff on their

bills that shares the savings with the

utility, ensuring savings for customers

and full cost recovery for Roanoke.

Improvements funded under the

program include HVAC (heating,

ventilation and cooling) systems,

appliance replacements and building

envelope improvements for an average

of 200 residential energy efficiency

upgrades per year over four years.

Schneider noted that while energy

efficiency and conservation is the focus

of both North Arkansas’ and Roanoke’s

programs, the design of each program

differs, allowing rural electric utilities to

implement features to best meet

member needs and state regulations.

Roanoke’s program is modeled after

one developed by the Energy Efficiency

Institute of Vermont. Used by co-ops in

several other states, the average

investment per home is $7,000, with an

average annual energy savings of 25

percent.

Wynn noted that the program allows

cost-effective energy improvements to

be made, regardless of income, credit

score, or whether recipients rent or own

their property. “This is an important

breakthrough for our members,” Wynn

said, noting that many who wanted

energy efficiency upgrades were not

eligible for loans. 

Schneider echoed Wynn’s point, and

said a recent USDA study noted the

continued decline of the rural

population, coupled with lagging

employment growth in most rural areas.

“Rural electric cooperatives historically

have been recognized as leaders in their

communities,” Schneider said. Besides

the benefits for rural utilities and their

consumers, the energy efficiency

program can also address some of the

economic challenges rural communities

face. Today’s new technologies can help

rural consumers live comfortably while

still enjoying affordable electric power.

Arkansas co-op 

loans $12 million

Like many co-ops, North Arkansas

Electric has extensive experience in

energy efficiency programs, having

loaned nearly $12 million for energy

efficiency upgrades for members. North

Arkansas will use its loan of $4.6

million to expand its energy efficiency

program and reduce energy costs for

consumers by providing funding for

geothermal and air source installations,

energy efficiency lightning, and

weatherization measures, including

Energy Star® windows and doors,

insulation, efficient water heaters, and

roofing. 

North Arkansas CEO Mel Coleman

told his fellow board members that like

most rural electric cooperatives, they

work hard to keep their members’

electricity bills affordable, while still

maintaining a good quality of life. “This

is part of who we are and what we do.

Offering energy efficiency funding is

among the things that sets us apart

from other utilities.”

Wynn agreed, adding, “The

experience we have working with RUS

means that we can do more on the

other side of the meter to help our

members.” One advantage of RUS’

energy efficiency and conservation

loans is that they offer rural electric

utilities a way to develop consumer

programs and offer options to help

implement strategies to ensure co-op

consumers have access to cost-effective

energy systems. As the market changes,

utilities with the ability to fund energy

efficiency systems are likely to maintain

a market advantage. 

Current studies show that many

business and residential consumers do

not purchase energy efficiency products

or renewable energy systems because

they lack access to capital or financing.

RUS’ loan program helps reduce

barriers to investment in energy

efficiency. As many rural electric

cooperative utility industry leaders have

noted, reducing electric use can defer

construction of new electric generating

facilities. The least expensive kilowatt is

the one you don’t have to produce.

RUS’ new effort to encourage

energy efficiency funding is among the

more recent activities signifying a shift

in energy financing. The electric

industry’s move away from the

traditional electric utility business

model, based on increasing capacity to

meet growing demand, to a goal of

more effectively managing demand, is

the result of a variety of factors. 

Co-ops adjust to 

changing consumer needs

Because the historically increasing

demand for electricity has leveled off,

or even decreased, in many parts of the

nation, utilities are looking for ways to

more closely align with changing

consumer requirements. USDA’s new

loan program helps support the

President’s Climate Action Plan and

represents a significant addition to the

way USDA funds energy projects. 

Infusing millions of dollars into rural

communities to help rural business and

residential consumers reduce energy

bills by financing building

improvements and renewable energy

systems will help rural economies while

also building a cleaner, more sustainable

domestic energy sector for future

generations. State and federal regulators

view energy efficiency as one more way

to reduce emissions.

In addition, as a result of both

market and regulatory changes, utilities

want to diversify portfolios, which can

help manage risk. Because the RUS

energy efficiency program finances

activities that offset the traditional

business model of increasing electricity

capacity, it can be used as a tool to

better manage risk.

“Making loans to our borrowers so

that they can fund energy efficiency and

conservation is a significant shift in

RUS electric system financing,”

Schneider noted. “This funding is a way

continued on page 36
32 January/February 2015 / Rural Cooperatives

Newsline

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

Co-op developments, coast to coast

Large crop adds to urgency 

of Grain Bin Safety Week 

Extremely high crop yields,

combined with below normal

temperatures and a wet harvest, means

that farmers, grain elevators and other

grain handlers have been dealing with

high-moisture corn and soybeans.

