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lCOOPERATIVESCOOPERATIVESUSDA / Rural Development November/December 2003

New days,new ways:Co-ops findingways to adjust tochanging marketconditions

New days,new ways:Co-ops findingways to adjust tochanging marketconditions

USDA / Rural Development November/December 2003

2 November/December 2003 / Rural Cooperatives

Issues vital to the future of thenation’s producer-owned cooperativeswere closely examined during a hearingconducted by the House Ag Commit-tee on Oct. 16 (see page 9). While nofirm answers or course of action wasdecided upon, it was obvious that thestate of the co-op sector is front andcenter on the agenda of the HouseAg Committee. As Rep. CharlesStenholm said, this was not a dayfor pouring concrete, but for set-ting up the forms.

How those forms are filled dur-ing coming months may welldetermine the future of thenation’s farmer cooperatives. Allthose with a vested interest incooperatives should monitor thisprocess and be prepared to providetheir input.

Ultimately, the question appearsto be not whether change is need-ed, but how much change. Somefeel a minor tune-up will suffice,while others say an engine overhaul iscloser to the target. As you can read inour coverage of the hearing, there issome strong feeling that the new stateco-op laws in Minnesota and Wyominggo too far in broadening the co-opmodel, while others feel those are thetype of changes needed to keep co-opsalive and well in the 21st century.

Much of the testimony related tohow a number of new generation coop-eratives—whose leaders are committedto the concept of producer ownershipand control—have converted theirbusiness structure to LLCs in order tosecure tax benefits and outside equityto invest in value-added efforts. Otherswarned that this outside equity comeswith strings attached—strings that

could potentially lead to some loss ofproducer control to outside interests.Similar differences of opinion existover whether the closely related issueof CoBank’s charter should be expand-ed so that it can finance a broader arrayof cooperatives, and even continue tolend for a period of five years to some

non-cooperatives that convert to otherbusiness structures.

Clearly, Congress and the co-opcommunity have their work cut out forthem. The stakes are high: cooperativestypically account for around $100 bil-lion in farm sales and they are often themost important source of jobs and taxrevenue in rural towns where every joband tax dollar is desperately needed.They provide quality, affordable sup-plies and services in rural areas wherethey otherwise might not be available.Even those farmers who do not belongto a cooperative benefit from their abil-ity to favorably impact prices and termsof delivery and through their marketexpansion efforts.

Most of the testimony underscored

that successful ag marketing co-ops in the future will increasingly beinvolved in some stage of value-addedprocessing of their members’ cropsand livestock. But turning wheat intopizza is a much more expensiveundertaking than storing it and ship-ping out of town in railcars, as Keith

Kisling, a wheat farmer fromOklahoma, testified. How to helpproducers get that needed capitalwhile still keeping the operationsunder the control of farmers is thebottom line.

A number of questions wereraised about whether existing finan-cial assistance programs at USDAcould be better used by co-ops ifchanges were made. Related sug-gestion ranged from upping thelimits on USDA’s B&I loan guaran-tees to making changes that willincrease use of our Co-op StockPurchase Program. As Rural Devel-opment Under Secretary Thomas

Dorr pointed out, a major co-op pro-gram review is being launched to eval-uate these programs, which hopefullywill lead to improvements.

Regardless of where you stand onthis debate, we should all be encour-aged to see the strong interest ofCongress in cooperatives and toknow that Congressional leaders real-ize the crucial role co-ops play in thenation’s rural economy. One thingeveryone seemed to agree on: if wetake steps to strengthen producer-owned cooperatives, we alsostrengthen the nation.

James Haskell, Acting Deputy AdministratorUSDA Rural Business-Cooperative Service

C O M M E N T A R Y

Setting up the forms

How to help producers get needed

capital while stillkeeping the

operations under the control of farmers

is the bottom line.

Rural Cooperatives / November/December 2003 3

Rural COOPERATIVES (1088-8845) is publishedbimonthly by Rural Business–Cooperative Service,U.S. Department of Agriculture, 1400 IndependenceAve. SW, Stop 0705, Washington, DC. 20250-0705.The Secretary of Agriculture has determined thatpublication of this periodical is necessary in thetransaction of public business required by law of the Department. Periodicals postage paid atWashington, DC. and additional mailing offices.Copies may be obtained from the Superintendent ofDocuments, Government Printing Office, Washington,DC, 20402, at $21 per year. Postmaster: send addresschange to: Rural Cooperatives, USDA/RBS, Stop3255, Wash., DC 20250-3255.

Mention in Rural COOPERATIVES of company andbrand names does not signify endorsement overother companies’ products and services.

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To file a complaint of discrimination, write USDA,Director, Office of Civil Rights, Room 326-W, WhittenBuilding, 14th and Independence Avenue, SW,Washington, D.C. 20250-9410, or call (202) 720-5964(voice or TDD). USDA is an equal opportunityprovider and employer.

Ann Veneman, Secretary of Agriculture

Thomas C. Dorr, Under Secretary, USDA RuralDevelopment

John Rosso, Administrator, Rural Business-Cooperative Service

James Haskell, Acting Deputy Administrator,USDA Rural Business-Cooperative Service

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

Have a cooperative-related question?Call (202) 720-6483, orFax (202) 720-4641, Information Director,

This publication was printed with vegetable oil-based ink.

United States Department of Agriculture

.Rural

COOPERATIVESCOOPERATIVESNovember/December 2003 Volume 70 Number 6

O n t h e C o v e r :

Grain rolls in at Western Iowa Cooperative’s 600,000-bushel elevator, fromwhere much of it will be shipped to California livestock operations. Learnmore about how it and other cooperatives have restructured for success. Photo by Larry Laszlo

F E A T U R E S4 New days, new ways

Co-ops, producers find many ways to prepare for the futureBy Robert Heuer

9 Congressional hearing focuses on possible needfor more flexible co-op business modelBy Dan Campbell

14 Dismantling of Farmland continues; Smithfieldbuying pork businessBy Patrick Duffey

16 Survey results: public shows strong preferencefor doing business with cooperativesBy Patrick Duffey

17 Revenue, margins trend downward for nation’stop 100 ag cooperativesBy David Chesnick

21 Co-ops follow more than one path for nominating board candidatesBy Bruce J. Reynolds

25 Seeking the bestDirector leadership: what does it take?By Jim Wadsworth

26 Cooperative exports decline in 2001; bulk salesfall but continue to dominate sectorBy Tracey L. Kennedy

D E P A R T M E N T S2 COMMENTARY

20 VALUE-ADDED CORNER28 NEWSLINE34 2003 ARTICLE INDEX


By Robert Heuer

tephen Longval knew hisgrandfather’s grain busi-ness was strugglingupstream in a changingfarm economy, and he was

determined to prevent it from dying. Butthe Iowa farmer knew Sloan Coopera-tive couldn’t survive with a business plandevised in the 1930s. So Longval led theeffort a few years ago to merge severallocal cooperatives, which then built arailroad facility that allowed members tosell grain to distant markets.

“Somebody has to do this business,”the 59-year-old Longval says. “Farm-ers are best positioned to do it forthemselves.”

Leading the way to changeA decade ago, Longval was elected

chairman of the 200-member SloanCooperative. For decades, the co-opoperated an elevator that served a six-square-mile area along Iowa’s westernedge. Member-owners hauled shelledcorn and soybeans to town where thecrops were sent to regional markets.

In the 1970s, the membership votedto replace the 40-year-old elevator witha new one that they thought wouldmeet their needs for years to come.However, as farms got bigger, individ-ual farmers invested in huge combines,storage bins and semi-trailers. Eventu-ally, members were going to bypass theco-op, choosing instead to pocket thenickel-per-bushel premium for haulingcorn to an Omaha terminal and beansto a Sioux City area processor.

By the mid 1980s, the co-op was onthe verge of becoming an unneeded mid-

dleman. “We spent several years figuringout what the cooperative could do forfarmers that farmers can’t do for them-selves,” board chairman Longval recalls.

Knowing their business was in jeop-ardy, the board faced a tough decision.

Many members were retired or near-ing retirement and interested in see-ing the co-op’s assets sold so that theycould get their share of the proceeds.But Longval and others on the boardfelt that the majority wanted to keepthe business going.

In 1995, Sloan saw an opportunityto market the co-op’s Iowa grain toCalifornia livestock operations. Thiscould be accomplished by tappinginto the Union Pacific Railroad mainline that ran through town. But withonly $15 million a year in annual sales,the co-op couldn’t afford the $6 mil-lion cost for a high-speed grain eleva-tor and track linking the elevator tothe Union Pacific line. Nor could ithope to generate the grain volume tojustify such an investment. All of thearea’s local co-ops were facing similarlimitations. Ultimately, they mergedto form Western Iowa Cooperative.

CoBank, which finances coopera-tives nationwide, loaned Western Iowa$6 million—a sum representing 80 per-cent of the 1,200 members’ local equi-ty. The co-op built a $6 million agro-industrial complex that includes a100-car rail-spur and a 600,000-bushelelevator to load unit trains.

In 2002, the co-op generated $70million in sales, providing members a10- to15-cent per bushel premium forshipping corn to the West Coast. Withplans in the works to sell soybeans toMexico, Longval says, “We should sur-vive for awhile.”

A state of flux Western Iowa Cooperative is far

from alone in having to deal with suchchallenging issues. Cooperatives

S

A fast-changing competi-tive landscape is forcingcooperatives large and

small to reinvent them-selves. The farmer-ownedbusiness model, created 75

years ago by the U.S. Congress, appears aliveand well, but may be inneed of updating. Somecooperative leaders say

policies regulating gover-nance, capital formationand structure need added

flexibility to keep co-ops instep with a changing farm-business environment. Inrecent months, 60 federallegislators have joined theCongressional Cooperative

Caucus, which plans toexplore legislative actionsthat can help farm co-ops

evolve with the times.

New days, new waysCo-ops, producers find many ways to prepare for the future

nationwide are looking for better waysto serve their grower-owners. Mergersare on the rise. Successful businessesrealize their “customers” include bothfarmers and consumers at faraway gro-cery stores, as well as stakeholdersthroughout the supply chain. To sur-vive, co-ops must find a niche in aglobal agri-food sector that links pro-ducers to suppliers, processors, distrib-utors and retailers.

Such realities were unimaginable inthe 1920s and 1930s, when Congressenacted legislation to promote theformation of farmer-owned coopera-tives. The regulatory framework thatgoverns the U.S. cooperative systemtoday continues to cater to the small,diversified farms that populated thecountryside 80 years ago.

Lawmakers exempted producer asso-ciations from anti-trust regulations somembers could pool marketing activi-ties and, as a result, get better priceswhen buying and selling goods and ser-vices. To help ensure farmer controland equal influence for all members,lawmakers required cooperatives togenerate the lion’s share of capitalinternally (from their members).

Neighboring farmers formed smallcooperatives. They, in turn, bandedtogether to form regional cooperativesthat provided greater purchasing andmarketing power.

Throughout the industrializationera, most farmers and ranchers havespecialized in producing high-volume,low-value commodities while otherbusinesses focused on processing andmarketing. But increasing numbers ofcooperatives are developing methods tocapture a larger share of the consumer’sfood dollar.

Co-op leaders say that collectiveaction offers the means for farmers andranchers to capitalize on the forces thatare merging production, processingand marketing functions. Questions arearising about how to provide coopera-tives with the latitude to stake theirclaim in the new food delivery system.

Producer controlSeveral decades ago, North Dakotan

Mike Warner and fellow Red RiverValley sugar beet growers were tired ofselling their commodities to a proces-sor whose out-of-state owners refusedto upgrade the plant. So they formed a

cooperative and bought the company.Designed to turn member-owners’commodities into food products, theAmerican Crystal Sugar Cooperative(ACSC) became what some say was thefirst “new generation co-op.”

Unlike a traditional co-op thatserves an unlimited number of mem-bers, ACSC is a closed co-op that sellsa limited number of shares. Each sharerepresents an obligation to deliver aunit of production to the co-op. Bypooling resources to process and mar-ket products, farmers turned a strug-gling beet factory into the UnitedStates’ leading beet processor.

“Farmers are still the guys at thethrottle,” Warner contends. “Slowlybut surely, I think farmers are going togain further control over the process-ing of food. Over time, the demandfrom end users for quality and valuewill drive food processing into thehands of raw commodity owners.”

Nowadays, Warner spends less timeraising crops and more time raisingawareness about the marketing clout ofclosed co-ops. His 1996 speech made akeen impression on Kansas rancherSteve Irsik.


Jack Cronin (right), manager of Western Iowa Cooperative, and co-op member Stephen Longvalcheck out the co-op’s new, $6 million agro-industrial complex, which includes a 100-car-rail spur.Longval led the effort to merge several local co-ops to make the new facility possible. Photo by LarryLaszlo. Inset: Stephen Longval’s grandfather, Ulric, and father, Harry, on the family’s Iowa farm, circa1930s. All three generations of the family have been co-op members. Photo courtesy Longval family


“I’m not a rah-rah co-op guy,” saysIrsik, whose family-owned enterpriseincludes wheat fields, a cattle-and-dairyherd and a cattle-feeding operation.“Yet, for years I produced geneticallysuperior products and got paid com-modity prices. So, I’m intrigued by thecooperative concept of developing adelivery system that allows customersto know where the product is comingfrom—whether it’s identity preserved,genetically engineered or organic.”

Irsik is a founding member of the21st Century Alliance, an umbrellaorganization that has helped farmerslaunch six value-added co-ops in the lastfive years. As a production network,such enterprises can control both a size-able amount of land and raw product.This gives end users something that aGeneral Mills or ConAgra cannot: averifiable connection to specific farmers.

Alliance officials estimate that 300to 500 producer networks are formingnationwide to pursue value-addedopportunities. Nearly all are under-capitalized and unlikely to acquirenecessary funding through traditionalcooperative financing mechanisms.Irsik figures most of these businesseswill be hybrids—in part, closed coop-eratives structured as LLCs andpitched to prospective investors witha plan to sell to private or publiclytraded companies.

Irsik is one of 375 Kansas, Oklahomaand Texas farmers who own the 21stCentury Grain Processing Cooperative.He sees capital access issues hinderingthe growth of a business that suppliestortilla and bread manufacturers in thesouthwestern United States. “Too manysmall investments by too many peoplebecomes cumbersome,” he says. “Thegreater the ownership stake, the greaterthe commitment to success.”

Restructuring needsTexas farmer Jimmy Dodson doesn’t

have much experience with value-added businesses, but he’s got an opin-ion on the future of cooperatives. Dod-son is a Gulf Coast cotton and milogrower, and a board member of FarmCredit Bank of Texas. The bank is a

member of the $111 billion FarmCredit System, a nationwide networkof lending institutions owned by morethan a half million farmers, ranchersand their cooperatives.

“Well-run cooperatives will contin-ue to thrive,” Dodson says, referring toco-ops that offer value to customersthrough competitive pricing of prod-ucts and services. “Cooperatives needto be sensitive to market forces as theyaffect customers of all sizes.

“There’s no question that co-opsshould be structured a little differently,”Dodson says. “As farming operationsbecome larger, co-ops need to be moreflexible in their policies and governancepractices to provide competitive ser-vices for all sizes of operations. Largeoperations already qualify for discountsand special services from manufacturersand distributors, so co-ops must offerthese producers advantages like quanti-ty discounts, bulk packaging and boardpositions. Keeping large operatorsunder the co-op tent will enable smallerproducers to continue to benefit fromtheir cooperatives’ economies of scale.”

This is, of course, a hot topic withmany cooperatives, especially in thearea of governance. Some say provid-ing proportional voting based on thebusiness volume a member generates

goes against the one-member, one-votetenant at the heart of cooperative prin-ciples. But others, like Dodson, saysuch a change has to be made if the co-op business system wants to keep largeproducers on board in an era of consol-idating farm operations.

At a crossroad Nationwide, many co-op boards and

managers are grappling with such diffi-cult ownership and structure questions.Some are asking whether these enter-prises must lose cooperative status toremain competitive? Or, as an IllinoisInstitute for Rural Affairs report asks,“Will agriculture be integrated by andfor the farmer, or for the benefit of thesuppliers, processors and distributors atthe expense of the farmer?”

These are two of the questions thenewly created Congressional Coopera-tive Caucus will consider under theleadership of Rep. Sam Graves of Mis-souri, Rep. Earl Pomeroy of NorthDakota, Senator Larry Craig of Idahoand Senator Blanche Lambert Lincolnof Arkansas. This forum was created atthe behest of the National Council ofFarmer Cooperatives (NCFC) to mod-ernize laws governing cooperatives.

Terry Barr, who was recently namedinterim CEO of NCFC, says farmercooperatives are, in essence, partner-ships formed because producers thinkthey can either make a dollar or save adollar through the pooling of resources.“That need is as great today as ever,possibly even more so now that thefood and agriculture industry consoli-dation and globalization has fiercelyincreased competition and the demandfor capital,” Barr says.

Doug Sims, vice chairman of NCFCand in line to become chairman in Jan-uary, grew up on a western Illinoisfarm. He recalls that co-ops providedthe best price for the seed, feed, petro-leum and tractors that the familybought, as well as for the hogs andgrain that they sold. The same is true ahalf-century later now that his cousinruns the farm and Sims is chief execu-tive officer of CoBank. As the onlynationally chartered institution in the

More than 1,200 members deliver theirgrain to Western Iowa Co-op. Photo by Larry Laszlo


Farm Credit System, CoBank providesfinancing for 1,500 agricultural cooper-atives across the United States.

“What the founders of co-ops werelooking for years ago is very differentfrom what members want and expecttoday,” Sims observes. “ Today, capitalneeds often exceed members’ ability topay. Yet, the co-op model remains adynamic economic tool for producerswho realize they can accomplish muchmore as a group than they can alone.Our customers want to remain cooper-atives, but they also need the freedomto adapt to new circumstances.”

Some co-ops are finding that the pur-suit of new opportunities could meanlosing their cooperative status and theirborrowing relationship with CoBank.The Farm Credit System is seeking leg-islation to modify the Farm Credit Act,allowing CoBank to finance all farmer-owned cooperatives, including new gen-eration co-ops. The bank wants tofinance entities that have both a produc-er and investor class of membership,provided that the producer class holds atleast 50 percent of the voting controland operates on a cooperative basis.

