Rural

COOPERATIVES COOPERATIVES

USDA / Rural Development January/February 2002 USDA / Rural Development January/February 2002
2 January/February 2002 / Rural Cooperatives

Major discussions are now taking

place about what national organizations will take responsibility for education about cooperative principles, practices and methods of operation. Should

there be a responsibility at the national

level at all? In the article on page 8,

Professor Brett Fairbairn, director of

the Center for Study on Cooperatives

at the University of Saskatchewan,

makes a strong case that whether cooperatives succeed or fail in the new century depends to a large extent upon

cooperative educational efforts.

In the formative days of many of

today’s cooperatives, Dr. Edwin G.

Nourse and Aaron Sapiro supported

vigorous education efforts. Out of this

effort the American Institute of Cooperation (AIC) was formed in 1925 as a

“floating university,” attended annually

by hundreds of cooperative leaders.

Nurturing the cooperative idea was

achieved through the sharing of experiences. Advisors active in farm organizations, extension, university and government agencies were also active

participants. 

The annual educational conference

initially lasted up to 2 weeks, but was

later shortened to 3-5 days. Programs

were targeted to youth, young farm

couples, adult cooperative members

and educational professionals. Educational credits could be earned through

certification of the program as a recognized professional educational offering.

The floating university charter ended

in 1991, when the AIC was dissolved.

Responsibility for the educational program was then assumed by the Education Division of the National Council

of Farmer Cooperatives (NCFC).

Examples of the need for constant

education about the cooperative method

of doing business are not hard to find. A

number of high profile cooperatives

have failed when they hired outside

management that had no fundamental

comprehension of the user-owned

nature of cooperative businesses. Similarly, in recent Farm Bill debate, an

environmental working group leveled

criticism at regional cooperatives for

receiving “government payments”

which the cooperatives, it turn, passed

on to their producer-members. These

critics lacked fundamental recognition

of the service role cooperatives play in

delivering farm program payments to

members through USDA’s Cooperative

Marketing Association (CMA) program

(see article on p. 24). 

Or consider efforts by some cooperatives to use outside sources of capital to

finance expansion, thereby lessening

member ownership and effectively leading cooperatives down the path to

takeovers by outside, non-producers or

conversion of cooperatives into

investor-owned firms. One observer

even recently pondered whether some

regional cooperatives really think of

themselves as cooperatives now. 

Finally, consider action last month

by a state farm organization to encourage legislation for redemption of a

member’s capital if a cooperative was

perceived by the member as competing

with him or her. Each of these examples attest to challenges to the underlying principles and practices of cooperation that require careful review and

exchange of knowledge in an active

educational setting.

Fundamental cooperative education

must extend far beyond existing cooperatives. Increasing recognition of the

vital roles cooperatives play in rural

development, urban revitalization and

all parts of the American economy

requires that every person understand

the basics of cooperatives. 

A decade ago, a national cooperative

educational task force—jointly sponsored by USDA and NCFC—set out

an expansive, badly needed vision for

cooperative education. It said that

“every individual in the United States

should have enough knowledge about

the cooperative form of business enterprise to know its general distinguishing

characteristics, assess its appropriateness to meet economic and social

needs, and recognize cooperatives’ purposes and benefits.” Only if cooperative education strives to reach this

vision can all cooperatives of every kind

reach their true potential. And only

then can benefits derived from cooperatives be gained by individuals and

businesses throughout every part of the

economy. This should be a national

educational mission. 

Education about cooperatives is critical to the long-term survival of producer- and user-owned businesses as

instruments of change and effective

representation of members’ interests.

The focus should not be preserving

institutions for the sake of institutions,

but rather how co-ops can produce

more member benefits. Education

about cooperatives is a fundamental

process undergirding their future success. The question is whether this is

recognized and how committed leadership is to enhancing programs that

accomplish it. 

Randall Torgerson, Deputy Administrator

Rural Business-Cooperative Service

COMMENTARY

Cooperative education: whose responsibility is it?
Rural Cooperatives / January/February 2002 3

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Ann Veneman, Secretary of Agriculture

Michael E. Neruda, Deputy Under Secretary, USDA

Rural Development

John Rosso, Acting Administrator, Rural BusinessCooperative Service

Randall Torgerson, Deputy Administrator, USDA

Rural Business-Cooperative Service

Dan Campbell, Editor

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United States Department of Agriculture

Rural COOPERATIVES COOPERATIVES

January/February 2002 Volume 69 Number 1

On the Cover:

Brett Fairbairn explores vital education issues which will likely play a major

role in the future success of cooperatives. Page 8. Graphic by Ron Pride 

FEATURES

4 Vermont electric co-op looks to landfill for

methane recovery

By Steve Thompson

8 Making the grade

Will co-ops succeed or fail in the new century? The answer lies

with co-op education efforts

By Brett Fairbairn 

12 Revenue up, net margins down

Ag cooperatives struggle with lower prices, higher costs

By David Chesnick 

18 Hard times breed new livestock co-ops

By Dan Campbell

19 Locals gain by diversifying

From funeral homes to pizza parlors, Southwest co-ops find

ways to boost earnings

By Lynette Cockerell

24 Cooperative Marketing Association Program:

Another way grain co-ops can serve their members

By Marc Warman, Alan D. Borst, Chris Kyer

DEPARTMENTS

2 COMMENTARY

22 MANAGEMENT TIP

28 NEWSLINE

31 NEW PUBLICATIONS
4 January/February 2002 / Rural Cooperatives

Vermont electric co-op looks to

landfill for methane recovery 

By Steve Thompson

USDA Rural Development 

Editor’s note: This is the second in a series

of articles on farm and utility cooperatives

that are producing, or using, alternative

fuels. In upcoming issues, the focus will

shift to wind and solar power, and then to

ethanol. 

ermont is a

“green” state (its

name, after all,

means “Green Mountain”),

and many Vermonters are

not very enthusiastic about

nuclear power. So when the

end of Washington Electric

Cooperative’s contract with

a nuclear power plant was in

sight, the co-op looked

around for a practical source

of renewable energy.

“We consider ourselves a “green”

co-op,” says General Manager Avram

Patt from the co-op’s offices in East

Montpelier. “Both our board and our

members wanted to find a source of

electric power that’s environmentally

sound.”

Vermont Yankee Nuclear Power

Corporation operates a 550-megawatt

nuclear power plant in Vernon, and

supplies 30 percent of Washington

Electric’s 10-to-14- megawatt power needs. “That’s a significant

chunk of our power needs,”

says Patt. “So we need a

baseload source—reliable

and economically feasible generation

that isn’t dependent on weather or other variable factors.”

That leaves out solar and wind

power—technologies that are considered highly desirable as renewable

energy sources, but are not suitable

for baseload generation because of

their very nature. Solar power generation is greatly affected by cloud

cover, and, of course, does not operate at all at night. Wind generation is

useful in some circumstances,

depending on geographic location.

However, in most areas wind pro- V

duces the least power at times when
Rural Cooperatives / January/February 2002 5

it is most needed: hot, still days in

which customers’ air conditioners

maximize power demand.

Both of these technologies—while

excellent for some uses—are limited by

the lack of a workable means to store for

later use the power generated during

periods of low demand. So they are

practical primarily as supplemental

sources of power. Both are also

significantly more expensive

than more conventional

energy sources.

The co-op found what

it was looking for in, of all

places, a huge landfill

located in a nearby state.

As the materials buried in

landfills decay, the action

Biofuels are the “fuels of the future, and their production is closely linked to our nation’s security,” President

George W. Bush said recently. “These fuels are made

right here in America, so they can’t be threatened by any

foreign power,” the president said while addressing an

audience of farmers and agribusiness officials attending

the Farm Journal’s annual forum in Washington, D.C. 

Bush and other national leaders said that renewable

energy production may be one of the major cash crops

for farmers and others in the new century. “These fuels

are gentle on the environment,” Bush said. “They are

fuels that can be renewed year after year, and fuels that

can expand our farm economy.”

Former CIA director James Woolsey said new methods of turning range grass, crop stubble and even

garbage into ethanol could replace 30 percent of the

gasoline the nation now uses. “North America is to

farms what Saudi Arabia is to oil. We have an opportunity to have a huge impact on our own national security.”

It is expected that the new Farm Bill will provide substantial boosts in subsidies for bioenergy development.

Already, the following incentives are available to

encourage development of alternative fuels: 

Renewable Energy Production Tax Credit: Taxpayers

are allowed a credit (under Section 45 of the Internal Revenue Code) of 1.5 cents per kilowatt-hour for electricity

generated from “closed-loop biomass” projects. In the fall

of 1999, Congress amended section 45 to let more facilities

take advantage of the tax credit. The new rule extends the

“placed-in-service” date for qualifying facilities and

includes poultry waste as a qualifying energy resource. 

Under this rule, qualifying facilities are defined as

wind, closed-loop biomass and poultry-waste facilities.

These plants will be eligible for the 1.5 cents per kilowatt-hour tax credit if they are placed in service before

Jan. 1, 2002. The previous rule required facilities to be

placed in service before June 30, 1999, and did not

include poultry waste as an acceptable energy resource. 

Renewable Energy Production Incentive: Section

1212 of the 1992 Energy Policy Act allows DOE to make

payments of 1.5 cents per kilowatt-hour, adjusted annually for inflation, for electricity generated and sold by

qualifying facilities.

Accelerated Depreciation: Certain equipment in an

electric generating plant that uses biomass for fuel qualifies for accelerated depreciation over 5 years, provided

the plant is a “qualifying facility.”

Tax-Exempt Financing: Assuming that the facility has

more than 10 percent private business use, a biomass

project can qualify for tax-exempt financing if it fits into

one of two categories: 1) the project supplies gas or

electricity to an area no larger than two contiguous

counties or one city and a contiguous county; or 2) the

facility is a solid waste disposal facility. ■

Federal tax credits boost biogas and methane energy

“These (bio) fuels are

made right here in

America, so they can’t

be threatened by any

foreign power.” 

—President 

George W. Bush 
of microbes produces methane gas.

The gas can be burned in conventional steam-turbine power plants, or

in smaller gas-turbine generators.

The technology for using landfill gas

is well developed and in use in dozens

of areas around the country, and its

cost is significantly lower than wind

or solar power. Best of all, recovering

landfill gas and burning it reduces the

net amount of atmospheric methane,

a gas that is considered 27 times

more destructive as a greenhouse gas

than is carbon dioxide produced by

its combustion.

Competitive energy prices

Landfills across the country use this

technology. The use of landfill

methane is not free—a sizeable investment is required for infrastructure to

mine it from a landfill. However, while

wind and solar sources enjoy the greatest state and federal green power

incentives available to utilities,

methane recovery can also receive

financial benefits (see sidebar). With

the incentives available, the co-op’s

board of directors determined that they

could provide landfill-generated power

to their customers at prices competitive

with market forecasts. 

Washington Electric is a long-time

borrower and customer of the Rural

Electric Administration and now the

Rural Utilities Service (RUS), an

agency of USDA Rural Development.

The co-op is now working out the

details of a financing plan with assistance from RUS, which has program

funding to help electrical co-ops take

6 January/February 2002 / Rural Cooperatives

The membrane sealing the bottom of this landfill will prevent garbage from causing

groundwater contamination. With the addition of a second membrane sealing the top of

the finished landfill, the methane gas generated by the decay of refuse can be recovered

and burned to produce electric power. Photos courtesy National Renewable Energy Laboratory

Gas turbines are used in many applications today.

One of the most popular and best known is providing

thrust for airplanes. Others include powering ships, providing easily portable sources of stationary power, and

generating electricity in permanent installations. 

Gas turbines have many advantages:

■ They are very light and compact for their power

output; 

■ They can run on a variety of fuels, including diesel

oil, kerosene, and various combustible gases; 

■ They have very low vibration levels because they

have no major reciprocating parts;

■ Unlike other power sources, including piston internal combustion and steam turbine power plants, they do

not need a dedicated coolant: the air used to combust

fuel is also used to cool the engine;

■ Compared to steam turbines, they can be started

and brought up to peak output in a few minutes instead

of hours;

■ Today’s gas turbines require very low levels of

maintenance.

The gas turbine is simple in concept. It compresses

and heats incoming air, mixes it with fuel, burns the mixture, and uses the resulting hot expanding gasses to

cause a set of fans—the turbine—to rotate. In contrast,

steam turbines use steam generated in an external boiler to rotate the fans.

Because they can be brought quickly on line, gas turbines have been used for decades by utilities as emergency power generators for times of peak demand.

However, until recently they were not considered practical for baseline electrical generating purposes. In large

part this was because their efficiency in converting fuel

to useable energy was low compared to piston engines

and steam turbines. 

However, new technology has enabled the production of gas turbines whose efficiency is roughly analogous to those of other power sources. Moreover,

future designs promise to be significantly more efficient than steam turbines, which are currently the

most widely used source of power for generating

electricity. ■

Gas Turbines: coming into their own
Rural Cooperatives / January/February 2002 7

1. Gases produced by decaying refuse are collected through slotted pipes buried in a landfill. Rock surrounding the

pipes is used as a moisture barrier. Plastic membranes encase the landfill and prevent pollutants from escaping into the

environment.

2. A fan pulls the landfill gases through a collection manifold and blows it into a scrubber. The scrubber removes acids,

moisture, and other contaminants, which are returned to the landfill.

3. The clean, dry gas is compressed and stored.

4. The stored gas fuels a gas turbine connected to an electrical generator. A set of reduction gears converts the highspeed rotation of the turbine’s output shaft to a slower speed more appropriate for powering the generator. The result is

clean, environmentally-friendly electric power.

How landfills generate electricity

advantage of renewable energy sources.

The primary contractors chosen to

build the facility are La Capra Associates of Boston.

Blaine Stockton, RUS assistant

administrator, sees a growing role for

the agency in the trend to “green”

power. “Encouraging the use of renewable energy is not only the policy of the

federal government,” he says, “it’s also

what many utility co-op members

want. It’s an important part of our job

to help rural electric co-ops find

sources of renewable energy they can

provide their customers at attractive

prices; and we see that role growing

more important in the future.”