Experts project these conditions could

create the deadliest year for grain

engulfment accidents since 2010. In

2010, 59 entrapments were recorded,

resulting in 26 deaths — the highest

number on record. 

“Every year, we see people needlessly

injured and tragically killed in grain bin

accidents that could have been

avoided,” says Doug Becker, director of

Nationwide Agribusiness Risk

Management Services. “In light of this

year’s sobering projection, it’s more

important than ever for farm families,

rural communities and industry leaders

to come together to help prevent these

tragic accidents from occurring.” 

The central theme of Grain Bin

Safety Week 2015 (being observed Feb.

22-28) is the critical need for first

responders to acquire the specialized

rescue training and equipment needed

to rescue someone entrapped in grain.

The chances of surviving a grain bin

engulfment are greatly increased if a

rescue tube is available to fire

departments nearby. Unfortunately,

many fire departments lack the

equipment and specialized rescue

training needed for a successful rescue. 

In conjunction with Grain Bin Safety

Week, Nationwide has partnered with

the National Education Center for

Agricultural Safety (NECAS), Grain

Systems Inc. (GSI) and KC Supply Co.

to award fire departments with grain

A record 26 U.S. workers were killed in grain entrapment accidents during 2010. To help reduce

the deadly toll, rescue crews around the country need to be properly equipped and trained

through safety drills, such as this. Employees also need to be trained to avoid getting into highrisk situations.
Rural Cooperatives / January/February 2015 33

bin rescue tubes and specialized training

to help save lives when farmers and

other workers become entrapped in

grain bins. Nominations may be

submitted from Jan. 1 – May 31 2015.

For more information, visit:

www.grainbinsafetyweek.com. 

There will be a different topic or

component each of the seven days of

Grain Bin Safety Week, with articles

written by agribusiness riskmanagement professionals and other

experts. 

Along with its partners — Farm

Safety for Just Kids and NECAS —

Nationwide will host #AgChat on

Twitter 7-9 p.m. Central Time on Feb.

24. This moderated, online

conversation will look at grain bin

safety from different angles. Anyone

with a Twitter account can participate.

Go to tweetchat.com and enter #agchat

to start. 

During the week, Nationwide will

also host free, live webinars on grain

bin safety that are open to everyone.

Taught by subject-matter experts and

industry professionals, these webinars

will provide farmers and commercial

grain handlers with valuable insight into

grain management, personal protective

equipment, bin entry, rescue equipment

and more. 

Half of dairy farms enroll in 

margin protection program

The U.S. Department of Agriculture

has announced that more than half of

U.S. dairy operations have enrolled in

the new Margin Protection Program

(MPP) for dairy in 2015. “This is an

encouraging start to this crucial new

safety net program for our industry,”

says Jim Mulhern, president and CEO

of the National Milk Producers

Federation (NMPF).

More than 23,000 dairy operations

signed up for the program during the

three-month window that ran until

Dec. 19, 2014. “The margin protection

program is a welcome improvement to

federal dairy policy and comes at an

important time to help farmers deal

with what will be a more challenging

economic outlook in 2015,” Mulhern

adds. “The MPP is now the only widely

available tool to help farmers protect

against both lower milk prices and

higher feed costs. It represents a new

paradigm in shared responsibility

between farmers and the government to

cover the cost of that insurance.”

Anecdotal reports indicate that the

sign-up extensions granted after

Thanksgiving, coupled with a sharp

downturn in milk price forecasts for

2015, encouraged additional

participation prior to the Dec. 19

cutoff. The next MPP sign-up period

will begin in six months, during an

open season enrollment window for

MPP coverage in calendar year 2016.

That enrollment period will run from

July 1 until Sept. 30.

NMPF’s www.futurefordairy.com

website helps educate farmers about the

program, and NMPF worked with

USDA and a group of university

agricultural economists during 2014 to

explain the benefits of the Margin

Protection Program.

In other NMPF news, the

organization recently joined the

American Humane Association (AHA),

the country’s oldest humane animal

treatment organization, a top chef and

others involved in food production in a

discussion about the commitment that

farmers are making to proper animal

care. The event was a Capitol Hill

briefing themed “The Humane Table,

Celebrating the American Heartland”

organized by AHA.