South Dakota Soybean Processors(SDSP) is one such cooperative thatboth wants to tap new opportunitiesand remain a CoBank customer. SDSPwas formed in 1993 by farmers tired ofexporting soybeans to a distant proces-sor and then paying freight on soybeanmeal shipped back and fed to livestock.The processing co-op has begun sup-plying a manufacturer that turns oilresins into industrial products.

With demand for products exceedingmembers’ supply capability, SDSP willgenerate significant new sources of non-patronage income. To avoid double tax-ation—for the cooperative at the entitylevel and members paying on their shareof the proceeds—SDSP has convertedto a limited liability corporation (LLC).

SDSP remains true to cooperativeprinciples, such as the one-member,one-vote policy, CEO Rodney Chris-tianson says. “Who we are is not neces-sarily determined by the business struc-ture that we use for tax purposes. Thefarmers’ task of capturing a greater

share of the food dollar is a difficultone. Government regulations shouldnot tie their hands to only one accept-able business structure.”

Many other cooperative leadersnationwide are reaching this same con-clusion. Cooperative principles havethe best chance of enduring if the busi-ness structures are able to adapt to newopportunities, Christianson says.

The power of numbers“Co-ops provide a layer of strength

for producers through added buyingand selling power and marketing strate-gy,” Wisconsin dairy farmer Scott Maiersays. “If a lot of private companies hadtheir way, they’d flush out the co-opsand dictate the price that we get for ourproduct. The co-op gives you a littlemore control. If the co-op makes a prof-it, you either get a dividend or manage-ment invests the money intoexpansion with the goal ofproviding additional benefitsto members in the future.”

Maier, 38, and his wife,Daun, are NCFC’s 2002-2003 Young Ambassadors.The Maier family partnershipbelongs to seven cooperatives,including dairy manufacturerand marketing cooperativeForemost Farms USA. Lastwinter, they expanded from275 to 450 cows. “With cattleand milk prices down, wehope to catch the up-trend inprices,” Scott explains.“Belonging to cooperativesgives us a little more stability.Cooperatives give our indus-try a much stronger voice tothe people who make policy.We’re not going to be left outin the cold.”

And neither is Doug Carstens, whochairs the board of Farmers Coopera-tive Company (FC). His co-op is help-ing to position central Iowa grain pro-ducers for the future. For decades, FCwas a typical small-scale supply andservice cooperative catering to farmersnear Farnhamville, Iowa.

In the last decade, FC bought or

merged with eight local co-ops or pri-vate companies. Today, FC is modern-izing a dozen grain elevators alongmain rail lines. Representing a mem-bership base of 1.2 million acres, FCcan deal directly with national suppliersand buyers.

Clearly, consolidation is shaking upthe traditional cooperative structure.“A decade ago, a big regional co-opwould take a grain buyer’s plan underits arm and approach 10 locals,”Carstens says. “Today, we can do forourselves what we needed the regionalsto do just a few years ago.”

Ronnie Mohr serves on the board ofdirectors of Land O’Lakes. The ArdenHills, Minn.-based company provides1,300 member cooperatives with feed,seed, plant food and crop protectionproducts. Mohr sees “merging localcooperatives taking on the role of

regionals, and the regionals becomingmore national in scope.”

This 54-year-old Indiana hog andgrain farmer recalls, “When I was inhigh school, 28 families made a livingon the 3,600 acres of land that mybrother and two sons now farm.Nobody’s more aggressive in mergersand acquisitions than American farm-ers, and technology has let us do it.

“Cooperatives give our industry a much stronger voiceto the people who make policy,” say Scott and DaunMaier, Foremost Farms members. Photo by Laura Mihm,courtesy Foremost Farms

Big, full-time farmers are increasing,mid-sized full-time farmers aredecreasing and part-time farmers areincreasing. To succeed, you have to bealigned with other people.”

Land O’Lakes operates plants fromCalifornia to Pennsylvania, supplyingdairy products to national grocerychains such as Wal-Mart Stores Inc.Through Agriliance—a partnership ofthree regional farm supply marketingcooperatives—two of its owners, LandO’Lakes and CHS Inc., continue tonegotiate savings for their members.

For example, it recently bought 20percent of the Monsanto’s Roundupherbicide. With such market share,Mohr says Agriliance can add value justas Wal-Mart does through purchasing.

Creating new advantages Clearly, purchasing power, eco-

nomies of scale and owner equity givesome co-ops a marketplace advantage.For others, their branded products setthem apart. That’s the story for MarkDuffy, who is among the 1,400 NewEngland and New York dairyfarmer/owners of Agri-Mark. Agri-Mark sells a full line of Cabot-brandfoods that have been a century in themaking. The Cabot name commands apremium price for members of the co-op, which also sells fluid milk.

“We can’t be the low-cost producerof milk in the Northeast,” Duffy says.“As a co-op, we need to take advantageof other opportunities. All of ouradvertising focuses on farmer owner-ship and the places where the productscome from. We benefit from the factthat an enormous number of con-sumers respect what we do.”

Protecting a brand name at timesrequires a co-op to make tough deci-sions. Ken Kaplan, who grows 100acres of plums in California and mar-kets them through Sunsweet GrowersInc., knows this firsthand. He’s seenSunsweet, the world’s leading producerof prunes, shift from a production-dri-ven to a market-driven business.

Formed in 1917 when the averageprune farm was 10 acres, the YubaCity, Calif.-based co-op’s 650 members

now grow an average of 80 acres ofplums. For many years, Sunsweettreated small growers the same as big;whether a member delivered productby the truckload or one box at a timemade no difference. In 1997, with theindustry facing overproduction, theco-op imposed limitations on a long-standing practice of advancing pay-ments to owners of unsold plum crops.

“The reality of the market was thatsmall growers needed the cash flow, butwe couldn’t borrow money against aninventory declining in value,” explainsKaplan, a Sunsweet board member.

“The viable farmer would be hurtless short-term,” Kaplan continues.“But a lot of growers weren’t viableover the long run. If we were purely aprocessing business, nobody wouldhave listened to the complaints. We’dhave sold product at the best price wecould. In a co-op, we had to listen, butwe also had to make the consciousdecision to stop subsidizing smallgroves at the expense of efficiency.”

Meanwhile, Sunsweet has had toaccommodate the demands of grocerychains seeking “category managers”who supply all needs in a specific foodcategory. The prune co-op keeps itsposition on the grocery shelf byadding products such as apricots,apples and juices bought from non-members.

Stepping outside the box“Change itself is the biggest chal-

lenge facing co-ops,” South DakotaWheat Growers Association (SDW-GA) chairman Jake Boomsma says.Helping SDWGA’s 3,300 farmer-investors become more profitable, hesays, will inevitably mean stepping out-side “the cooperative box.”

In 2002, the 80-year-old SDWGAbusiness hired its first CEO from out-side the cooperative system. The boardwas open to expanding across state lines,doing business with private companies,and offered equity stakes to outsidesources to finance expansion. In recentyears, the SDWGA has used traditionalfunding mechanisms to invest over $40million in two ethanol plants, a feedmilland four train-loading elevator facilities.

SDWGA is now selling some eleva-tors to farmers who want to expand off-rail storage systems. “We get static fromrural leaders because closing down anelevator takes business out of the com-munity,” Boomsma says. “But for ourbusiness to survive, we need to maketough economic decisions that providethe best returns to our members.”

Conflicts of interest pose unique chal-lenges for co-ops because their membersare also part of the community. Indianagrain and livestock farmer Myron Moyeris also pushing for grower groups to gainthe opportunity to attract outsideinvestors so they can compete with cor-porate-owned businesses.

“I hope the federal government willallow us to be able to partner with non-co-op businesses without losing coop-erative status,” says Moyer, who is onthe board of Harvest Land Coopera-tive. “We are for anything that willhelp producers compete.” ■

Editor’s note: Heuer frequently writeson agricultural policy and rural develop-ment issues for a number of publications,including AgLender, AgriFinance, FarmJournal, American Bankers Association’sJournal of Agricultural Lending andIndependent Banker. This article is printed courtesy of CoBank. It does not necessarily reflect the views or policy ofUSDA or its employees.


“All of our advertising focuses on farmerownership and the places where the prod-ucts come from,” says Agri-Mark dairymanMark Duffy. Photo courtesy Agri-Mark

By Dan Campbell, editor

re structural changesneeded in the coopera-tive business model tohelp co-ops remain avital cog in the engine of

America’s rural economy? That was thecentral question addressed during afive-hour hearing held by the HouseAgriculture Committeeon Oct. 16 inWashington, D.C.

A wide array of co-op leaders, gov-ernment officials, lenders, academicsand others testified. A common themewas that the fate of U.S. agriculture,the nation’s farmer-owned coopera-tives, rural lenders and the rest of ruralAmerica is inextricably linked, and thatfor each of them to thrive, they mustall be strong and prepared to worktogether to adapt to change.

But a wide diversity of opinion wasexpressed as to exactly what changesshould be made and how far to go inaltering the co-op business model.

New state co-op laws at center of debate

Throughout the day, numerous ref-erences—pro and con—were made tothe new Minnesota and Wyomingcooperative incorporation laws. Somesaid those laws go too far in expandingthe co-op model and that co-ops orga-nized under those statutes are vulnera-ble to takeovers by outside investorswho may have little real interest in thefate of producers or rural communities.Further, they said if the nation windsup with 50 different definitions of whata cooperative is, it will lead to chaos.

“When is a cooperative no longer a

cooperative?” was asked several times.One committee member noted thatunder the new Minnesota law, 99 per-cent of the equity and 85 percent of theprofits of a co-op could be controlledby non-producers.

But others said that these new statelaws are at least a step in the rightdirection, and that without changessuch as they encourage, producers willbe locked in a downward spiral. Theywill continue to lose the control in agindustries that they and their predeces-sors fought so hard to establish duringthe past century. They predicted thatincreasing numbers of co-ops willreluctantly have to change their busi-ness structure to Limited LiabilityCorporations (LLC), or some type ofhybrid LLC-co-op.

The announced purpose of the hear-ing was to focus the attention of Con-gress and the nation on trends being seenamong new-generation cooperatives—particularly regarding why some of themare finding it more advantageous tochange their business structure to LLCs.In reality, the focus of the hearing wasbroader than that, breaking down intothree primary areas: 1) Should coopera-tive law be modified to allow for greaterflexibility in business and governancestructure—particularly in ways that willallow co-ops to raise more equity capital?;2) Should the charter of CoBank be modified so that it can finance a broaderarray of farmer-owned enterprises than iscurrently permitted?; and 3) What is thestatus and future of USDA’s cooperativeprograms?

In his opening remarks, CommitteeChairman Bob Goodlatte of Virginianoted that “The real subject of our

hearing today may just as well be howwe can assist the financing of U.S. agri-culture.” He said producers areincreasingly looking “to attract outside,passive investors who may have aninterest in the community where theoperation is located, but who otherwiseare looking for a reasonable return onthat investment. That calls for newbusiness structures that may abandonthe traditional cooperative model.”

Goodlatte noted that the House AgCommittee last conducted a thoroughexamination of the Farm Credit Actduring the farm recession of the1980s—a crisis period for farmers andranchers. Changes enacted in the FarmCredit System at that time have provensuccessful, Goodlatte said, but the timemay be right for a more deliberativereview process “now that the system isadequately capitalized and relativelyprosperous.”

High stakes“Today, we are laying the foundation

for the future of agriculture,” said Rep.Charles Stenholm of Texas, the rankingminority member on the Ag Commit-tee. “We’re not pouring the concreteyet—just putting up the forms; we’llpour the concrete later.”

He spoke of the importance of farmerand utility cooperatives in the WestTexas district he represents and to hisown family. Stenholm noted that he andhis son are members of the Plains Cot-ton Cooperative Association (PCCA) inLubbock, and that he once managed arural utility cooperative in Texas.

“PCCA is an excellent example ofhow things have changed, and also whythere is a need to review and modern-


A

Congress iona l hear ing focuses on poss ib leneed fo r more f lex ib le co-op bus iness model


ize federal cooperative law,” Stenholmsaid. To make his point, he noted thatin the 1970s, PCCA built a $25-millionplant that spins cotton into denim.“Since 1976, PCCA’s denim mill alonehas provided its members with $300million in added-value for their cotton.However, building that same mill todaywould cost between $100 million and$150 million.” With rural economiesstarved for capital and far fewer pro-ducers than 30 years ago, he said it isunlikely PCCA could construct thesame denim mill.

Stenholm said efforts such asUSDA’s new Value-Added ProducerGrant program and the new Agricul-tural Innovation Centers established in10 states are steps in the right direc-tion. But he said “there is much morework for this committee and USDA todo to ensure that farmer and ranchercooperatives have the means to com-pete in an area of rapid consolidationand technological innovation.”

Rep. Collin Peterson of Minnesotaexpressed concerns about the new co-op law in his state, and said it couldallow non-farmer equity owners totake over co-ops, which he said hasalready occurred. Peterson said co-opsare getting into industries “controlledby just 3-4 entities, and they cansquash you like a bug in these com-modity areas. When they (large corpo-rations) control so much, they can rundown prices and force you to sell out.”Peterson said that perhaps co-opswould find more success pursuingniche markets, and that care has to betaken not to lure farmers into com-modity areas where they have little realchance of making money.

Changing rural landscapeThomas Dorr, under secretary for

USDA Rural Development, whichhouses the Cooperative Services pro-gram, painted a picture of a rapidlychanging rural landscape in whichfarmers must find new ways to invest inmodern, value-added processing facili-ties. Otherwise, they face the risk ofbecoming ever more marginalized asproducers of basic commodities in a

world economy where other nationshave huge advantages in low-cost laborand land.

“Farmers and ranchers still retaina high level of confidence in coopera-tives and this business model is stillone of the most trusted tools of busi-ness development in rural America,”Dorr said. “While many producershave substantial assets that are mini-mally leveraged, their numbers aredeclining. The amount of fundsneeded to finance a potentially lucra-tive agriculture-related business maybe more than potential member-patrons can, or should, prudentlyinvest in. Steps should be taken tomake investing in a cooperativeattractive to local non-producers,and, when advantageous to the pro-ducers and the community, non-pro-ducer outside investing interests.”

Dorr said that impediments toattracting non-producer equity to co-ops can be found in federal and statelaws enacted several decades ago. “Ifnon-producer outsiders are to invest ina cooperative, they may well expect tohave a voice in its affairs and theopportunity to earn a return on theirinvestment commensurate with thesuccess of the cooperative,” Dorr said.“Good governance and increased trans-parency could also help improve thecooperative model.”

Tax issues keyThere are numerous examples of

value-added cooperatives that haveconverted to LLCs or formed LLCjoint ventures with other co-ops orinvestor-owned corporations, saidDoug Flory, chairman of the FarmCredit System Insurance Corpora-tion, who testified on behalf of FarmCredit Administration CharimanMichael Reyna. Flory said LLCsoffer advantages in their ability toattract outside investors by givingthem a say in management and a pro-portional return on their investment.They also may do “a significantamount of business with farmers whoare not willing, or able, to acquire anownership interest in the enterprise,”Flory said.

While some large, well-establishedco-ops have been successful in raisingoutside equity capital, most outsideinvestors are not farmers and thus can-not be members nor vote in a co-op’selections or share in patronage pay-ments, he said. The Wyoming andMinnesota laws attempt to address thissituation by allowing the creation of ahybrid between a traditional coopera-tive and an LLC, with separate mem-bership classes for farmer-patrons andinvestors.

Flory said these state co-op laws eachrequire that farmers have at least 50 per-

A panel, which includes Roger Ginder of Iowa State University (far left), testifies at theHouse Ag Committee hearing on new generation cooperatives. USDA photos by Dan Campbell

cent voting control, and that Minnesotarequires that 60 percent of financialreturns go to farmers, unless they voteas a block to accept a lesser amount, butnever less than 15 percent. Both lawsare too new to determine whether manytraditional co-ops will convert to thenew hybrid co-op businesses, Flory said,adding that other states are consideringsimilar legislation.

“The success of hybrid cooperativeswill depend on whether farmers andinvestors can work together. Potential-ly the two groups have different objec-tives,” which, he stressed, “could be asource of conflict.” Whether thehybrids are successful “ultimatelydepends on their ability to reconcilepotential conflict between farmers andinvestors.”

CoBank seeks changesDoug Sims, CEO of CoBank, part of

the cooperatively owned Farm CreditBank system, said provisions of theFarm Credit Act make it “increasinglydifficult for a new generation of farmer-owned cooperatives...to obtain financ-ing from CoBank.” Farmer coopera-tives are increasingly turning tovalue-added activities to bolster theirmembers’ farming operations, andmany are turning to new business mod-els to raise equity capital from non-pro-ducers, to minimize tax liabilities and

gain added operational flexibility, Simssaid. “These new structures will oftenmake the cooperative ineligible forfinancing by CoBank,” which providesabout 80 percent of all credit extendedto farmer cooperatives.

Sims cited the role of co-ops in therapidly expanding ethanol industry asan example of this situation. CoBankhas loaned $200 million to finance 20farmer-owned ethanol plants in theMidwest and Great Plains states. Todate, return on equity has been a highlyfavorable 10 to 15 percent annually.But some of these co-ops are turning tooutside investors to build plants.

Tall Corn Ethanol in Coon Rapids,Iowa, recently altered its corporatestructure to an LLC to attract moreequity from outside investors, Simssaid. Even though farmers still controlthe business, it is no longer eligible forfinancing from CoBank. The samescenario holds true for South DakotaSoybean Processors, which had been aCoBank customer since its inceptionin 1996 but recently converted to anLLC for tax and equity reasons.

“This current situation is puttingthe farmer-owners of cooperatives in avery difficult position—by choosingthe most advantageous corporatestructure, the cooperative may beforced to forgo access to the lendercreated specifically to meet the needs

of farmer-owned coopera-tives,” Sims testified.

CoBank is requesting legis-lation that would change itscharter to:

■ Allow it to continuelending to producer associa-tions with both a producer

and investor class, provided that theproducer class holds at least 50 percentof the voting control and that it oper-ates on a cooperative basis;

■ Permit ag co-ops organized con-sistent with state cooperative laws to beeligible for CoBank financing;

■ Allow co-op customers adoptingnew business structures to continue tobe eligible for CoBank financing, aslong as the customer maintains at least50 percent farmer control or continuesto operate under co-op state law;

■ Provide that co-ops that areCoBank customers but restructure asnon-co-ops would remain eligible forCoBank financing for a five-year tran-sition period.

