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C o o p e r a t i v eM a r k e t i n g A c t :7 5 Ye a r s Yo u n g

USDA / Rural Development July/August 2001USDA / Rural Development July/August 2001

2 July/August 2001 / Rural Cooperatives

Randall E. Torgerson, Deputy Administrator forCooperative Services, RBS

When Congress enacted the Coopera-tive Marketing Act of 1926, it spelledout a federal program of services toassociations of agricultural producersthat is as fresh and useful today aswhen it was written 75 years ago. Thatthese services continue to be carriedout attests to the value the public andagricultural community place on busi-ness conducted cooperatively.

The value of producer-owned coop-eratives as a critical dimension of mar-ket structure is derived from the virtueof people working together for theircommon good. The public interest isthereby served. Help through self-helpis the bottom line. Programs providingthe tools and encouraging people tohelp themselves have proven to beamong the finest forms of governmen-tal assistance available.

When Congress passed the 1926 Act,cooperatives were in their heyday, withthousands being organized and thou-sands more already in existence. Signifi-cantly, it was recognized that a federalsource of assistance was necessary todocument best principles, practices andstructure that could serve farm interests.This enabled the Department of Agri-culture (USDA) to identify what workedin different parts of the country and tohelp existing cooperatives—as well asnewly organizing groups of producers—to benefit from this knowledge. It alsoenabled USDA to assist rural Americain maintaining a standard of what con-stitutes operating on a cooperative basis.

“Cooperative Development and the

State,” a series of case studies of thecooperative sector in various nations,was published in 2000 by ProfessorBrett Fairbairn, University ofSaskatchewan. It concluded that theUnited States, through USDA, standsout among other countries in its sup-port of cooperative development.

In that report, Fairbairn says ofUSDA’s Cooperative Services program:“Its effectiveness is related to severalfactors which include not only the sizeof its budgets and its networks of coop-erative and third-party arrangements,but also – and perhaps most significantly– the fact that it has a dedicated agencywhose mandate is to support coopera-tive development . . . This exampleappears to show that there can be aniche in a federal system for an active,cooperative-development role at the

national level, and that having an agencydedicated to this role likely makes apractical difference both to the focusingand delivery of government resources,and to the actual results in developmentof cooperatives and communities.”

The success of USDA’s CooperativeServices program can be attributed toits service orientation of helping tofacilitate cooperatives’ adjustments andchanges to fast-moving industry condi-tions. By contrast, governmental pro-grams in other countries usually have aregulatory element, if not an exclusivefocus on regulation.

Despite recognition of this institu-tional presence and achievement in aworldwide context, it can be noted thatprogram performance has been bestwhen agency status was granted to Coop-erative Services programs within USDA.It can also be noted that the existence offarm commodity programs have tendedto weaken the incentive for farmers toeffectively organize to represent theireconomic interests. As a result, the roleof cooperatives in U.S. agricultural policyhas been less than its potential.

Active engagement with cooperativesby USDA’s Cooperative Services staffover the years has evolved with thechanging needs of farmers and otherrural residents for different bundles ofservices. Group purchasing of carloadlots of salt, binder twine, fertilizer andcoal in earlier days has given way tosophisticated manufacturing and appli-cation of crop protectants, fertilizers,feeds and fuels. Related services, such asfrozen food lockers, statewide insuranceprograms and county artificial breedingservices have now been replaced by

C O M M E N T A R Y

USDA marks 75th anniversary of service to cooperatives

Former Agriculture Secretary Earl Butzstressed the vital role cooperatives play inthe nation’s rural economy during an eventheld at USDA headquarters in Washington,D.C., to mark the 75th anniversary of theCooperative Marketing Act. Looking on areSecretary of Agriculture Ann Veneman andRBS Deputy Administrator Randall Torgerson.

continued on page 31

Rural Cooperatives / July/August 2001 3

Rural COOPERATIVES (1088-8845) is publishedbimonthly by Rural Business–CooperativeService, U.S. Department of Agriculture, 1400Independence Ave. 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 Superintendentof ZDocuments, Government Printing Office,Washington, DC, 20402, at $3.50 domestic, $4.38foreign; or by annual subscription at $15.00domestic, $18.75 foreign. Postmaster: sendaddress change to: Rural Cooperatives,USDA/RBS, Stop 3255, Wash., DC 20250-3255.

Mention in Rural COOPERATIVES of companyand brand names does not signify endorsementover other companies’ products and services.

Unless otherwise stated, contents of this publica-tion are not copyrighted and may be reprintedfreely. For noncopyrighted articles, mention ofsource will be appreciated but is not required.

The United States Department of Agriculture(USDA) prohibits discrimination in all its pro-grams and activities on the basis of race, color, national ori-gin, sex, religion, age, disability, political beliefs,sexual orientation, and marital or family status.(Not all prohibited bases apply to all programs). Persons with disabilities who require alternative meansfor communication of program information(braille, large print, audiotape, etc.) should con-tact USDA’s TARGET Center at (202) 720-2600(voice and TDD).

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

Ann Veneman, Secretary of Agriculture

Randall Torgerson, Deputy Administrator, USDA RuralBusiness-Cooperative Service

Dan Campbell, Editor

Vision 2000/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 DeDepartment ofAgriculture

COOPERATIVESRura

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COOPERATIVESJuly/August 2001 Volume 68 Number 4

O n t h e C o v e r :

On the cover: The Cooperative Marketing Act, which marked its 75th “birth-day” in early July, forms the legal foundation for USDA’s Cooperative Servicesprogram. A series of articles describing the work of the agency and how itimpacts cooperatives begins on page 9 of this issue. USDA archive photos

F E A T U R E S

4 Finding a nicheDakota Growers Pasta co-op finds success in a highly competitive marketBy Michael Boland and David Barton

9 Turmoil of early 20th century led to USDArole in assisting co-opsBy Patrick Duffey

13 USDA’s expanding cooperative developmentassistance roleBy John Wells

15 Significance of the Cooperative Marketing Act’sother key provisionsBy Randall E. Torgerson

16 Research and technical assistance work areheart of Cooperative Services missionBy John Dunn

18 Statistics show cooperative status, progress and trendsBy Charles A. Kraenzle

19 USDA’s commitment to cooperative educationBy Jim Wadsworth

21 African village banks project shows renewedemphasis on international co-op developmentBy James Haskell

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

22 MANAGEMENT TIP

24 NEWSLINE

Years

By Michael Boland and David Barton

Editor’s note: Michael Boland is an associate professor of agricul-tural economics at Kansas State University in Manhattan, Kan.David Barton is professor of agricultural economics and Director ofthe Arthur Capper Cooperative Center at Kansas State University.

akota Growers Pasta (DGP) is a defined- (orclosed) membership cooperative organized in1991 as a vertically integrated operation thatassembles its members’ durum wheat, millsdurum wheat into semolina, produces pasta

from semolina and markets the pasta. DGP’s success inadding value to its members durum has made it one of thenation’s more noteworthy “new- generation”cooperatives and one which other grow-er-owned cooperatives areattempting to emulate.

It has succeeded in a high-ly competitive industry char-acterized by wide swings inthe price and availability ofthe key input: durum wheat.The price paid to member-producers for durum wheathas been substantially higherthan the market price oncethe processing net margin isdistributed to members.The net earnings of DGPand net price received bymembers appear to influ-ence the market price ofstock.