According to AHA President and

CEO Robin Ganzert, the briefing was

meant to “celebrate and give thanks to

those working to build a better world

for people and animals” and to

encourage support for humane farming

practices. 

‘Co-ops in Your Community’

teaching modules

The Council on Food, Agricultural

and Resource Economics (C-FARE) has

released “Cooperatives in Your

Community,” a set of teaching modules

for high school students that explain the

economics of cooperatives. The

teaching modules are hosted on the

Council for Economic Education’s

(CEE) website: www.econedlink.org.

C-FARE received technical support

from CEE, a world leader in economic

and financial education for K-12

students. CEE is a supporting partner

and provided technical assistance via

peer review. The CHS Foundation, a

charitable organization that supports

giving on behalf of CHS Inc., the

nation’s leading cooperative, provided

support essential for project success.

The teaching modules cover

consumer and agricultural cooperatives.

Teachers who tested the modules in

their classrooms said that although

students may study cooperatives as part

of their study of types of business

organization, the cooperatives module

adds depth to their understanding. 

Both teaching modules are designed

to require no more than 180 minutes of

class time. Each can be adapted to the

needs of the instructor. 

“Smart Agriculture”

Ag Outlook Forum theme 

U.S. Agriculture Secretary Tom

Vilsack and European Commissioner of

Agriculture and Rural Development

Phil Hogan will engage in a far-ranging

roundtable discussion on agriculture

during USDA’s annual Agriculture

Outlook Forum, Feb. 19-20 at the

Crystal City Gateway Marriott in

Arlington, Va. Other featured speakers

include Richard N. Haass, president of

the Council on Foreign Relations, who

will address: “Food, Foreign Policy and

International Order.” USDA Chief

Economist Robert Johansson will

deliver the 2015 outlook for agriculture

and foreign trade. 

The theme of the forum is “Smart

Agriculture in the 21st Century.” The

plenary panel will participate in a

discussion on “Innovation,

Biotechnology and Big Data.”

Moderated by Secretary Vilsack, the

panel includes: Cory J. Reed, senior

vice president of Intelligent Solutions

Group, John Deere Co; Robert T.

Fraley, executive vice president and

chief technology officer, Monsanto;

Mary Kay Thatcher, senior director for
34 January/February 2015 / Rural Cooperatives

congressional relations, American Farm

Bureau Federation; and Robert Sutor,

vice president for mobile solutions and

mathematical sciences at IBM Corp. 

The Forum's dinner speaker will be

Ambassador Darci Vetter, chief

agricultural negotiator for the Office of

the United States Trade Representative.

Speaking at the 25 breakout sessions

and five topical luncheons will be more

than 100 distinguished experts. 

Breakout session topics on the

agenda include: Perspectives on Global

and U.S. Trade; Big Data's Impact on

U.S. Agriculture; Commodity Situation

and Outlooks; Food Price and Farm

Income Outlooks; Moving Feed, Food

and Fuel to Market; Opportunities in

the Bio-Economy; Antimicrobial

Resistance; and Bee/Pollinator Issues

Facing Agriculture, among many

others. Registration is available at:

www.usda.gov/oce/forum. 

Georgia co-ops backing 

utility-scale solar system 

Flint Energies, Cobb EMC and

Sawnee EMC will purchase the entire

power output of a 131-megawatt (MW)

photovoltaic (PV) solar project to be

constructed outside of Butler, Ga. The

electric membership cooperatives inked

the deal with Southern Company

subsidiary Southern Power.

The solar facility will be located on a

911-acre site in Taylor County. It will

consist of about 1.6 million thin-film

PV modules mounted on single-axis

tracking tables. This will be equal to

1.42 square miles of land area covered

by PV cells, or the same as 826 football

fields. 

Southern Power selected First Solar

to be the engineering, procurement and

construction contractor for the facility.

Construction of the plant is scheduled

to begin this September and is expected

to achieve commercial operation in the

fourth quarter of 2016.

“The Taylor County solar project,

which will be among the largest singlesite projects east of the Mississippi

River, will be an important contributor

to meeting future power needs of the

cooperative,” says Flint Energies CEO

Bob Ray. “Better yet, the project is the

fourth renewable generation facility

located in the Flint service area that will

directly contribute to meeting Flint

member power demand.”

The electricity generated by the

facility will be sold under 25-year

purchase power agreements to the

participating electric cooperatives. It

will be built in the Flint Energies

service territory in Taylor County just

off Highway 96. Because all of the

state’s electric utilities co-own the

Integrated Transmission System (ITS),

interconnections to the larger electric

power grid are relatively simple.