“Without this action, CoBank willnot be able to meet its mission of serv-ing farmer-owned cooperatives,” Simswarned. He noted that the proposal hasreceived the endorsement of theNational Council of Farmer Coopera-tives (NCFC), the American FarmBureau Federation, the Farm CreditCouncil and dozens of other farmorganizations.

Community banking groupsoppose CoBank proposal

Weighing in against the CoBankproposal were two banking industrytrade groups, which testified that thosechanges would violate the very reasonCoBank was formed while creatingunfair competition for locally owned,community banks. As a governmentsponsored entity, CoBank has access tolower cost funds than do most commu-nity banks. They also raised numerousquestions about the Wyoming andMinnesota state co-op laws, sayingthese statutes could have the oppositeeffect they were intended for, andcould actually hasten the loss of pro-ducer control.

James Caspary, representing theIndependent Community Bankers ofAmerica (ICBA), said those state lawswould create a business model underwhich “outside investors could formLLCs labeled ‘farmer-owned coopera-tives,’ even when farmers don’t havemajority ownership or voting control,


“Farmers and ranchers still retaina high level of confidence in coop-eratives, and this business modelis still one of the most trustedtools of business development inrural America,” USDA UnderSecretary for Rural DevelopmentThomas Dorr testified. To his left isDoug Flory, who testified on behalfof the Farm Credit Administration.

and be eligible for cooperative bene-fits.” ICBA, 75 percent of whose mem-bers are community banks located intowns of 10,000 or less, “opposes anyfundamental rewrite of CoBank’s lend-ing charter because it would allow it tomake loans to corporations that mayhave no farmer involvement and thatmay be unrelated to agriculture,” Cas-pary testified.

“We do feel it is appropriate toexplore ways to enhance the accumu-lation of equity capital withinfarmer-owned cooperatives and inrural America—but this should bedone in a way that doesn’t potentiallylead to the loss of legitimate farmercontrol of their cooperatives or inways that drastically depart from thebedrock principles of what makes acooperative a cooperative.”

Policies should not be enacted thatwould spur consolidation in agricul-ture and cooperatives “just for the

sake of growth for some at theexpense of survival for others,” Cas-pary said. He presented the commit-tee with a list of criticisms of theWyoming state law, including a provi-sion under which “one or more out-side investors with two-thirds votingcontrol can merge or consolidate theentity into another entity, or liquidateit without any support from the pro-ducer-patron members.”

Caspary said Congress has recentlyadopted or updated several programswhich could aid farmers and coopera-tives pursuing new ventures. “Unfortu-nately several of these USDA authori-ties sit either idle today or have yet tobe fully implemented.”

Roger Monson, representing theAmerican Bankers Association, offeredsimilar testimony. He said theWyoming and Minnesota co-op laws“will allow businesses to continue to bedefined as farmer-owned cooperatives

when...(they) are neither owned by amajority of farmers or controlled byfarmers.”

Farmers Union urges careful study Congress must take the lead in re-

examining cooperative business struc-ture, “rather than allowing events orother institutions to define a newcooperative model that may sacrificethe characteristics of cooperatives thatdistinguish it from other businessstructures,” Doug Peterson testifiedon behalf of the 300,000-memberNational Farmers Union (NFU).Peterson, president of NFU’s Min-nesota state chapter, said that despiteproblems confronting farmers andtheir cooperatives, “we believe that alevel of restraint must be exercised toprovide the opportunity for a full dis-cussion of potential alternatives andoutcomes before engaging in a signifi-cant modification of the cooperative


U.S. Premium Beef (USPB) recently completed a buy-out of its former partner—Farmland Industries—inNational Beef, the nation’s fourth largest beef packer. Butits co-op structure threw up barriers to raising the need-ed investment capital, co-op CEO Steve Hunt testified inOctober at the House Ag Committee hearing on new gen-eration co-ops. The co-op is now weighing whether toconvert its business structure to an LLC or reincorporateunder the new Minnesota or Wyoming state co-op laws.

The main reasons would be to capture “the benefits ofa pass-through tax structure,” he said, and because thischange would allow “unlimited earnings diversificationand provide for recruitment of outside capital, while stillmaintaining control in the hands of the producer.”

But even if the co-op converts its business structure,it faces hurdles, he said. Co-op members could becharged substantial taxes on the gain in their co-op stockvalue, which has risen sharply. As a new generation co-op, USPB members purchase stock in the co-op whichcreates a right and requirement to deliver cattle to theco-op. Those shares can be sold to other producers.

Leaving the ranks of co-ops would also mean losingits relationship with CoBank, Hunt testified.

He proposed a number of changes to the tax code which

would provide relief for co-ops in such situations, includinga one-time conversion tax exemption for cooperatives thatconvert to an LLC but still maintain producer control.

“Today, as we witness an acceleration of concentra-tion among food industry participants, the need toachieve size, scale and market leverage is becomingparamount to their success,” Hunt said. “These changesrequire vast amounts of capital.”

“Under today’s rules,” he continued, “cooperatives haveonly to look to cash-strapped producers to secure equity.The alternative is to leverage their business through debt, astrategy that has resulted in numerous public failures.”

Hunt said that when Farmland Industries filed for bank-ruptcy last spring, USPB was able to buy its interest inNational Beef. That kept the beef operation under producercontrol, unlike Farmland’s pork business, which wassnapped up by Smithfield. Hunt said USPB was forced toform a venture outside of the cooperative and seek outsideinvestors as partners in order to buy out Farmland’s sharein the partnership. “Had USPB been able to attract alterna-tive sources of capital within the co-op, we would haveowned a larger percentage of the beef business andincreased our odds of maintaining producer control into anuncertain and very competitive future,” Hunt said. “Addi-

Equity, tax issues prompt beef co-op to ponder switch

model.” New state co-op laws mayhave worthy intentions, but “we areconcerned about the longer termeffects of these proposals on basiccooperative principles.

“In addition, schemes that blur thelines between cooperatives and otherorganizational structures may put atrisk existing preferential public policytreatment for all cooperatives, includ-ing, but not limited to, the issues ofpartial anti-trust exemption and taxconsiderations.”

“The old adage, ‘he who pays thepiper calls the tune,’ could certainlyapply to outside investors, who may infact be able to qualify as farmers underthe current definition,” Petersonwarned. These investors could per-suade the co-op board to change tradi-tional allocations of earnings awayfrom patronage to return on invest-ment. “They might also exert substan-tial influence on merger, consolida-

tion, liquidation or other critical busi-ness decisions.”

If Congress ultimately decides toallow more outside investors in co-ops,“it should establish strict guidelinesand limitations on the level of influ-ence these investors may exert over anycooperative business structure,” hesaid. “At minimum, these rules shouldrequire diversification among investors,particularly those with interests incompeting businesses.…”

In its testimony, the NationalCouncil of Farmer Cooperatives(NCFC) urged that “the highest pri-ority be given to strengthening USDAcooperative programs, including there-establishment of a separate co-opagency within USDA. NCFC also saidthe Federal Farm Credit Act shouldbe modernized to ensure farmers haveaccess to a competitive source of cred-it capital for their cooperatives—including new generation coopera-

tives. It also called for the eliminationof the so-called “triple tax” on farmercooperative dividends.

John Henry Smith, board chairmanof Southern States Cooperative(SSC), and CoBank CEO DouglasSims both testified that their organi-zations “strongly support” NCFC’sposition on strengthening USDA’scooperative program. Smith said itneeds to have resources not only tocarry out existing programs, but newones as well. He also asked that theloan guarantee limit on USDA’s Busi-ness and Industry Guaranteed Loanprogram be boosted from $40 millionto $100 million.

Rep. Stenholm urged that ruralbanks find a way to work together withCoBank and the rest of the Farm Cred-it System, noting that “the rural Amer-ica we know is dying...We must bringin capital and jobs in non-traditionalways. That’s what this is all about.” ■


tionally, in order to achieve a majority position, since equitycapital was limited, we were forced to rely more heavily onriskier debt equity, thereby leveraging the company.”

Wheat-to-pizza co-op recounts equity challenge Keith Kisling, an Oklahoma wheat and cattle producer

and former director of the Burlington Cooperative Associa-tion, recounted a similar challenge in raising equity capital in1996 for Value Added Products, a new-generation coopera-tive in Alva, Okla. The 850-producer co-op processes 642,000bushels of wheat annually into $20 million worth of pizzacrusts. After just four years in operation, it is the largest pre-proofed and frozen dough plant in the nation, Kisling said.

“Our biggest challenge,” he testified before the AgCommittee, “was collecting up-front capital to convinceour lenders to buy into the deal.” Some 40 producer meet-ings were held with the goal of raising $10 million of the$18 million needed. The most useful financial incentive theco-op had in attracting producer-members, Kisling said,was Oklahoma’s 30-percent state credit, which can beused for seven years by new value-added ventures. “I wasasked consistently in those 40 meetings if there was a sim-ilar federal tax credit, and my response had to be “no.”

The co-op raised the additional capital needed withthe help of a Business and Industry Guaranteed Loan anda Value-Added Producer Grant, both of which are pro-grams of USDA Rural Development.

As a result, the co-op “now sells pizza crust to theworld instead of railroad cars of wheat. More jobs areavailable for young people and more sales tax revenue isgoing into our community to provide basic infrastructureand technology.”

Kisling said more programs are needed to encourageand promote these types of farmer-owned value-addedefforts. He urged that USDA’s Value-Added ProducerGrant program be funded at no less than $40 million, andcalled for Congress to “expedite the implementation” ofthe Rural Business Investment Program (RBIP). He saidRBIP was designed to encourage investments in ruralenterprises through rural business investment companiescreated to raise capital, provide operational assistanceto small businesses and participate in a governmentguaranteed debenture program.

The RBIP, coupled with other co-op development pro-grams, “offers an important opportunity for smaller ruralcooperatives to access the resources that are vital to theirsuccess,” Kisling said. But Congress should review techni-cal requirements of the enabling legislation to determine ifthey are too restrictive, he continued. He said the entire co-op development process also needs to be streamlined,including shifting some guaranteed loan programs for farm-ers to USDA’s Farm Service Agency, which he said is in abetter position to encourage more farmer participation. ■

—By Dan Campbell

By Patrick Duffey, writer-editorUSDA Rural Development

ike a cat unraveling abig ball of yarn inch byinch, once mightyFarmland IndustriesInc., at Kansas City,

Mo., is being unraveled and disman-tled. Its operations are being sold tosatisfy an overwhelming debt loadthat drove the agricultural supply andmeat-processing cooperative intobankruptcy May 31, 2002. Althoughit filed for Chapter 11 bankruptcy, orcorporate reorganization, the casehas been handled from the earlystages as a virtual Chapter 7, or asset

liquidation bankruptcy. Observers note that Farmland’s

demise resulted from borrowing tooheavily to compete in too many capi-tal-intensive businesses, expandingtoo aggressively, building too manyprojects and depending too heavily onthe fertilizer business when the fertil-izer industry was depressed. Thou-sands of farmers are expected to losemore than $700 million in equity orinvestments.

Robert Terry, Farmland’s chief exec-utive officer, said that if the coopera-tive’s reorganization plan is approvedby U.S. Bankruptcy Court Judge JerryVenters, Farmland could begin payingclaims by year’s end. Additional pay-

ments would occur as the cooperativesells more assets.

Bids have been offered in recentmonths for Farmland’s primary fertil-izer, petroleum and meat-processingfacilities.

Cargill, Smithfield bidfor Farmland pork division

Competition developed betweenCargill and Smithfield Foods for thepork division of Farmland Foods. Bid-ding peaked in October and went to abankruptcy court auction. Smithfieldemerged as the winner.

Smithfield’s initial bid was $363.5million, which triggered a hearingbefore the Senate Judiciary Committeedue to concerns about concentration inthe meat-packing industry. But the dealeventually was approved by theantitrust division of the U.S. JusticeDepartment.

Cargill, which owns Excell Corpo-ration, a major pork processor in Illi-nois and Iowa, entered the biddingwith a pre-auction cash offer of $385million. Smithfield countered at theauction, increased its cash bid to$367.4 million for most of the assets,agreed to honor Farmland’s pork-pro-ducer contracts and assumed Farm-land’s $90-million pension plan oblig-ation, effectively boosting its offer to$457.4 million.

Prior to the fall auction, Smithfieldsold its Canadian pork business toMaple Leaf. It expected to net $200million from the deal.

With the Farmland purchase,Smithfield could become a $10-bil-lion food company that processesnearly 30 percent of the nation’s pork

Dismant l ing o f Farmland cont inues ;Smith f ie ld buy ing pork bus iness

L


Farmland Industries had hoped to restructure the cooperative around its successful beefand pork processing businesses, but virtually all of its assets have now been sold. Smithfieldhas purchased the pork operation, while the beef operation will remain under producer con-trol. Photo courtesy Farmland Industries.

supply. Farmland Foods, whichranked as the 6th largest pork proces-sor, has packaging and processingplants in Iowa, Kansas, Nebraska, Illi-nois and Massachusetts. The coopera-tive processed more than 7 millionhogs per year and accumulated salesof $1.8 billion last year.

The sale could become effective inearly November. The combination ofTyson, Smithfield, Cargill and Swiftnow dominate the meat processingbusiness.

Farmland’s beef processing opera-tion, Farmland National Beef, willremain under producer control, as ithas been purchased by its former part-ner in the operation, U.S. premiumBeef, a cooperative (see related story).

Fertilizer assets sold Meanwhile, J.R. Simplot of Boise,

Idaho, has agreed to buy Farmland’sinterest in SF Phosphates, a Utah-

based joint venture of the two compa-nies. Simplot will pay $64.5 millionplus the value of Farmland’s share ofcash and working capital. The assetsinclude a fertilizer plant at RockSprings, Wyo., a phosphate mine atVernal, Utah, and a 96-mile pipelineconnecting the two.

The deal is expected to close quicklyonce it gets court approval, which wasanticipated in early November. Theassets were not included in Farmland’sChapter 11 restructuring.

Pegasus Partners II, a Greenwich,Conn., investment firm, has offeredto buy Farmland’s petroleum refineryand adjacent fertilizer plant at Cof-feyville, Kan. The deal would alsocover an old oil terminal at Phillips-burg, Kan., and a three-state crudeoil gathering system and relatedinventories required to operate thefacilities. The deal was valued at $281million. The Coffeyville refinery sale

would be contingent on about $134million being committed to bring theplant into federal environmentalcompliance.

Even after it disposes of theseassets, Farmland still has other hold-ings, chief among them its grain jointventure with Archer Daniels Midland.In partnership with other coopera-tives, it also has interest in a pair ofjoint ventures: Agrilliance LLC, anagronomy marketing and sales affiliateowned with CHS Inc. and LandO’Lakes. The other venture is LandO’Lakes/Farmland Feed.

In May, Farmland closed and soldits catfish processing operation atEudora, Ark., for $200,000 to a groupof 60 farmers associated with Seacat.No delivery rights were involved.Farmland acquired the operation in1998 when it purchased SF Services,the Arkansas regional farm supplycooperative. ■


Farmland National Beef has been purchased by U.S.Premium Beef (USPB), which had been FarmlandIndustries’ partner in the operation and is a producer-owned cooperative of 1,850 cattle producers in 37states. The purchase, valued at $232 million, wasapproved by the federal bankruptcy court in St. Louison July 15, and the sale was completed Aug. 6.

USPB is now majorityowner of Farmland Nation-al Beef, which will berenamed National BeefPacking Co. LLC (NBP). It isthe nation’s fourth largestbeef packer, with about 10 percent of the national beefmarket. It processes about 3.2 million head of cattleannually.

Minority investors are an NBP management group andNBP Co. Holdings LLC, a South Dakota company man-aged by Beef Products Inc. (BPI).

“This is an excellent opportunity for additional growthin the market for USPB stockholders and members,” saysUSPB Chief Executive Officer Steve Hunt. “Increasing thesynergies that already exist between our companies willenable NBP to become even more efficient in processing

and marketing high-quality beef products worldwide.”The sale includes Farmland National Beef packing

plants in Liberal and Dodge City Kan., as well as further-processing facilities in Hummels Wharf, Pa., Moultrie,Ga., and the Kansas City Steak Co., Kansas City, Kan.National Beef also owns National Carriers, a 700-unitrefrigerated trucking operation.

“Having NBP’s manage-ment group as minorityowners solidifies theircommitment to makingNBP the industry leader interms of product quality as

well as plant operating efficiency,” Hunt said. “Likewise,IBP, as the world’s leading manufacturer of boneless leanbeef, has a long history of dedication to quality, food safetyand operational efficiency.”

USPB member cattle are marketed under the U.S. Pre-mium beef brand and numerous NBP product lines,including Farmland Black Angus Beef, Farmland CertifiedPremium Beef, Black Canyon Agnus Beef and CertifiedAngus Beef. Member cattle are also marketed direct toconsumers through Kansas City Steak Co, NBP’s qualitysteak mail-order business. ■

U.S. Premium Beef seals purchase of Farmland National Beef


By Patrick Duffey, writer-editorUSDA Rural Development

eople prefer to do busi-ness with cooperatives andrate them higher thaninvestor-owned. Theyalso view the nation’s

more than 40,000 cooperatives as moredemocratic and trustworthy thaninvestor-owned businesses. Those wereamong the findings of a major surveyconducted by one of the nation’s majorpolling organizations at the behest of theNational Cooperative Business Associa-tion (NCBA), Consumer Federation of America and a coalition of nationalcooperative organizations.

Of particular interest to farmers isthat 69 percent of survey respondentssaid they would be more likely to buyfood if they knew it had been producedby a farmer-owned cooperative. Like-

wise, 67 percent said they would bemore likely to buy their electricity ortelecommunications services from alocally owned utility cooperative.

The results were presented byNCBA President Paul Hazen at a pressconference in Washington, D.C., Octo-ber 1 to kick off the annual observanceof National Cooperative Month. Othersurvey participants included Coopera-tive Union National Association(CUNA), National Association of Fed-eral Credit Unions, National Coopera-tive Bank, National Milk ProducersFederation, National Rural ElectricCooperative Association, National Rur-al Telecommunications Cooperative,National Rural Utilities Finance Corp.,and National TelecommunicationsCooperative Association.

The survey results support the find-ings of similar surveys undertaken dur-ing the past decade. But the new survey

found that that there is nowa much stronger climate ofdistrust of major corpora-tions due to the numerousstock and bookkeepingmanipulation scandals thathave been in the news dur-ing the past two years. Fed-eral regulators are scrutiniz-ing corporate governanceand director election prac-tices. Less than half of thosesurveyed felt investor-ownedcompanies were ethicallygoverned.