DGP’s earnings on aper bushel, or per share, basis increased from 1994-1998 andthen declined in 1999-2000. Year-to-date results for the firsttwo quarters of 2001 were negative, but it is projected that itwill turn a profit again for the last two quarters of 2001. Dako-ta Growers Pasta continues to face significant competitivechallenges. Following is a description of the competitive envi-ronment in which the co-op operates and its history, based ona soon-to-be published case study of Dakota Growers Pasta.

Marketing agreementsGrower marketing agreements are commonly used by

closed-membership, or new-generation, cooperatives as amechanism to acquire member-producer commodities thatthe cooperative processes into finished products. These con-tractual agreements create a delivery right and an obligationfor members. Members are required to purchase one share ofstock for each commodity unit (such as bushels of a crop ornumber of animals) which they want to deliver and sell annu-ally to the cooperative. The total number of shares sold usu-ally matches the capacity of the processing plant.

The stock is an investment and asset that can be pri-vately traded or exchanged between eligible members at anegotiated price. This means the stock price can appreciateor depreciate in value from the initial issue price or subse-

quent exchange price. However, the stock is always car-ried on the balance sheet of the cooperative at

its nominal issue, or book,price. And it is carried

on the balance sheetof the member at the

purchase, orexchange, price.

Over time, the stockmarket price increasesand decreases in valuedue to privately negotiat-ed agreements. Producers

often have questionsabout what causesthese changes in prices.This article is based ona cooperative agree-ment research studyfunded in 1998 by the

Rural Business-Cooperative Service of USDA Rural Develop-ment. The study sought to evaluate changes in stock prices oftwo closed-membership cooperatives, one of which wasDakota Growers Pasta.

Dakota Growers Pasta (DGP) used grower agreementswith its members which obligate producers to deliver onebushel of high-quality durum wheat for every unit of stock.Stock was initially offered at $3.85 per bushel and conveyed a

F i n d i n g a n i c h eHow Dakota Growers Pasta co-op found success in a highly competitive market

D


In addition to this line of pasta products bearing its own brand, Dakota GrowersPasta cooperative also owns the Pasta Sanita and Zia Briosa labels. The majorityof DGP’s pasta sales are under private-label products. Photo courtesy Dakota

Growers Pasta Cooperative

Rural Cooperatives / January/February 2001 5

right and an obligation to deliver durum wheat as specified inthe growers’ agreement. The growers’ agreement obligatedeach member to deliver a set amount of durum wheat to thecooperative from their own production, based on the numberof shares they had purchased. If the member could not supplythe wheat with the desired quality, DGP would purchase thewheat on behalf of the member and charge them purchase orthe current market price, plus a service fee.

Competitive forcesIn order to best understand why the value of stock changes

over time, it is useful to conduct a competitive analysis of theindustry and then examine the individual firm’s actions with-in that competitive environment. In addition to DGP’s verti-cally integrated durum milling and pasta manufacturing plantin Carrington, N.D., the cooperative also operates a secondpasta plant in Minneapolis, Minn., which it acquired in 1997.

Porter’s Five Forces economic model will be used below toanalyze competition in the durum milling and pasta manufac-turing industries. Rivalry between firms, barriers to entry,substitute products and the competitive power of buyers andsellers are five forces that affect an industry and, ultimately,influence a firm’s profitability within that industry. Availabili-ty of substitute products is not a major influence on thisindustry, so it is not included in the following discussion.

Pasta buyersBuyers include retail supermarkets, food service providers

and food manufacturers that use pasta as an ingredient inother processed foods. In the case of non-vertically integrat-ed firms, buyers are pasta manufacturers that purchasesemolina flour and process it into pasta product. Ultimately,consumers represent the final buyer based upon theirdemand for pasta.

Pasta consumption in the United States was relatively sta-ble between 1967 and 1984, at approximately six-to-sevenpounds of durum wheat-based food products(pasta) per capita. Sincethen, U.S. pasta con-sumption rose about onepound per year, reachinga maximum of 14pounds per capita in1994, and then decreas-ing slightly.

The U.S. Departmentof Agriculture (USDA)notes that there are fourprimary reasons for theper capita increase indemand for pasta:changing lifestyles,increased availability ofpasta sauces, increased

attention to healthy eating and increased numbers of Italianrestaurants. In addition, the number of American householdswith two working parents has increased, leading to changesin where and how meals are prepared and eaten.

Meals that are healthy, easy and relatively quick to preparehave become commonplace, and pasta fit this description.The abundance of prepared sauces has served as a “comple-mentary catalyst” and has improved the quality and variety ofthe choices available for consumption.

The increase in the number of Italian-style restaurantsfueled the growth in the food service sector of the pasta indus-try. Italian food has become a mainstream food, evident by thegrowth in the number of Italian restaurants. Consumers areeating outside the home more often, they are eating healthierfoods, and per capita incomes are increasing, causing theuptrend in restaurant numbers. Americans spent 46 percent oftheir food expenditures on away-from-home meals in 1998, up from 34 percent in 1970 and 39 percent in 1980.

Five billion pounds of pasta (4.5 billion in dry pasta and 0.5billion in frozen and fresh pasta) were consumed in 2000, com-pared to about four billion pounds in 1992. The 2000 total valuewas $2.6 billion. There are four principal dry pasta market seg-ments: ingredient (which accounts for about 43 percent of themarket), private and brand label retail (37 percent of the mar-ket), food service (10 percent) and government bids (10 percent).

Within each segment, there are both private-label andbrand-label products. Private-label products are productsmanufactured by a firm that had another firm’s label on it. For example, a company such as Mueller’s which has brandassets, but no manufacturing assets, would contract its brandproduction with a company that had manufacturing assets,such as American Italian Pasta Company.

Within the retail market segment, private-label pasta hadbeen growing at a faster rate than brand-label pasta as pri-vate labels increased from 19 percent to almost 24 percentof the market from 1994 to 2000. In the ingredient market

Num

ber

of M

ills

1990 1992 1994

Figure 1 Durum milling industry capacity and number of mills, 1990-1998

30

25

20

15

5

01996 1998 2000

■ Capacity■ Number of Mills

10

180,000

150,000

120,000

90,000

60,000

30,000

0

Cap

acity

, per

cw

t

Source: Industry Annual Report, Milling and Baking News

segment, 75 percent is manufacturedby firms for their own internal needs,with the remainder being purchasedon the quality specifications needed intheir products. About half the foodservice market segment is private labeland the government market segmentis considered brand label.

Bargaining power of suppliersDurum wheat is the only wheat that

can be used for pasta due to its highprotein percentage, which is higherthan any other type of wheat. Poor-quality durum results in pasta noodlesthat break easily, causing problems inpackaging. North Dakota, easternMontana, northwestern Minnesota,southern Alberta and southernSaskatchewan are the primary produc-tion regions due to cool nights andwarm, but not hot, summers that areideal for durum wheat. Althoughdurum wheat is also grown in Arizonaand California, the northern GreatPlains states are expected to remainproduction leaders in the future.

One major problem in 1999 and 2000was the poor quality of the durumwheat. The poor quality was caused byscab disease problems in early-planteddurum and sprout damage from rain and

frost at harvest. The poor quality causedmillers to remove more screenings(which became mill feed and was used asan ingredient in feed rations) from thedurum wheat. Thus, more durum wheatwas needed to manufacture a unit of pas-ta, which increased costs. Consequently,millers imported durum wheat fromCanada and other regions rather thanusing North Dakota wheat.