Output of the power sale will be

allocated as 101 megawatts to Cobb

EMC, 15 megawatts to Sawnee EMC

and 15 megawatts to Flint Energies.

Trupointe, Cargill form 

Indiana ag joint venture

Trupointe Cooperative Inc. and

Cargill Inc. have signed a letter of

intent to create a joint venture with

their facilities in Milford, Bremen and

La Paz, Indiana. Upon completing due

diligence and signing a final agreement,

the two companies will combine

Trupointe’s crop inputs assets in

Milford with Cargill’s grain elevators in

Bremen and La Paz. The joint venture

— to be named TruHorizons — is also

planned to include building a $30

million grain elevator in Milford, to be

completed for the 2016 harvest. 

Trupointe, an agricultural cooperative

based in Piqua, Ohio, with 4,100

members, serves western Ohio and

eastern Indiana. This summer the co-op

opened its Milford Agronomy Hub,

which offers crop nutrients, crop

protection products, seed and traits,

crop scouting, precision agriculture,

application services and more. The

addition of the grain facility onsite has

been part of design plans since

Trupointe acquired the site.

MVC patronage benefits

members, communities 

Farmers, ranchers and memberowners across north-central Montana

will share in an estimated $3.3 million

cash patronage distribution from

Mountain View Co-op (MVC), an

agronomy, grain, energy, feed and retail

cooperative. 

“The ability of our members, who

are also our customers, to directly share

in the financial success of MVC is a

distinct advantage of being part of a

cooperative business,” says Art Schmidt,

the co-op’s general manager. “And this

is cash that is returned to local

This Flint Energies solar panel array will be dwarfed by a new, 131-megawatt solar power project

being constructed outside Butler, Ga. It will cover an area the size of 826 football fields. The

power will be shared by three co-ops: Cobb EMC, Sawnee EMC and Flint Energies EMC.
Rural Cooperatives / January/February 2015 35

communities, enabling farmers,

ranchers and members to invest in their

own futures.”

The 2014 cash returned to members

is based on MVC’s net income and

regional patronage from CHS Inc. and

Land O’ Lakes. “Patronage is based on

business done with MVC by individual

farmers, ranchers and members during

fiscal 2014,” says Del Styren, board

president of MVC and farmer from

Brady, Mont. In addition to a cash

payment, members will also receive an

equity allocation, bringing the total

patronage earned by the co-op’s 4,500

members to an estimated $8.4 million.

CHS has second best 

year for revenue, income 

CHS reported net income of $1.1

billion and revenue of $42.7 billion for

fiscal 2014, each representing the

second best performance in company

history. The cooperative also returned a

record $637.2 million to its owners in

cash and preferred stock. CHS will

distribute an estimated $518 million in

cash in fiscal 2015, consisting of

patronage, equity redemptions and

preferred stock dividends.

“The unprecedented success this

company has achieved in recent years

has delivered tremendous value for you

— in dependable input supplies, market

opportunity, economic returns and

investments in your future,” Carl

Casale, CHS president and chief

executive officer, told farmer-owners,

cooperative leaders and others

attending its 2014 annual meeting in

December. “We must constantly

recharge our momentum, finding new

ways to increase our speed and

adjusting our trajectory to stay ahead of

competitive forces.”

Casale addressed nearly 2,500

member-owners and others attending

the meeting in Minneapolis. CHS

leaders outlined how the co-op will

achieve its three main objectives:

investing in the future, delivering direct

economic value to owners and

remaining financially strong for its

owners. 

Among those also attending the

meeting were 155 farmers and ranchers

from across the U.S. who took part in

the CHS New Leaders Forum, a

program that builds next generation

leaders for agriculture and rural

America.

CHS business highlights for the year

include:

• Plans were announced in

September to construct a $3 billion

fertilizer manufacturing plant at

Spiritwood, N.D.

• About $406 million in projects

were initiated at the Laurel, Mont.,

refinery to boost efficiency and increase

diesel production. 

• Some $1.4 billion in preferred

stock was issued on the NASDAQ

exchange during the past 18 months; 

• Terral River Service was acquired,

securing storage and ensuring fertilizer

supply in the Mississippi Delta region

through eight Mississippi River

terminals. 

• An ethanol plant at Rochelle, Ill.,

with 133 million gallons of annual

production, was purchased, adding

value for corn producers and accessing

strong markets for ethanol and its

coproduct, dried distiller’s grain. 