Hazen said more than 75percent of the 2,031 adultssurveyed agreed that coopera-tives operate their businessesin a trustworthy manner,

compared with just 53 percent who ratedinvestor-owned firms as trustworthy. Amajority also found that businesses—suchas cooperatives—that allow customers todemocratically elect the board of direc-tors and are locally owned and controlledare more trustworthy. These are com-mon traits found in many U.S. coopera-tives, but particularly among those serv-ing agriculture. More than half of U.S.adults say they are cooperative members.

A whopping 77 percent of thosesurveyed said cooperatives have thebest interests of customers in mind,but less than half attributed that traitto investor-owned companies. Coop-eratives also rated higher thaninvestor-owned firms by wide marginson questions of value, quality, priceand commitment to their communi-ties. Agricultural cooperatives areoften major employers in rural com-munities in which they operate.

Asked whether they would be moreor less likely to buy products and ser-vices from a business if they knew itwas a cooperative:

■ 73 percent were more likely tobuy products from a food cooperative;

■ 71 percent were more likely to usea credit union;

■ 69 percent were more likely topatronize independent local businessesthat belonged to a buying cooperative;

■ 55 percent said they would prefersecuring health care services offered bya consumer-owned provider, while 56percent said they would prefer to useday care services provided by a parent-owned cooperative.

■ More than 80 percent agreed thatcooperatives strengthen rural commu-

P

Survey resu l ts : pub l ic shows s t rong prefe rencefor do ing bus iness wi th cooperat ives

continued on page 29

Chris Galen of the National Milk Producers Associationanswers a question during a press conference at theNational Press Club in Washington, D.C., held to announcethe results of a consumer survey that gauged public opin-ions of cooperatives. He is flanked by Stephen Brobeck,executive director of the Consumer Federation of America,and Paul Hazen, president of the National CooperativeBusiness Association. USDA photo by Dan Campbell


By David Chesnick, Ag EconomistUSDA Rural [email protected]

uch of the nation’sbusiness sector strug-gled during 2002, andcooperatives were noexception. Symbolic of

this economic downturn were Chapter11 bankruptcy filings by many largeU.S. businesses, including several bymajor cooperatives. Preliminaryreports—analyzed as part of USDA’sannual financial survey of the top 100farmer-owned cooperatives—showthat more than half of the co-ops end-ed 2002 with lower total revenue thanin 2001. For the top 100 farm cooper-atives as a whole, revenue dipped 7.5percent from 2001.

Despite the deteriorating revenuepicture and bankruptcy filings, thelargest cooperatives showed surprisingresilience in the face of a difficult econ-omy in 2002.

Most of the $5.2-billion decline inoperating revenue can be attributed tolower sales in the dairy and diversifiedco-op groups. These two sectorsaccounted for 80 percent of the rev-enue decline. Strong showings by cot-ton, grain and rice co-ops helped offsetthe downtrend, as indicated in table 1(which compares total revenue for allco-op commodity groups between2001 and 2002).

Gross profit margins for the top 100co-ops also declined, falling 2.2 per-cent, to $5.6 billion—the lowestamount in 10 years. Cost of goods soldmirrored the change in revenue, falling

8 percent in 2002, which preventedgross profit margins from falling morethan they did.

Operating expenses of $4.8 billionremained virtually unchanged from2001. This resulted in net operatingmargins of $796 million, another 10-year low. Lower interest expense andnon-operating revenue boosted netmargins from operations by 15.5 per-cent, to $613 million (table 2).

Cotton co-op margins soar Cotton prices edged higher in 2002,

thanks in part to rising exports. Mostcotton cooperatives reported improvedrevenue, with a 14.6-percent gain forthe sector. Prices returned to membersin the form of cost of goods soldincreased 8.8 percent, substantially lessthan the increase in revenue. Theresult was higher gross margins, whichreached $232 million in 2002, anincrease of just under 150 percent and

the highest level recorded in the past10 years.

Cotton cooperatives needed highergross margins to cover record-highoperating expenses. Operating expens-es jumped 84.3 percent, to $161 mil-lion (due mostly to the cost of process-ing a very large crop), leaving netoperating margins of $70 million in2002. Due to lower interest rates aswell as lower debt levels, interestexpense was down 41 percent, to $14million. The result was $62 million innet margins from operations in 2002, atremendous improvement over a $4million loss in 2001.

Dairy suffers low prices Lower milk prices coupled with

lower volume pushed revenue down10.1 percent for dairy cooperatives in2002. After reaching record levels in2001, dairy cooperatives ended the yearwith total revenue of $18.9 billion,

M

Revenue, marg ins t rend downwardfor nat ion ’s top 100 ag cooperat ives

Table 1—Total operating revenue by commodity group, 2001-02,top 100 cooperatives

Total sales and operating revenue2002 2001 Difference Change

—–––––––———$1,000———————— —per-cent—All cooperatives 63,971,600 69,153,776 (5,182,176) -7.5Cotton 2,564,256 2,237,298 326,958 14.6Dairy 18,934,405 21,058,156 (2,123,751) -10.1Diversified 21,460,701 24,324,871 (2,864,170) -11.8Fruit & vegetable 5,151,426 5,269,664 (118,238) -2.2Farm supply 5,280,025 5,892,671 (612,646) -10.4Grain 5,673,474 5,289,782 383,692 7.3Poultry & livestock 2,402,144 2,469,662 (67,518) -2.7Rice 1,049,388 1,038,287 11,101 1.1Sugar 1,455,781 1,573,385 (117,604) -7.5


down $2.1 billion from 2001. Similarto cotton cooperatives, dairy coopera-tives lowered their cost of goods soldby 10.5 percent, resulting in a 2-per-cent drop in gross margins, to $1 bil-lion, in 2002.

Operating expenses for dairy co-opswere up 2 percent, to $933 million.Lower gross margins with higheroperating expenses caused net operat-ing margins to fall 19.4 percent, to$157 million, the lowest level in thepast 10 years. Lower working-capitalloans and lower interest rates cutinterest expense by 25.2 percent, to$48 million. Although down 17.1 per-cent from 2001, net margins fromoperations were still a healthy $203million in 2002.

Cooperative failureshurt diversified sector

Diversified cooperatives took a hitin 2002, with two cooperatives filingfor chapter 11 bankruptcy. The lossesgenerated from these cooperativespushed total revenue for diversifiedcooperatives down 11.8 percent, to$21.5 billion. Gross margins weredown 15 percent, to $1.2 billion, levelsnot seen since 1994.

Lower gross margins and higheroperating expenses left diversifiedcooperatives with a net operating lossof $13 million. Despite higher non-operational revenue and lower interest

expense, diversified cooperatives ended2002 with a net loss from operations of$88 million.

Mixed results for fruit/vegetable co-ops

As in 2001, the market was mixedfor fruit/vegetables. Some producecrops had higher prices, while pricesretreated for others. The net result wasthat fruit/vegetable cooperatives sawtheir net revenue dip 2.2 percent, to$5.2 billion. Cost of goods sold was cut2.7 percent, resulting in a slight 0.3percent decrease in gross margins, to$997 million.

Fruit/vegetable cooperatives contin-ued to cut operating expenses. Operat-ing expenses are down 30 percent since1999, falling to $771 million in 2002.Lower expense boosted net operatingmargins 24 percent, to $226 million.Lower interest expense also helped thebottom line for these cooperatives. Netmargins from operations were up 93percent, to $95 million, in 2002.

Petroleum sale declinecuts farm supply revenue

Farm supply cooperatives suffered a$612.6-million decline in revenue in2002. Lower petroleum sales accountedfor nearly half of the decrease in rev-enues. Lower demand for fertilizer alsohurt farm supply sales. Gross marginswere down 6 percent, to $682 million,

the lowest amount since 1993. Operating expenses increased 2 per-cent, to $664 million, for farm supplyco-ops. That’s the highest expense lev-el in the past 10 years. Higher operat-ing expenses combined with lowergross margins sliced deep into netoperating margins. Net operatingmargins were down 76.4 percent, to$18 million. Fortunately, lower inter-est expense, along with higher non-operational revenue, prevented netmargins from operations from becom-ing a net loss. Net margins from oper-ations were $14 million, down 19.9percent from 2001.

Grain revenue climbsGrain prices and supplies held

steady from 2001 to 2002. Virtuallyall co-ops categorized as “grain co-ops” in USDA’s top-100 co-op surveyalso provide farm supplies and ser-vices to their members. However,those cooperatives that predominatelymarket members’ grain generatedhigher revenue from their farm sup-ply sales and service revenue. Feedsales pushed up total farm supply salesby 37 percent, helping boost totalrevenue for grain cooperatives by 7.3percent, to $5.7 billion.

Gross margins for grain co-opsclimbed 2 percent, to $533 million.However, operating expenses jumped12 percent, to $471 million, suppress-ing net operating margins 38.6 percent,to $62 million. Similar to farm supplycooperatives, grain cooperatives hadlower interest expense and higher non-operational income, which lifted netmargins from operations to $100 mil-lion. However, this was down 6 percentfrom 2001.

Livestock margins surge upward Declining livestock sales pushed

revenue down for poultry & livestockcooperatives in the top 100. Thiscommodity group had a decline inrevenue of 3 percent, to $2.4 billionin 2002. Gross margins of $174 mil-lion were up 28 percent. Even in thebest of times, margins are generallytight for poultry/livestock coopera-

Table 2—Net margins from operation by commodity group, 2001-02,top 100 cooperatives

Net Margins2002 2001 Difference Change

—–––––––———$1,000———————— —percent—All cooperatives 613,634 531,166 82,468 16Cotton 62,444 (4,175) 66,619 (1,596)Dairy 203,098 245,046 (41,948) (17)Diversified (88,086) 97,222 (185,308) (191)Fruit & vegetable 95,163 49,353 45,810 93 Farm supply 13,858 17,298 (3,440) (20)Grain 99,894 105,725 (5,831) (6)Poultry & livestock 67,177 41,642 25,535 61Rice 151,223 8,441 142,782 1,692Sugar 8,863 (29,386) 38,249 (130)

tives, so any increase helps. Higher gross margins and lower

operating expenses providelivestock/poultry cooperatives with a165.6 percent increase in their netoperating margins. Net operating mar-gins reached $65 million in 2002. Low-er interest expense also helped increasenet margins from operations by 61.3percent, which ended the year at $67million.

Record net margins for rice Rice sales were up 1.1 percent,

which halted the declining revenuetrend of the past few years. Riceprices and production declined onceagain in 2002. A few rice cooperativesopened some foreign markets for riceexports, which helped boost theirtotal sales. However, these sales cameat a price, as their cost of goods soldjumped 5.6 percent and caused grossmargins to fall 9.1 percent, to $292million.

Operating expenses were slashed54.2 percent, to $140 million, whichleft rice cooperatives with the highestnet operating margins in the past 10years. Net operating margins were up914.7 percent, to $152 million.Higher operating margins and lowerinterest expense gave rice cooperativesa tremendous boost to their bottom

line. Net margins from operations sky-rocketed 1,691.5 percent, to $151 mil-lion, a record high.

Margins hold for sugar co-opsRevenue for sugar cooperatives fell

8 percent, to $1.5 billion in 2002.However, lower cost of goods soldenabled gross margins to remain rela-tively unchanged from 2001 at $351million. Lower operating expensesincreased net operating margins 67percent, to $58 million.

Higher net operating margins andlower interest expense allowed sugarcooperatives to post net margins fromoperations of $9 million. Sugar cooper-atives have been operating at a net lossfrom operations since 1997.

Assets of top 100 dropAssets for the top 100 cooperatives

fell for the first time since 1998. Figure1 shows the ownership of assets for thepast five years. Outside claims to coop-eratives’ assets are in the form of liabil-ities. Members’ claims on co-op assetsare reflected in member equity.

Total assets for the top 100 fell 2.1percent, to $27.2 billion. Most of thecommodity groups—with the excep-tion of farm supply, grain and ricecooperatives—saw their assets declinein 2002. Most of the drop was due to

lower amounts of current assets. Current assets fell $564 million to$12.3 billion.

On the other hand, total liabilitiesonly declined 0.9 percent to $17.7 billion. The largest cooperativesappeared to be transferring more oftheir liabilities from short-term tolong-term. While current liabilitiesfell 4.7 percent, to $9.5 billion, non-current liabilities increased 3.9percent, to $8.2 billion.

Member equity fell $327 million, to $8.7 billion, the lowest level since1995.

Cotton cooperatives ended the yearwith 31.7 percent less current assetsthan in 2001. Declining current assetspushed down their total assets by 23.5percent, to $667 million. Their liabili-ties, both current and long-term, fell35.4 percent. Total liabilities for cottoncooperatives were $387 million at theend of 2002. Some of the higher mar-gins from operations were rolled overinto their member equity, whichincreased 2.9 percent, ending 2002 at$280 million.

Dairy cooperatives also ended theyear with lower value assets. Currentassets fell 11 percent, which causedtotal dairy assets to fall 5.1 percent, to$4.8 billion. Total liabilities declined8.7 percent, to $2.7 billion, due to adrop of 12.9 percent in current liabili-ties to $41.9 billion.

Long-term debt actually increased3.4 percent, to $778 million. Minorityinterest and member equity remainedunchanged from 2001, at $378 millionand $1.8 billion, respectively.

Despite the much-reported co-opbankruptcies, total assets for diversifiedcooperatives remained unchanged atthe end of 2002, standing at $10.7 bil-lion. On the other hand, total liabilitiesjumped 3.8 percent, to $7.7 billion.Leading this increase was long-termdebt. Long-term debt was up 5.2 per-cent, to $4.2 billion, while current lia-bilities were up 2.3 percent, to $3.5 bil-lion. As would be expected with filingsfor bankruptcy, member equity fell10.8 percent, to $2.7 billion.



Figure 1—Composition of total assets, Top 100, 1998-2002

30

25

20

15

10

5

01998 1999 2000 2001 2002

$ bi

llion

s

Total liabilites Minority interest Total member equity


By Sally Vielma, USDA Rural Development,Oklahoma

raveling in northwesternOklahoma, it is evidentthat the waves of wheatare a major contributorto the economic base of

the region. As the state song, “Okla-homa,” says, when the windcomes sweeping down theplain, the waving wheat cansure smell sweet. “Sweet”not only describes the smellat the Value Added ProductsInc. cooperative’s frozendough processing plant, butalso the aroma of severalother aspects of the cooper-ative’s bakery operations.

Adding value to hard-red wheat A core group of wheat producers in

the Woods County area of northwesternOklahoma held initial meetings to dis-cuss value-added processing alternativesfor their hard-red winter wheat. Thisvariety is the region’s major crop, pre-ferred by producers as a consistentsource of clean, high-quality wheat thathas above-average test weights and pro-tein levels. Wheat producers, coopera-tive groups, economic developmentpartners and agricultural business lead-ers all shared the vision and desire toadd more value to the crop in the regionwhere it is grown.

After careful study of informationand research from the OklahomaDepartment of Agriculture, OklahomaState University and a professionalconsulting firm, the value-added group

opted to pursue production of frozen,self-rising dough products plant.

Co-op launchedThe group initially organized as a

Limited Liability Company (LLC) as itplanned for the processing of area pro-ducers’ hard-red winter wheat into val-ue-added food products. The organiza-tion, called Value Added Partners LLC,

assessed the feasibility of a frozen-doughprocessing plant. Several associationswith international expertise in the fieldof bakery facilities, equipment and sup-plies greatly assisted the producer groupas it examined value-added alternatives.

Value Added Partners evolved into aclosed cooperative, and the namechanged to Value Added Partners Inc.(VAP) in 1999. The co-op, as originallydesigned, was to provide wheat pro-ducers the opportunity to expand theircustomer base through vertically inte-grated processing. It also would allowproducers to capture a larger share ofthe profit margins through the furtherprocessing of their wheat.

The project “just felt right to all of usfrom the beginning,” says Mike Dunker,plant manager. Producer response to theinitial equity drive in 1999 was “fantas-

tic,” board members say. Project back-ers held 34 producer meetings acrossOklahoma, which resulted in morethan 900 separate producer/investorsjoining.

About $7.5 million in member equi-ty was raised in just three months. Asecond equity drive in 2000 brought inan additional $2 million in one month.The great response to the second equitydrive was accomplished by mailing asingle letter to producer/investors. Theresponse was indicative of the stronglevel of commitment and belief the pro-ducers had in the VAP co-op.

VAP also used a 70-percent Businessand Industry Guaranteed Loan, for$7.5 million, from USDA Rural Devel-opment for some of the capital expensefor the project.

Perfect site locatedWith organization structure and

management services in place, VAPselected a site it felt was perfect for thedough processing facility: a 48,000-

Sweet smel l o f success Oklahoma wheat producers use USDA financing to launch frozen-dough bakery

T

V A L U E - A D D E D C O R N E R


Oklahoma wheat is being processed intofrozen, self-rising pizza crusts at the newValue Added Partners plant in Alva, Okla.Photo courtesy Value Added Partners


By Bruce J. Reynolds,EconomistUSDA/RBS Cooperative [email protected]

Editor’s note: This article is the first in aseries (to be continued in future months) onselecting and compensating directors.

rocedures for selectingcandidates for boards ofdirectors are seldom acentral topic of “bestpractices” seminars for

either cooperatives or investor-ownedfirms. But the recent wave of corporatescandals has moved this topic to centerstage, at least when it comes to invest-ing in corporations. Business journalsand other media are abuzz with recom-mendations for more democratic meth-ods of director selection.

Cooperatives are governed bydemocratic procedures, whichstrengthen trust and accountability.For cooperatives, it is important toidentify candidates with solid businessand planning skills and with good lead-ership traits. The current debate makesit an opportune time to review some ofthe alternative procedures agriculturalcooperatives use for selecting directors.

No single selectionprocedure fits all

There is no single “best practice”for finding excellent board candidates.Each cooperative must explore whatworks best for its members. Clearly,large membership cooperatives oftenneed a different procedure for candi-date selection than those with relativelyfew members. Candidate selection and

nomination are two parts of theprocess of getting qualified candidateson an election ballot. Selection is aprocess of deciding who should benominated, while nomination is the actof putting a candidate on the ballot.