Rivalry between firmsThis industry has undergone change

as large pasta firms, which had pro-duced both private label and brandlabel, have exited private-label produc-tion to focus strictly on their corebrands. Some retailers prefer privatelabel because of higher margins andgreater control of merchandising.Although there is no direct evidence,retailers and pasta manufacturersbelieve that consumers prefer “Italian”brand names and regard imported Ital-ian pasta as higher quality. Thus, somefirms are beginning to develop domes-tic pasta with an Italian brand name.The perceived quality of a brand isrelated to its image as well as productcharacteristics such as shorter cookingtime, ease of cleaning (e.g., less sticki-ness inside a pan), and innovative prod-

ucts that are easy to prepare and conve-nient to use by consumers.

Through lower-cost technology, newentrants in the pasta industry havefocused on innovative products andmanufactured them as private-labelproducts for other firms that havebrands. Thus, private-label brands arebecoming more competitive becausethey have higher quality product attrib-utes and are priced competitively. Pricecompetition among retail brands low-ered the average price of retail-brandpasta by the end of the 1990s. Thus, theprice differential between private-labelpasta and brand label-pasta declined,slowing private-label pasta growth.

Barriers to entry or threat of new entrants

Thirteen major companies milleddurum wheat in the United States in1991 when DGP was organized, butthere have been significant changessince then. Well-known firms have exit-ed durum milling (such as Pillsbury andCargill) and new firms have entered(such as American Italian Pasta Co. andDakota Growers Pasta). By 2001, Ital-grani USA, Harvest States Cooperativesand Miller Milling Company comprisedabout 60 percent of total U.S. durum


Table 1—Selected income statement and balance sheet information for Dakota Growers Pasta (in $1,000),inception to first quarter 2001.

1993a 1994 1995 1996 1997 1998 1999 2000 2001b

Net revenue 0 19,706 40,441 50,694 70,702 119,621 124,869 139,203 64,915 Net income from patronage (423) (248) 1,394 2,579 6,890 9,359 7,845 7,624 (2,897)

and non-patronage business available for members

Total assets 24,818 45,215 47,842 49,894 68,739 124,534 135,873 131,857 134,494 Long-term debt 11,557 28,477 29,097 19,752 30,218 66,056 59,116 51,626 48,914 Members’ investment 12,183 12,107 13,497 24,866 29,956 36,875 58,982 60,533 53,170 Number of stock shares 4,674c 4,674c 4,674c 5,568c 7,356 7,356 8,603 11,166 11,253 Earnings per share (0.09) (0.05) 0.30 0.46 0.94 1.27 0.91 0.68 (0.10)

a Dakota Growers Pasta was formed Dec.16, 1991, and was in development stage through July 31, 1993. Full opera-tions began January 1, 1994.b Reflects unaudited first quarter (through October 31, 2000) 2001 data only.c Adjusted for the 3-for-2 stock split that was declared in 1997. Expressed in thousands.Source: DGP 10-K reports.


milling capacity. Durum milling plantshave traditionally been located neardurum wheat production or in regionswith favorable rail transportation accessto North Dakota. Milling capacityincreases kept pace with consumptionin the early 1990s but outgrew con-sumption by 1995. Capacity then beganto decline as older and higher cost

plants began to be shut down (Figure1). By the late 1990s, capacity was con-centrated in Minnesota and NorthDakota, and in Midwestern states suchas Missouri that are on a direct rail lineto eastern North Dakota.

There are currently 141 pasta plantsthat manufacture dry pasta in the Unit-ed States, but 67 of those plants

accounted for the majority of pasta salesin 2000. The industry changed with theentry of vertically integrated firms, suchas American Italian Pasta Company(AIPC), which had little market share in1991 but had the largest productioncapacity by 1998. The main U.S. pastamanufacturers, with about 55 percentmarket share, are: Hershey Foods,AIPC, Borden Food Holdings Co.,DGP, Philadelphia Macaroni Co., A.Zerega Sons Inc., and Gooch Foods(owned by Archer Daniels Midland).

Another 25 percent of market shareis owned by companies that producepasta for their internal needs, such asKraft Foods, General Foods Inc.,American Home Foods Products, ConAgra Inc., Pillsbury, Campbell SoupCo. and Stouffers Corporation. In2000, Barilla, an Italian pasta manufac-turer, built a plant in Iowa.

Pasta imports increased in the 1990sbut leveled off when a trade rulingfound that several Italian pasta compa-nies were importing U.S. durum wheatand selling pasta to the United States atprices below their marginal costs (i.e.,dumping pasta). Imports in 2000 repre-sented another 13 percent, while totaldomestic capacity was estimated at 3.8billion pounds per year.

General conclusions aboutcompetition

The change in durum milling capac-ity and geographic location, coupledwith imports had increased durumwheat and semolina flour price volatili-ty in the late 1990s. The MinneapolisGrain Exchange established a durumfutures contract in February 1998, butit is not widely used due to lack of liq-uidity. Durum wheat prices rosebecause of increased demand for pastaand lower production yields in NorthDakota due to disease problems. Inaddition, the increase in milling capaci-ty in the late 1990s has helped increasedemand for durum wheat, whichincreased durum prices. As durum andsemolina flour prices rose and pastademand began to plateau, pasta manu-facturers found it more difficult to passalong higher input costs and their

Table 2—Dakota Growers Pasta timeline of activities, 1991 to 2001

Year Transaction

1990 North Dakota durum wheat farmers contributedcash for a feasibility study of an integrated durummilling/pasta manufacturing plant.

1991 Results came back positive (15% return on invest-ment over and above the ten year durum wheataverage price per bushel of $3.85). Tom Dodd washired as general manager and Gary Mackintosh asnational sales manager in December.

January-February 1992 1,200 durum wheat farmers from western Min-nesota, North Dakota, and northeastern Montanapledged $12.5 million in equity towards a $40 mil-lion durum mill and pasta plant in Carrington,North Dakota, by purchasing stock at $3.85 pershare and per bushel of delivery rights.

July 1995 Completion of its first year of operation with 3.2 mil-lion bushels of durum milling capacity and 120 mil-lion pounds of pasta (almost perfectly aligned as 36pounds of semolina in a bushel of durum wheatyields 115.2 bushels of semolina flour for pasta).

October 1995 Board of directors decided to double durum wheatcapacity.

February 1996 1,085 producers contributed over $9.7 million inequity towards the expansion by purchasing stockat $3.80 per share.

Summer 1996 Durum mill expansion (6 million bushels of durumper year).

July 1997 Three-for-two stock split. Summer 1997 Pasta plant expansion was completed (240 million

pounds). Fall 1998 Acquired Primo Piatto’s two pasta plants in Min-

neapolis (200 million pounds of pasta), expandedCarrington facility to 12 million bushels of durummilling per year and added an additional 30 mil-lion pounds of pasta capacity.

Winter 2000-2001 Signed agreement with Semolina Specialties, closedone small plant in Minneapolis, and voted to allowCanadian members or associations to purchase stock.Current annual capacity is 450 million pounds of pasta.

Source: DGP 10-K reports.


margins began to decline (i.e., pastaprices declined). By 1999, durummilling capacity was greater than pastademand.