Avram Patt says the project is compatible both with the co-op’s desire for

clean energy and with its commitment

to providing low-cost power for its

members. “We’re especially concerned

with reducing the volatility of our

costs,” he says. “We’re interested in

long-term commitments—bringing our

ownership and financing abilities to

bear to keep our prices down.” 

Uncomplicated technology

The technology involved is well

established and uncomplicated. A

membrane lines the bottom of all new

landfills. This is to prevent leakage of

polluting substances into the water

table and soil, but it also serves to help

seal in the methane and other gases

produced by microbial action on

garbage. Vertical-slotted pipes made of

plastic are installed and surrounded by

porous rock, which acts as a moisture

barrier. A membrane is installed over

the top of the fill, and a fan is used to

create a slight negative pressure, drawing the gas as it is generated through

the pipes. With existing landfills, holes

are drilled into the fill, into which the

slotted pipes are inserted.

Once the gas is extracted, it is

scrubbed to remove acids and dehumidified. The condensate is returned to the

landfill. It is then compressed, stored

and used to power one or more generators. The Washington Electric Cooperative’s installation will use a clean-burning gas turbine similar to an aircraft jet

engine to combust the fuel, instead of

the more traditional method of burning

it in a boiler to generate steam that in

turn drives a generator. There is no

release of gases into the atmosphere

except through the exhaust stack.

A landfill gas installation provides a

reliable source of power for some 30

years, although gas production does

decline somewhat over the life of the

installation, says Ralph Overend, a

researcher at the National Renewable

Energy Laboratory (NREL) in Denver.

“At the end of the 30 years, you’ve used

it up, so you walk away and start over,”

he says. However, while any single

installation is not a permanent source

of power, the supply of producing landfills promises never to run out—truly a

renewable energy source. ■

Graphic by Steve Thompson
8 January/February 2002 / Rural Cooperatives

By Brett Fairbairn

Director, Center for the Study of

Cooperatives

University of Saskatchewan,

Canada

Editor’s note: This article is based on an

address the author gave at the National

Institute on Cooperative Education

(NICE) in Atlanta, Ga., last summer.

hat kind of cooperative education is

needed in an information age? Experts in

globalization see the

changes in our society as shifts in:

• extensity—the degree to which cultural, political and economic activities are “stretching” across new

frontiers; 

• intensity—the magnitude and regularity of interconnectedness; 

• velocity—of global interactions and

processes; and 

• enmeshment—or interdependence,

of the global and the local.

(William S. Coleman, after David

Held et al.) 

No business and no organization

will escape the impacts of these kinds

of changes. Currently, we are seeing

the reorganization and restructuring of

many—perhaps most—sectors of

human activity: new ideas, new influences, new attitudes, new competitors,

new products and new methods. The

resulting challenges for enterprises are

not solved by simply throwing more

capital or more labor at them: information is the key. 

Cooperatives need to perceive and

recognize change. They need to be

flexible to innovate and adapt appropriately and quickly in order to deal with

complex, interrelated problems. Education has a role in every one of these

processes and is essential to the success

of cooperatives.

One of the most remarked-upon

features of the new age is an excess of

information. Facts abound. No one can

keep up with all the stories, reports,

articles, events and opinions. Skills and

skill-training are everywhere, constantly changing and updated with the

latest technology or the latest

approaches. What people desperately

need is not more information to add to

all this noise, but rather mental tools

to deal with information, to sort out

what is meaningful, what is significant

and what is needed. 

We must distinguish training from

education. Training imparts specific,

predetermined facts, procedures and

skills. Education develops in people the

capacity to know what is important,

how to do something and to find the

information and skills they need.

Cooperatives have gotten by for

decades by doing a great deal of training—particularly of staff and elected

leaders. But in the new information

age, they have to go back to doing

more education, especially member

education. This must be a new and

innovative kind of education.

Education for change

Education must respond to four key

needs on the part of members and leaders of cooperatives: a need to innovate; a

need to respond flexibly to fundamental

changes; a need to deal with complex

problems; and a need to overcome compartmentalization within organizations.

Cooperators need the ability to deal

with rapid change. They must be able to

generate and adopt innovations, assess

new ideas and implement them appropriately. This doesn’t mean buying new

machines or software off the shelf. The

most important innovations in today’s

business world are innovations in how

firms are organized, how work is done,

and how different units are linked

together. Such innovations require a

pervasive kind of education and minds

that are not only open to new ideas,

but that are also critical and constructive in applying them.

Cooperatives will need the ability to

handle surprises, because the economy

and world events will remain volatile

and unpredictable for a long time to

come. Flexibility will be a key attribute

and will have to be encouraged and

supported by education. Members and

leaders who are trained only for specific roles and functions will find this

training inadequate when the world

changes around them. In addition to

job- and role- specific training, cooperators will need a broader foundation of

understanding of the economy and of

their place, and their cooperative’s

place, in that economy.

Co-op members and leaders also

have to be able to grasp complex phenomena, bundles of problems and changes

that are interconnected and go beyond

simple solutions. Changes in many

spheres of society are occurring in parallel. What is happening in agriculture,

for example, is related to retailing,

manufacturing and science. What is

happening within cooperatives is connected to what is going on outside

Making the Grade

Will co-ops succeed or fail in the new century? The answer lies with co-op education efforts 

W
Rural Cooperatives / January/February 2002 9

them. Cooperatives mirror the society they are

part of. Changes in social

priorities and attitudes

are reflected in changes

in cooperative members’

and employees’ values

and behaviors. It is

increasingly the case that

cooperators need to

understand society in

order to understand their

co-op.

All of these needs,

requirements and trends

are bound up with a

fourth factor: non-compartmentalization of

knowledge has become a

central challenge for all

organizations. Previously,

organizations dealt with

tasks and information by

“bee-hiving” them off

into specialized units.

Today, in all walks of

life—business, communities, governments and

universities—the challenges that matter

require people to cross

these boundaries and to

connect knowledge of

different kinds, from different people, about different things. There is no formula or

specific structure to do this. It is, rather,

a question of adopting a network model

for how organizations work.

Education and strategy

in a networked world

Networks are an increasingly prominent form of relationship in the postmodern economy. Instead of being

entrenched in ponderous and long-lasting organizational structures, networks

go across and between existing organizations with a minimum of structure.

They are coordinated through information and sustained by communication.

This network environment encourages diffusion of ideas, adaptation and

innovation—exactly the qualities cooperatives urgently need in their new

business environment. Within a network environment, particular kinds of

education are important. Cooperatives

will need education that releases and

puts into operation contextual knowledge

(knowledge of local people, members,

employees, stakeholder groups and

partners in specific ventures). 

In other words, education will not

just spread knowledge, but will also

create knowledge. Among the knowledge that will be most relevant is

knowledge about strategic ideas—the

visions and concepts that bring people

together, that provide a focal point for

cooperatives and for networks. Education will be intimately connected to

cooperative business strategy. Education will shape strategy, and strategy

will shape education. 

One of the purposes

of cooperative education is to help make the

organization transparent. Due to their size,

horizontal and vertical

integration, and multiple roles and pressures,

many cooperatives have

become rather complicated organizations. An

important corollary of

this is a weakening

sense of member commitment. Members feel

less attached to organizations that seem more

remote or harder to

understand. There is

less trust or loyalty

when the cooperative’s

overall direction eludes

easy grasp, when it

serves many interests,

or is active in many

product lines or

regions. The cooperative is like a black box:

members put something

in (patronage, loyalty,

participation) and get

something out (benefits

and services), but the

exact connection is

obscure. These characteristics contribute to problems of collective action: members may fail to

support the co-op as much as they

should, even when it is in their interest

to do so.

The difference in a “transparent” coop is that the members can more easily

see and understand the inner workings

of the co-op, what it does, where surplus is generated and for whom, which

members or regions participate and

benefit in which ways. Making a co-op

transparent in this way is partly a question of organizational design and business strategy. New-generation co-ops,

for example, use concentration on a

single commodity and an explicit linkage of equity and delivery rights to

make clear how the co-op works and

how it benefits members. 

Board education: B

Education of directors improved dramatically

during the 20th century, with emphasis on helping directors understand their role as key decision makers in setting policies that guide the

co-op. But recent co-op failures indicate a need

to do more in this area. Directors often need to

serve as a counterweight to strong managers.

Member education: C

Too often, member education programs do

not convincingly show members why their

cooperatives are needed and important. In addition to cooperative basics, members need to be

educated about the economy they are in. If they

understand this—including emerging trends

and where the economy is heading—they will

understand why they need co-ops.

Management and staff education programs

have generally been strong, but—overall—coops have been doing a much better job of

“training” than of “education.”

—Brett Fairbairn
10 January/February 2002 / Rural Cooperatives

The result is member commitment,

expressed in a willingness to invest that

is exceptional compared to other kinds

of cooperatives. The general principle

of transparency is one that other coops can learn from, even if they do not

adopt the new-generation structure.

Equally, transparency is an issue not

only of how a cooperative is structured, but also of how it is explained:

of education, in other words.

To appreciate the role of education

in a post-modern enterprise, it is necessary to think about how organizations work. The most important decisions are rarely based on “facts,” at

least not directly. Participants base

their decisions on mental representations of what they think their organization is, their environment and their

competition. These mental images

amount to models of the organizational

self and of the others with whom it

deals. While such mental concepts

were always important to organizational success, they are now critical to

strategy and innovation. 

Rapid and bewildering change puts

more stress on the need for models and

strategies to be accurate; decomposition

of old relationships and lines of authority puts more stress on them being

shared, rather than imposed. Increasingly, organizations cannot function

unless they develop sophisticated

analysis and strategy that goes beyond

the senior leadership group so that

there is buy-in from all stakeholders

into a shared strategy.

Conscious organization

In a specific sense, it is appropriate

to say that the challenge for organizations is to develop a higher level of consciousness. It is consciousness that allows

flexible, creative and adaptive responses

and initiatives for organizations and

people. Consciousness has been

described by neurologist Antonio

Damasio as involving three interrelated

sets of mental constructs: a model of

one’s self; a model of the external environment; and a model of how one

affects the other. 

We can transfer this terminology to

organizations. Effective organizations

require a clear sense of who they are:

an organizational identity shared

among members, leaders and stakeholders. This is not a static thing, such

as a plaque on a wall; it is a real, living

image of what members are buying

into when they join, including a sense

of common purpose and values. 

Organizations also require an

understanding of their industry, its

trends, where the competition is

going and how all this fits into the

broader society. Most importantly,

they need a mental model of how

these two things interact and fit

together: the role and position of

their organization in the evolution of

their industry and society.

The overriding goal of cooperative

education is to help create this conscious organization, the conscious

cooperative. This is an integrative and

connective function that has to be

linked closely with business strategy

and planning and with many other

areas. Research is a critical related function. To have accurate and updated

understandings of the industry, of

communities and of stakeholder

groups requires a permanent and creative research function. Cooperatives

will generally need to expand their

research capacity and to link research

more closely to both education and

planning.

Education as linkage

Cooperatives need to remember that

education is not only a means of distributing knowledge, but also of creating it.

This creative function arises from education’s role in making linkages—linkages between ideas and information,

and linkages between people and

groups. Members have knowledge that

cooperatives need and should value:

knowledge about their local community

and conditions, about their needs,

about their spending, purchasing, or

marketing plans and intentions. 

Engaging these members in an educational process is a way of unlocking

their knowledge, for the benefit of the

cooperative as well as of themselves.

Education reveals how to see their own

operations in relation to the co-op and

the industry—it shows what information is valuable and what linkages and

relations are useful. At the same time,

the cooperative has knowledge that

members need—knowledge about the

industry, research about trends and

innovations. Education also has a 

function in making the cooperative’s

knowledge accessible to the members.

Effective marketing of co-ops also

has educational dimensions. There are

a variety of new and important

approaches to cooperative business that

have been thought out by co-op innovators, and tested by early adopters.

These include marketing the co- operative advantage, values-based marketing, new structures of member ownership and commitment and

communication strategies that make

co-ops more transparent. 

All of these related approaches are

on a similar track. They have at least

two things in common. First, they

focus on members as a source of renewal

and identity, of new commitment and

of increased business success. You can’t

renew a co-op without members. Second, it is important to note that all

approaches involve or presuppose

effective cooperative education. Education is not the same as marketing, but

in a well-functioning cooperative the

two are closely connected: each feeds

into the other, provides feedback and

Brett Fairbairn, flanked by a vintage

Canadian co-op publication cover. 

Photo courtesy University of Saskatchewan 
Rural Cooperatives / January/February 2002 11

works in a complementary fashion.

Besides research and marketing, one

can also highlight training of staff and

elected leaders, and communications

with members and the public, as additional organizational functions that

overlap with education. Education is a

mission that should over-arch and

inform many separate functions of

cooperatives; it should be designed to

integrate, to cross over different units

and activities and to link them. The

tendency over the last several decades

for cooperative education to be isolated

in separate units, marginalized or professionalized—a tendency driven not

only by cost-cutting managers but also,

in some cases, by educators themselves—needs to be reversed in favor of

a more integrated model.

Rethinking co-op education 

Generally speaking, cooperatives

need to rethink education and reconceptualize how it can support innovation, leadership, member loyalty and

business strategy. Innovation—even

among co-ops!—normally begins with

small groups and local units. Part of

the job of education is to encourage

and empower groups and localities, and

—once innovations emerge—to promote their diffusion and replication. 

Education has to support an atmosphere of experimentation and openness

within the cooperative and among its

members and partner organizations. In

doing this, a critical role falls to education in mediating the tension between

the diversity of ideas that makes for

innovation, and the unity of vision that

enables a cooperative to pursue a sound

business strategy. Education has to

contribute to both aspects—diversity

within the cooperative and unity of

purpose—and has to do its part to help

keep them in balance.

Co-ops have long been committed

to education and have done many

things well, but naturally there are barriers to new ideas in existing organizations. There are shortages of resources

and appropriate concerns with efficiencies and effectiveness. In the long run,

such concerns should not hinder a wellconceived education strategy. However,

there are also less reasonable and less

logical hindrances: most importantly, a

lack of legitimacy in many cooperatives

for any active educational function;

structural barriers to the effectiveness

of educators within organizational

structures; and mental barriers to realizing the importance of education. 