Standard procedures for candidateselection and nomination often have tobe adapted to local conditions. Bylawsusually authorize more than one proce-dure for nominating candidates, butthey do not indicate which nominationmethods are used most frequently.

A survey was recently distributed tolearn more about how cooperativesselect and nominate candidates fortheir boards. It listed some of the com-mon procedures and provided blankspace for “other” methods to bedescribed. Several cooperativesdescribed additional procedures or sentcopies of policy statements related tothese matters. Responses were receivedfrom 433 cooperatives. A summary of

these alternatives and their potentialstrengths and weaknesses may offerideas to consider when reviewing yourco-op’s nomination practices.

Nominating committeeThe survey showed that a nominat-

ing committee is by far the most widelyused vehicle for selecting candidates.This method was used by 374 coopera-tives, or 86 percent of the respondents,but most also use other procedures. Anominating committee is responsiblefor finding the best available candidatesfrom a cooperative’s membership and isoften involved in other preparationsfor an election. For example, nominat-ing committees must prepare the ballot, which includes their nomina-tions and all others nominated by validmethods.

The strength of a nominating committee depends on the extent ofdeliberation and study that go into its

P

Co-ops fo l low more than one pathfor nominat ing board cand idates

Whether overseeing the business affairs of a local farm supply cooperative (above) or amulti-state regional, success means having a good board of directors. That requires a well-planned nominating process. Photo by Sandi White, courtesy Tennessee Farmers Cooperative

choices. Both directors and other mem-bers can share valuable insight about themembership when serving on a nomi-nating committee. Out of 376 coopera-tives reporting on nominating commit-tee composition, 163 (43 percent) useonly non-director members on the com-mittee. Another 131 (35 percent) use amix of directors and non-directors, while82 (22 percent) have only directors onthe nominating committee.

A director-only nominating com-mittee can operate without conflicts ofinterest when there are board vacanciesor when elections are staggered so thatthere are always some directors whoare not running. However, a potentialweakness of the board’s involvement isthat nominating committees may notbe formed when elections involveincumbent directors.

About two-thirds of the cooperativesreported that they do not have a policyrequiring that elections be contested,thus often allowing incumbents to rununopposed. Although many coopera-tives reported difficulty finding mem-bers willing to challenge popularincumbents, nominating committeesperform better if they are activelysearching and recruiting candidates forall elections.

Directors, as well as managers, haveexperience in knowing what capabili-ties are most needed on their board.Managers often work in an advisorycapacity with the nominating commit-tees. Directors have an appreciation forcertain attributes candidates wouldbring to the board. For those coopera-tives which disallow directors on thenominating committee, informationsharing between board and committeecan contribute to better candidateselections.

Determining who serves on thenominating committee is often anotherway for directors to exercise influence.Most non-directors are appointed tothe committee by directors.

Advantages of director influence oncandidate selection may become aweakness if applied without checks andbalances. Selecting for positive traits,such as a team player, may unintention-

ally screen out “devil’s advocate”-typedirectors—those who contribute byquestioning the status quo and whomay offer valuable new ideas. Anotherpossible weakness of director controlover candidate selection might occur ifmembers feel they have no real influ-ence on the process of who can beelected to the board.

These kinds of weaknesses haveinspired a manager of one rural electriccooperative to recommend “good rid-dance” to the nominating committee.1

Yet, there are ways to capture potentialstrengths and minimize perceivedweaknesses of nominating committees.For example, to address concerns bymembers of too much director controlover candidate selection, nominatingcommittees can be elected rather thanappointed. At least 20 cooperativesreported holding elections during theirannual meeting to select the nominat-ing committee.

Several cooperatives issue a formalrequest for volunteers for the commit-tee, and a couple reported using a random selection procedure to solicitnon-director volunteers to serve. Thepurpose of these efforts is to find waysto get more members involved in theprocess of candidate selection.

Nominations from the floorNominating committees didn’t

become the most widely used proce-

dure for selecting candidates until thelatter part of the 20th century. A simi-lar survey was last conducted by Coop-erative Services in 1949.2 At that time,only 19 percent of 962 respondentcooperatives used nominating commit-tees, while nominations-from-the-floorduring annual or district meetings wereused by 64 percent of co-ops (whichhas now fallen to 36 percent).

The strength of floor nominations isin having increased member access tothe candidate selection process. Itsimpact is likely to be greatest in coop-eratives that report having no nominat-ing committees, or which only occa-sionally use them, as was the case for39 cooperatives.

Weaknesses of nominations-from-the-floor mirror the strengths of nomi-nating committees. There is potentialfor too much spontaneity or lack ofstudy and deliberation about potentialcandidates. But in those cases wheremembers at annual or district meetingshave substantial familiarity with oneanother, nominations from the floorare unlikely to result in neglect of thebest candidates.

The shift over time from nomina-tions-from-the-floor to nominatingcommittees as the most commonlyused procedure may reflect the increas-ing complexity of business faced bycooperative boards. More cooperativeshave responded to this complexity by


• Nominating committee– Composed of different combinations of non-director members and

directors– Board appointments of non-director members of committee– At-large or district elections of non-director members of committee

• Nominations form the floor of annual or district meetings• Recruitment by directors• Member caucus at annual or district meetings• Nominations by mail• Ballot write-ins• Nomination by application• Associate board

Methods for selecting and recruitingcandidates for directors

reducing their use of spontaneous pro-cedures for selecting candidates.

Recruitment by directorsCandidate recruitment by directors

is widely reported. Although 157 coop-eratives reported such recruitment,some of it overlaps with the work ofnominating committees that includedirectors. However, recruitment bydirectors is a distinctive procedure forcandidate selection when nominatingcommittees are not used by a co-op, orwhen they are exclusively composed ofnon-directors. These conditions applyto 45 cooperatives in the survey.

Member caucusMember caucuses (usually held dur-

ing annual or district meetings) canengage much broader participation inthe nomination process than do nomi-nating committees. In contrast tonominations-from-the-floor, moretime is allotted for group delibera-tion. Although not listed as anoption in the survey, three coop-eratives reported using caucuses.

Usually, cooperatives do nothave both member caucuses andnominating committees. Whilemost cooperatives use the latterprocedure, it should be noted thatcaucuses are used by some relativelylarge membership cooperatives, so thata fairly substantial number of farmersparticipate in this method of candidateselection.

Nominations by mailA cooperative’s entire membership

can function as a virtual nominatingcommittee by soliciting nominationsby mail, or via a newsletter. Themechanics of this procedure vary, but,as an example, one cooperative mails aresponse card to each member tomake a nomination. All nominees list-ed on the returned response cards areput on the ballot. Ballots are thenmailed to members. In the event of atie, a run-off election is held. Theprocedure is applied in each of thecooperative’s 22 districts.

The strengths of nominations by

mail are not only in having all mem-bers involved, but also in the opportu-nity for individuals to make nomina-tions without the pressures for groupconsensus that prevail in meetings. Apotential weakness for this procedure isthat it misses the benefits of group dis-cussion about potential nominees. Butfamiliarity with potential nomineesthat often exists in membership dis-tricts enables a nomination-by-mailprocedure to work well. Anotherpotential weakness is plurality voting,where a candidate might lose whenrunning against two or more con-tenders but would win in a one-on-oneelection against those same candidates.

Ballot write-insProvision is often made for writing-

in candidates on ballots when membersare dissatisfied with the official list of

nominees. Ballot write-ins can beregarded as more of a membershipright than a candidate selection proce-dure. It recognizes the right to vote forwho you want to, rather than beinglimited to the official nominees. It’sapplicable when using paper or otherforms of a written ballot that are dis-tributed by mail or at annual meetings.

Ballot write-ins are often disallowedwhen any number of nominations fromthe floor are included in the vote. Thenominations-by-mail procedure doesnot accept ballot write-ins becausemembers had their opportunity tonominate on the response card. Never-theless, many cooperatives have bylawsthat authorize ballot write-ins. Out ofthe survey response by 433 coopera-tives, 52 reported frequent use and 132have occasional use of write-in candi-dates on the ballot.

Nomination by applicationCooperatives generally prefer an

open process of candidate selection, inthe sense of not limiting any memberfrom running for the board. Similar tothe procedures of nominations fromthe floor and ballot write-ins, a mem-ber can be nominated without havingmajor name-recognition among themembership, and may even get on theballot primarily by self-selection. Anapplicant usually must submit pertinentinformation to the cooperative ornominating committee several weeksbefore the election.

In some cases, a signed petition by aspecific threshold number of membersis required. Its advantage over nomi-nations-from-the-floor and ballotwrite-ins is that cooperatives often dis-tribute a “bio” on each candidate sothat members can use this information

to help them decide whom to votefor. Frequent use of nomination byapplication was reported by 26cooperatives, while 105 reportedoccasional use.

Associate boardAn associate board is a practical

method for developing quality can-didates for directors. These mem-bers are usually young farmers who

stand out as good prospects and areeither appointed by directors or canapply to be confirmed by membershipvote. Associate boards participate inselected meetings of the board andmay have special committee assign-ments, with the primary objectivebeing that they gain experience forbecoming future directors. As a re-cruiting procedure, this has some sim-ilarities with candidate recruitment bydirectors, as well as being a membereducation program.

Although the survey did not specifyassociate boards as a candidate selec-tion procedure, 17 cooperativesreported having this type of program,which suggests that it is relativelypopular. A possible limitation is inhaving to make choices in the presentabout directors for the future, in con-trast to a search procedure just prior


In short, a nominatingcommittee can operateas if it were an officeof human resources.

to an election. But it is an effectiveway to develop a competent board andto boost newly elected directors alongthe learning curve faster thanwould normally occur.

Searching for candidatesProcedures for selecting coop-

erative director candidates arenot often scrutinized andchanged. There has been a grad-ual shift to procedures with moredeliberation and study of poten-tial candidates and slightly lessreliance on spontaneous methodsof selection. This change is indicatedby the rise of the nominating commit-tee and the decreased use of nomina-tions from the floor that occurredbetween 1949 and 2003.

Increased use of nominating com-mittees reflects efforts to address someof the problems that many cooperativeshave encountered in finding memberswho have an aptitude for serving andwho are willing to serve. Many surveyparticipants reported the latter consid-eration as a major problem. When sub-stantially large numbers of membersare reluctant to serve, there is need formore advanced planning to search forpotential candidates and to hold discus-sions about the benefits of serving onthe board.

Candidate recruitment by directors

outside of nominating committee workhas also been driven by the need to find“willing and able” candidates. In addi-

tion, associate boards address theseproblems more head-on than the morespontaneous methods of candidateselection.

The weaknesses of nominatingcommittees are less in their designthan in their execution, particularlywhen their search process is too nar-row. The committee should not limitits considerations to a circle of friendsor be satisfied when it has found a“willing and able” candidate, but mustbuild a database of capable candidates.This exercise ought to be carried out,not only for board vacancies, but alsoto find challengers to the incumbentdirectors. Nominating committeescould survey the membership for sug-gested candidates, as well as asking forinformation about members’ relevant

skills for serving on the board. Inshort, a nominating committee canoperate as if it were an office of

human resources.Candidate selection procedures in

cooperatives will continue to be dri-ven by demand for skilled leadershipin carrying out the increasinglychallenging tasks of fiduciary dutiesand long-range planning. Further-more, difficult issues of businessethics accompany the growingfinancial complexity of today’s coop-eratives. In the wake of recent cor-porate financial scandals, business

ethics are receiving more emphasisoverall. In fact, investor-owned firmsare being urged to apply democraticprinciples to reform their director can-didate selection procedures. Goodadvice that has long been followed bycooperatives. ■

1 Avram Patt, “Here’s a Novel Con-cept: Get Rid of Your NominatingCommittee,” Cooperative BusinessJournal, NCBA, Aug/Sep 2002.

2 Nelda Griffen, H. N. Weigandtand K. B. Gardner, Selecting andElecting Directors of Farmers’ Coop-eratives. USDA/Farmer CooperativeService, General Report #14, 1955.(Note—the survey was taken in 1949,but the report was not published until 1955).


There has been a gradual shift to

procedures with moredeliberation and studyof potential candidates.

‘CHS Inc.’ now official nameIn an effort to ease confusion and simplify its corporate name, Cenex Harvest States will henceforth be rec-

ognized as CHS Inc. In a vote of the membership, 87 percent favored the legal name change, which onlyrequired a majority for passage. About half of the cooperative members and producers in 27 states cast ballots.

Meanwhile, CHS is shifting its Tex-Mex food business in January to a new location in Fort Worth, Texas,which will be a more automated facility. The cooperative purchased Rodriguez Foods two years ago and willshift its tortilla and chip production to the new site. The company also makes tamales, burritos and enchal-adas and supplies Texas prisons, the U.S. military and restaurant chains. CHS plans to invest $15 million inthe 100,000-square-foot facility at Fort Worth and move 15 million pounds of annual production there fromMinnesota. ■

By Jim Wadsworth, Program Leader, Educationand Member RelationsUSDA Rural Development

he Greek philosopher Diogenes is said to havewalked city streets, lantern in hand, looking foran honest man. While honesty is one qualitycooperatives should seek in their leaders, thereare many others.

As the statement at right implies, cooperatives need strongleadership to meet present and future challenges. But seriousquestions arise. What does leadership mean for a coopera-tive? What makes an effective cooperative leader? Preciselywhat skills or traits are required? What type of people fulfillthis need?

There are many definitions for cooperative leadership.These may include: having the ability to lead the board ofdirectors toward sound decisions; being loyal to the coopera-tive and inspiring loyalty in others; being unselfish and trust-worthy; having courage to take on hard problems and theintegrity to stand by decisions; understanding and upholdingcooperative principles and concepts.

But do these definitions go far enough to enable membersand directors to successfully identify and choose future lead-ers? To a degree. But other leader characteristics should alsobe considered.

Many would agree that effective leaders often have impor-tant personality traits that are intangible, or that lie belowthe surface. Indeed, there’s often something inexplicable thatmakes some people leaders. The strength of their personali-ty—be it charm or stature (i.e., they connect to people andcarry themselves well)—in itself makes them effective leaders.These people usually stand out from the crowd. They possesstraits that are difficult to learn, since they often come natu-rally to such people. There may be some who try to “act out”these traits, but they are usually seen as just that: as actors.

However, certain leadership traits, behaviors and methodscan be learned or acquired through experience, education,training and self-study. The following are traits commonlyfound among effective leaders.

Enthusiasm—Does the person show consistent enthusiasmtoward the cooperative, people and life in general? Is the per-son positive and upbeat when challenged with difficult circum-

stances and issues? An effective leader confronts business andlife with enthusiasm, isn’t a pessimist or a complainer. Thesepeople are willing to take on tough issues with the same enthu-siasm that they display going about their everyday lives.

Listening ability—A leader listens to people and hearswhat they have to say. The listening is sincere and patientand shows respect for different opinions. A good listener lis-tens to learn, rather than listens only to await a chance totalk. This trait inspires trust and confidence.

Think before speaking—Effective leaders are thosewho have the ability to think things through before con-structing their words and phrases. Speaking very quickly oroff the cuff works for some people, but others often findthemselves saying things they didn’t actually mean orintend to say. Leaders need to have the ability to analyzeinformation, and then form logical conclusions beforearticulating their thoughts.

Stubbornness vs. flexibility—Leaders often learn whento stick to their guns and when to be more flexible. This usu-ally takes experience, because every situation is different.Effective leaders are those who have learned when to stay thecourse in their opinions and decisions and when to be flexi-ble. Leaders must be careful not to be indecisive, stubborn or


T

Seeking the best Di rec to r leadersh ip :what does i t take?

“Little positive can happen for cooperativesunless they have leader-ship able to meet thechallenges of the 21stcentury. Skills requiredto lead cooperativesmust be identified anddeveloped in directorsand managers.”

—Excerpted from “Agricultural Cooperatives in the 21st Century”(RBS Cooperative Information Report 60, pg. 17).



By Tracey L. Kennedy,Agricultural EconomistUSDA Rural Development

Editor’s note: USDA’s Rural Business-Cooperative Service began an annual survey of cooperative involvement in international markets in 1997. Prior tothen, cooperative exports and imports weremeasured at five-year intervals. Anoverview of survey findings for 2001 ispresented here.

gricultural exports byU.S. cooperatives in2001 dropped by morethan 13 percent, to $5.07billion, from 2000, but

still topped 1998 and 1999, when theglobal currency and financial crises stillplagued world markets. A 25-percentdecrease in sales of bulk commoditiesin 2001 was wholly responsible for theoverall decline.

The total for all U.S. agricultural

exports was $53.6 billion, an increase ofalmost 5 percent from 2000. Whiletrends in U.S. trade continue to point tothe increased importance of consumer-related products relative to bulk com-modities, exports by U.S. cooperatives

remain concentrated in bulk products. Ofthe total for cooperatives in 2001, $2.96billion, or 58 percent, consisted of bulkcommodities (mainly grains, oilseeds andcotton). Bulk sales account for about 35percent of all U.S. agricultural exports.

Consumer-oriented or high-valueproducts (meats, dairy products, treenuts and fresh and processed fruits andvegetables) accounted for $1.81 billion,or 36 percent, of total exports by coop-eratives, compared to 42 percent for allU.S. exports.

Intermediate products (ingredientsand partially processed products, suchas flours, meals, oils, prepared feedsand animal byproducts) accounted for$290 million, or 6 percent, of coopera-tive exports, compared to 23 percentfor all U.S. ag exports (figure 2). Coop-eratives also reported $61 million ofexports of non-agricultural products(farm production supplies and fisheriesproducts) in 2001.

A

Cooperat ive expor ts dec l ine in 2001; bu lksa les fa l l but cont inue to dominate sector

Figure 1—Agricultural exports by U.S. cooperatives 1997-2001

$9.0

$8.0

$7.0

$6.0

$5.0

$4.0

$3.0

$2.0

$1.0

$0.01997 1998 1999 2000 2001

$ bi

llion

s◆

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◆

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Figure 2—Cooperative exports by category 2001

Intermediate

Consumer

Bulk6%

36%

58%


Sales concentratedamong few, large co-ops

Among the 81 cooperatives reportingto USDA on their export sales in 2001,exports continued to be concentratedamong a few of the largest cooperatives.Just six cooperatives—each having sales ofgreater than $100 million—were respon-sible for 73.5 percent of all exports bycooperatives. Those six cooperatives rep-resented a range of agricultural productsand geographic areas. The magnitude ofexports among individual cooperativescontinues to be diverse, ranging from lessthan $10,000 to almost $2 billion.