History of Dakota Growers PastaThe 1,084 members of DGP are

durum wheat producers who operate inthe states of North Dakota, Minnesotaand Montana. Dakota Growers Pasta’sstate-of-the-art durum wheat mill andpasta production facility in Carrington,N. D., was completed in 1994. Thecooperative has gone through manychanges since its inception (Table 2).The company uses its semolina in its

own pasta production process. Thevertically integrated facility consists ofa grain elevator, a mill, four pasta pro-duction lines, two of which manufac-tured short goods (such as macaroni)and two of which produced long goods(such as spaghetti), and a warehouse tostore the finished goods.

The cost savings from integrationprovide a competitive advantage rela-tive to other firms. Dakota GrowersPasta has become successful in a veryshort period of time and it became thethird largest pasta manufacturer in theUnited States (Table 1). Members havereceived patronage refunds in every

year since 1996. In addition, a three-for-two equity stock split was declaredin July 1997. The company hasremained profitable during its brief his-tory by increasing the value that mem-bers received for their durum wheat rel-ative to non-members in North Dakotawho did not invest in DGP.

Because the plant had lower costsrelative to others in the industry, itincreased its market share and, hence,net income. Qualified cash patronagerefunds and non-qualified retainedpatronage refunds per share since 1995are shown in (Figure 3).

In the beginning, DGP focusedmainly on the private-label businessbecause that was the quickest way toenter this industry. During the plant’sfirst two years, it produced, among oth-er things, pasta for other companiesthat were short on inventory due tounexpected demand or because of ashortage of durum wheat (this wascalled co-packing). However, DGP’ssales increased to where co-packing wasless than 1 percent of sales. The retailprivate-label and ingredient marketsegments comprised the bulk of DGP’ssales. Branded pasta products representan important market segment for thecompany. Approximately 60 percent ofits business is retail (primarily privatelabel), followed by 20 percent in foodservice, and 20 percent in the ingredi-ent market. The majority of DGP salesare under private label although it hasits own label, Dakota Growers, as wellas Pasta Sanita and Zia Briosa.

Dakota Growers Pasta had grown sofast that the Carrington plant was alreadyrunning at maximum capacity by 1997.The firm would not be able to sustainany new growth without additionalcapacity. In 1997, DGP acquired PrimoPiatto, which owned two pasta plants inMinneapolis, Minn. The plants produced200 million pounds of pasta per year.

Dakota Growers Pasta continued tomeet customer demand for additionalpasta products. In 2000, DGP began acertified organic pasta product line. Inaddition, the cooperative entered into

a The sum of patronage refund and retained patronage refund is earnings per share.Source: FGP annual reports

0.0 0.20 0.40 0.60 0.80 1.00 1.20 1.40

Figure 3 Dakota Growers Pasta qualified cash patronage refund and nonqualified retained patronageRefund, 1995 to 2000a

2000

1999

1998

1997

1996

1995

■ Qualified cashpatronagerefund

■ Nonqualifiedretainedpatronagerefund

a The DGP price represents the purchase price, patronage refund, and stock appreciation on a per bushel basisSource: DGP annual reports

Figure 2 Durum wheet prices for Dakota Growers Pasta members vs. average North Dakota price,

1994 to 2000a

$8.00

$7.00

$6.00

$5.00

$4.00

$3.00

$2.00

$1.00

$0.00

■ Dakota Growers Pasta Members■ North Dakota Pricex

1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01


Patrick DuffeyUSDA Rural Development

he federal governmenthas had a long relation-ship with agriculturalcooperatives, viewingcooperatives as part of a

national farm policy aimed at fortifyingthe income of agricultural producers.But it took until the 1920s for a formalpolicy to jell. The 69th Congressapproved, and President CalvinCoolidge signed, the Cooperative Mar-keting Act on July 2, 1926, two daysahead of the nation’s annual observance

of Independence Day. By its passage,“helping farmers to help themselves”became national policy.

This summer marks the 75th

anniversary of that historic legislationas still another new administrationfinds cooperatives a useful part of itsnational farm policy. During a specialanniversary observance at the U.S.Department of Agriculture in Wash-ington, D.C., on June 28, Secretary ofAgriculture Ann Veneman spoke ofthe importance of cooperatives to therural economy.

“Our mission provides some valu-able tools in the food and agriculture

industry’s toolbox to help them bettercompete in today’s changing food sys-tem,” Veneman said. “Seventy-fiveyears after its creation, CooperativeServices recognizes these changes, andour employees are playing a majorrole in helping promote the opportu-nities that lie ahead in what promisesto be a world of opportunity.”

In the face of several years of declin-ing commodity prices for farmers,some farmer-owned cooperatives havetaken a severe economic hit. Mergersand consolidations have been the orderof the day among cooperatives that arefaced with the declining number of


From the Northwest comes Tillamook cheese (in this 1940s-era photo), long-cherished by cheese lovers. USDA’s Cooperative Services program has produced numerous reports and studies over the years to help maintain a strong co-op presence in the dairy industry. All photos for 75th Anniversary section are USDA archive photos, except where noted.

T u r m o i l o f e a r l y 2 0 t hc e n t u r y l e d t o U S D A r o l ei n a s s i s t i n g c o - o p s

T

Years


producers and rising energy-based andother costs.

This special section of the magazinereflects on why and how USDA sup-ports cooperatives as an effective farmpolicy tool that bolsters the income ofthe nation’s food producers and whythat support for cooperatives has con-tinued for 75 years.

What the law says The 1926 law directed the secretary

of agriculture to form a Division ofCooperative Marketing in USDA’sBureau of Agricultural Economics. Sev-enty-five years later, an expanded andmore refined program supporting agri-cultural cooperatives is contained withinthe Rural Business-Cooperative Service(RBS) of USDA Rural Development.

While the department’s cooperativeassistance program was formalized in1926, it was preceded by two studies.Both are chronicled by Wayne Ras-mussen, USDA’s official historian, in his1991 book, “Farmers, Cooperatives andUSDA: A History of the AgriculturalCooperative Service,” which also tracesthe historical development of coopera-tive activity in the United States.

In 1901, the department’s first com-prehensive study of cooperatives was led

by George Holmes, a statistician in theDivision of Statistics. He tied coopera-tive failures to the lack of sufficient capi-tal, cooperatives’ need for more experi-enced business managers and a poorcredit policy. Although Holmes’ 432-page manuscript was never published, it

“provided our best picture of agricultur-al cooperatives as they existed at theturn of the century,” said Rasmussen.

The Commission on CountryLife, appointed by PresidentTheodore Roosevelt, issued a reportin 1908 that said the greatest need ofcountry life was “effective coopera-tion among farmers, to put them ona level with the organized interestswith which they do business.” Thecommission further proposed forma-tion of a cooperative farm credit sys-tem. It took until the Federal FarmLoan Act of 1916 for Congress tocreate such a system.

Eventually, most of the commis-sion’s recommendations were adopted.Agriculture Secretary James Wilson’sadministration initiated the first spe-cific cooperative research project,which focused on cotton handling andmarketing.

Unlike other sectors of the nationaleconomy, agriculture was suffering fromover- production after World War I.The post-war period of American life,from 1920 to 1932, was one of consider-able change, such as the switch fromhorse power to motor power. The rapid

In the 75 years since it was signed into law, the Cooperative MarketingAct has provided the legislative mandate for USDA’s role in helping toexpand knowledge of the cooperative method of conducting business. Theprogram helps rural residents form new cooperatives and improve theoperations of existing co-ops. The Act specifically directs USDA to:

• Promote knowledge of cooperative principles and practices;• Gather, analyze, and disseminate economic, statistical and historical

information about cooperatives;• Study the economic, legal, financial, and social aspects of cooperatives

and publish the results;• Provide technical assistance and disseminate information useful in the

development of cooperatives;• Promote the use of U.S.-style cooperatives internationally.