It is important to be frank and realistic about the nature of these barriers,

and creative in overcoming them. The

most important step in doing so is to

articulate a vision of cooperative education that clearly relates its function

to the basic goals of the cooperative

and to the challenges of the new information economy.

In summary, cooperative education

in the information age will focus on the

following approaches and themes:

• innovation, experimentation and

diffusion of new ideas;

• ideas, models and strategies—not

just facts, roles, and skills;

• close links to research, communications and business strategy;

• making the co-op transparent to

members;

• creating and sustaining networks;

developing relationships and cultivating local knowledge;

• fostering a sense of organizational

identity;

• creating understanding of the organization’s environment, trends in

the industry, and the role of the cooperative in relation to these trends.

To some, this may sound futuristic,

but in fact it is a return to co-op basics.

Cooperatives were born during the

industrial revolution, a time of technological and organizational change that

was at least as bewildering for people

then as the information age is for people now. Early nineteenth-century

British cooperators—Owenites, forerunners of the Rochdale Pioneers—

identified a need for “useful knowledge.” What they meant by “useful”

was knowledge about the new industrial

economy and how it worked, about the

mechanisms of economic and political

power. They appear to have believed

that if members understood the new

economy, they would understand why

they needed their cooperatives. 

Cooperators would do well to translate that lesson from a far-off age of

economic transformation into the present age of globalization. The most

important cooperative education is to

educate members about their place in

the economy, about their sector and its

trends, about their cooperative’s role.

That is true now as it was then.

Education is about what members and

leaders need to know to make important decisions. It is much more than

public relations, and it is not a social or

charitable activity. It is the prerequisite

for the co-op to innovate and to act as a

unified organization with a common

vision. It is the means by which members become economically supportive,

loyal and make the cooperative a financial success. The greater the velocity

and intensity of change, the more need

there is for education.

Cooperative education conceived in

these ways will be the single most

important factor in the success or failure of co-ops in the 21st century. Inadequate education is going to contribute

to inappropriate business strategies,

failed innovations and weak member

commitment. Effective member education, on the other hand, will be part

and parcel of sound strategy and good

marketing. If education ever was a luxury, it isn’t any more. ■

Inadequate 

education is going to

contribute to 

inappropriate 

business strategies,

failed innovations

and weak member

commitment.

I t

Ro

th

Ov

bo

fro

lo

th
12 January/February 2002 / Rural Cooperatives

By David Chesnick 

USDA/RBS Agricultural Economist

Editor’s note: A more detailed examination of the financial performance of the top

100 U.S. farm cooperatives will be available

in late January at: www.rurdev.usda.gov/

rbs/pub/newpub.htm

ith a few exceptions,

most agricultural sectors continued to battle

with lower prices and

higher costs of production in 2000.

Most cooperatives labored under these

pressures. According to the justreleased “Farmer Cooperative Statistics,

2000” (RBS Service Report 60), published by USDA’s Rural BusinessCooperative Service, total revenue for

all farmer cooperatives increased 4.7

percent. However, net income was

down 3.9 percent. 

Business consolidation at the top

continued in 2000. The volume of

business conducted by the largest 100

cooperatives represents nearly 62 percent of the total gross business volume

of all cooperatives, up from 58 percent

in 1999. These major co-ops (which

represent 3 percent of co-ops by number and a much larger percent by

membership) also control 60 percent

of the total assets of cooperatives. 

The largest 100 cooperatives vary

tremendously in the volume and type

of business they perform. Their total

volume of business ranges from $40

million to $12.3 billion. The types of

businesses include manufacturing, farm

supply sales, marketing and processing.

In this report, the category in which a

cooperative is included is based primarily on the type of commodity they

market or process for their members.

While more than half of the largest

cooperatives sell farm supplies, only

those that sell predominantly farm

supplies will be included in that category. Some cooperatives are involved

with several commodities and cannot

be easily categorized. These cooperatives were classified as diversified

cooperatives

Operating revenue rebounds 

Total operating revenue (which

includes all farm supply and crop/livestock marketing sales and service

income) earned by the top 100 cooperatives was up 7 percent (table 1) from

1999, to more than $70 billion. This

gain reversed 4 years of declining

operating revenue—the same trend

that held true for all cooperatives in

2000. Most top 100 cooperatives saw

an increase in revenue in 2000, with 57

showing higher revenue (compared to

39 the year before). However, 69 percent of this increase was due to large

gains made by three cooperatives. 

Farm supply sales, which jumped

$2.7 billion, were the main force driving revenue higher. Petroleum sales

led the way, accounting for 83 percent

of the total increase in farm supply

sales.

For co-ops that process and market farm commodities and products

for their members (referred to as

“marketing cooperatives”) the picture

was mixed. Dairy, rice and sugar

cooperatives all saw revenue decline

despite higher production volume.

But the increase in output could not

offset lower prices. Most other types

of marketing cooperatives fared better, resulting in an overall 4-percent

increase in revenue for marketing coops as a group. 

Overall, the cost of goods sold

increased by the same amount (7 percent) as that of revenue. However,

across commodity groups there were

variations. For example, poultry/livestock cooperatives paid a higher percent of the increased revenue back to

their members in the form of cost of

goods sold. In 1999, 92 percent of

their sales represented cost of goods

sold. By 2000, that same percentage

reached 94 percent. On the other

hand, fruit/vegetable cooperatives had

lower cost of good sold despite having

higher revenue.

Gross margins 

continue upswing

Gross margins increased by the

same proportion as sales and cost of

goods sold. Gross margins were up 7

percent, to $6.9 billion from 1999.

Every commodity group but

poultry/livestock showed an increase in

gross margins. As explained above,

poultry/livestock cooperatives

increased their payments for their

members’ products by more than the

increase in sales, thus lowering their

gross margins. This represents the

second year in a row the top 100 cooperatives ended their year with higher

gross margins.

Operating expenses jumped 5 percent in 2000. Leading this increase

were cotton cooperatives, with a 30-

percent increase in expenses. Next

were dairy co-ops, with a 10-percent

Revenue up, net margins down 

Ag cooperatives struggle with lower prices, higher costs 

W
jump. Farm supply and sugar cooperatives had lower operating expenses in

2000 compared to 1999. Most of the

farm supply decline was due to the

restructuring of a few cooperatives

while all the sugar cooperatives

showed lower expenses. All other

commodity groups showed a moderate, 5-percent increase in their operating expenses. 

For those cooperatives reporting

labor expenses, total wages and benefits increased 6 percent. Reported

labor expense represents 50 percent of

total operating expense, which was

similar to 1999.

Net operating margins

bounce back strong

Net operating margins have been

declining since peaking in 1995.

However, 2000 showed a remarkable

reverse in that trend. Net operating

margins for the largest cooperatives

jumped 25 percent, to $933 million.

But not all commodity groups fared

well. While cotton, poultry/livestock

and rice cooperatives had lower net

operating margins, most of these lower

values resulted from a single cooperative within each sector. 

Most of the other commodity

groups had mixed results, with the

majority having higher net operating

margins. Farm supply and sugar cooperatives showed the largest turnaround.

This was mostly due to better control

of operating expenses. 

Higher margins don’t

equal stronger bottom line

Despite what appears to be higher

margins from operations, other revenues and expenses pushed down overall net margins to the lowest level since

1986. Interest expense jumped nearly

15 percent in 2000, to nearly $750 million. This was due mostly to a higher

amount of debt, which reached a

record of more than $10 billion.

Dairy, diversified, fruit/vegetable and

farm supply cooperatives were most

heavily involved with debt financing.

These groups hold 75 percent of the

debt of all cooperatives, while representing 54 of the largest 100 agricultural cooperatives. 

Interest income was up 22 percent

in 2000. However, nearly 50 percent

of that increase was due to two poultry/livestock cooperatives. 

Other income and expenses include

rental income, gain/loss on the sale of

fixed assets, income or losses associated

with joint ventures or unconsolidated

subsidiaries. These income/expenses

are generally not related directly to

cooperative operations. Other income

that helps cooperatives with their bottom line fell 32 percent while other

expenses jumped 128 percent. The

cumulative effect pushed down these

other revenues/expenses to $124 million, a decline of 61 percent. Only

grain and cotton had higher revenues

from these other sources. 

Patronage refunds received by the

largest cooperatives continued to fall

and reached the lowest levels since

1988. Total patronage refunds

received by the largest agricultural

cooperatives was $35 million in 2000, a

31-percent decline from the year

before. These refunds include patronage from both cooperative banks and

other cooperatives. Every commodity

group reporting patronage refunds

showed a net decline.

The net effect of these non-operational activities pushed down net margins to $455 million. This 14-percent

drop in net margins was the lowest

level since 1988. Higher interest

expense coupled with declining revenues from joint ventures were the

main cause in continuing declining net

margins for 2000.

Dairy cooperatives as a group had the

largest net margins, accounting for 47

percent of the total top 100 cooperatives. They were followed by the diversified cooperatives, with 29 percent of the

net margins. Farm supply, poultry/liveRural Cooperatives / January/February 2002 13

Table 1—Consolidated Statement of Operations 1999-2000,

Top 100 Cooperatives

2000 1999 Percent 

$ thousand Difference Change

Revenues

Marketing 51,559,378 49,664,378 1,895,000 3.82%

Farm Supply 18,266,457 15,573,040 2,693,417 17.30%

Total Sales 69,825,835 65,237,418 4,588,417 7.03%

Other Operating Revenues 616,537 574,118 42,419 7.39%

Total Operating Revenues 70,442,372 65,811,536 4,630,836 7.04%

Cost of Goods Sold 63,494,154 59,345,306 4,148,848 6.99%

Gross Margin 6,948,218 6,466,230 481,988 7.45%

Expenses

Operating Expenses 6,015,351 5,721,550 293,801 5.13%

Net Operating Margins 932,867 744,680 188,187 25.27%

Other Revenues (Expenses)

Interest Expense (749,403) (654,451) (94,952) 14.51%

Interest Revenue 82,847 68,008 14,839 21.82%

Other Income 256,137 374,942 (118,805) -31.69%

Other Expenses (132,378) (58,055) (74,323) 128.02%

Patronage Revenue 35,387 51,481 (16,094) -31.26%

Net Margins from Operations 425,457 526,605 (101,148) -19.21%

Non-Operating Rev. (Exp.) 29,410 470 28,940 6157.45%

Net Margins 454,867 527,075 (72,208) -13.70%
14 January/February 2002 / Rural Cooperatives

stock and sugar cooperative commodity

groups ended the year with net losses. 

Despite lower margins, 

member patronage climbs

Members received higher patronage refunds in 2000 (as measured

both by higher percentage of net

margins and absolute value). Despite

lower net margins, members received

$88 million more than in the previous

year, a 28-percent increase. Eightyeight percent of total net margins

were returned to members as cash

and allocated equity. This compares

to 60 percent in 1999. All commodity groups allocated patronage to their

members, with the exceptions of

fruit/vegetable and sugar cooperatives. 

If cash is king, then members

should be feeling better in 2000.

Forty-five percent of net margins

were paid out in cash in 2000 compared with 32 percent the prior year.

That equates to a 21-percent increase

in cash payments in real dollars. 

Dividends paid also increased 11

percent, to $50 million. With the

exception of sugar, all commodity

groups paid cash to their members.

Despite net losses, farm supply and

poultry/livestock cooperatives

deducted from their unallocated equity to return cash back to their members. Only three cooperatives use

non-qualified, non-cash patronage

refunds. 

Due to the combined effect of

lower margins and higher allocations,

unallocated equity actually was negative in 2000. In other words, unallocated equity was used to cover loses

and allocation shortfalls.

As a whole, the largest cooperatives also ended the year with a tax

benefit. Twenty-five cooperatives

had tax benefits in 2000 totaling $93

million. This compares with a total

tax liability for the other 75 cooperatives of $79 million. While some of

the tax benefits were due to net losses, seven cooperatives received a benefit by allocating unallocated equity

back to members. 

Assets continue to expand

Total assets for the top100 co-ops

grew 4 percent in 2000 (table 2).

Leading the increase were current

assets, which increased $591 million, to

$14 billion. Almost all of that growth

Table 2—Consolidated Balance Sheet 1999-2000,

Top 100 Cooperatives

2000 1999 Percent 

Assets $ thousand Difference Change

Current Assets

Cash 831,570 897,744 (66,174) -7.4%

Accounts Receivable 6,084,896 5,688,296 396,600 7.0%

Inventory 6,216,827 5,970,359 246,468 4.1%

Other Current Assets 1,088,555 1,074,468 14,087 1.3%

Total Current Assets 14,221,848 13,630,867 590,981 4.3%

Investments

Cooperative Banks 358,996 338,887 20,109 5.9%

Other Cooperatives 1,880,531 1,713,491 167,040 9.7%

Other Investments 2,004,331 1,880,291 124,040 6.6%

Total Investments 4,243,858 3,932,669 311,189 7.9%

Net PP&E 8,741,537 8,622,080 119,457 1.4%

Other Assets 2,574,725 2,403,178 171,547 7.1%

Total Assets 29,781,968 28,588,794 1,193,174 4.2%

Liabilities

Current Liabilities

Short-term Debt

Current Portion of Long-term Debt 609,828 673,360 (63,532) -9.4%

Cooperative Banks 1,325,521 1,301,882 23,639 1.8%

Commercial Banks 1,263,801 887,576 376,225 42.4%

Other Sources 518,405 401,213 117,192 29.2%

Total Short-term Debt 3,717,555 3,264,031 453,524 13.9%

Accounts Payable 3,600,745 3,694,631 (93,886) -2.5%

Member Payables 483,278 421,833 61,445 14.6%

Patron and Pool Liabilities 1,517,292 1,302,047 215,245 16.5%

Other Current Liabilities 1,971,214 1,576,405 394,809 25.0%

Total Current Liabilities 11,290,084 10,258,947 1,031,137 10.1%

Long-term Debt

bank for cooperatives 2,768,352 2,921,132 (152,780) -5.2%

bond issued by cooperative 2,556,168 2,604,804 (48,636) -1.9%

other sources 1,610,540 1,629,588 (19,048) -1.2%

total long term debt 6,935,060 7,155,524 (220,464) -3.1%

less current portion 6,325,232 6,482,164 (156,932) -2%

other liabilities and 1,223,722 1,200,551 23,171 1.9%

deferred credits

total noncurrent liabilities 7,548,954 7,682,715 (133,761) -1.7%

total liabilities 18,839,038 17,941,662 897,376 5.0%

minority interest 888,238 776,512 111,726 14.4%

member equity 8,280,076 8,025,753 254,323 3.2%

unallocated capital 1,774,615 1,844,867 (70,252) -3.8%

total equity 10,054,691 9,870,620 184,071 1.9%

total liabilities and equity 29,781,967 28,588,794 1,193,173 4.2%
Rural Cooperatives / January/February 2002 15

came from inventory accumulation and

higher accounts receivable. In a stagnant economy, increases in these

accounts can prove to be troubling. 