Co-op share of U.S. exportsCooperatives’ overall share of U.S.

agricultural exports for 2001 was approx-imately 9.4 percent, down from 11.4percent in 2000. The co-op share forbulk commodities was 15.7 percent,down from 21.5 percent the previousyear, while exports of consumer-orientedproducts accounted for 8 percent of U.S.consumer exports, up slightly from 7.5percent in 2000. Intermediate productexports from cooperatives had a 2.4-per-cent share, up slightly from 2.1 percent.

Broad recovery whilemarket shifts continue

Exports by cooperatives showedimprovement across two of three majorproduct categories in 2001 (figure 3).Bulk commodity sales continue to bevolatile, falling by more than 25 percent

in 2001 after recent showings of bothsharp decreases (54 percent in 1998)and increases (47 percent in 2000).

A sharp decline in cooperative salesof wheat in Asian markets was responsi-ble for the drop in 2001, while otherbulk products, such as cotton andcoarse grains, showed significant gains.U.S. exports of bulk commoditiesshowed much more modest changeover the same period.

Consumer-oriented products con-tinued to gain ground, following on apercent increase in 2000 with a gain ofalmost 12 percent, to $1.8 billion, in2001. In contrast, U.S. sales of con-sumer-related exports rose just 3.6 per-cent in 2001. Gains in meats, dairy

products and tree nuts drove coopera-tives’ increase, while fruit and vegetableproducts fell off slightly.

Intermediate products, which hadshown significant volatility in the late1990s, recovered from a 50-percentdecline in 2000 with a 23-percentincrease, to $290 million, in 2001. Thiswas mainly on the strength of increasesin prepared feeds and oilseed meals.U.S. sales of the same commoditieshave shown modest increases in thepast two years.

Asia, Latin America still top marketsAsia continued as the most impor-

tant regional destination for coopera-tive exports in 2001, accounting for 37percent, or $1.95 billion, of co-opexports. But that was down from $2.46billion, or 41.5 percent, of the total in2000. Latin America’s emergence (pri-marily Mexico) as a primary marketcontinued in 2001, taking in $1.36 bil-lion (26 percent) worth of cooperativeexports. That compares to $1.41 bil-lion, or 23.6 percent, the previous year.

European destinations recoveredsomewhat in 2001, accounting for $628million, 12 percent, of cooperativeexports. That compares to $532.4 mil-lion, 8.9 percent, in 2000. African mar-kets lost some ground in 2001, with$401 million in export sales there com-pared to $600.7 million in 2000, a dropfrom 10.2 percent to 8 percent. ■

Figure 3—Cooperative exports by category 1997-2001

$6.0

$5.0

$4.0

$3.0

$2.0

$1.0

$0.01997 1998 1999 2000 2001

$ bi

llion

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Figure 4—Cooperative exports by destination, 2001

North America-$381.8 million

Africa $401.7 million

Europe-$628.6million

●

● ●●

●

■ ■■

■ ■

Bulk

Consumer

Intermediate

Asia$1,944.5 mil

Latin America $1,363.6 million

Middle East-$133.1 millionOceania-$34.3 million

Unidentified $240.5 million

Barr interim NCFC presidentTerry Barr, vice president and chief

economist for the National Council ofFarmer Cooperatives in Washington,D.C., is serving as interim presidentwith the departure of President DavidGraves on Oct. 31.The selection ofBarr, who has been with the councilfor nearly 20 years, was announced byBoard Chairman Jack Gherty. Mean-while a search committee has beenformed to recruit and screen candi-dates for the executive post, but notimetable has been set for that deci-sion. Graves, who had served asNCFC president since 1997, departedto pursue other business interests. Hewill continue to advise and counselduring the transition period.

Scholarships available forCCA Institute at Louisville

The Cooperative CommunicatorsAssociation (CCA) is again offering anexpense-paid trip for a pair of collegestudents who are studying journalismto attend CCA’s annual institute nextJune in Louisville, Ky. Applications areavailable from CCA’s website:www.communicators.coop. Deadline isDec. 1. The two interns selected willassist with CCA communication activi-ties, working from remote sites via theInternet for five-month internships,running from January through May.They may be eligible for college creditfrom their participation.The intern-ships are funded by a grant from TheCooperative Foundation.

Former NMPF Exec. Pat Healydies; backed Dairy Promo Act

Patrick B. Healy, president of the

National Milk Producers Federationat Arlington, Va., from 1969 to 1985,died of cancer Sept. 12. He joinedNMPF in 1954 after several yearswith USDA’s dairy division. Duringhis NMPF tenure, he successfully lob-bied for significant increases in dairyprice support loans and also backedcreation of the National Dairy Pro-motion Act of 1983 (first nationaldairy commodity checkoff).

$119 billion in ‘02 sales notched by top 100 co-ops

The nation’s 100 largest coopera-tives—representing the agriculture,finance, housing, energy and hardwaresectors—reported $119 billion in salesin 2002, according to NationalCooperative Bank (NCB).

Agriculture co-opsdominate the list, with 41farmer-owned co-opsaccounting for about halfof the revenue.

The report is an importantindicator of the cooperative busi-ness activity across the country, saysCharles Snyder, president and chiefexecutive officer of the Washington,D.C.-based bank. The 100 coopera-tives showed earnings of $346 million,up $50 million from 2001. The entirereport is available on the Web at:www.co-op100.coop, or by calling(202) 336-7665.

Topping the list was CHS Coopera-tives, the St. Paul-based agriculturaland food cooperative. The next highestranked ag co-ops on the list (indescending order) were: FarmlandIndustries, Dairy Farmers of America,Land O’ Lakes, California Dairies Inc.,

Gold Kist, Ag Processing Inc., South-ern States Cooperative, West FarmFoods, Staplcotn, GROWMARK Inc.and Foremost Farms USA.

“When I look at the revenuesreflected in this year’s NCB Co-op 100list for agriculture and other coopera-tive sectors, I’m extremely impressed,”Snyder said. “For more than 100 years,America’s cooperatives have not onlysurvived, but flourished—prevailingthrough adversity and economicdownturns, bringing fiscal stability andprosperity to millions of people.”

Snyder said the role of co-opsbecomes more important as moretraditional companies face loss of

business revenue and corporate cut-backs. “Rather than being

owned by outside investors,cooperatives look inwardtoward their members,those who use and benefitfrom the goods and ser-

vices provided. The focusof cooperatives is to maxi-

mize economic returns formembers, not top-ranking executivesor distant investors,” he said.

“Cooperatives have never beenmore pertinent. Americans aredemanding consistent and securebusinesses connected in a real way totheir communities—and cooperativesoffer that dependability to thousandsacross the nation each day.”

Alto turns dry milkinto cheese for hungry

For the first time since the 1980s, thefederal government is including cheesein its emergency food assistance pro-gram and a Wisconsin dairy cooperative


N E W S L I N ECompiled by Patrick Duffey

nities and help farmers succeed;■ 64 percent said that food products

produced by farmer-owned coopera-tives were of higher quality than thoseproduced by other types of companies.

“The survey demonstrates that con-sumers know cooperatives by their rep-utations for quality service and prod-ucts,” Hazen said. “And those who arealready members of cooperatives havean even stronger loyalty to, and prefer-ence for them. Regardless of how youmeasure it,” Hazen said, “in terms ofcost savings, value or satisfaction, con-sumers can get more for their moneyfrom cooperatives.”

The challenge, he said, “is in rais-ing consumer awareness of, andaccess to, cooperatives and to makemore information about cooperativesavailable to consumers.”

When asked how familiar they werewith the details of cooperative organi-zation and philosophy, 47 percent saidthey were familiar with cooperatives,30 percent were not very familiar and22 percent were not familiar at all.Familiarity was higher among men inthe 45 to 64 age range and amongadults in households earning more than$35,000 annually.

When asked to rate cooperatives for10 possible business attributes, cooper-atives outscored investor-owned com-panies on eight of ten attributes—andby wide margins in some cases.

■ 81 percent said cooperatives canbe counted on to meet customer’s needs

■ 79 percent said cooperatives werecommitted to providing the highestquality of service to their customers

■ 78 percent said cooperatives are

committed to, and involved in, theircommunities

Cooperatives in the United Statesserve 120 million members and oper-ate in nearly every industry. Theyrange in size from those listed amongthe Fortune 500 companies to single,small local storefronts. About 30 per-cent of farm products in the U.S. aremarketed through 3,200 farmer-ownedcooperatives. More than 30 coopera-tives have annual revenue of more than$1 billion,while the top 100 co-opsgenerate combined revenue of about$120 billion.

Electricity is provided to 36 millionpeople by about 1,000 rural electriccooperatives which own and maintainnearly half of the electrical distributionlines in the nation and cover 75 percentof the land mass. ■

is involved in the pilot pro-gram. Alto Dairy atWaupun recently received atruckload of nonfat dry milk(NFDM) from USDA’sFood and Nutrition Serviceand converted it into Moz-zarella cheese for use in theHunger Task Force foodprogram. This was the firsttime government stockswere used in such anexchange. The 20,000pounds of Mozzarellacheese, enough to top40,000 pizzas, were desig-nated for use by emergencyfeeding organizations in Milwaukee.

“It sounds simple, but this unprece-dented exchange took years of commit-ment from our state and federal gov-ernment officials at USDA and theDepartment of Health and Family Ser-vices, Alto Dairy and our team atHunger Task Force,” said Sherrie Tus-sler, executive director of the taskforce. “This partnership allows us towork with a Wisconsin cheese manu-facturer to turn an unpopular dairyproduct into fresh food for distributionto thousands of men, women and chil-

dren who rely on us eachmonth.”

The task force will dis-tribute the pilot cheese to28 Milwaukee-area foodpantries that serve anaverage of 20,000 peopleeach month. Alto CEORich Scheuerman said hewas pleased “to work withthe task force in this pilotprogram to help feed thehungry. I can’t think of abetter way for Alto, itsemployees and farmer-owners to help feed thehungry in Wisconsin.”

Agronomy, seed expansionsboost GROWMARK sales

Illinois-based GROWMARKexpanded its operating territory andposted improved sales and earnings forfiscal 2003. Speaking at the regional co-op’s annual meeting in Chicago, VicePresident for Finance Jeff Goldbergreported pre-tax earnings of $26 mil-lion from sales of $1.7 billion, both upfrom 2002. Local member cooperativeswill share in patronage of $18.3 million.

Chief Executive Officer Don Davis-

son said the cooperative had a goodyear, but must continue to improve inareas such as fertilizer management.Davisson is also board chairman of CFIndustries, an inter-regional fertilizermanufacturing and distributing coop-erative owned by GROWMARK and anumber of other regional cooperatives.,Davisson said increasing prices of nat-ural gas were driving up costs for mak-ing nitrogen fertilizer applied as anhy-drous ammonia.

To reach future growth goals, hesaid, GROWMARK must increase vol-ume and market share and continueoffering new products and services.Part of the current gain stems fromincreased sales and broadening of itsseed lines to complement the FSbrands. Expanding into the Northeast,via purchasing 40 agronomy outletsand seed assets from Agway, provided asubstantial boost in this area.

Southern States lowers debt,weighs further asset sales

Staggered by three years of losses,due largely to a stagnant agriculturalmarket, poor growing seasons,increased imports and low farm prices,Southern States Cooperative (SSC),


Survey continued from page 16

Alto Dairy CEO RichScheuerman and SherrieTussler complete a cere-monial trade of milk powderfor cheese as part of Alto’sinvolvement in anti-hungerefforts in Milwaukee.

Richmond, Va., is regaining its finan-cial footing by rapidly cutting its debts.SSC has reduced its debtload by 62percent in 21 months and hopes to seea profit for fiscal 2004.

SSC executives have denied the firmwas headed for bankruptcy, although ithas had unsolicited offers for parts ofthe cooperative’s assets. The co-op lost$14.8 million in fiscal 2001 and $68.2million in 2002. The co-op expects amuch smaller loss for 2003.

CEO Tom Scribner indicated salesof assets to further reduce debt wouldbe made by the board later this year.SSC has closed cotton gins in Georgiaand South Carolina and shut 21unprofitable stores across its 23-statetrade territory. It has also signed along-term lease of its grain facilities toPerdue Farms, closed its trucking busi-ness in favor of a transportation dealwith Overnite Transportation, sold itsWetsel seed and agronomy supply sub-sidiary and shifted its credit business to

John Deere Credit’s Farm Plan. Cur-rently, only three of SSC’s 140 storesare losing money vs. 70 two years ago.

Florida sugar co-op closesjointly owned refinery

A Brooklyn, N.Y., sugar refineryowned in part by a Florida sugar coop-erative will be closed in January due toexcessive capacity in the industry. Theformer Domino plant was one of threepurchased by Belle Glade-based SugarCane Growers and Florida CrystalsCorp. more than two years ago for$180 million. They formed an umbrel-la organization, The American SugarRefining Co.

Some products will still be packagedat Brooklyn, but with a sharply reducedstaff. The plant had been operating atless than half of its refining capacity. Acooperative spokesperson indicated thisplant had been a drain on the system. Itis the 15th sugar refinery closed in thepast 23 years.

FDA clears lactoferin usefor co-op’s beef products

Months after a similar clearance bythe U.S. Department of Agriculture,the Food and Drug Administration hasconcurred with scientific data indicat-ing use of lactoferin, a milk derivative,is safe even for people allergic to milk.The spray is applied to beef products.The USDA finding was sought by ALFVentures, a partnership between Farm-land National Beef and its successorowner, the U.S. Premium Beef cooper-ative, and Dutch-based DMV Interna-tional. DMV, one of the largest pro-ducers of lactoferin worldwide, is partof Dutch-based Campina. The en-dorsement provides the product with“generally recognized as safe” status.

Court confirms taxon co-op’s fertilizer

Fertilizer stored by CooperativeAgronomy Services (CAS) of Groton,S.D., is subject to sales tax, the South


Top 100 Coops continued from page 19

Total assets for fruit/vegetablecooperatives dropped 8.2 percent,with both current- and long-termassets falling. Current assets declined5.4 percent, to $1.6 billion, while non-current assets were down 11.4 per-cent, to $1.3 billion. Liabilities fell 6.5percent, to $2.2 billion.

Current liabilities fell 9.9 percentand long-tem liabilities fell 3.7 percent,to $935 million and $1.2 billion respec-tively. Equity for fruit/vegetable co-opsfell to its lowest level in the last 10years, at $777 million, a 13-percentdecline.

Supply, grain co-ops expand asset base

Farm supply cooperatives were oneof the few commodity groups showingan expanded asset base. Total assetsgrew 3.8 percent, to $2.6 billion. Thegrowth was due to expanded currentasset levels, which grew 13 percent, to$1.4 billion. However, the growth wasdue to higher debt levels. Current lia-bilities grew 3.1 percent, to $959 mil-

lion, while long-term liabilities grew ata 24.4 percent rate, ending 2002 at$647 million. Equity fell 5.6 percent, to$1 billion.

Grain cooperatives also ended 2002with a higher asset level. Both currentand long-term assets grew, with netassets growing 9.6 percent, to $2.6 bil-lion. Current assets increased 11.9 per-cent while non-current assets grew 7.1percent, to $1.4 billion and $1.2 bil-lion, respectively.

Grain cooperatives used both bor-rowed funds and member equity tofund the asset expansion. Total liabili-ties grew 12.2 percent, to $1.5 billion,while member equity grew 6.6 percent,to $1 billion.

Poultry/livestock cooperatives sawassets drop by 11 percent, to $894million. Current assets were 14.5 per-cent lower and non-current assetswere 23.3 percent lower. Liabilities,both current and long-term, weredown 16.1 percent, to $606 million.Current liabilities were 28.9 percentlower and long-term liabilities were

1.9 percent lower. With higher mar-gins, poultry/livestock cooperativeswere able to add equity to their bal-ance sheets. Member equity was up2.3 percent, to $285 million.

Assets grew at a modest 1.4 percentfor rice cooperatives in 2002, to $478million. Growth in both current andnon-current assets fueled the increase.This expansion was solely due tomember investment. Total liabilitiesshrank 4.1 percent, to $214 million,with long-term debt being the maincontributor to this reduction. Mem-ber equity grew at 6.3 percent, to$264 million.

Sugar cooperative assets fell by 1.5percent, to $4.5 billion. Most of thedecline was in current assets, whichfell 4 percent, to $397 million.Although there was a slight increaseof 0.8 percent in long-term debt, to$465 million, total liabilities fell 2.9percent, to $801 million. Memberequity grew 5 percent, reaching $459million, the highest level of the past10 years. ■

Dakota Supreme Court has ruled, sid-ing with the South Dakota RevenueDepartment. The cooperative isowned by and serves about a dozenlocal cooperatives in the Dakotas.

The court contended the storage feeswere taxable because CAS was not anauxiliary of the local cooperatives andthe $6-per-ton storage fee was a separatetransaction from the eventual sale of fer-tilizer by the locals to their farmer mem-

bers. The court said the storage was nota tax-exempt agricultural service, notingCAS was not involved in applying thefertilizer or in planting, cultivating andprotecting crops. The cooperative con-tended the storage and sale were a singletransaction and tax exempt.

Bargaining co-ops name new leadersLeadership changes were recently

made at the helm of three cooperative

bargaining associations. Ronald Schuler,retired manager of the California Can-ning Peach Association, has agreed toserve as interim chief operating officerfor California Tomato Growers Associa-tion (CTGA) until the board finds apermanent successor to John Welty,who recently resigned. Schuler is a pastchairman of the National Council ofFarmer Cooperatives and a director ofthe California Agriculture Bargaining


Even after 35 years as leader of the British rock bandJethro Tull, Ian Anderson is not too old to rock’n’roll,and he’s definitely not too old to farm. When he’s notplaying flute and singing with Tull or performing as asolo artist, Anderson often occupies himself back homewith his farming interests.

For many years, Anderson’s salmon farm inScotland was Britain’s largest. That’s right,Aqualung does aquaculture. Although herecently sold that operation, he and his wifecontinue to farm a variety of crops in England.As a result, the Andersons have developed astrong appreciation for the role of coopera-tives in helping farmers.

“Co-ops have been a fact of life for us forprobably 20 years,” Anderson says. “They notonly help in selling [our crops], but also inbuying raw materials, animal feeds, dieselfuel or whatever. From an economic point ofview, co-ops are a necessity—they help usget the kind of buying and selling clout that comes froma combined level of production or purchase,” saysAnderson, who has written songs such as “Farm on theFreeway” and “Heavy Horses” that focus on agricultureand changing rural life.