“When the idea of a cooperative comes in contact with felt needs andthe readiness of people to act, it takes root, grows and flourishes. The asso-ciation of people and enterprise forms a symbiotic relationship of mutualsupport...and the business prospers.” ■

– International Joint Project on Cooperative Democracy

USDA’s Role in Promoting Cooperatives

Group purchase of farm supplies – such as salt, binder twine, fertilizer and coal – by earlyfarm supply co-ops has now shifted to manufacture and application of crop protectants,fertilizers, feeds and fuels by major supply co-ops. Above, Southern States Cooperative hasbeen supplying members’ farm supply needs since 1923, when it was organized as theVirginia Seed Co.


business consolidation also applied tofarmers. It brought on what one histori-an called a “cooperative explosion.”

Knapp’s observationsA historian and author of numerous

books on agricultural cooperatives, thelate Joseph Knapp was administrator ofUSDA’s Farmer Cooperative Service (aforerunner of today’s RBS CooperativeServices program) from 1953 to 1966.In his book, “The Advance of AmericanAgricultural Enterprise,” Knapp saidthe most important factor during thisperiod was “the severe post-World WarI depression which led to chronic agri-cultural distress in the face of generalbusiness recovery.”

He listed several events which ledto a farm price collapse in 1920: gov-ernment decontrol of railroads, whichled to higher freight rates on agricul-tural traffic; the Federal ReserveBoard raised discount rates to curbinflation; the War Finance Corpora-tion, which had financed agricultural

exports during World WarI, was discontinued; andthe government halted itssupport of wheat prices.

Record farm prices atthe start of 1920 spurredincreased productionwhich caused prices toplunge. Farm index priceswhich stood at 219 in Jan-uary collapsed to 140 inDecember, Knapp said.Farm commodity coopera-tives strong enough tocontrol prices were advo-cated as an approach tosolving farm problemssuch as this. The legal sta-tus of cooperatives wasclarified when Congresspassed the Capper-Vol-stead Act of 1922. It gavefarmers the right to formcooperatives without fearof antitrust action.

“The law protected coop-eratives as they organizedbut never gave cooperativesthe right to establish

monopolies with complete immunityfrom antitrust laws,” Rasmussen noted.E. G. Nourse, a leading agriculturaleconomist of 1920, felt cooperativeswould offer a competitive yardstick inthe business world – a measure againstwhich to judge traditional investor-owned businesses. That yardstick phi-losophy is stillbeing used todayto advocate coop-eratives.

Cooperativeactivity grows

Significantcooperativedevelopmentsoccurred duringthis period. In1916, the Nation-al Milk Produc-ers’ Federationbegan playing akey role in advo-cating the need

for legislation to assist cooperatives.The National Council of FarmerCooperatives Marketing Association(predecessor of today’s National Coun-cil of Farmer Cooperatives, or NCFC)was formed in 1922, the AmericanInstitute of Cooperation (now part ofNCFC) was organized in 1925 to pro-mote cooperative education, agricul-tural colleges were devoting moreattention to cooperatives in theirresearch work and courses of study,and USDA’s Extension Service and theAmerican Farm Bureau were activelypromoting formation of cooperatives.Other leading farm organizations, suchas the National Farmers Union and theGrange, played active roles during thisearly period of cooperative activity.

By 1925, “the monopoly-controlphilosophy of cooperative marketinghad lost adherents; cooperative leader-ship was shifting to marketing efficien-cy as the primary objective of coopera-tive marketing,” Knapp wrote.

Is the Act still effective?So why is this law still significant

to cooperatives 75 years later? Theact widely interpreted the term “agri-cultural products” to cover agricultur-al, horticultural, viticultural, dairy,livestock and related products, thosefrom poultry and bee raising, edibleproducts of forestry, “and any and allproducts raised on farms andprocessed or manufactured products

CHS’s Savage Terminal Elevator in Minnesota transportsmembers’ grain to barges for shipment down theMississippi River. USDA Cooperative Services grain spe-cialists constantly monitor and report on actions andtrends that impact grain cooperatives.

American Fruit Growers Inc. – seen here circa 1930 – was an earlyapple co-op in Wenatchee, Wash.


thereof, transported or intended to betransported in interstate commerceand/or foreign commerce.”

The law’s Section 3 covered servicesto associations, federations or sub-sidiaries of agricultural producers“engaged in cooperative marketing ofagricultural products, including pro-cessing, warehousing, manufacturing,storage, cooperative purchasing of farmsupplies, credit, finance, insurance andother cooperative activities.”

The new division’s duties – as out-lined in seven subsections – reflectedactivities still conducted by today’s RBS(see box, page 10).

Wider coverageRBS is part of USDA’s Rural

Development mission area, which wascreated in 1994 when USDA consoli-dated rural economic programs thathas previously been scattered amongvarious agencies. RBS encompassesthe former Agricultural CooperativeService and some of the economic andbusiness development programs of theformer Rural Development Adminis-tration and the Rural ElectrificationAdministration.

While agricultural marketing andfarm supply cooperatives remain theprimary focus of USDA’s CooperativeServices program, its educational

materials are widely used by all typesof cooperatives.

Cooperatives are often a mainstayand a major employer in rural commu-nities. By one estimate, nearly one-third of the population belongs to sometype of cooperative. Application of thecooperative business structure is virtu-ally limitless. By working together fortheir mutual benefit in cooperatives,

rural residents are often able to reducecosts, obtain services that might other-wise be unavailable, and achieve greaterreturns for their products.

Although the concept of farmer-owned cooperatives has been aroundfor generations, there has been arenaissance in the past decade as farm-ers try to stay afloat by getting a biggerpiece of the food production chain,according to Mark Drabenscott of theCenter for the Study of Rural Americaat the Federal Reserve Bank’s KansasCity branch.

From 1997 to 2000, the combina-tion of adverse weather and decliningsales led to retrenchment by manycooperatives. Some have been sellingselected assets, purchasing privatebusinesses to strengthen core facetsof the cooperative business, or con-solidating or merging with othercooperatives.

More producers are forming closedagricultural cooperatives to produceproducts such as beef, bread, turkey,sugar or pasta to glean more from theconsumer food market, or ethanol fuelextenders to stretch fuel supplies, pro-tect the environment and provide alivestock feedstock. ■

Cooperatives operate major shipping terminals to export grain to foreign markets.

In 1934, horse-power was still needed to help a cabbage growers’ co-op get its crop to arailhead of the Norfolk and Western railway.


By John Wells, DirectorUSDA/RBS CooperativeDevelopment Division

ven before the Coopera-tive Marketing Act of1926, the U.S. Depart-ment of Agriculture wasin tune with the devel-

opment of cooperatives in the UnitedStates and was responding to the grow-ing needs for information regardingcooperatives. USDA’s first cooperative-specific project, the “Farmers Cooper-ative Cotton Handling and MarketingProject,” was authorized by USDA’sBureau of Plant Industry in 1912.

This project included: devising asimple form of cooperative organiza-tion; compiling state laws relating tocotton ginning and warehousing; sur-veying freight rates and surveying cot-ton handling mechanisms. This was thegenesis of the research and service

assistance to cooperatives nowadministered by the CooperativeServices program of USDA’s RuralBusiness-Cooperative Service.