The accounts receivable turnover

ratio dropped from 17.5 to 16.8 in

2000. This indicates that accounts

receivable are growing in relation to

sales revenue. The inventory turnover

ratio increased from 49.8 to 55.1,

showing that inventories were not

expanding faster than sales.

The majority of inventory and

accounts receivable accumulation

occurred in diversified, fruit/vegetable

and farm supply cooperative sectors.

The fruit/vegetable group accumulated the most inventories while diversified cooperatives accounted for the

largest increase in accounts receivable. 

Investments also jumped, increasing

8 percent, to $4 billion. While the

cooperatives increased their investments in non-cooperatives, the majority of the increase was investments in

other cooperatives. This includes both

cooperative banks and other cooperatives. Investment in non-cooperative

enterprises also increased $124 million.

Diversified cooperatives led the

increase in investment in other cooperatives while poultry/livestock cooperatives had the greatest increase in noncooperative investment.

Fixed assets increased 1 percent, to

$8.7 billion. Farm supply,

poultry/livestock and sugar were the

only commodity groups to decrease

the amount of fixed assets held. 

Higher current debt 

boosts total liabilities 

Total liabilities increased $897 million, up 10 percent from 1999. All of

this increase was due to a jump in current liabilities.

Short-term debt was up $454 million in 2000, with most of the increase

coming from commercial banks.

Current portion of long-term debt fell

due to lower interest rates and declining long-term debt. Cooperative banks

provided cooperatives with the largest

source of working capital. However,

commercial banks are increasing their

cooperative loan portfolio. 

Cooperative bank loans increased

2 percent, to just over $1.3 billion.

Most top 100 co-ops have grown to

the extent that they have exceeded

the lending limits of cooperative

banks and are thus doing more supplemental borrowing from private

banks. Fruit/vegetable and grain coops continue to rely heavily on cooperative banks for operating loans.

The other commodity groups are

relying more on commercial banks as

those loans jumped 42 percent, to

just under $1.3 billion. However,

large diversified cooperatives

accounted for 60 percent of the

increase in borrowing from commercial banks. Bank loans, both cooperative and commercial, accounted for

the majority of cooperative shortterm financing, with 70 percent of

the total short-term debt. The

exceptions are cotton and sugar cooperatives. Cotton cooperatives balanced bank loans with commercial

paper as sources for working capital.

Sugar cooperatives relied on government sources to provide more than

half of their total short-term debt.

Accounts payable dropped 3 percent,

to $3.6 billion. Liabilities owed to

members jumped 16 percent, to $2 billion. These member liabilities include

cash payments, dividends and revolving

equity (which has been declared but

not yet paid), pooling payments and

other member credits. However, 50

percent of the total increase was caused

by a single cooperative.

Total long-term debt less current

maturities dropped by 2 percent, to

$6.3 billion. Most of the decline is

attributed to diversified and farm

supply cooperatives. Cooperative

banks and debt issued by the cooperative accounted for 77 percent of

total outstanding long-term debt.

Cotton, fruit/vegetable and grain

cooperatives relied heavily on cooperative banks for long-term funding.

Diversified, dairy and rice cooperatives relied more on issuance of

bonds and other notes to finance

their long-term needs. 

Despite lower margins, 

equity hits new record

Total equity grew 2 percent in

2000, with the largest cooperatives

ending their fiscal year with a record

$10 billion in total equity. Member

equity that includes member certificates, preferred and common stock

increased by 3 percent. On the other

hand, unallocated equity fell by 3 percent. As was mentioned earlier, lower

margins and higher payments to members brought about a decline in unallocated equity.

Performance measurements

continue downward slide

The average performance measures for all 100 cooperatives continued to show deterioration over the

prior years. The tools developed to

analyze the cooperative’s financial

information include several performance measurements or ratios. These

measurements are standard ratios

found in most financial textbooks. A

list of average ratios for all cooperatives and by sector group is presented

in table 3. 

The current and quick ratios

examine cooperative liquidity. Both

ratios show that the average cooperative liquidity eroded over the prior

year. The current ratio fell from 1.40

to 1.37 between 1999 and 2000. The

quick ratio fell from 0.78 to 0.76 during the same period. The main cause

for declining liquidity was lower cash

flows from operations and the need

for cooperatives to acquire working

capital loans to help fund operations. 

Leverage ratios show the risk associated with financing and cooperatives’

ability to meet their long-term and

short-term obligations. The debt-toasset ratio illustrates how assets are

financed. In 2000, the debt-to-asset

ratio was 0.61, up slightly from 0.60 in

1999. Examining long-term financing,

we focus on the long-term debt-toequity ratio. This ratio increased from

0.6 in 1998 to 0.61 in 2000, raising the

level of risk. 

What the combined effect of higher

liquidity and stable leverage ratios
16 January/February 2002 / Rural Cooperatives

illustrates is the change in the term

structure of the debt. In other words,

cooperatives appear to be shifting their

debt loads from long-term to shortterm. Expansion of fixed assets slowed

down while the need for working capital increased. Short-term financing

bridged this working capital need.

While leveraging a cooperative is

not necessarily a bad thing, it does put

more risk on the business. The

biggest risk comes from cooperatives

defaulting on their loans. An examination of the times-interest-earned

ratio provides a quick look at that scenario. It looks at the number of times

interest expense is covered by net

margins with interest added back in. 

This ratio fell from 4.7 to 3.3 in

2000, the lowest level in the past 5

years. While there is no current crisis, the leverage ratios point to a situation where cooperatives are leveraging

themselves to fund operations while

the revenues from those operations

continue to shrink.

Activity ratios look at how well the

cooperative uses its assets. Cooperatives are finding activity ratios holding

steady. Local-asset-turnover (calculated by taking total revenues divided by

local assets) was constant at 2.7 in

2000. This represents how much revenue is generated by each dollar invested in local assets. Local assets are total

assets less investment in other cooperatives. Fixed-asset-turnover increased

slightly from 14.3 to 14.4 in 2000.

Activity ratios indicate that cooperatives slowed down on their investment

in fixed assets. They instead invested,

either voluntarily or involuntarily, in

accounts receivable and inventory as

their total revenues increased. 

Profitability ratios, while not an

absolute indicator of fiscal health, do

nonetheless provide a view of financial

strength for a cooperative. Gross profit

margins jumped from 15.9 to 16.5 in

2000, continuing an upward trend

ongoing since 1996. However, net

operating margins have been falling

during that same time, falling from 1.6

in 1999 to 1.3 in 2000. This would

indicate some inefficiency in handling

the higher volume of sales.

Return on total assets (calculated as

net margins plus taxes and interest

expense divided by total assets) fell

from 4.5 to 3.7 in 2000. This ratio

focuses on the operation itself without

respect to how the cooperative was

financed. This reflects lower efficiencies in the use of the cooperative’s

assets in generating net margins. 

Return on member equity is a ratio

that looks at the return on member

investment after all expenses have

been deducted, including taxes and

interest. After increasing for a few

years, the return on members’ equity

dropped from a high of 13.8 in 1998

to 9.4 in 2000. 

Are co-ops ready

to face the future?

Facing a slow world economy at present, the agricultural sector will continue to experience lower exports. The

surplus of agricultural goods built up

over the past few years will keep prices

in check. Yet, domestic demand should

remain healthy and keep prices for output somewhat buoyant. Costs related

to inputs should climb, resulting in

lower margins for farm supply goods. 

Tighter credit standards will pinch

cooperative financing and lead to lower

margins. Overall, the agricultural

economy will shadow that of the total

economy. Other industries will have to

tighten their belts and control costs,

and so must cooperatives. 

Mergers, consolidations and joint

ventures will, in all likelihood, continue to provide cooperatives a cheaper means to access new markets.

Adjustments in operations to lower

costs will be driving many decisions

in board meetings and executive

offices. Hopefully, cooperatives will

be able to adapt to the changing 

environment and continue to provide

member benefits and position themselves for the future. ■

Table 3—Ratios by Commodity Group, 2000

Current Quick Debt Long-Term Times Local Fixed Gross Net Return Return

Ratio Ratio To Debt Interest Assets Assets Profit Operating On On

Assets To Earned Turnover Turnover Margin Margin Total Members

Equity Assets Equity

—————Ratio————— —————Times————— ————Percent——————

All cooperatives 1.37 0.76 0.61 0.61 3.31 2.66 14.45 16.47 1.34 3.73 9.41 

cotton 1.44 0.69o 0.56 0.42 3.25 2.64 22.40 15.49 5.20 9.77 21.59 

dairy 1.30 0.93 0.60 0.34 9.12 4.52 26.09 12.88 1.64 6.24 15.93 

diversified 1.25 0.84 0.72 1.47 1.62 2.18 10.28 10.36 0.63 1.32 3.47 

fruit/vegetable 1.44 0.61 0.71 0.97 1.42 1.88 9.67 27.15 0.47 1.59 7.10 

farm supply 1.41 0.61 0.58 0.53 2.39 1.99 10.94 16.74 1.52 3.62 7.43 

grain 1.27 0.67 0.58 0.46 1.88 2.30 8.53 13.25 1.25 3.41 8.70 

poultry/livestock 2.06 1.73 0.63 0.75 1.13 3.48 45.42 6.14 1.60 1.93 1.66 

rice 1.68 0.77 0.50 0.34 3.98 2.29 5.63 29.38 2.10 5.06 10.70 

sugar 1.15 0.53 0.67 1.09 0.92 0.86 1.63 26.03 (0.40) (0.33) (2.16)
Rural Cooperatives / January/February 2002 17

alue-added marketing by

cooperatives, world

trade, bio-fuels and

biotechnology issues will

be among the featured

topics at the 78th annual USDA Agricultural Outlook Forum, Feb. 21 and

22. The forum will tackle some of the

biggest issues facing U.S. agriculture

and provide in-depth analysis of farm

commodity prospects for the year

ahead. The annual forum is expected to

draw more than 1,350 to the Washington suburb of Arlington, Va.

The opening session will focus on

the future of agricultural biotechnology

in world trade. Agriculture Secretary

Ann Veneman will provide the keynote

address and USDA chief economist

Keith Collins will look at 2002 agricultural prospects. J.B. Penn, USDA under

secretary for Farm and Foreign Agricultural Services, will discuss U.S. trade

and agricultural policy. A panel discussion will explore the myriad issues surrounding rapidly emerging biotechnology and how it relates to world trade.

Annette Clauson, agricultural economist with USDA’s Economic Research

Service (ERS), will provide an outlook

for retail food prices in 2002. 

Farm finance outlook sessions will

focus on changing farm-lender relationships. Mitch Morehart, senior economist with USDA/ERS, will lead a panel

exploring the farm income, finance and

credit outlook for 2002. Others will

focus on prospects for farm financial

conditions, the changing farm lending

scene and the market for farm land.

A number of sessions will be of

particular interest to cooperative leaders. Don Nugent, chief executive officer of Graceland Fruit Cooperative, will participate in a panel on

global markets for processed

products and will discuss how small

U.S. agricultural processing firms can

compete globally. 

Randall Torgerson, deputy administrator of USDA’s Rural Business-Cooperative Service, will moderate a panel

discussing value-added marketing as a

means to promoting sustainable rural

development. Panelists include Richard

Bell, CEO and president of Riceland

Foods, who will discuss value-added

marketing in domestic and international

markets, and Rodney Christianson,

CEO of South Dakota Soybean Processors, who will explore niche opportunities for new-generation cooperatives.

Other panelists include Doyle Freeman,

farmer and manager of Penn’s Corner

Farm Alliance, Bruce Babcock and Mary

Holz-Clause, co-directors with the agricultural marketing resource center at

Iowa State University, a national center

promoting value-added agriculture

Co-op leaders will also want to

attend a Feb. 22 session exploring consolidation and competition in dairy markets. James Miller, ag economist with

USDA/ERS, will provide an outlook for

milk and dairy products. Addressing

consolidation and competition in dairy

markets will be Robert Pettit of the Australian Dairy Corporation. 

Following that, a panel will consider

issues and strategies for rural and community prosperity. Panelists will include

Lionel Beaulieu of the Southern Rural

Development Center at Mississippi State

University, who will discuss what workers and entrepreneurs need to succeed in

today’s markets. Norm Reid, representing USDA Rural Development, will join

Cornelia Flora, North Central Regional

Center for Rural Development, to discuss community-led development. 

Co-op leaders will participate in a

panel discussion on Feb. 22, moderated

by Dan Looker, business editor of

“Successful Farming” magazine, which

will explore initiatives to deal with

negotiating farm- production contracts.

John Welty, executive director of California Tomato Growers Association,

and Vernon DeLong, executive director with the Maine Agricultural Bargaining Council, will discuss negotiating specialty crop contracts. Paul

Hitch, president of consolidated Beef

Producers and Mary Clouse, former

poultry grower now with RAFI International/USA of Pittsboro, N.C., will

discuss negotiation issues in the beef

and poultry industries. 