When touring America, as he is currently (a solo tourwhich extends through November), Anderson and hiswife usually drive themselves from city to city and enjoyexploring our nation’s vast, diverse agricultural land-scape along the way.

“When we travel around America, we are alwayslooking out the window, saying ‘what the heck was thatgrowing in that field over there?’ Or, ‘what was that 1,000acres over there planted in?’ We’re always interested inwhat is growing where and why, and what it’s worth andto whom.”

Agricultural issues are changing rapidly, “not just inAmerica or the UK, but throughout the planet,” Anderson

says. “Throw in a bit of global warming on top of every-thing else, and boy, are we farmers—I say ‘we,’ but Idon’t depend on farming for a living—in a state of flux.”

Farming in Britain is no longer the quaint world pic-tured in James Herriott’s “All Creatures, Great and

Small” books. “There’s even some panic amongfarmers there. Suicide among farmers in mycountry is at one of the highest levels [for anyoccupational group],” says Anderson.

“I guess that may apply in the U.S. for thesame reasons—people who have grown upwith a multi-generational and cultural lifestylethat is threatened by forces that they don’talways understand and which they have nopossibility of input or control over. And thatreally tears a man apart in a way that us folkswho play music for a living, or who work in abank or in construction, don’t understand. Thatstrange and passionate, vital sense of involve-ment that some people have with the land of

their birth, the land of their fathers and land of opportu-nity, as it must have once been.

“I can feel that when I drive through the heartland ofAmerica, just as I do when driving through the Englishcountryside. There are people who are wringing theirhands and saying, “I just don’t know how I am going toget through tomorrow.”

When interviewed this summer, the Andersons werefeeling a bit of that pain themselves. “We just had maybefive weeks of drought here in the UK, followed by a tor-rential downpour in the last 24 hours. I haven’t been outto look at our fields today, but I will lay my money thathalf of our winter corn is laying on its side right now.These are things that happen to farming folks.”

But you would have to be ‘thick as a brick’ not to real-ize that co-ops can help farmers living through hardtimes and good. ■

— By Dan Campbell, Editor

Tull’s Anderson says co-ops not just ‘ l iving in the past’


Value Added continued from page 20

square-foot building with eight acres ofgrounds in Alva, Okla. The facility hadpreviously housed a Wal-Mart storeand had several features that fit theneeds of VAP. These included climatecontrol, open span sanitary design,loading docks and adequate utilitiesand services.

The property around the facilitywould allow for plant, warehouse andfreezer expansion. The state-of-the-art,“high speed” baking equipment pur-chased for the plant is very specializedand incorporates the latest Europeanbakery technology for frozen, self-ris-ing dough. It is used in manufacturingflat and artisan bread products, whichincludes frozen, self-rising pizzacrust—currently VAP’s main product.

The decision to focus on pizza crustproduction has proven to be a goodchoice for the co-op. VAP is currentlyselling pizza crust to some of thenation’s largest retailers of frozen pizza. In 2001, the co-op was awarded a$500,000 Value-Added Producer Grantfrom USDA Rural Development. Thisgrant was a working-capital grant thatassisted them in branching out withother dough products and in process-ing and marketing some additionaldough and bread products.

Expanding product lineVAP has produced and sold several

different types of bread and doughproducts since that time. Theseinclude four varieties of baguettes,three flavors of Danish rolls and thedough for a puffed pastry. Two sizesof “crazy bread” (a bread that is usedfor dipping) are being produced and sold.

VAP’s dough and bread productmarkets continue to grow, and it hasthe capability to produce almost anyimaginable type of bread product. Thenewest addition to VAP’s product lineis a unique frozen cinnamon roll thatcan be microwaved. “Good” does noteven come close to describing theproduct. It is incredible, and sweet!

The plant has its main line runningat full capacity with pizza crust, whilea pilot line (for orders of less than1,000 pounds) is running full time forcinnamon rolls. They use this smallerproduction line also to develop newproducts. The main line has the capa-bility to process 10,000 pounds ofdough per hour.

VAP has 80 full-time employees,about 15 percent of whom are also pro-ducers in the cooperative. The amountof freight transportation has grown so

much that a trucking company waslaunched to handle it. It owns 12 trucksand 20 trailers and employs 15 full-time drivers. All this activity supportsthe vision of the cooperative in creat-ing job opportunities in the area andsupporting the small farmer.

Adapting to various situations in themarketplace has provided valuableexperience for VAP. The co-op hassuccessfully made necessary adjust-ments in labor, products and market-ing efforts. The co-op is effectivelymanaged and will continue to benefitproducers while having a positiveimpact on the entire area.

The producers who launched theco-op say they made a very good initialchoice in seeking out experts in thekind of food processing they wanted todo. Dunker, who served as a consultantto the project in the very early stages ofthe project, and his brother Harry, theco-op’s operations manager, togetherhave 60 years of experience in the bak-ing industry and plant set up.

With accomplishments and stridesachieved so far by the co-op, whoknows what could happen next? Someco-op members say a pizza-toppingplant and toppings-producer venturewould be sweet! Stay tuned. ■

advisory committee. CTGA has beenrepresenting the interests of Californiatomato growers for more than 50 years.The cooperative has slated its annualmeeting for Jan. 21 in Modesto.

At Michigan Processing AppleGrowers, Dawn Drake, with 12 years’experience in the association, succeedsTom Butler, who has retired. JackPressley, manager of the Malheur Pota-to Bargaining Association in Vale, Ore.,died in September. His successor is yetto be named.

New Calcot CEO seeksreturn of stability

Calcot, Bakersfield, Calif., has turnedto Robert Norris, 60, executive vicepresident since 1992, to permanently fill

The NASCAR racing cir-cuit will be a little sweeterthis year, with racing starKyle Petty promoting SueBee honey with Sue BeeHoney logos on his racingcar and with personalappearances at some mar-keting events. The Iowa-based co-op also will be fea-turing Petty on in-storepromotional posters and onmany of its product labels. ■


overly flexible. Rather, they should use a blend of those traits,depending on the situation. Consistency is key—those beingled must come to understand and know the decision-makingprocesses of their leaders.

Complete tasks—Leaders complete things when they’resupposed to be done, or make sure that those responsible getit done. Leaders are prepared for action and are able to instillin others the need to be prepared. Completing work and pro-jects in a timely manner creates respect and allows people towitness the ability and integrity of their leaders.

Take responsibility—“The buck stops here” is a slogangood leaders adopt. They are willing to take responsibilityfor negative events or occurrences that fall under their juris-diction. They don’t try to pass problems off on someone else,but take them on. They also know how to graciously takecredit for success and—even more important—know how togive credit to others when it is due.

Thought provoking—A good leader is able to get othersto think about things rather than just follow blindly. A leaderinvolves people by provoking thoughts through challengesand by providing information. This trait often allows a leaderto build relationships that will endure and create commit-ment needed to complete tasks.

Effective leaders will have many of the qualities or traitsoutlined here, and probably some others as well. Often, vari-ous traits compliment each other, giving the person evengreater leadership stature and ability. If some traits are lack-ing, an effort should be made to improve in those areas.

Understanding and knowing what traits to look for whileidentifying perspective leaders is critical. In addition, it is alsoimportant to understand whether an identified leader will bea good fit in a specific situation. Even though a person may

be identified as a suitable leader, it does not necessarily meanthat the person will thrive in all leadership roles.

Indeed, a person may be a tremendous leader in one situa-tion, but not a good leader in a different situation, such as ina cooperative. These questions may need to be asked:

■ How well will the prospective leader fit into the situa-tion given the circumstances? Will the leader be likely to suc-ceed in the environment?

■ How well will he or she fit, given the other leaders andpersonalities involved?

■ Will the person be liked and accepted by the other coop-erative players, be they members, directors or employees?

■ Does the situation seem to be one where the person willhave an adequate opportunity to grow into the leadershipposition and thrive?

■ Does the person have the right educational background,experience and knowledge of cooperatives and business?

■ Is the person open minded about learning more aboutbeing an effective director? Will he/she be willing to be fur-ther educated, partake of training workshops and attend con-ferences, etc.?

■ Does the person have the vision, values and staying powernecessary to fit the opportunities afforded by the cooperative?

These and other pertinent questions must be addressed whenworking to select quality leaders for cooperatives in the currentcompetitive environment. Leader-quality people should besought out, even though it may be a challenge to recruit thembecause they are often very busy and lack the extra time to takeon additional responsibilities and leadership roles. Knowing thetraits to look for and the questions to ask can help identify thebest people to lead cooperative boards and cooperatives as we goforward into a challenging and competitive future. ■

the CEO post hehad been holdingon an interimbasis since June.Norris replacesformer CEODavid Farley,who exited earli-er after only ninemonths with thecooperative.

Norris is onlythe seventh CEO in Calcot’s 76-yearhistory and the first Californian tohold the job. The board was “lookingfor someone who could bring stabilityback into the company and bring Cal-cot back to the stature it has held overthe years.” Norris says he is goal ori-

ented and could work with the staffand growers. Meanwhile, Farley hasfiled a wrongful termination lawsuit.

Asian imports forceco-op to switch fish

Facing a tide of frozen catfishimports from China and Vietnamproduced at half the domestic cost,the Illinois Fish Farmers Co-op atPinckneyville has discontinued pro-cessing catfish at its Prairie LandsSeafood plant and cut its work forceto a small, core group. Doug Woj-cieszak, the co-op’s executive director,says the cooperative will shift to moreprofitable fish: hybrid stripped bass,freshwater shrimp, largemouth bassand, potentially, perch, bluegill and

walleye. These fish require little or noprocessing and are destined for thelocal market or the live-haul and freshmarkets.

The Illinois Department of Agricul-ture saw the new catfish co-op as apotentially important new avenue forsouthern Illinois agriculture. It con-tributed $6 million to the venture andUSDA provided a $150,000 loan guar-anteed by the city and a mortgage onthe building.

The processing plant will be soldwith the equipment. The cooperativeplans to continue to deliver technicalservices to its members. When thecooperative started in 1999, the statehad 12 fish and shrimp farms; nowthere are more than 60.

Director leadership continued from page 25

Calcot CEO RobertNorris


Information appearing in Rural Cooperatives magazine during calendar year 2003 has been indexed to help you find past articles. Articles are indexed by month and page. Back issues can be found on-line atwww.rurdev.usda.gov

Title Features Issue—Page A shared harvest

Machinery co-ops could help small, Upper Midwest dairy farms March/April 24AFT guide helps farmers and ranchers transfer land to the next generation July/Aug. 10Annual Reports:

How to read them and what they should tell you about your co-op Jan./Feb. 10Apple industry study shows value of producer bargaining associations Sept./Oct. 6Back to School

NICE marks 75th anniversary with return to campus as co-op youth education program Sept./Oct. 25Bargaining is big for small business

Resurgence seen in bargaining co-ops March/April 12Bumper crop buoys Kansas cotton co-op March/April 23Congressional hearing focuses on possible need for more flexible co-op business model Nov./Dec. 9Co-op development stages & timeline May/June 10Co-op store part of Oneida Food Systems Jan./Feb. 28Cooperative care logo loaded with symbolism May/June 10Cooperative care mission statement May/June 32‘Cooperative’ comes first May/June 9Cooperative exports decline in 2001; bulk sales fall but continue to dominate sector Nov./Dec. 26Co-ops follow more than one path for nominating board candidates Nov./Dec. 21Co-ops increase share of farm marketings; share of farm supply sales dips slightly May/June 19Dismantling of Farmland continues; Smithfield buying pork business Nov./Dec. 15Equity, tax issues prompt beef co-op to ponder switch Nov./Dec. 12Facility closures always a tough decision for co-ops March/April 17Farm Credit Banks merge in Midwest Jan./Feb. 24Farming with 8.5 million neighbors July/Aug. 7$44-million push for new geographic technology May/June 25Frogs, snakes & kilowatts

East Kentucky Power Co-op finds green in environmental program Jan./Feb. 16Funding Business Development Centers July/Aug. 18Great Lakes Pork Co-op adjusts plan to seek alternative packing plant May/June 8GROWMARK certification program prepares directors for new challenges Sept./Oct. 27Hard choices

Hard white wheat varieties officer co-ops opportunities and challenges March/April 4House calls

In-home care givers form cooperative to provide vital service for elderly, May/June 9disabled in rural Wisconsin

Large co-ops see growth in ‘01, reverse declining net margins Jan./Feb. 20Living with Sprawl

As farms give way to subdivisions and traffic lights, America’s rural cooperatives struggle to adjust July/Aug. 4Local co-ops’ net income and sales climb in 2001 Jan./Feb. 31Low-overhead approach taken by Dakota Lamb Growers Co-op May/June 7Meeting the challenge: co-ops in the 21st century Jan./Feb. 4Merrills first Northeast dairy family to win national land conservation prize July/Aug. 10Methods for selecting and recruiting candidates for directors Nov./Dec. 22Minnesota leads the nation in co-op business volume Sept./Oct. 18More than a power source

Brunswick Electric typifies commitment of cooperatives to support rural communities July/Aug. 15More than milk

Dairylea’s scope of farmer services moves beyond milk marketing Sept./Oct. 14Natural beef anchors product line for co-op of Kansas family farms May/June 5Negotiating the crossroads of a new century Jan./Feb. 7Network difficulties

Tales of two Iowa pork-producer networks show that bottom-up approach works best March/April 18New days, new ways

Co-ops, producers find many ways to prepare for the future Nov./Dec. 4New global strategy

Year-round citrus demand has Sunkist tapping foreign market supplies Sept./Oct. 4New kids on the block

Iowa beef co-op sees strategic partnership as best way to break into highly competitive retail beef market May/June 4NMPF scales back CWT milk supply-balancing plan July/Aug. 28No mountain too high

Rural broadband service helping to save lives of isolated patients May/June 22Oneida grocery co-op boosts community; helps keep more money on reservation Jan./Feb. 26Orange Empire bows to urban sprawl in Southern California July/Aug. 8

2003 Ar t ic le Index


Port OKs Texas co-op lease July/Aug. 21Professor’s idea blossoms into major co-op

conference for college students July/Aug. 30Revenue, margins trend downward for nation’s top

100 ag cooperatives Nov./Dec. 17Role of cooperative principles Jan./Feb. 5Seeking the best

Director leadership: what does it take? Nov./Dec. 25Southern hospitality

Walton Electric Co-op makes a positive difference for Georgia Sept./Oct. 8

Striking oilSouth Dakota Soybean Processors finds new ways to add value to crop March/April 20

Survey results: public shows strong preference for doing business with cooperatives Nov./Dec. 14

Talking with picturesPhoto experts offer tips on how to better tell your co-op story with strong photos July/Aug. 22

The ‘closure’ dilemmaConducting business in a way that helps keep both members and theirco-op in business can be a challenge March/April 15

The future of NICE Sept./Oct. 26The Greene Bean Project: Growers’ field of dreams

is edible beans May/June 16Top co-op communicators honored in Madison Sept./Oct. 23‘Tough bargaining’ helps almond growers July/Aug. 19Trailblazers

Leadership development programs key to more women winning seats on co-op boards May/June 13

Treaty of Oak Creek moved Oneida tribe to Wisconsin Jan./Feb. 29Tull’s Anderson says co-ops not just ‘living in the past’ Nov./Dec. 31Tune-up your meetings

Periodic analysis is necessary to ensure that cooperative board meetingsare efficient, effective and productive May/June 26

Turkey growers grateful for Nebraska, Michigan co-ops Jan./Feb. 33Turning problems into profits

Alpaca co-op survives early dissension to build domestic fiber & products market March/April 8

2-year waiting list for wildlife lectures Jan./Feb. 19U.S. Premium Beef offers to buy Farmland

share in processing business July/Aug. 12U.S. Premium Beef seals purchase of Farmland National Beef Nov./Dec. 16USDA Outlook Conference to focus on critical challenges Jan./Feb. 13USDA plays active role in farmland protection July/Aug. 9USDA providing $1.4 billion to expand rural broadband May/June 24USDA’s RBEG program stimulates business

creation on reservations, other rural areas Jan./Feb. 30USDA’s REDLG program July/Aug. 17USDA’s Value-Added Producer Grants invest

millions in innovative ag businesses March/April 11Walton saluted for business ethics Sept./Oct. 10Waving the red flag

Survey examines correlation between ethical environment and fraud in co-ops July/Aug. 13

What went wrong at Agway?Cornell professors describe how co-op’s chickens came home to roost Jan./Feb. 15

Wisconsin’s Westby, ‘Little Creamery That Could,’ marks 100th anniversary Sept./Oct. 20

Magazine DepartmentsCommentary/EditorialAssessing the risks and opportunities ahead Jan./Feb. 2Coopeative education can help renew and revitalize co-ops July/Aug. 2Setting up the forms Nov./Dec. 2Shaping tomorrow’s cooperatives today Sept./Oct. 2The keeper of the co-op faith March/April 2Why Cooperatives? May/June 2

Focus On...Ursa Farmers Cooperative

Ursa, Illinois Jan./Feb. 25

Management TipHow does your local farm supply cooperative rate? March/April 22

NewslineWest Central Soy receives value-added ag award Jan./Feb. 34Upstate Dairy Co-op targets teen marketGrowmark purchases Agway’s agronomy, seed businessesAgri-Mark to buy McCadam CheeseFarmland gets extension; 2002 losses at $346 millionAmerican Crystal Co-op pays $34 million for sugar plantsGraves joins USDA advisorsImproving denim market sparks PCCA reboundGROWMARK turns 75 with sales of $1.3 billionCHS nets $126 million

Nilsestuen, Ziewacz head Wisconsin ag office March/April 29Va. Tech NICE site; NCFC Sets PAL dateTFC regains profitability after $1.8 million in cutsKansas co-op leader Joe Lieber diesAgriBank top co-op bankAlto Dairy GM RetiresAgway selling Telmark; CEO Cardarelli to step downCF eyes plant shutdownCal/West Seed, Senesco in pactDilland succeeds Wosje as Michigan Milk CEODakota Pride, Canterra form Merridian Seeds ventureLOL nets $98 million; consolidating feed millsCHS opens Brazil office; ’02 sales at $7.5 billionGolden Growers rejects changeDakota Layers Co-op operating in FlandreauCo-op Communicators mark 50th anniversaryFarmland eyes revamp, sale of meat businessDVM to purchase all Agri-Mark LactoferrinMd.-Va. Milk Producers buy North Carolina dairy co-opSouthern States motto: 180 degrees, 160 daysSmith to chair AMCOT