Possibilities of cooperation inagriculture appeared unlimited tomany people during the 1920s. Asinterest and public support forcooperatives grew, so did the prob-lems facing these relatively inexperi-enced organizations. This led togreater demands on USDA for advi-sory assistance on economic andbusiness problems.

Scope of work changes Over time, the scope and direction

of assistance to cooperatives by the

Department of Agriculture changedwith the needs of farmers and theirassociations. The Cooperative Market-ing Act created a focal point for carry-ing out government efforts for improv-ing cooperatives as a way to benefitfarmers. Essentially, this legislationdirected the secretary of agriculture toestablish a unit that would carry out acomprehensive program of service,research and education for agriculturalcooperatives on a permanent basis.

It should be noted, however, thatafter passage of the Cooperative Mar-keting Act, the department’s newlyformed Cooperative Marketing Divi-sion did only limited work in directconsulting, or advising, with producer

U S D A’ s e x p a n d i n g c o o p e r a t i v ed e v e l o p m e n t a s s i s t a n c e r o l e

E

From co-op boardrooms to the fields and packing plants, USDA Cooperative Services stafftravel wherever needed when providing technical assistance, as seen here circa 1930.USDA staff can help with all stages of starting a co-op, from feasibility study to draftingbylaws and developing a marketing strategy. (Lower) The number of black farmers in theUnited States has dropped sharply, but some—such as Ben Burkett of the Indian Springs(Mississippi) Farmers Cooperative (right)—are using cooperatives to increase their abilityto compete. USDA photo by Bob Nichol

Years

groups seeking to form cooperatives.Rather, the emphasis was in providingthe general background informationthat would be useful to those who wereactively engaged in assisting producers’organizing efforts. During this time,many field marketing specialists andcounty extension agents were active inthe formation of local cooperatives.

As the need for cooperative supportshifted, so did the emphasis of the

Cooperative Marketing Division. Dur-ing these early years, the cooperativeprogram was transferred several times:from the Federal Farm Board to theFarm Credit Administration, then beingelevated to agency status in 1953 as theFarmer Cooperative Service (FCS). Itwas with FCS that cooperative develop-ment technical assistance began to takeon added emphasis. The agency becamemore directly involved in helping unor-ganized producers form cooperatives.

This direct involvement had becomenecessary because cooperative organi-zational efforts were not being assistedby others. This type of technical assis-tance was made available in addition tothe ongoing research and preparationof various publications on cooperativeinterests and organization.

Providing direct technical assistanceto producer groups interested in orga-nizing cooperatives has been an ongo-ing effort since the days of FCS,through its successor organizations, tothe Cooperative Services program oftoday’s Rural Business-CooperativeService. The initial cooperative devel-opment program was comprised ofinternational, rural services and train-ing functions which responded to needs

beyond those of established coopera-tives. The program emphasis was onrural and cooperative developmentactivities that encouraged the organiza-tion of new cooperatives and providedtraining to those seeking to form them.A small number of field offices wereestablished to bring this direct assis-tance closer to those areas where theneed was greatest for organizing anddeveloping new cooperatives.

Larger field staff aids development Today, as a result of USDA’s most

recent reorganization efforts, directcooperative development assistance torural and agricultural producers isaccessible through 47 state RuralDevelopment offices and a nationaloffice staff based in Washington, D.C.

The role of these cooperative specialistsis to work with producer groups andassist in the organization of new coop-eratives using a disciplined approach tobusiness development and educationalactivities. This “hands on” approach toco-op development assistance is just asimportant today as it was 75 years ago.

Within the past five years, addi-tional financial resources have beenmade available through the Depart-ment to encourage the developmentand use of cooperatives as an eco-nomic tool for farmers, ranchers andother rural residents to improve theirfinancial well-being. A Rural Cooper-ative Development Grant (RCDG)program has been funded, withincreasing amounts, over the past fiveyears (growing from $1.5 million in1997 to $4.5 million in 2001) toencourage establishment of regionalcooperative development centersthroughout the country.

The purpose of the centers is tosupplement, not replace, USDA’songoing assistance to cooperativedevelopment initiatives. In fiscal year2000, 21 different centers were fundedto expand cooperative efforts in theUnited States. Other programs,including loan and grant programs ofthe Rural Business-Cooperative Ser-vice, have established “set-asides” andfunding opportunities for producers orgroups of producers wanting to formnew cooperative ventures. Programssuch the “Cooperative Stock PurchaseProgram” provide loans to producersseeking to join new cooperatives thatproduce value-added goods.

Today, the U.S. Department ofAgriculture continues to provide notonly direct technical assistance to“groups of producers desirous offorming cooperative associations,” butalso financial assistance to cooperativebusiness efforts and encouragement ofothers to engage in cooperative devel-opment assistance work. The Cooper-ative Marketing Act of 1926 estab-lished the foundation for this kind ofassistance to producers and 75 yearslater the need for this type of servicestill exists. ■


Whether in a church basement, a modern boardroom or an annual meeting at a highschool gym, cooperative meetings are a crucial part of the fabric of rural life acrossAmerica. Here, USDA co-op development specialist Wade Binion and a co-op board dis-cuss strategy for opening a small crab-meat packing plant on Smith Island, Md.. USDAphoto by Bob Nichol

Randall E. Torgerson, Deputy AdministratorUSDA Rural Business-CooperativeService

t is natural that theanniversary marking 75years since passage of theCooperative MarketingAct of 1926 should focus

on services that USDA provides toassociations of agricultural producersauthorized in the act. However, twoother provisions included in the Acthold great importance for how cooper-ative systems are structured to repre-sent the economic interests of farmersand for how the agriculture secretarycan receive advice regarding coopera-tive business activity.

Section 5 (7 U.S.C. § 455) of theAct says farmers, through their associa-tions, “may acquire, exchange, inter-pret, and disseminate past, present, andprospective crop, market, statistical,economic and other similar informa-tion by direct exchange between suchpersons, and/or such associations orfederations thereof, and/or by andthrough a common agent created orselected by them.”

This provides for more than farmersexchanging price information at a localcooperative meeting. It means farmersand their local, regional and nationalcooperatives can legally exchange a hostof information within their marketingsystems. This is a critically importantstrategic authorization that enables fed-erated cooperative systems and market-ing agencies-in-common to effectivelyfunction as coordinated entities.

It was recognized in the 1920s that

to empower farmers to effectively rep-resent farm interests, their local andregional cooperatives had to broadentheir scope of activities through affilia-tion with other cooperatives. Thishelped farmers to develop critical massand market presence in both purchas-ing and marketing activities. Only bythis means could economies of size berealized to meet market demand anddevelop a degree of marketing powerfor farmers and ranchers.

This provision extends and expandscooperatives’ authority to act on behalfof members beyond the provisions ofthe Capper-Volstead Act of 1922. Cap-per-Volstead clearly permits use of fed-erations and marketing agencies-in-common in its provisions whichprovide farmers a limited antitrustexemption when organized for joint-marketing purposes. To the extent that

the 1926 act addressed the needs offarmers for exchanging information incoordinated marketing systems, it isviewed as their legal authorization forfurther exemption from the antitruststatutes. In short, it builds upon thelandmark Capper-Volstead Act.