Later that morning, a panel will

examine the future of the U.S. sugar

program, with Rick Dorn, president of

the Rocky Mountain Sugar Growers

Cooperative, gauging impacts of sugar

market developments on producerowned cooperatives. 

Roger Conway, director of USDA’s

Office of Energy Policy and New Uses,

will moderate a panel discussion on

Feb. 22 that explores the economic

outlook for bio-fuels. 

Registration information is available

by calling 202-314-3451 or online at:

www.usda.gov/oce/waob/agforum.htm.

For questions regarding the program,

call 202-720-3050, or e-mail agforum@

oce.usda.gov. ■

Co-op issues in

s p o t l i g h t a t U S DA’s 

Ag Outlook Forum

V
By Dan Campbell, Editor

ames Rhodes, an ag economics professor at the

University of Missouri,

once described cooperatives as “the children of

distress.” If so, small wonder the family

of livestock co-ops did some growing in

the 1990s, which was a very stressful period for the livestock industry, Brad

Gehrke, livestock specialist with USDA’s

Rural Business-Cooperative Service, said

during a seminar held at the National

Institute on Cooperative Education

(NICE) in Atlanta, Ga., this past summer. 

Increased interest in livestock coops—particularly in new-generation coops – can be attributed to low farmgate

prices—including $8 pigs in December

1998. The ever-widening gap in the

farm-to-retail price margins and the

plunging number of spot livestock sales

markets (which may be completely gone

within 2 years, according to University

of Missouri livestock economist Glenn

Grimes) also have played a part.

Antitrust laws, the Packers and

Stockyard Act, price reporting, commodity check-off programs and traditional co-ops have played roles in helping the industry in the past, Gehrke

noted. “But producers perceive that

traditional strategies are ineffective to

address current market conditions.”

Instead, more are turning to valueadded activity and new-generation coops, which have formed as a response

to a host of challenges. 

Gehrke cited U.S. Premium Beef,

Consolidated Beef, Pork America,

Prairie Farmers Cooperative and

Mountain States Lamb Cooperative as

examples of new-generation co-ops

born of the recent period of distress. 

In the first round of USDA’s new

value-added grants program, Gehrke

said about 20 percent of the applications and 40 percent of the grants (by

value) were awarded to livestock ventures. These included:

• Colorado Homestead Ranches—

making ready-to-eat, natural meat

products;

• Natural Meat Cooperative—

feasibility study for a natural meat 

co-op; 

• American Premium Foods—

support for a pork processing plant

project;

• Iowa Lamb Corp.—making freezer case-ready lamb products;

• Upper Mississippi Family Meats—

feasibility study of a cooperatively

owned, multi- species processing

plant;

• Vande Rose Foods—production of

pork jerky snack products;

• Prairie Farmers Cooperative—

support for development of a

72,000-head processing plant;

• Eastern Foods—joint venture to

process and merchandise pork;

• North American Bison Co-op—

developing export sales and marketing division;

• American Native Beef—feasibility

study for new-generation beef

processing plant;

• Southern States Cooperative—fish

farming, processing and marketing

of tilapia;

• Valley Organic Meat Co-op—

establishing an organic meat co-op.

Quoting from a book by Joseph G.

Knapp (former USDA Farmer Cooperative Service administrator) and Edwin

G. Nourse, Gehrke said that “failure to

educate is the greatest cause for cooperative failure.”

Gehrke’s co-panelist, Mike Bumgarner, vice president for marketing services with United Producers Inc.,

Columbus, Ohio, described how his

cooperative was formed in 1999 through

the merger of MFA and Producers Livestock Association (PLA). In 2000, the

co-op purchased selected assets of Interstate Livestock Producers Association

(ILPA), and in March of 2001 it

acquired the MLE livestock marketing

division of Southern States Cooperative.

Today, United Producers has 70,000

patrons, 58 facilities (located in Ohio,

Kentucky, Indiana, Illinois, Michigan,

Missouri and North Carolina) and 270

full-time employees in 15 states. 

Trends such as market globalization,

increased market volatility, biotechnology and consolidation in the food

industry are requiring the co-op to

expand beyond its traditional livestock

marketing and credit functions.

The co-op now has three main arms:

United Producers Inc., which performs

livestock marketing services; Producer’s

Credit Corp., which provides producers with financing; and Producers

Technologies Inc., which provides

information and technology services.

Most people still think of auctions and

18 January/February 2002 / Rural Cooperatives

Hard times breed new

livestock co-ops

J

Pork producers are among those who are

forming new co-ops to pursue value-added

alternatives. USDA Photo by Ken Hammond

continued on page 30
Rural Cooperatives / January/February 2002 19

By Lynette Cockerell

Plains Cotton Cooperative Association

Editor’s note: This article is reprinted from the Summer 2001

issue of Plains Cotton Cooperative Association’s (PCCA) “Commentator” member magazine. 

s the climate in the agribusiness world becomes

exceedingly competitive, local cooperatives are

discovering new and inventive ways to increase

earnings, distribute larger dividends or provide

additional services to their members. 

In the Southwest, as elsewhere, the cooperative system

and the thousands of dedicated people who work for it are

driven by one central purpose: to help member-producers

achieve long-term success. Part of this goal is achieved by

providing not only greater profits and larger dividends,

but offering quality products and services to cooperative

members. As agriculture diversifies, the services and

products offered by many local cooperatives will expand

as well. 

Following are some examples of Southwest cooperatives

that have found ways to help their members succeed. 

Convenience store yields profits for supply co-op

Crosby County Fuel Association (CCFA) has diversified

from the farm business by opening two CENEX/AMPRIDE

convenience stores. The stores, in Crosbyton and Ralls,

Texas, are not only a convenience to local patrons, but they

also allow CCFA to capitalize on the through-traffic of U.S.

Highway 62/82. 

The co-op’s board of directors entered into the venture

only after extensive research. The fuel association studied the

feasibility of the project with the help of Country Energy

LLC, a company formed by two of the United States’ largest

farmer-owned cooperatives: Cenex Harvest States (St. Paul,

Minn.) and Farmland Industries Inc. (Kansas City, Mo.). 

Country Energy offers a full-range of products and services to marketers considering a CENEX/AMPRIDE convenience store facility. The business provides assistance with

site selection, building size and layout and helps define petroleum and in-store equipment needs. In addition, the company offers retail training that spans all facets of conveniencestore operations. Country Energy also assisted CCFA in

choosing an appropriate mix of products and services. 

The stores opened in February and March of 2001,

respectively, and carry a wide range of products. In addition

This CENEX/AMPRIDE C-store is one of two such operations generating new income for the Crosby County Fuel Association in Texas.

Photos by Lynette Cockerell, courtesy PCCA

Locals gain by diversifying 

From funeral homes to pizza parlors, Southwest co-ops find ways to boost earnings

A
20 January/February 2002 / Rural Cooperatives

to convenience items and fuel, the CENEX/AMPRIDE location in Crosbyton also contains a Noble Roman’s Pizza Parlor and a Taco Bell. The Ralls location is home to a Pizza

Hut and TCBY Yogurt. 

“The fuel business is picking up as truckers and travelers

hear about our stores, but the restaurants have been far more

successful than the co-op had anticipated,” says Monty Bevel,

CCFA’s general manager.

Despite extensive research by the co-op board and the

advice of seasoned professionals, the stores were not ready

for the influx of food orders they received in the first

month of business.

“We made 350 pizzas a day at our Pizza Hut the first two

weeks we were open, and lines extended out the door,” David

Henry, Ralls CENEX/AMPRIDE manager says. “In a town

with few eating choices, we offer four fast food restaurants

within eight miles of each other. However, we never anticipated that customers would come from as far as Spur, Dickens and Floydada,” he adds. Bevel is pleased with the

progress the stores have made in such a short time. 

“We have a lot to learn about being in a non-ag business,

but we are catching on fast,” Bevel says. “We’re really happy

with our new operation, and we expect it to be profitable,” he

concludes. 

Ten co-ops open fertilizer plant

In a joint venture with Farmland Industries,

10 High Plains cooperatives joined together to

open a co-op fertilizer plant in 1997. Frontier

Fertilizer and Chemical, with locations in

Hurlwood, Texas and Seagraves, Texas, supplies

liquid fertilizer blends and solutions to members as well as to independent dealers on the

Texas High Plains and eastern New Mexico.

A management committee, comprised of

representatives from the member cooperatives,

operates Frontier Fertilizer. The members coops are quite diverse, including Lockney Coop Gin, Crosby County Fuel Association,

United Farm Industries in Plainview, and

Spade Co-op, among others. 

The fertilizer plant specializes in custom fertilizer blends and management takes pride in

prompt delivery and responsive customer service. Dry fertilizer, trace elements and potash

also are available from the plant. According to

Jay Garretson, Frontier’s manager, product

quality also is of the utmost importance to the

co-op. Consequently, the business has never

received a bad report from government fertilizer sample testing in its 5 years of operation. 

“Our fertilizer blends are made to order and

include the exact ingredients in the precise

proportion the customer has requested,” Garretson says. The plant has been a great asset to

its member cooperatives and has saved them a considerable

amount of money. 

“We are able to buy ingredients in volume and pass the

savings on to our customers,” says Charlie McQuhae,

Frontier chairman and manager of Lockney Co-op Gin.

“Of course, we don’t just service our members. Approximately 40 percent of our business is with independents,” he

explains. 

“A group of co-op managers brought this business idea

into fruition, and we are very proud of our operation and its

great success,” McQuhae says.

Girl’s death leads to co-op funeral business

In 1936, Lone Wolf Planters Co-op in southwestern

Oklahoma added a funeral home to its list of assets. The

sequence of events was set in motion when William Kosanke,

the co-op manager, lost his daughter in a house fire. Compounding the tragedy of that loss, he and his wife were surprised by the high cost of a funeral. 

When Lone Wolf Funeral Home was offered for sale,

Kosanke suggested the co-op purchase the business and

—as a service to the community—operate it at cost. The

idea eventually was well received by the co-op board, which

Hold the anchovies? Monty Bevel, general manager for the Crosby County Fuel

Association, ponders this and other options at the co-ops new pizza operation,

which sold 350 pizzas a day its first week in business.
Rural Cooperatives / January/February 2002 21

approved the purchase and the co-op entered the funeral

business, renaming it People’s Cooperative Funeral Home. 

At first, the co-op venture was not welcomed by the funeral industry. The co-op experienced difficulties buying equipment and supplies for many years after its inception. Companies would deliver caskets only in the middle of the night,

and many equipment and supply orders simply disappeared

before being filled. 

The funeral home originally was operated out of the

funeral director’s residence; however, the business soon outgrew the location. Consequently, the gin office was divided,

and the funeral home moved into one side. The sign on the

co-op building read “Planters/People’s Co-op.” 

“The locals didn’t give that sign a second thought, but

strangers driving through town got a good laugh,” Bill

Kosanke, son of the late William Kosanke and a past Lone

Wolf Co-op board member, recalls. 

“Some people had a problem with paying their co-op bill

on one side of the building and then wandering into the

funeral home to view their loved ones. So, we moved the

funeral home across the street in 1976,” Kosanke explains. 

A new facility was built in 1996, and 145 services were

performed in 2000 – a far cry from the 17 services recorded

in 1936. The funeral home now has a large trade territory,

and news of its reasonable prices has traveled far. Jay Hunn,

the funeral director at People’s Co-op Funeral Home, has

performed various funeral services for clients from Oklahoma City to South Texas. The business operates with a

small number of employees to keep overhead costs down.

The funeral home has two full-time employees and five to

seven part-time workers, as needed. 

Kenny Hahn, Lone Wolf Planters Co-op manager, and

Hunn agree that providing affordable funeral services as

close to cost as possible still is the main goal of the cooperative funeral home. 

“Many times, our prices are half of what you would pay at

another funeral home,” Hahn says. “Families appreciate

the fact that we offer a quality service with outstanding

care, and they return to us the next time they are in

need.” 

“It’s just like any other co-op. If people aren’t saving

money, they won’t use it,” Kosanke adds. “We aren’t

into white-gloved pallbearers and a line of limousines,

and people don’t expect it,” he concludes. 

Gin co-op diversifies with cucumber shed

The cotton market can be fickle. Therefore, producers often seek alternative crops in an attempt to

increase their profits and limit costly inputs. Fiber-Tex

Co-op Gin near Brownfield, Texas, has found a way for

its members to capitalize on the harvesting of cucumbers, now one of the more popular alternative crops in

that area. 

Cucumbers have been planted more widely around

Brownfield since Hartung Brothers Inc., a vegetable

company from Arena, Wis., entered into contracts with

producers in Terry County and the surrounding area to

grow the crop. Representatives of Hartung Bros. plant and

harvest the cucumbers. Growers are responsible only for

irrigating the crop, making it an attractive alternative for

farms with adequate irrigation water. Cucumbers, which are

planted in June, are a 45-day crop and often can be doublecropped if irrigation water is available. Because cotton in

the area also is planted in June, the two crops frequently

share an irrigation pivot. 

In a joint venture with Hartung Bros., Fiber-Tex built a

cucumber shed on one corner of the gin yard in 1998. After

the cucumbers are harvested by Hartung Bros.’ machinery,

they are trucked to the cucumber shed to be cleaned, separated by size and chilled before transport. 

“We built the cucumber shed as a service to our existing

members and to entice new customers,” says Bobby Moss,

Fiber-Tex Coop Gin manager. “The shed is self-sustaining,

and no money comes out of the members’ pockets. After the

facility is paid-off, our members will profit from the operation,” he adds. 

The vegetable company and gin have no trouble sharing

the gin yard, because the cucumber harvest is complete by

the time cotton is coming in. In fact, Hartung Bros. opens its

office at the cucumber shed July 1 and employs local workers

who often obtain jobs at the gin when the seasonal cucumber

operation closes in mid-September. 

The arrangement has worked equally well for both businesses, and both parties anticipate a continuation of their

relationship for quite some time. 