• A $30 million production

expansion, along with equipment and

food-quality process upgrades, was

completed at the co-op’s Creston, Iowa,

soybean processing facility. 

• The co-op became an owner of a

grain export terminal being built at

Necochea, Argentina, providing access

to growing Asia-Pacific markets. 

• Four new propane terminals were

opened, and other significant

investments were made to ensure secure

supply amid the loss of a major regional

distribution pipeline. 

• Investments were made in the

future of agriculture, cooperatives and

rural communities with $10.5 million in

contributions from CHS Corporate

Citizenship and the CHS Foundation.

NCB backing elder care 

facility development 

The National PACE Association

(NPA) and National Cooperative Bank

(NCB) have announced a lending

program to help finance a nationwide

expansion of Programs of All-Inclusive

Care for the Elderly (PACE). Over the

past 12 months, NPA has worked with

NCB to develop a PACE lending

program to address the lending gaps

NPA members face as they work to

implement new or expand existing

PACE programs. 

“PACE is a model of care that has

always faced hurdles in accessing

sufficient and affordable financing,” says

NPA President and CEO Shawn

Among highlights for CHS last year was a

$30-million plant expansion and equipment

upgrades at the co-op’s Creston, Iowa,

soybean-processing facility. Photo by David

Lundquist, Courtesy CHS
36 January/February 2015 / Rural Cooperatives

Bloom. “Because PACE is not easily

understood, attracting adequate

financing can be a challenge. For this

reason, we were delighted to work with

NCB to explore a PACE lending

program.” 

The NCB program will provide

working capital and real estate lending

to qualified PACE expansions and startups. PACE providers will work with a

dedicated NCB team that understands

the PACE model and the Medicare and

Medicaid structures that support it. 

“NCB has a history of supporting

the development of affordable senior

housing and aging services, including

PACE,” according to Chuck Snyder,

CEO of NCB. “We expect that this

new avenue of financing will provide

even more opportunities for PACE

development and expansion in the

future.” 

For questions regarding the NCB

PACE program, contact Robert

Jenkens, director of social impact

initiatives at NCB, 202-552-9632 or:

rjenkens@ncb.coop. 

San Diego to host 

Small Farm Conference 

The 2015 California Small Farm

Conference will be held March 7-10 at

the San Diego Marriott Mission Valley.

The event is the state’s premier

gathering for small farmers and

ranchers. The goal is to promote the

success and viability of small and

family-owned farming operations and

farmers markets through short courses,

tours and workshops. The conference

attracts about 500 attendees.

The program will follow a number

of different tracks, including:

Production Track (classes cover topics

such as design and management of drip

irrigation systems, soil health, etc.);

Farmers Market Managers’ Track

(topics include enhancing market

integrity, new legislation, etc.);

Marketing Track (topic include

Marketing 101 for Farmers, roundtable

discussions, etc.); Farm Management

Track (topics include small farm

survival, organic farming, etc.);

Emerging Issues Track (topics include

food safety issues, urban ag, etc.). 

For registration and other

information, visit: www.california

farmconference.com. ■

RUS electric borrowers can address

with changing market conditions, such

as uncertain growth in the demand for

electricity.”

Energy efficiency programs are also

increasingly used as mechanisms to

comply with shifting policies, such as

those geared toward reducing emissions

or distributed generation, which allow

customers to offset energy use through

the installation of onsite renewable

systems. “New technologies, market

conditions, customer preferences and

the regulatory landscape are

transforming electric utilities. Rural

electric cooperatives thrived because of

consumer demands that began over 80

years ago. The fact that the cooperative business model for delivering

electricity to rural areas is still strong

today is a testimony to co-ops’ ability to

adapt to a changing environment,”

Schneider said.

“Access to low-cost capital is a

cornerstone of electric utilities’ ability

to grow and compete,” Schneider says.

“Because the RUS energy efficiency

program conserves capital, facilitates

flexibility and offers new ways to

provide valuable services to their

consumers, it can offer rural electric

cooperative utilities a competitive edge

in reducing costs while providing

benefits for their rural consumers.” ■

Utility Co-op Connection

continued from page 31

Replacement of older HVAC equipment with

modern, energy-efficient units can result in

substantial long-term savings for consumers.

exchange ideas about policy, research

and legal issues currently affecting the

ag cooperatives. Conference

presentations typically cover topics on

cooperative governance, capitalization,

finance and equity management

practices, business structure and

strategic alliances, global and domestic

agricultural trends, and enhancing

member value. 