Organic co-op plans new HQ as sales soar May/June 28NORPAC buying Simplot’s vegetable processing plantDFA boosts net margins; Camerlo succeeds BrubakerGROWMARK, TruServ form local retail pact in OntarioAgway eyes sale of remaining assetsAlto Dairy trims 90 jobsMtn. Lamb Co-op, Rosen forge pactNMPF seeks voluntary plan to balance supply, demandND co-op plans DC restaurantNC growers market biodieselOlsen to lead Tree Top co-opMid-Missouri Energy raises $17 millionWilson heads co-op foundationFarmland turns $29 million profit for second quarterAMPI sales top $1 billion for ‘02New board, CEO make changes at Ocean SprayDividend allocation rule focus of legislationForemost sales reflect dairy illsIowa hog co-op set to open processing plantsCalcot makes progress paymentMMPA members get $1.9 million patronageSW Farm Credit loans climb in ‘02David Holm to lead Iowa Institute for Co-ops

AGP sets volume record: Reagan sees member support July/Aug. 30SSC, Farm Plan forge credit pactWool Growers pick EtcheverryPCP sells canning operation to focus on food processingWyoming Sugar enters alliance with CargillDakota Hay Co-op finds success in horse marketKentucky’s catfish co-op reels in supermarket orderMontana educator develops co-op business lesson plansMeadow Farms Hog Co-op opens modern Illinois plantTexas catfish co-op opensNMPF adds three associatesFarmers sue chairman, others who promoted co-op sale to ADMSidney Sugars in supply dealNebraska North Star Neighbors direct market co-op’s meatForemost restructures in face of declining Midwest supplyOzark Mountain Pork Co-op source of Missouri Farm PrideZwald AMPI’s treasurerLOL closes research facilityNCBA fetes Kaptur, OxleyGROWMARK creates seed, agronomy subsidiaries in NE


NFU fetes cooperator SwensonCo-op community fetes heroes as four join Hall of FameRhode Island dairy co-op launches own milk brandUW offers co-op educational site for youth, young members

Iowa Quality Beef opens Tama plant Sept./Oct. 28Indiana’s Countrymark offers metered biodiesel blendingVideos, brochures promote Co-op Month in OctoberCo-op Development Forum slated for MinneapolisMinnesota law opens co-op membership to new investorsMichigan Sugar 4th co-op in Midwest Agri-CommoditiesBreeding to head Kansas Co-op CouncilBailey to head Co-op Development FoundationCourt OKs ADM buying MCP, spinoff ventureCalcot, Ocean Spray among co-ops with new leadersBongards Creameries buys LOL’s Perham operationBushel 42 Pasta closesAgway energy firm offers green powerLOL Farmland Feed eyes ethanol co-products marketSun-Maid, Licente join for Canadian Juice LineRiceland Foods, Cargill in lecithin marketing alliance

Barr interim NCFC president Nov./Dec. 28Scholarships available for CCA Institute at LouisvilleFormer NMPF Exec. Pat Healy dies; backed Dairy Promo Act$119 billion in ’02 sales notched by top 100 co-opsAlto turns dry milk into cheese for hungryAgronomy, seed expansions boost GROWMARK salesSouthern States lowers debt, weighs further asset salesFlorida sugar co-op closes jointly owned refineryFDA clears lactoferin use for co-op’s beef productsCourt confirms tax on co-op’s fertilizerNew Calcot CEO seeks return of stabilityAsian imports force co-op to switch fish‘CHS Inc.’ now official name

Value-Added CornerAdversity to Advantage

Pacific Coast Producers uses USDA grant to develop single-serve fruit bowl market Sept./Oct. 12

Ag Marketing Resource Center helping producers develop value-added strategies May/June 15

‘No go’ can be a good showFeasibility study advises co-ops not to pursue tortilla project July/Aug. 20

Sweet smell of successOklahoma wheat producers use USDA financing to launch frozen-dough bakery Nov./Dec. 20

USDA’s Value-Added Producer Grants invest millions in innovative ag businesses March/April 11

SubjectsBargainingApple industry study shows value of producer

bargaining associations Sept./Oct. 6Bargaining is big for small business

Resurgence seen in bargaining co-ops March/April 12‘Tough bargaining’ helps almond growers July/Aug. 19

Communication/EducationAdapting to change

Educating members helps smooth transitions May/June 23Annual Reports:

How to read them and what they should tell you about your co-op Jan./Feb. 10

Survey results: public shows strong preference for doing business with cooperatives Nov./Dec. 14

Talking with picturesPhoto experts offer tips on how to better tell your co-op story with strong photos July/Aug. 22

Top co-op communicators honored in Madison Sept./Oct. 23

Consumer Co-opsCo-op development stages & timeline May/June 10Co-op store part of Oneida Food Systems Jan./Feb. 28House calls

In-home care givers form cooperative to provide vital service for elderly, disabled in rural Wisconsin May/June 9

Oneida grocery co-op boosts community; helps keep more money on reservation Jan./Feb. 26

Co-op DevelopmentCo-op development: a tool to promote democracy,

self-reliance March/April 17Co-op development stages & timeline May/June 10

Director Education and DevelopmentCo-ops follow more than one path for nominating

board candidates Nov./Dec. 21GROWMARK certification program prepares

directors for new challenges Sept./Oct. 27Seeking the best

Director leadership: what does it take? Nov./Dec. 25Trailblazers

Leadership development programs key to more women winning seats on co-op boards May/June 13

Tune-up your meetingsPeriodic analysis is necessary to ensure that cooperative board meetings are efficient, effective and productive May/June 26

DairyMerrills first Northeast dairy family to win national

land conservation prize July/Aug. 10More than milk

Dairylea’s scope of farmer services moves beyond milk marketing Sept./Oct. 14

NMPF scales back CWT milk supply-balancing plan July/Aug. 28Wisconsin’s Westby, ‘Little Creamery That Could,’

marks 100th anniversary Sept./Oct. 20

EducationBack to School

NICE marks 75th anniversary with return to campus as co-op youth education program Sept./Oct. 25

GROWMARK certification program prepares directors for new challenges Sept./Oct. 27

Meeting the challenge: co-ops in the 21st century Jan./Feb. 4Negotiating the crossroads of a new century Jan./Feb. 7Professor’s idea blossoms into major co-op

conference for college students July/Aug. 30Survey results: public shows strong preference

for doing business with cooperatives Nov./Dec. 14The future of NICE Sept./Oct. 26USDA Outlook Conference to focus on critical challenges Jan./Feb. 13

EnergyCatch the wind

Co-op’s giant windmills work with Mother Nature to provide power March/April 4

Frogs, snakes & kilowattsEast Kentucky Power Co-op finds green in environmental program Jan./Feb. 16

EnvironmentAFT guide helps farmers and ranchers transfer land

to the next generation July/Aug. 10Farming with 8.5 million neighbors July/Aug. 7Frogs, snakes & kilowatts

East Kentucky Power Co-op finds green in environmental program Jan./Feb. 16

Living with SprawlAs farms give way to subdivisions and traffic lights,

America’s rural cooperatives struggle to adjust July/Aug. 4Merrills first Northeast dairy family to win national

land conservation prize July/Aug. 10Orange Empire bows to urban sprawl in Southern California July/Aug. 8USDA plays active role in farmland protection July/Aug. 9

Farm Supply, Agronomy & ServiceA shared harvest

Machinery co-ops could help small, Upper Midwest dairy farms March/April 24

Battening Down the Hatches:Co-op security measures intensified in post-September 11 world May/June 4

Co-ops increase share of farm marketings;


share of farm supply sales dips slightly May/June 19Dismantling of Farmland continues; Smithfield

buying pork business Nov./Dec. 15How does your local farm supply cooperative rate? March/April 22Large co-ops see growth in ‘01, reverse declining

net margins Jan./Feb. 20Local co-ops’ net income and sales climb in 2001 Jan./Feb. 31Minnesota leads the nation in co-op business volume Sept./Oct. 18More than milk


Revenue, margins trend downward for nation’s top 100 ag cooperatives Nov./Dec. 17

Ursa Farmers CooperativeUrsa, Illinois Jan./Feb. 25

What went wrong at Agway? Jan./Feb. 15

FinanceA shared harvest

Machinery co-ops could help small, Upper Midwest dairy farms March/April 24

Annual Reports:How to read them and what they should tell you about your co-op Jan./Feb. 10

Dismantling of Farmland continues; Smithfield buying pork business Nov./Dec. 15

Funding Business Development Centers July/Aug. 18How does your local farm supply cooperative rate? March/April 22Large co-ops see growth in ‘01, reverse declining

net margins Jan./Feb. 20Meeting the challenge: co-ops in the 21st century Jan./Feb. 4Minnesota leads the nation in co-op business volume Sept./Oct. 18Negotiating the crossroads of a new century Jan./Feb. 7New days, new ways

Co-ops, producers find many ways to prepare for the future Nov./Dec. 4Striking oil

South Dakota Soybean Processors finds new ways to add value to crop March/April 20

U.S. Premium Beef offers to buy Farmland share in processing business July/Aug. 12

U.S. Premium Beef seals purchase of Farmland National Beef Nov./Dec. 16USDA’s REDLG program July/Aug. 17What went wrong at Agway?

Cornell professors describe how co-op’s chickens came home to roost Jan./Feb. 15

Fruits, NutsAdversity to Advantage


Apple industry study shows value of producer bargaining associations Sept./Oct. 6

New global strategyYear-round citrus demand has Sunkist tapping foreign market supplies Sept./Oct. 4

‘Tough bargaining’ helps almond growers July/Aug. 19

Grains & OilSeedsCooperative Marketing Association Program:

Another way grain co-ops can serve their members Jan./Feb. 24Facility closures always a tough decision for co-ops March/April 17Local co-ops’ net income and sales climb in 2001 Jan./Feb. 31 ‘No go’ can be a good show

Feasibility study advises co-ops not to pursue tortilla project July/Aug. 20Sweet smell of success

Oklahoma wheat producers use USDA financing to launch frozen-dough bakery Nov./Dec. 20

Striking oilSouth Dakota Soybean Processors finds new ways to add value to crop March/April 20

The ‘closure’ dilemmaConducting business in a way that helps keep both members

and their co-op in business can be a challenge March/April 15Ursa Farmers Cooperative

Ursa, Illinois Jan./Feb. 25

GovernanceAsk the right questions

Members should probe reasons for co-op conversions, other major changes May/June 20

Co-ops follow more than one path for nominating board candidates Nov./Dec. 21

Seeking the best Director leadership: what does it take? Nov./Dec. 25

Waving the red flagSurvey examines correlation between ethical environment and fraud in co-ops July/Aug. 13

Tune-up your meetingsPeriodic analysis is necessary to ensure that cooperative board meetings are efficient, effective and productive May/June 26

Legislative and LegalAFT guide helps farmers and ranchers transfer

land to the next generation July/Aug. 10Congressional hearing focuses on possible need for

more flexible co-op business model Nov./Dec. 9Cooperative Marketing Association Program:

Another way grain co-ops can serve their members Jan./Feb. 24Equity, tax issues prompt beef co-op to ponder switch Nov./Dec. 12Local co-ops’ net income and sales climb in 2001 Jan./Feb. 31NMPF scales back CWT milk supply-balancing plan July/Aug. 28The ‘closure’ dilemma

Conducting business in a way that helps keep both members and their co-op in business can be a challenge March/April 15Tune-up your meetings

Periodic analysis is necessary to ensure that cooperative board meetingsare efficient, effective and productive May/June 26Waving the red flag

Survey examines correlation between ethical environment and fraud in co-ops July/Aug. 13

LivestockEquity, tax issues prompt beef co-op to ponder switch Nov./Dec. 12Great Lakes Pork Co-op adjusts plan to seek

alternative packing plant May/June 8Low-overhead approach taken by

Dakota Lamb Growers Co-op May/June 7Natural beef anchors product line for co-op of

Kansas family farms May/June 5Network difficulties

Tales of two Iowa pork-producer networks show that bottom-up approach works best March/April 18

New kids on the blockIowa beef co-op sees strategic partnership as best way to break into highly competitive retail beef market May/June 4

U.S. Premium Beef offers to buy Farmland share in processing business July/Aug. 12

U.S. Premium Beef seals purchase of Farmland National Beef Nov./Dec. 16

ManagementAdapting to change

Educating members helps smooth transitions May/June 23Facility closures always a tough decision for co-ops March/April 17How does your local farm supply cooperative rate? March/April 22Meeting the challenge: co-ops in the 21st century Jan./Feb. 4Negotiating the crossroads of a new century Jan./Feb. 7The ‘closure’ dilemma

Conducting business in a way that helps keep both members and their co-op in business can be a challenge March/April 15

MarketingAdversity to Advantage


Bargaining is big for small businessResurgence seen in bargaining co-ops March/April 12

Cooperative exports decline in 2001; bulk sales fall but continue to dominate sector Nov./Dec. 26

Cooperative Marketing Association Program:Another way grain co-ops can serve their members Jan./Feb. 24

Co-ops increase share of farm marketings; share of farm supply sales dips slightly May/June 19

Dismantling of Farmland continues; Smithfield


buying pork business Nov./Dec. 15Great Lakes Pork Co-op adjusts plan to seek

alternative packing plant May/June 8How does your local farm supply cooperative rate? March/April 22Large co-ops see growth in ‘01, reverse declining net margins Jan./Feb. 20Local co-ops’ net income and sales climb in 2001 Jan./Feb. 31Low-overhead approach taken by Dakota Lamb Growers Co-op May/June 7Minnesota leads the nation in co-op business volume Sept./Oct. 18More than milk


Natural beef anchors product line for co-op of Kansas family farms May/June 5

New days, new waysCo-ops, producers find many ways to prepare for the future Nov./Dec. 4

New global strategyYear-round citrus demand has Sunkist tapping foreign market supplies Sept./Oct. 4

New kids on the blockIowa beef co-op sees strategic partnership as best way to break into high-

ly competitive retail beef market May/June 4NMPF scales back CWT milk supply-balancing plan July/Aug. 28Revenue, margins trend downward for nation’s top

100 ag cooperatives Nov./Dec. 17Striking oil

South Dakota Soybean Processors finds new ways to add value to crop March/April 20

Ursa Farmers CooperativeUrsa, Illinois Jan./Feb. 25

Wisconsin’s Westby, ‘Little Creamery That Could,’ marks 100th anniversary Sept./Oct. 20

Member Relations Adapting to change

Educating members helps smooth transitions May/June 23Annual Reports:

How to read them and what they should tell you about your co-op Jan./Feb. 10

Facility closures always a tough decision for co-ops March/April 17Network difficulties

Tales of two Iowa pork-producer networks show that bottom-up approach works best March/April 18

The ‘closure’ dilemmaConducting business in a way that helps keep both members and their co-op in business can be a challenge March/April 15

TrailblazersLeadership development programs key to more women winning seats on co-op boards May/June 13

Rural Development Ag Marketing Resource Center helping producers

develop value-added strategies May/June 15Farming with 8.5 million neighbors July/Aug. 7$44-million push for new geographic technology May/June 25House calls

In-home care givers form cooperative to provide vital service for elderly, disabled in rural Wisconsin May/June 9

Living with SprawlAs farms give way to subdivisions and traffic lights,

America’s rural cooperatives struggle to adjust July/Aug. 4More than a power source

Brunswick Electric typifies commitment of cooperatives to support rural communities July/Aug. 15

No mountain too highRural broadband service helping to save lives of isolated patients May/June 22

Oneida grocery co-op boosts community; helps keep more money on reservation Jan./Feb. 26

Orange Empire bows to urban sprawl in Southern California July/Aug. 8

Southern hospitalityWalton Electric Co-op makes a positive difference for Georgia Sept./Oct. 8

USDA plays active role in farmland protection July/Aug. 9USDA providing $1.4 billion to expand rural broadband May/June 24USDA’s REDLG program July/Aug. 17USDA’s Value-Added Producer Grants invest millions

in innovative ag businesses March/April 11

StatisticsRevenue, margins tend downward for nation’s top

100 ag cooperatives Nov./Dec. 17

Technology Catch the wind


$44-million push for new geographic technology May/June 25Meeting the challenge: co-ops in the 21st century Jan./Feb. 4No mountain too high

Rural broadband service helping to save lives of isolated patients May/June 22

USDA providing $1.4 billion to expand rural broadband May/June 24

Trade Cooperative exports decline in 2001; bulk sales fall

but continue to dominate sector Nov./Dec. 26New global strategy

Year-round citrus demand has Sunkist tapping foreign market supplies Sept./Oct. 4

Utility Co-ops Catch the wind


Frogs, snakes & kilowattsEast Kentucky Power Co-op finds green in environmental program Jan./Feb. 16

Funding Business Development Centers July/Aug. 18More than a power source

Brunswick Electric typifies commitment of cooperatives to support rural communities July/Aug. 15

No mountain too highRural broadband service helping to save lives of isolated patients May/June 22

Southern hospitalityWalton Electric Co-op makes a positive difference for Georgia Sept./Oct. 8

Walton saluted for business ethics Sept./Oct. 10

Value Added Adversity to Advantage


Ag Marketing Resource Center helping producers develop value-added strategies May/June 15

Congressional hearing focuses on possible need for more flexible co-op business model Nov./Dec. 9

Equity, tax issues prompt beef co-op to ponder switch Nov./Dec. 12Great Lakes Pork Co-op adjusts plan to seek alternative

packing plant May/June 8Low-overhead approach taken by Dakota Lamb

Growers Co-op May/June 7Natural beef anchors product line for co-op of Kansas

family farms May/June 5New days, new ways

Co-ops, producers find many ways to prepare for the future Nov./Dec. 4

New kids on the blockIowa beef co-op sees strategic partnership as best way

to break into highly competitive retail beef market May/June 4‘No go’ can be a good show

Feasibility study advises co-ops not to pursue tortilla project July/Aug. 20

Sweet smell of successOklahoma wheat producers use USDA financing to launch frozen-dough bakery Nov./Dec. 20

The Greene Bean Project: Growers’ field of dreams is edible beans May/June 16

USDA’s Value-Added Producer Grants invest millions in innovative ag businesses March/April 11

VegetablesThe Greene Bean Project: Growers’ field of dreams

is edible beans May/June 16


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