“Producers in the area grow cucumbers of exceptional

quality, and demand for cucumbers from the area is growing,” Jim Nottner of Hartung Bros. says. “Our relationship

with Fiber-Tex has been outstanding, and we have been

incredibly happy with the arrangement and look forward to

working with them in the future.”■

“Some people had a problem with paying their co-op bill on one side of the

building and then wandering into the funeral home to view their loved ones,”

says Bill Kosanke. Above, funeral home director Jay Hunn. 
22 January/February 2002 / Rural Cooperatives

Beverly L. Rotan

Economist, USDA/RBS—Cooperative Service

ow did your cooperative compare with cooperatives with similar functions this past year? Was

your co-op’s perfromance higher, lower or about

the same as the average of a cross section of local

farm cooperatives with similar factors—sales,

product mix, etc. Comparisons with other cooperatives may

help to determine whether your cooperative is doing well or

poorly. These include trend and industry norm comparisons. 

The two tables below contain average financial data compiled from a survey of 331 cooperatives for both years, 1999

and 2000. Fill in the blanks and compare these benchmarks

with your cooperative’s financial data. How’s your cooperative doing? ■

How does your local farm supply

cooperative rate?

H

MANAGEMENT TIP

Table 1—Compare your farm supply cooperative1 with averages for cooperatives with similar functions

Size (1999) 2, 3 Size (2000) 2, 3 Your

Measure/Item Unit Small Medium Large Super Small Medium Large Super cooperative 

Sell farm supplies only Percent 96 47 21 7 96 47 21 7 _________

Total assets Mil. dol. 1.8 4.3 8.4 13.1 1.6 4.0 7.4 13.9 _________

Long-term debt Thou. dol. 94.8 386.6 764.7 1,805.5 82.0 283.7 644.1 1,813.3 _________

Total liabilities Thou. dol. 460.8 1,450.8 3,246.1 5,211.2 460.3 1,375.8 2,849.1 6,083.6 _________

Total sales Mil. dol. 2.5 6.6 13.2 23.8 2.6 6.3 12.8 26.6 _________

Total service revenue Thou. dol. 87.8 190.8 457.0 576.2 88.8 180.0 327.2 712.8 _________

Total revenue Mil. dol. 2.7 7.0 14.1 25.1 2.7 6.6 13.4 27.7 _________

Net income (losses) Thou. dol. 91.1 264.4 467.0 795.4 52.3 151.2 213.8 439.9 _________

Labor of total expenses Percent 54 54 55 54 55 53 53 53 _________

Patronage refunds received Thou. dol. 66.3 158.4 293.8 596.5 26.3 77.7 113.2 267.5 _________

Liquidity ratios

Current Ratio 2.31 1.67 1.33 1.38 2.19 1.64 1.40 1.31 _________

Quick Ratio 1.32 0.89 0.62 0.75 1.16 0.89 0.76 0.70 _________

Leverage ratios

Debt Ratio 0.26 0.34 0.38 0.40 0.28 0.35 0.38 0.44 _________

Debt-to-equity Ratio 0.35 0.51 0.63 0.66 0.38 0.53 0.62 0.78 _________

Times interest earned Ratio 6.90 6.39 5.06 4.77 4.24 4.19 2.87 2.67 _________

Activity ratios

Fixed asset turnover Ratio 6.68 5.80 4.78 5.94 8.16 6.15 5.77 6.39 _________

Total asset turnover Ratio 1.45 1.55 1.57 1.81 1.57 1.59 1.73 1.91 _________

Profitability ratio

Gross profit margins Percent 18.26 18.39 20.07 17.06 16.80 16.66 17.98 15.56 _________

Return on total assets before

interest and taxes Percent 6.48 7.79 7.57 8.24 4.43 5.32 4.80 5.50 _________

Return on total equity Percent 9.46 11.82 12.30 12.69 5.67 7.70 6.40 7.16 _________

1/ 100 percent of sales were generated from farm supply sales. 2/ Small = Sales are $5 million or less; medium = over $5 million to $10 million; large = over $10 

million to $20 million; and super = over $20 million. 3/ There were 329 cooperatives surveyed in both years. 
Rural Cooperatives / January/February 2002 23

Table 2—Compare your mixed farm supply cooperative1 with averages for cooperatives with similar functions

Size (1999) 2, 3 Size (2000) 2, 3 Your

Measure/Item Unit Small Medium Large Super Small Medium Large Super cooperative 

Market farm products and

sell farm supplies Percent 12 15 16 20 12 15 16 20 _________

Total assets Mil. dol. 1.3 3.8 8.8 16.7 1.3 4.2 8.4 18.8 _________

Long-term debt Thou. dol. 70.1 382.6 1,286.8 2,291.5 56.9 461.4 1,109.1 2,737.0 _________

Total liabilities Thou. dol. 337.5 1,368.3 3,654.8 7,472.6 341.2 1,656.0 3,721.6 9,089.4 _________

Total sales Mil. dol. 2.6 6.6 13.0 29.4 2.5 7.3 13.8 33.1 _________

Total service revenue Thou. dol. 70.7 391.2 687.7 1,458.9 84.3 342.4 656.6 1,554.4 _________

Total revenue Mil. dol. 2.7 7.2 14.2 31.6 2.6 7.8 14.8 35.3 _________

Net income (losses) Thou. dol. 15.0 165.8 418.2 805.7 12.1 68.9 202.8 627.9 _________

Labor of total expenses Percent 52 51 52 50 51 49 52 49 _________

Patronage refunds received Thou. dol. 29.9 95.9 319.2 484.6 10.1 52.0 156.1 220.1 _________

Liquidity ratios

Current Ratio 2.27 1.57 1.38 1.38 2.00 1.43 1.28 1.35 _________

Quick Ratio 1.27 0.85 0.74 0.73 1.11 0.77 0.69 0.68 _________

Leverage ratios

Debt Ratio 0.27 0.36 0.42 0.45 0.27 0.40 0.44 0.48 _________

Debt to equity Ratio 0.36 0.56 0.71 0.81 0.37 0.65 0.80 0.93 _________

Times interest earned Ratio 2.22 4.09 3.78 3.53 1.89 1.95 2.30 2.67 _________

Activity ratios

Fixed asset turnover Ratio 7.85 5.59 4.85 5.88 6.36 5.27 5.59 5.94 _________

Total asset turnover Ratio 2.06 1.75 1.48 1.76 1.95 1.73 1.64 1.76 _________

Profitability ratio

Gross profit margins Percent 12.01 14.21 17.05 16.21 13.08 14.46 15.69 15.43 _________

Return on total assets before

interest and taxes Percent 2.48 6.23 6.87 7.40 2.16 3.60 4.71 6.37 _________

Return on total equity Percent 2.51 9.88 10.47 11.01 2.09 3.85 5.75 8.63 _________

1/ 50 to 99 percent of sales were generated from farm supply sales. 2/ Small = Sales are $5 million or less; medium = over $5 million to $10 million; large = over $10

million to $20 million; and super = over $20 million. 3/ There were 329 cooperatives surveyed in both years.

Wool co-op, mill in pact; Olympic blankets to follow

The Mountain States Lamb and Wool Cooperative at Casper, Wyo., has agreed to supply high-quality

wool to Faribault (Minn.) Woolen Mills, one of last remaining domestic wool mills. The co-op’s 97 members

ranch in Wyoming, Colorado, Utah, Montana, Idaho and South Dakota. They will receive a higher price for

their wool and a percentage of profits from Faribault’s sale of woolen blankets, throws and bedding accessories in the high-end retail and catalog market. The first project of the joint venture will be exclusive production of wool blankets for the 2002 U.S. Winter Olympics team.
24 January/February 2002 / Rural Cooperatives

By Marc Warman and Alan D.

Borst

Agricultural Economists

USDA Rural Business-Cooperative

Service

Chris Kyer

Agricultural Program Specialist

USDA Farm Service Agency 

rain marketing cooperatives can provide their

members an important

service by participating

in USDA’s Cooperative

Marketing Association (CMA) program. Qualified cooperatives may

obtain non-recourse marketing assistance loans and loan deficiency payments (LDPs) on behalf of their members. The CMA program uses

Commodity Credit Corporation

(CCC) funds and is administered by

USDA’s Farm Service Agency (FSA).

Participating cooperatives must

meet certain eligibility requirements

and follow specified operating procedures. Once designated a CMA, a

cooperative may obtain marketing

assistance loans or LDPs for any eligible members’ qualified commodities

covered by a marketing agreement.

Marketing Assistance Loan Program

Marketing assistance loans provide

participating producers with interim

financing after harvest, allowing them

to use their crops as collateral. These

are mostly non-recourse loans, which

means CCC will accept ownership of

the crop as repayment should the producer decide not to repay the loan during

its 9-month term. However, a producer

may repay the loan, reclaim title to the

commodity and sell it at prevailing market prices at any point during the term

of the loan.

Producers have three loan repayment

options. A producer may borrow money

from CCC at the county loan rate and

repay it at principal and interest or

repay at the marketing assistance loan

repayment rate. This rate is calculated

by subtracting the posted county prices

(for wheat, feedgrains and oilseeds) or

the adjusted world price (for rice and

cotton) from the loan rate to calculate

the CCC-determined value. When this

calculated rate drops below the original

loan rate during the term of the loan, a

producer may repay the loan at the lower rate and earn the market gain—which

is the difference between the repayment

rate and the CCC-determined value. 

For example, a producer obtains a

marketing assistance loan for corn at

$1.80 per bushel, the applicable

county loan rate. With principal and

interest, the producer will owe CCC

$1.88 per bushel. If the producer

decides to repay the loan on a day

when the applicable county’s repayment rate is $1.75 per bushel, the

producer may redeem the loan at

$1.75, thus saving 5 cents in principal

($1.80-$1.75 = $.05) and 8 cents in

interest. The difference between the

county loan rate and a lower repayment rate (in this example, 5 cents) is

called the marketing loan gain.

Using commodity certificates is the

third method of repayment. Producers

can purchase commodity certificates at

the repayment rate and immediately

exchange the loan collateral with commodity certificates to redeem the loan.

Commodity certificate exchanges are

not subject to payment limitations.

Loan Deficiency Payments

LDPs are payments to producers

who agree to forego a marketing assistance loan. The LDP payment rate is

the difference between the county loan

rate and posted county price or adjusted world price, as applicable. Thus,

producers who decide not to take

advantage of the commodity loan program have the same opportunity to

receive marketing loan gains as producers who do. However, producers

who obtain commodity loans can

receive benefits other than marketing

loan gains, such as having storage cost

and interest expense forgiven.

Whenever the county repayment

rate is below the county loan rate, producers can apply for LDP at their local

FSA offices for that difference. For

instance, if the county loan rate is

$1.80 per bushel and the repayment

rate is $1.75, the LDP would be 5 cents

per bushel. After approval, producers

can sell their crops or continue storage,

but cannot get a commodity loan using

the same grain as collateral.

A producer is eligible for either a

loan or LDP on any given commodity,

but not both. Producers are taking a

risk when they apply for an LDP

because the marketing gain may

increase at a later date. And, a producer

can only receive one LDP on a commodity of harvested crop.

Currently, most producers participate in the commodity loan and LDP

programs through a local FSA office.

An alternative is the CMA program.

This allows qualified cooperatives to

Cooperative Marketing

Association Program:

Another way grain co-ops can serve their members

G
secure marketing assistance loans and

LDPs for their eligible producer-members on commodities committed to the

cooperative through marketing agreements. FSA allows grain and rice cooperatives and individual producers to

follow the same administrative procedures. Thus, a cooperative with many

eligible members will use the same

paperwork as an individual farmer.

After receiving the marketing assistance loan or LDP, the cooperative distributes the funds to its participating

members. To make this even simpler, a

federated CMA may obtain marketing assistance loans or LDPs

on behalf of its member affiliates

if they have been certified as

CMAs by FSA.

The CMA program began in

1934 for cotton cooperatives.

The list of eligible commodities

has since been expanded to

include barley, canola, corn,

cotton, crambe, flaxseed,

mohair, mustard seed, oats,

rapeseed, sunflower, rice, safflower seed, sesame seed,

sorghum, soybeans and wheat.

Cotton and rice cooperatives

have used this program more

extensively than those marketing other eligible grains and oilseeds.

Grain and oilseed cooperatives have

not used CMA as much because of the

complexity of the certification requirements and historically high market

prices compared to county loan rates.

However, the CMA program was

recently amended to make it more

accessible and attractive to cooperatives marketing other eligible commodities. With these changes and the

increased demand for marketing assistance loans and LDPs from their

grower members (due to lower grain

prices and the weaker farm safety net),

grain cooperatives have a greater

incentive to participate in the CMA

program. Program participation has

increased in recent years from both

newly certified cooperatives and those

long designated as a CMA. Currently,

28 out of the 47 approved CMAs are

grain marketing cooperatives.

Eligibility requirements

Cooperatives must meet five basic

eligibility requirements to be certified

as a CMA. Three of the factors are set

to ensure the cooperative is, in fact,

operating as a cooperative (see below).

A financial requirement is included to

ensure the cooperative has the liquidity

to operate securely. Finally, a cooperative must have marketing agreements

with members who want to receive

marketing assistance loans or LDPs. 

The CMA must be owned and controlled by active grower-members and

provide evidence that this is the case. A

majority of directors must also be active

members of the cooperative. A CMA

may not provide marketing assistance

loans or LDPs to non-members who

are marketing through the cooperative.

A cooperative not owned and controlled by its active members may still

apply for certification and be conditionally approved by FSA under certain

conditions. These cooperatives must

demonstrate that they can, and will,

vest ownership and control in active

members by retiring the equity of inactive members, or by obtaining new

members, usually within 1 year.

Cooperative applicants must provide

FSA with documented proof that they

admit every membership applicant who

is eligible under the cooperative’s articles of incorporation. This confirms

that the cooperative is not discriminating against a particular individual or

group. However, a cooperative may

refuse membership to an applicant

whose admission could potentially

undermine the cooperative’s operations. Open membership is presumed

until relevant information is provided

from a person who was prevented from

joining the cooperative.

At least 50 percent of a crop of an

authorized commodity delivered to a

CMA for marketing must be produced

by its members to obtain marketing

assistance loans or LDPs. FSA may

waive this requirement for up to 2

years if the applicant can prove

that such authorization is necessary for the efficient operation of

the cooperative and that its FSAapproved plan will bring it into

compliance with program rules.