Another “don’t miss” educational

opportunity for ag leaders, and for

anyone else with an interest in

agriculture and rural affairs, is USDA’s

own “Agricultural Outlook Forum,”

coming up Feb. 19–20. See the back

cover of this issue for more

information. 

The better informed our co-op

leaders are, and the more the public

understands this highly adaptable

business model, the more our nation

will benefit. ■

Commentary

continued from page 2
$1.89 per cwt of milk handled, while

those with a minor proportion of total

revenue from supply and other items

had just two cents per cwt in net

margins.

The operations that facilitate farm

supply and other non-dairy sales likely

require a unique set of additional assets

to support the activities, differing from

those employed to market members’

milk. Total assets per cwt employed by

cooperatives with substantial supply

operations were more than seven times

higher than for those co-ops with farm

supply sales that account for a minor

portion of total sales. 

Likewise, those with limited supply

and other sales had the lowest equity

investment per cwt, $2.02, compared to

$9.50 per cwt for those with a majority

of total revenue from supply and other

sales. Co-ops with limited supply sales

had just 52 cents per cwt invested in

other cooperatives. In contrast,

investments in other cooperatives for

cooperatives with substantial supply

sales averaged $2.71 per cwt. 

Varied performances

Finally, there were also differences in

the financial statements between

cooperatives with the same operational

focus, but which handled different

amounts of milk. 

Some key observations from the survey

include:

• Large, diversified cooperatives

utilized the most assets per cwt of

members’ milk.

• Large, bargaining-only

cooperatives utilized the least assets per

cwt and had negative net margins

before taxes, on average.

• Small, bargaining-only

cooperatives had supply and other sales

almost equal to milk and dairy product

sales and the largest net margins before

taxes per cwt of milk handled.

• About 25 percent of the profiled

cooperatives had negative net margins

before income tax. A somewhat smaller

proportion of diversified cooperatives

had negative returns relative to the

other types.

• Substantial supply operations

affected the structure of about 8 percent

of the dairy cooperatives’ financial

statements. ■

Rural Cooperatives / January/February 2015 37

integrated with its members. It is a

third mode of organizing coordination.

Therefore, an economic analysis of a

cooperative requires analytical models

that go beyond neoclassical economic

thinking. 

Oliver E. Williamson’s recent work

on the theory of the firm as a

governance structure that economizes

on the transaction cost of contractual

arrangement with market participants is

very useful. It can help us analyze the

nature of the cooperative and to assess

the relationships of the cooperative with

its members and with its various other

stakeholders.

Q. What is your outlook on the future

of the cooperative movement?

A. Cooperatives will continue to be a

useful business model for the economic

activities that are suitable to being

organized and operated on a

cooperative basis. For example,

agricultural marketing cooperatives

(such as dairy cooperatives) have a very

long and successful history. They will

certainly continue to flourish, so will

various other types of cooperatives,

both existing ones and those formed in

the future. 

However, I do not think it is

appropriate to equate such cooperative

business development with a

“cooperative movement,” because the

term tends to conjure the image that it

is some kind of social-economic

movement.

For one thing, a social-economic

movement feeds on persistent

polarizing social-economic conditions

among large groups of people. I am not

sure that such conditions will exist and

persist, if we trust that the market

economy of our mature democracy is

capable of rectifying its intermittent

deficiencies.

Secondly, a movement must have an

ideology to underpin it. While ideology

stokes rigidity, a successful cooperative

business, like any other business, thrives

on pragmatism. Mixing ideology with

business operation is bound to be

problematic.

Thirdly, a movement waxes and

wanes — it tends not to be long lasting.

It may start, grow, have some successes

or failures, and then subside, decline

and fizzle. On the other hand, a

cooperative, being a business firm, is a

going concern that will last as long as

members see a benefit to cooperating

— and as long as the market allows it

to.

Finally, successful development of a

cooperative business must be carefully

planned and executed. Its deliberative

pace lacks the temperament that is

necessary to sustain a movement.

Q. Plans for your retirement?

A. I will have more time to spend

with my family and hug my

grandchildren. Weekend hiking and

jogging on park trails will now become

my daily routine. There is a long list of

books to read and places to visit. I may

also try to write my life story for the

posterity, and learn the art of preparing

Japanese cuisine. ■

In the spotlight: Dr. K. Charles LIng

continued from page 13

Survey results shed light on dairy co-op finacial performance

continued from page 24
38 January/February 2015 / Rural Cooperatives
Rural Cooperatives / January/February 2015 39
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