Section 4 (7 U.S.C. § 454) of the Actauthorizes the secretary of agricultureto call advisors to counsel him or heron specific problems of cooperativemarketing of farm products or any oth-er cooperative activity. To carry out thisadvisory function, the Secretary maypay actual transportation expenses anda per diem to cover subsistence andother expenses associated with suchtravel. This provision enables the Sec-retary to draw on the full range ofavailable expertise to solve producerproblems through cooperative market-ing activity. ■


I

S i g n i f i c a n c e o f t h eC o o p e r a t i v e M a r k e t i n gA c t ’ s o t h e r k e y p r o v i s i o n s

President Dwight D. Eisenhower signs the Farm Credit Act of 1953, the legislation that cre-ated the Farm Credit Administration as an independent agency and the Farmer CooperativeService (now RBS Cooperative Services) as an agency within USDA.

Years


By John Dunn, DirectorCooperative Resources Management DivisionUSDA/RBS Cooperative Services

esearch on cooperatives is the root and corner-stone of the intellectual services provided tofarmers, cooperatives and rural residents by theRBS Cooperative Services program of USDARural Development. A range of research activi-

ties relating to the economic, legal and social aspects of agri-cultural cooperatives provides farmers and their cooperativeswith a more thorough understanding of the challenges theyface in building and maintaining strong cooperative business-es. Research covers such diverse areas as finance, planning,commodity and product marketing, membership roles andrelations, organization and governance, compensation, salesand management practices.

The outcomes and products of Cooperative Servicesresearch activities are targeted to several audiences, as well asinternal uses in Cooperative Services’ technical assistance, sta-tistical, cooperative development, and educational activitiesassigned under the 1926 Cooperative Marketing Act. Thefirst and primary audience is composed of farmers and coop-eratives who benefit from using Cooperative Services researchresults and products within their own organizations. Otherimportant audiences include public policy makers, academicresearchers, nonprofit and trade associations and students.

Cooperative Services research projects are conducted bystaff members on an individual and study-team basis. Most

Cooperative Services staff are involved in various researchprojects as well as providing technical assistance to coopera-tives. Research is frequently conducted in conjunction withlandgrant universities through cooperative research agree-ments and other collaborative efforts. On occasion, research isalso conducted in partnership or collaboration with othergovernment agencies or trade associations. Cooperative Ser-vices staff are specialists in a diverse range of cooperative andproduct market areas, and are able to provide research on awide variety of needs of the farm and cooperative community.

Cooperative Services research findings are disseminated in avariety of ways and methods. In addition to hardcopy reports published by USDA, reports areposted on the Internet and staff members submitpapers to various academic journals and makepresentations before various professional associa-tions. Research findings and products producedunder cooperative research agreements withlandgrant universities are disseminated throughthe routes mentioned above, as well as a vastarray of university, extension service, and statepublications and information systems.

Technical assistanceWith its expertise in a broad range of subject

R

R e s e a r c h a n d t e c h n i c a la s s i s t a n c e w o r k a r e h e a r t o fC o o p e r a t i v e S e r v i c e s m i s s i o n

Customers get expert adviceand the farm supplies they needat a Southern StatesCooperative store in NorthCarolina. USDA CooperativeServices has staff economistswho specialize in farm supplyoperations and who regularlyissue reports and articlesdesigned to help improve thecompetitiveness of supply co-ops. USDA Photo by Ken

Hammond

In 1959, farmers delivered grain for grinding at their co-op feed millin Beloit, Kan. Co-ops often create jobs in small towns where everyjob is important to the local economy. Then and now, research con-ducted by USDA Cooperative Services economists has helped co-ops, large and small.

Years


matters, Cooperative Services staff can assemble highly effectiveteams to analyze and assist individual cooperatives in dealingwith the unique circumstances they face. Cooperative Servicesprovides a range of types of technical assistance to cooperatives.This technical assistance generally takes the form of businessconsulting services provided to cooperatives on a client basis.

Technical assistance includes special studies and well as vari-ous forms of training and facilitation of planning activities.Findings of studies become proprietary to the recipient organi-zation. Use of the findings and recommendations providedthrough technical assistance is a private and wholly indepen-dent decision of the recipient as well.

Common types of technical assistance studies includemerger analysis, operational reviews, comparative cost studies,member attitude studies, equity or capitalization plan reviews,product market development and assessment planning, andindustry prospect assessments. Projects are initiated at theformal request of a cooperative or group of cooperatives and

are carried out by Cooperative Services staff at no cost to therecipient group. While Cooperative Services technical assis-tance is used by a wide-range of sizes and types of coopera-tives, a typical recipient of this service is a local cooperativethat is not large nor sophisticated enough to employ staff orcontract for complex business or financial analysis.

Because Cooperative Services research and technical assis-tance activities are tightly interwoven, information and exper-tise gained by staff members through research activities aredirectly applied in carrying out technical assistance. In turn,technical assistance helps identify emerging and crucial issuesfor research and can, with the permission of recipient groups,provide information and data for use in research projects.

These synergies don’t end with technical assistance andresearch activities. Studies’ findings and staff expertise are criticalto the production of educational materials and programs pro-duced by Cooperative Services and are an interactive part of thestatistical analysis mandate of the Cooperative Marketing Act. ■

Then and NowThe USDA CooperativeServices staff in 1926 and in2001 — the faces and styleshave changed, but their goalremains the same: working toensure a strong cooperativesector. Randall Torgerson,Deputy Administrator for RBSCooperative Services, is at farleft in bottom photo. While all ofthe women pictured in the 1926photo were clerical staff, manyof the women pictured in thecurrent staff photo are econo-mists, statisticians and educa-tion specialists. Top: USDA

archival photo; Bottom: USDA

photo by Dan Campbell


By Charles A. Kraenzle,Director, Statistics StaffUSDA Rural Business-CooperativeService

nderstanding farmercooperatives requires adetailed analysis of statis-tics. The Statistics groupin the Rural Business-

Cooperative Service (RBS) of USDARural Development has the responsi-bility of collecting, editing, tabulatingand presenting these important statis-tics related to cooperatives’ status,progress and growth. Statistics provideinformation for education, researchand other work that improves thecooperative way of doing business.Through RBS, USDA is the onlysource of detailed information on U.S.farmer cooperatives and their service toAmerican agriculture.

The Cooperative Marketing Act of1926 (CMA) authorized gathering statis-tics and other information about farmercooperatives. Specifically, this Act gaveUSDA authority “to acquire, analyzeand disseminate economic, statistical andhistorical information regarding theprogress, organization and businessmethods of cooperative associations inthe United States and foreign countries.”Although the Act authorizes the collec-tion of statistics and other information inforeign countries, RBS focuses this efforton U.S. cooperatives.

Statistics on farmer cooperativeswere important long before Congresspassed the CMA. The earliest statisticson cooperatives were compiled about1863, profiling the operations of 35cooperative cheese factories (see

Cooperative Information Report 1, Sec-tion 26, “Cooperative Historical Statis-tics”). The first nationwide survey offarmer cooperatives was conducted from1913 through 1915 by USDA’s Office ofMarkets and Rural Organization.

The Bureau of Census in the UnitedStates Department of Commerce con-ducted the second nationwide survey of

farmer cooperatives in 1919. In early1922, USDA’s Bureau of AgriculturalEconomics, within the Division ofAgricultural Cooperation, begananother nationwide survey of coopera-tive buying and selling activities. Thisannual collection of data on farmercooperatives continued through 1926.