Under the CMA program, a

cooperative must maintain a certain level of liquidity for making

advances to its members and of

marketing its commodities (you

can’t market without cash). A

current ratio of at least $1 of

current assets for each $1 of current liabilities is the required

level of liquidity. The balance

sheet a cooperative submits to

FSA with its application is the

source of proof.

Finally, a CMA must sign a uniform

marketing agreement with each member who delivers a commodity to a marketing pool. (A loan pool is any CMA

pool containing the commodity used as

collateral by the CMA to obtain either

marketing assistance loans or LDPs.)

The identification number used by the

member to report acreage on applicable

forms to FSA must appear on the

agreement. These agreements give

CMAs the authority to pledge the commodity as collateral for a marketing

assistance loan, to place a lien on such

commodity and to market the commodity on behalf of their members.

Cooperatives may offer seasonal or

specific pricing pools to their eligible

members. In specific pricing pools,

individual members retain the right to

determine the price at which the commodity will be sold. In seasonal pools,

Rural Cooperatives / January/February 2002 25

Through USDA’s Cooperative Marketing Association

Program, co-op managers can obtain non- recourse marketing assistance loans and loan deficiency payments on

behalf of their members, saving them a great deal of time

and effort. USDA photo
26 January/February 2002 / Rural Cooperatives

the cooperative markets the pooled

commodity and determines the price at

which it will be sold. FSA is not concerned with the structure of the pools,

only that the member receives the loan

or LDP proceeds.

Application process

To become a CMA, a cooperative

must submit an application with the following information for approval to FSA:

• A completed Form CCC-846 listing commodities the cooperative

wants to handle through the program. This form, plus other marketing assistance loan and LDP

forms, can be obtained from

USDA’s e-forms website at:

www.sc.egov.usda.gov/

Formsearch.asp.

• A balance sheet, dated within the

last year, prepared for the cooperative and accompanied by a letter

from an independent certified

public accountant certifying that

the balance sheet was prepared in

accordance with generally accepted accounting principles.

• A copy of the articles of incorporation or articles of association.

• All marketing agreements for loan

pools and certification that this

material is current. The individual

pools do not have to be set up prior to applying for CMA certification. However, marketing agreements that will be used must be

submitted as part of the application process. 

• A resolution (part of CCC-846)

from the board of directors stating

that the cooperative will comply

with all the requirements of the

program, including the nondiscrimination provisions and all other related FSA policies. This resolution must be signed by the

secretary of the board.

• A detailed description of how loan

pool proceeds will be distributed

to members.

• Any other information as requested by FSA about the organizational, operational, financial, or any

other aspect of the cooperative

related to its proposed methods of

conducting marketing assistance

loan and LDP business. In the

past, only addendums to marketing agreements such as farmstored addendums have been

requested. 

The CMA must be recertified each

year and provide the following information:

• A completed Form CCC-846-1

to show the number of active and

inactive CMA members, the

CMA’s allocated equity, the

CMA’s unallocated equity, the

quantity of each loan pool commodity delivered to the CMA for

marketing, and the volume of

such commodities received during

the previous crop year.

• The CMA’s latest balance sheet,

dated within the past year, accompanied by a letter from a certified

public accountant certifying that

the balance sheet was prepared in

accordance with generally accepted

accounting principles.

FSA can require a CMA to submit a

new initial application instead of a

recertification application if it has

questions on whether the CMA is

operating according to documents previously submitted.

Approval

If a cooperative is successful, FSA

will provide written conditional or

unconditional approval of the application. If the applicant meets all the discussed requirements, unconditional

approval is granted for 1 year. If an

applicant is in substantial but not total

compliance with the requirements,

FSA may provide conditional approval.

An example would be a cooperative

that had only 49 percent member business during the past year, but normally

member business is much higher. The

CMA must then come into full compliance within a period of time specified

(usually a year) in the conditional

approval notification.

A CMA can be suspended from participating in the marketing assistance

loan and LDP programs if the cooperative has not operated according to its

application or its last recertification,

complied with all applicable regulations, corrected any deficiencies as noted by FSA or violated any of its agreements with FSA. A suspension is

normally lifted after the cooperative

has made the necessary changes. If a

suspension is not lifted within 1 year,

the CMA’s certification automatically

terminates. If it does not have any marketing assistance loans outstanding, a

CMA may voluntarily terminate its

participation in the marketing assistance loan and LDP programs through

written notice to CCC.

FSA may call in all outstanding marketing assistance loans made to a suspended or terminated CMA. Commodities pledged as collateral for marketing

assistance loans must be redeemed by a

specified date. If not, title to the commodity transfers to CCC, which will

have no obligation to pay the commodity’s market value above the principal

amount of such loans.

Operating procedures

Once a cooperative is certified as a

CMA, it must follow certain procedures

to ensure proper operation of the marketing assistance loan and LDP programs. For example, CMAs can establish separate pools as needed for the

various eligible commodities. Marketing

assistance loans or LDPs will be available to CMAs for any eligible commodity in a loan pool under these conditions:

• All of the commodity in the pool is

eligible for marketing assistance

loans and LDPs, except as specified.

• The commodity was delivered to

the CMA by members who are eligible for marketing assistance

loans and LDPs.

• Members retain the right to share

in marketing proceeds from the

commodity distributed according

to the FSA procedures.

• Members agreed to accept an initial advance from the CMA.

There are two instances when ineligible commodities may be included in
Rural Cooperatives / January/February 2002 27

eligible pools. The first is when a CMA

inadvertently included ineligible quantities based on grade, quality, or other

factors. Secondly, if there are eligibility

discrepancies within FSA records, the

producer has certified to the CMA that

the commodity is eligible for a marketing assistance loan, and there is no

market gain or LDP involved in the

marketing pool for the crop year.

CMAs are required to monitor market gains they receive on behalf of their

members and to ensure that marketing

gains for members do not exceed their

payment limitation. Again, a marketing gain is the difference

between the loan rate and a lower

marketing assistance loan repayment rate due to a decline in the

commodity’s price. Marketing

gains are treated as direct government payments. Producers are

normally subject to a $75,000 perperson, per-crop-year payment

limit on these gains. The payment

limitation for crop years 1999 and

2000 was increased to $150,000.

CMAs are also required to maintain

inventories of each class and grade of

grain at least equal to the quantity

pledged as loan collateral. A CMA

must have identity-preserved marketing pool commodities stored in

approved warehouses while the commodities are pledged as collateral for

marketing assistance loans. Marketing

assistance loan eligibility for commingled commodities stored on a farm or

in a warehouse may be transferred to

an approved warehouse. Marketing

assistance loans will be available to the

CMA for the quantity of farm-stored

commodity that is part of the CMA’s

loan pool. This will be specified in the

CMA’s marketing agreements with

those members who store on-farm.

Commodities pledged as collateral

for CCC loans have to be free of all

liens and encumbrances and the cooperative is not allowed to take any action

to cause a lien or encumbrance to be

placed on a commodity after a marketing assistance loan is approved. The

cooperative is responsible to CCC for

any loss related to commodities

pledged as collateral for marketing

assistance loans or used to obtain

LDPs. This will occur when the CMA

fails to comply with FSA regulations,

there are changes in the quantity or

quality of the pledged commodities, or

liens are imposed on either the CMA’s

or its members’ financial agreements.

A CMA cannot apply marketing

losses from a commodity not used as

collateral against the marketing proceeds of a commodity that is used. And

it cannot carry forward losses from one

loan pool and apply them against a subsequent loan pool without FSA authorization. This may occur if carrying

forward the loss complies with FSA’s

marketing assistance loan and LDP

program intent.

If FSA makes marketing assistance

loans or LDPs for any grain in a marketing pool, the money will be distributed to pool participants based on the

quantity and quality of the commodity

delivered by each member, less any

authorized charges for services performed or paid by the CMA necessary

to condition or make the commodity

eligible for marketing assistance loans

or LDPs. This includes storage and

administrative fees. Payments need to

be delivered within 15 days from the

date the CMA receives marketing assistance loan or LDP money from FSA,

except when marketing assistance loans

are redeemed within 15 work days of

the date of disbursement of the marketing assistance loan.

With one exception, loan pool payments cannot be combined with nonloan pool payments and the CMA must

distribute loan funds according to

information given to FSA during the

approval process. However, sales proceeds from a loan pool may be combined with those from other pools if

the proceeds from such pools are allocated among the pools according to the

quantity and quality of the commodity

included in the pools.

CMAs need to maintain records for

each marketing assistance loan or

LDP commodity, showing the quantity received from each member and

nonmember as well as the quantity

eligible for marketing assistance loans

and LDPs. They also have to maintain records on the quality of the

commodity as specified in the

applicable commodity regulations.

Finally, CMAs need to maintain

records on their unprocessed

inventory broken down by the

above three items.

Inventory needs to be allocated

until the entire loan pool is depleted.

For processed commodities, the

pool’s inventory must be adjusted

when the commodity is withdrawn

for processing. For non-processed commodities, the pool’s inventory has to be

allocated to the pool and then adjusted

when the commodity is shipped. If a

marketing assistance loan or LDP is

obtained for any quantity in a loan

pool, allocation of costs and expenses

must be made according to generally

accepted accounting principles.

The books, documents, papers and

records of the CMA and subsidiaries

must be maintained for 5 years after the

applicable crop year. FSA has the right

to examine all books, documents and

papers to verify whether the CMA is

operating or has operated appropriately.

While somewhat complicated, the

CMA program provides cooperatives

another way to serve their members.

The eligibility requirements for participation are simple, and well-managed

grain cooperatives should have no problem qualifying. Cooperatives interested

in becoming a CMA can request an

application packet by writing to: Director, USDA-FSA Price Support Division,

1400 Independence Avenue, SW, Stop

0512, Washington, DC 20250-0512,

(202) 720-7935 ■

Currently, 28 out of the

47 approved CMAs are

grain marketing co-ops.
28 January/February 2002 / Rural Cooperatives

Kansas cotton co-op thrives

Members of a Kansas cooperative

are proving that growing cotton isn’t

limited to southern states. Producers in

south-central Kansas are ginning a

crop once unheard of in their state.

“We’re seeing some high-quality cotton

grown in irrigated land this year,” said

Gene Latham, manager of the South

Kansas Cotton Growers Cooperative.

Latham began working with cotton at

age 15 and subsequently added entomology to enrich his background.

Kansas is free of boll weevils and—

even with prices at 30-year lows—

1,000-pound-per- acre cotton harvests

can generate more income than a 200-

bushel-per-acre corn crop (a corn yield

that is hard to sustain). Top cotton

yields this year reached three bales—or

about 1,500 pounds—per acre, Latham

said, with 45,000 acres planted. Last

year, when 40,000 acres were planted,

the state generated $6 million in production value.

Riceland Foods shipping rice

to hurricane-hit Cuba

The first shipments of U.S. rice

sold to Cuba in nearly 40 years were

heading to Havana in December after

leaving Riceland Foods at Stuttgart,

Ark. The cooperative is joining several other major food processors to

ship relief supplies to the country,

devastated Nov. 4 by Hurricane

Michelle, which destroyed crops and

thousands of homes. Terry Harris,

Riceland’s marketing vice president

for Latin America, was in Havana in

late November to seal the deal.

Cuba declined a U.S. offer of

humanitarian aid after the hurricane,

but instead Alimport, its import company, proposed a one-time cash purchase

of American food and medicine. In

2000, Congress approved food exports

to Cuba without U.S. financing of the

transactions. The country has been

under a U.S. trade embargo since 1961.

Richard Bell, Riceland president,

said it expected to provide at least one

half of the rice supply, primarily the

long-grain variety. Last year, the rice

processing cooperative donated 20 tons

of rice to Cuba to help its residents in

an area devastated by drought.

Florida’s Natural opens

new visitor center

Florida’s Natural Growers’ recently

dedicated a new visitors’ center, called

“Grove House,” just west of its processing facility in Lake Wales, Fla. The

5,200-square-foot building will help

consumers learn more about the co-op,

its products and Florida’s citrus industry, says Frank Hunt, the co-op’s president. Among the exhibits are historical

displays about the co-op, founded in

1933, and a documentary film which

traces how orange and grapefruit juices

are made, from grove to glass. A working citrus grove borders the center,

where visitors and school groups can

learn more about citrus production.

The co-op has 1,100 member-owners

with 60,000 acres of citrus. Its Lake

Wales juice plant employs 1,000 and

can process 10 million pounds of fruit

every 24 hours in peak season.

Financial picture improving

for Farmland Industries

Despite a $90 million net loss for

fiscal 2001, Farmland Industries, the

nation’s largest agricultural cooperative, continues to make progress

toward regaining financial strength,

CEO Bob Honse told more than 2,500

members, employees and business

partners attending the cooperative’s

annual meeting, Dec. 6, in Kansas City.

Displays at the Grove House – Florida Natural Growers’ new visitor center – will educate tourists

and students about one of the nation’s top cooperatives and the citrus industry. 

NEWSLINE
Rural Cooperatives / January/February 2002 29

Honse said it was a year of rebuilding.

Farmland cut its debt by $268 million,

slashed corporate expenses by more

than half, improved food company

operations, increased pre-tax operating

income $566 million and reported a

one-time, principally non-cash,

restructuring charge of $80 million. 

Honse said work will continue to

strengthen agricultural marketing joint

venture companies, namely Agriliance,

ADM-Farmland and Land O’Lakes

Farmland Feed. The cooperative

closed two inefficient pork plants and

opened three new pork and beef caseready facilities in 2001, altering plant

configurations to meet changing consumer needs. The co-op also invested

in advertising and promotion to build

national recognition of its Farmland

brand pork, beef and catfish products.

Further cost reducing moves in Farmland’s food companies will be made in

2002, Honse said.

Harry Fehrenbacher, a grain and

livestock producer from Newton, Ill.,

was elected chairman. He is president

of the Effingham (Ill.) Equity cooperative. New directors elected to the

board include Douglas Kuhlman from

St. James, Minn., and Larry Shriver

from Los Alamos, Colo.

Petroleum operations fuel

doubling of CHS’ income 

A big jump in petroleum income

helped CHS Cooperatives’ net income

surge to $178.6 million for fiscal 2001,

more than double the $87.4 million

income reported the year before.

Value-added products also helped contribute to the income gains.

“Our grain-based agricultural foods

cooperative is well on the way to

adding economic value for our producers, from the field to the consumers’

table,” John Johnson, CHS president

said in his address to 2,500 delegates at

the co-op’s annual meeting Nov. 29 in

Portland, Ore.

Net sales of $7.8 billion dipped 9

percent from the $8.5 billion reported

last year. The cooperative will return

50 percent, or $72.2 million, in 2001

earnings, after tax adjustments, to

member-owners in equity redemptions

and cash patronage. 

Other CHS highlights of the past

year included: focusing on destination

delivery of grain at home and abroad;

the upcoming groundbreaking (in

April) on Harvest States’ soybean processing facility at Fairmont, Minn.;

repositioning wheat milling in a joint

venture with Cargill to serve bakery

customers nationwide; expanding ownership of Ventura Foods and acquiring

additional Mexican foods production

facilities; improving its petroleum

refinery at Laurel, Mont.; planning

changes to meet federal environmental

standards at National Cooperative

Refinery Association at McPherson,

Kan.; and purchasing Farmland

Industries’ share of the Country

Energy joint venture.

New directors elected to the CHS

board include Dennis Carlson,

Mandan, N.D., a third-generation coop member who growers wheat, sunflowers and runs a cow-calf operation.

He is chairman of Farmers Union Oil

Co. of Bismark, N.D. Also elected was

Randy Knecht, of Houghton, S.D.,

who farms 4,000 acres of corn, beans,

wheat and alfalfa, and operates a 450-

head cow/calf operation. Current

Chairman Steve Burnet of Moro, Ore.,

and all other current officers were reelected to serve during 2002. 

USDA offers paid

summer intern jobs

The U.S. Department of Agriculture

(USDA) is looking for summer interns

for 2002. A catalogue has been published listing jobs available for students

currently enrolled in a college or university and pursuing a bachelor’s or

graduate degree. The paid jobs provide

students an opportunity to work as

assistants in scientific, professional and

technical fields. The jobs may provide

selectees with a head start toward

acquiring a career position with USDA.

For more information, check the following Web site: http://www.usda.gov/

da/intern.htm Or call Junius Scott

(202) 692-0199, or Marilyn Jenkins

(202) 720-7168. 

Illinois pork processor co-op

picks Rantoul for plant site

An east-central Illinois site in the

village of Rantoul has been chosen by

American Premium Foods Inc.—a new

pork-processing cooperative owned by

250 producers—as the site for its new

$25 million plant. Rantoul is near

Champaign-Urbana, home of the University of Illinois. Twenty communities

competed for the facility. 

The Rantoul village board approved

an incentive package that included discounts on utilities, a multi-year tax

abatement, a waiver of permit fees and

a pledge to maintain stable wastewater

rates. Closure of an Air Force base left

the community with ample water supplies. Still ahead is closing on a 40-acre

site and a final engineering study.

Ground breaking is slated for the

spring, followed by 15 months of construction and anticipated operations by

the summer of 2003.

Chairman Jack Rundquist said the

firm initially will employ about 200

people. About 2,000 hogs will be

processed daily into bacon, chops and

other pork products and marketed

under the Meadowbrook Farms brand.

Jim Burke will manage the cooperative.

In June, American Premium Foods

received a $500,000, value-added agricultural market development grant

from USDA Rural Development. 

NMPF, dairy experts eye

new market opportunities

Dairy marketing experts from

National Milk Producers Federation

Bob Honse reports on the financial

progress made by Farmland Industries.

Photo courtesy Farmland
30 January/February 2002 / Rural Cooperatives

Hard times breed new livestock co-ops continued from page 18

(NMPF) are joining their counterparts from Dairy Management Inc.

and the U.S. Dairy Export Council on

a task force examining both threats

and opportunities facing the nation’s

dairy industry. NMPF Chairman

James P. (Tom) Camerlo recently met

with the other organization chairmen

and key staffers to discuss market

threats that may displace U.S.-produced milk in products such as cheese

and ice cream. 

“We formed the task force to create

a strategic plan to identify ways to

remedy these potential threats,”

Camerlo said. “The team will examine

emerging technologies, trends in

imports and trade policy, the use of

non-dairy ingredients and the challenges to the current dairy standards of

identity. All of these areas could detrimentally impact the use of domestic

milk and prices paid to American

farmers.” The team seeks to develop a

domestic milk protein concentrate,

increase use of alternative dairy-based

ingredients and examine marketing

methods for products marketed by the

U.S. dairy industry. 

“We are at a critical juncture,”

Camerlo said, “and need to embrace

new technologies that make our industry more efficient and productive,

while maintaining the integrity and

quality of our dairy products. We must

be mindful of the impact of these technologies on producer prices. It will be

critical in shaping the activities of this

organization in the future.”

Six new directors were named to the

NMPF board: David Fuhrmann of

Foremost Farms USA; Peter Kappelman

of Land O’ Lakes; Randy Mooney, Ed

Schoen and Bill Siebenborn, all of Diary

Farmers of America; and Bob Swenson

of Ellsworth Cooperative Creamery. 

Southern States restructures

to build future business

An executive restructuring at Southern States Cooperative (SSC) based at

Richmond, Va., is paving the way for

reorganization plans that will alter the

company’s business structure. Wayne

Boutwell, SSC’s chief executive officer,

said the change resulted from an assessment of the cooperative and trends in

the agricultural industry.

“We will be focused on our customers and better able to optimize our

buying power,” Boutwell said. “Our

ability to cross-sell products and services also will be enhanced. Over time,

members will benefit because our

resulting efficiencies will boost our

ability to compete and build the business for the future.” As an example of

the change, crop inputs and services,

animal feed, petroleum products and

farm supplies will be marketed under a

common umbrella, rather than through

four separate divisions.

Four executive vice presidents will

now report to Boutwell: Gene

McClung, chief administrative officer;

Tom Scribner, chief merchandising officer; Joe Koch, chief operations officer;

Jonathan Hawkins, chief financial officer. Senior vice presidents also reporting to Boutwell will be Hopper Ancarrow, legal officer, and C.A. Miller,

information systems officer.

.coop Internet domain

to launch Jan. 30

The new, top-level Internet

domain for cooperatives will be

launched Jan. 30, 2002, by National

Cooperative Business Association

(NCBA) and its partners, Poptel of

the United Kingdom and International Cooperative Alliance of Geneva,

Switzerland. Agreement to begin

offering the new domain through

NCBA’s subsidiary, DotCooperation

LLC, has been reached by the Internet Corporation for Assigned Names

and Numbers.

“This new Internet domain gives

co-ops a unique opportunity to finally

get the names they wanted under

.com,” said Paul Hazen, NCBA president. “It provides them with important competitive advantages—their

ability to differentiate their business in

a sea of .coms and benefit from the

consumer trust cooperatives have built

over the past 100 years.” He urged coops eligible to reserve names before

the launch. So far, more than 2,400 of

the 12,000 eligible have prequalified

with domain names. On Jan. 30, all

co-ops around the world will be able

to purchase .coop domain names.

sale barns when the co-op’s name is

mentioned, Bumgarner said, but its

new mission is to be a total livestock

services business that operates on a

cooperative basis.

New information management services include: production and carcass

data; collection and analysis and

“QuickPig” production modeling software. The co-op is expanding riskmanagement services, including forward contracting to provide long-term

packer contracts, feeder-preference

marketing agreements and brokerage

services. 

Other new services offered through

the co-op include a beef improvement

service, bull leasing, production coordination to manage pig flows, consulting services and equipment rental (of

gear such as livestock chutes with electronic scales and other expensive

equipment needed to help collect data).

The co-op is also forging alliances with

other marketing and producer groups.

Most of its new services are not being

operated on a patronage basis.

Given escalating food safety concerns, Bumgarner said “we are kidding

ourselves” if we don’t think a mandatory carcass identification system is coming in the near future. Tagging animals

so that they can be tracked through

the packing system will also help producers make better management decisions, he noted. ■
Rural Cooperatives / January/February 2002 31

Strategic Planning in Farmer Co-ops

Research Report 184

By James J. Wadsworth

This report examines cooperatives’ use of strategic planning,

the various technical aspects of it, and the degree of director

involvement in strategic planning. It also analyzes their financial

position and certain aspects of financial change.

Price: $5; foreign $5.50

Cooperative Feasibility Study Guide

Service Report 58

James Matson

Steps for conducting a feasibility study, how to evaluate a

study and how to implement a completed study are outlined. Tips

on selecting and working with consultants also are provided.

Price: domestic–$5; foreign–$5.50

Cost of Balancing Milk Supplies: Northeast

Regional Market 

Research Report 188

K. Charles Ling

The seasonal nature of milk production and fluid consumption

necessitates maintaining seasonal and operating reserves to

ensure fluid demand is satisfied. This report looks at actual milk

volume and use in the Northeast market to estimate the costs

incurred by those manufacturing plants in balancing reserve milk

supplies. 

Price: domestic–$5; foreign–$5.50 

Structural Changes in the Dairy Co-op

Sector, 1992-2000

Research Report 187

Carolyn Liebrand

Dairy cooperative numbers between 1992 and 2000 showed

a net decline of 52. This report shows that more than 80 dairy

co-ops went out of business, or dairy was reduced to a minor

part of the business. Thirty-two new cooperatives were

formed, some by consolidating existing co- ops. Some dairy

co-ops became vertically integrated while others focused only

on bargaining. 

Price: domestic–$5; foreign–$5.50

Local Co-ops in the Identity-Preserved 

Grain Industry

Research Report 181

By Julia A. Hogeland

This study reports on how 230 local grain co-ops in the Midwest have responded to the transition to identity-preserved grain

marketing. Results showed overall commitment to identity-preserved grain was determined in large part by a co-op’s openness

to innovation. 

Price: $5; foreign $5.50

The Impact of New-Generation Co-ops

on Their Communities

Research Report 177

By David Trechter et al.

Findings are reported from a study of five cooperatives and their

local communities in the Upper Midwest. The authors, five university professors, look at the new-generation cooperative movement.

The report is aimed to help those involved in establishing co-ops

and those working in the field of community development.

Price: $5; foreign $5.50

Crop Protectant Operations of Local Farm Supply and 

Marketing Cooperatives

By E. Eldon Eversull

Research Report 183

The 1999 crop protectant sales and services of 383 local

cooperatives are examined and compared with sales trends for

the past nine years. The study focuses on regional differences as

well as differences among cooperatives based on size and type.

Price: $5; foreign $5.50

Cooperatives: What They Are and the Role of Members, Directors, Managers and Employees

Cooperative Information Report 11

By James Wadsworth

This is an educational guide for teaching basic information

about cooperatives. It examines business principles and structural characteristics of cooperatives and responsibilities and

roles of members, directors, managers and employees.

Price: Free 

New Co-op Publications From USDA
32 January/February 2002 / Rural Cooperatives

United States

Department of Agriculture

Washington, DC 20250

OFFICIAL BUSINESS

Penalty for private use, $300

NOTICE:

❏ Check here to stop receiving this publication,

and mail this sheet to the address below.

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Periodicals Postage Paid

U.S. Department of Agriculture

The NFO: A Farm Belt Rebel

A History of the National Farmers Organization

By Don Muhm

The National Farmers Organization was born in the tough

economic times following the Korean War. It directed a series of

controversial food market boycotts in its attempts to obtain collective bargaining for American agriculture. This book recounts

the history of the NFO and its “sparkplug” leader, Oren Staley.

Price: hardbound $20; softbound $16

Assessing Performance Needs of Cooperative 

Boards of Directors

Co-op Information Report 58

By James J. Wadsworth

This report helps directors assess individual abilities and

areas for improvement, how well the board performs, how it

can be improved and productivity and effectiveness of board

meetings. Assessments help spot weaknesses or areas needing improvement. 

Price: Free

Analysis of Financial Statements:

Local Farm Supply, Marketing Co-ops

Research Report 182

Beverly L. Rotan

Financial statements of local cooperatives are examined for

1999, 1998 and for the decade 1990- 1999. Trends for major balance sheet and income statement, as we ll as financial ratios,

are presented for four cooperative sizes and types. The information gives managers and directors a basis for comparing the performance of their local cooperatives.

Price: $4.50; foreign $5.00

Grain Co-op Mergers, Acquisitions, 1993-97

Research Report 180

By Anthony Crooks

Operational and financial characteristics of cooperatives

that were merged or consolidated during 1993-97 are examined.

The report frames these and surviving cooperatives in the context of economic restructuring in the ag industry. Lessons

learned provide insights into the challenges that lie ahead for

grain cooperatives hoping to thrive. 

Price: $5; foreign $5.50

Cooperative Employee Compensation, 1999

Research Report 189

Beverly L. Rotan

Salaries and fringe benefits offered to mid- to upper-level

employees of cooperatives are the focus of this study. It shows

that financial performance of the cooperative was the basis for

bonuses, setting salaries and evaluating employees.

Price: domestic–$5; foreign–$5.50

Financial Management,

Co-op Ratio Analysis

Research Report 175

David S. Chesnick

Differences in financial management and goals that exist

between investor-oriented firms and cooperatives are examined.

This report reviews what bankers look for when appraising

potential borrowers. A summary of financial ratios used to analyze businesses is included.

Price: $5; foreign $5.50

Please send check or money order, payable to “USDA” to:

USDA Rural Development, Publication Orders, Stop 0705,

1400 Independence Avenue SW, Washington, D.C. 20250-

0705. Include publication number, title and number of copies

wanted. There are no additional taxes or shipping charges.

You may also fax requests for free publications to: (202) 690-

4083, attention Dan Campbell. If you have Internet access,

most of these (but not the NFO book) and more than 150 other

USDA co-op publications can also be viewed and downloaded at: http://www.rurdev.usda.gov/rbs/pub/newpub.htm