During the 1925-26 marketing year,when Congress passed the CMA, USDAlisted 10,803 farmer cooperatives. Thatnumber reached a high of 12,000 in1930. The number had declined to 3,466farmer cooperatives by 1999 due to dis-solutions, mergers, consolidations and

acquisitions. Many of these mergers andacquisitions, however, have resulted inthe merged or acquired organizationbecoming a branch operated by theheadquarters operation. For example, in1999, 2,209 grain and farm supply coop-eratives operated an estimated 5,330branches serving member and non-member patrons.

At the same time, the gross businessvolume of farmer cooperatives has beenincreasing, especially in the early1970s. When adjusted for pricechanges, however, the real increase hasnot been that significant. One couldlook at the effect of price changes inanother way. A cooperative in 1926with $5 million in marketing saleswould be similar to one with $21 mil-lion in sales in 1999.

While cooperative numbers havedeclined, the survivors became larger.Analyses of historical data show someinteresting trends. Data on coopera-tives grouped by size of business werenot published until the mid-1950s. In1955-56, the business volume of9,493, or 96.6 percent of U.S. cooper-atives, was less than $5 million. Thishad dropped to 4,545 (70.5 percent ofall cooperatives) in 1979 and 1,719cooperatives (49.6 percent of all coop-eratives) by 1999. This reflected thegrowth in cooperative business vol-ume over the years.

By 1989 and 1999, 38.9 percent and50.4 percent of all cooperatives hadbusiness volume of $5 million or more,respectively. Those cooperatives with$25 million or more in sales increasedfrom 295 (4.6 percent of all coopera-tives) in 1979 to 503 (14.5 percent of allcooperatives) in 1999. ■

U

S t a t i s t i c s s h o w c o o p e r a t i v es t a t u s , p r o g r e s s a n d t r e n d s

What was the value of fruit and vegetablesmarketed by cooperatives in 1940—or in2000? The statistics staff of USDA’sCooperative Services can tell you.

Years


Jim WadsworthProgram Leader, Education andMember RelationsUSDA/RBS Cooperative Services

ooperatives are differentfrom other forms ofbusiness because theyare organized accordingto fundamental,

immutable tenets known as coopera-tive principles. As mandated by theCooperative Marketing Act of 1926,the USDA/RBS Cooperative Servicesprogram takes seriously its responsi-bility to promote knowledge of coop-erative principles, as well as othercooperative practices. Cooperativeeducation has been a mainstay ofUSDA’s co-op program for 75 years.

This long timespan alone mightmake one logically surmise that knowl-edge of cooperative principles and prac-tices should , by the year 2001, be wellingrained in the American business andfarm culture. However, reality is far dif-ferent. Even third- and fourth-genera-tion cooperative members often haveonly a superficial understanding ofcooperative principles. Thus, educationon cooperative principles and practicesis as important today as it ever was.

With changing demographics andscope and structure of agri-business, ahighly competitive business environment,complex decisions for producers and newconcepts such as new-generation (value-added) cooperatives, there is still a criticalneed for cooperative education.

Co-op education improves odds of success

Cooperative education continues to

be necessary for a number of reasons.When a co-op education program iswell developed and wide-reaching, itshould: 1) provide a higher probabilityfor a successful cooperative; 2) provideproducers with sufficient understand-ing of cooperatives as a form of busi-ness enterprise to make an informedassessment of a whether to pursue thecooperative business option; and 3)provide improved understanding forindividuals, the public and policymak-ers leading to continued support forcooperatives.

Cooperatives are more likely to besuccessful when their members fullyunderstand their responsibilities tocooperative principles and the practicesthey involve. Odds of success for a co-op also improve when the public knowshow cooperatives work and can seetheir benefits to members and to com-munities, and when young people learnwhat cooperatives are and how theyoperate so that their interest in cooper-atives takes hold.

When groups of producers and/orrural residents looking to develop abusiness idea fully understand theunique workings and benefits of coop-eratives, they are better able to ade-quately assess the cooperative model asa potential option for prospective busi-ness endeavors.

When responsible individualsworking in the public arena or makingpolicy have a solid understanding ofcooperatives, they are able to clearlysee the value cooperatives bring toindividuals and their industry. Theyare then in a better position to debateand formulate cooperative-relatedsupport, policy and law.

Education activityCooperative Services provides coop-

erative education in a number of ways.Education is proffered through a widevariety of booklets and research reportsand Cooperative Services’ own bi-monthly magazine, Rural Cooperatives.These publications are available both inhard copy and on the Internet. Educa-tional materials and programs devel-oped for high school and other ag-edu-cation programs have also been widelydistributed. Videos for use by coopera-tive educators are available, as well.Cooperative Services acts as a libraryfor much of the cooperative communityby housing and providing a vast array ofmaterials about many aspects of thecooperative way of doing business.

Cooperative Services research onnumerous relevant cooperative topicsadd to the literature on cooperativeswhich contribute to overall educationand knowledge about cooperatives.Advanced study of cooperative princi-ples, practices, statistics, marketing,management and theory offer greaterunderstanding of cooperatives to thoseinvolved in the cooperative arena.Cooperative research agreements withinstitutions of higher learning provideanother vehicle for cooperative materi-al development.

Technical assistance offered throughworkshops, short-term consulting andfeasibility studies provide a pointedmethod of education to specific cooper-ative audiences. Educational forumsand workshops are held for variouscooperatives and cooperative audiences.Cooperative Services works with othercooperative professionals and educatorsvia institutes, seminars, conferences,

U S D A ’ s c o m m i t m e n t t oc o o p e r a t i v e e d u c a t i o n

C

Years


committees, joint projects, etc.USDA’s cooperative education ser-

vices and products are made availableto cooperative members, boards ofdirectors, managers and employees, aswell as farmer groups, young farmers,young cooperators, youth and the gen-eral public.

Delivery mix combines new and old methods

Given advanced technology, cooper-ative information and education materi-als are taking new forms. PowerPointpresentations have become popular ineducational settings. CD-ROM andWeb site interactive programs are beingdeveloped to teach cooperative princi-ples and practices through electronicmeans. Web sites of government agen-cies, cooperatives, cooperative develop-ment centers, cooperative associations,etc., are proliferating and a major goalof these platforms is to inform peopleabout cooperatives. These electronicdelivery systems will see further devel-opment and refinement in the years

ahead. Cooperative Services is alsoworking toward greater involvement inthis important area.

At the same time, it is important torealize that cooperative education is stilldeveloped and delivered the old-fash-ioned way—these efforts are often indi-vidually tailored to specific audiences.This is done largely on a piecemealbasis, where educators develop “pack-aged” materials dependent on the speci-fied cooperative-topic needs of givengroups. Hard copies of quality educa-tional pamphlets and reports remain indemand and are still used extensively.

It is apparent that cooperative educa-tion will be delivered as a mix of systemsin the future. Cooperative Services andother educators will rely on blendingquality components of both the old waysand the new to spread the word of coop-erative principles and practices.

An enduring commitmentCooperative Services is a leader in

providing public assistance to coopera-tives, much of it in an educational vein.

As RBS Deputy Administrator RandallTorgerson says: “Public sector assis-tance to the cooperative sector is dis-tinguished in this country as beingfacilitating—not regulatory—in nature.An underlying rationale for use of tax-payers’ dollars supporting this activityis that cooperatives assist those in themarketplace who are structurally disad-vantaged by their relative size andaccess to markets, and the fact thatcooperatives actually are viewed as acompetition-enhancing force in themarketplace from which all of societybenefits.”

It is with this philosophy—in con-junction with the mandate of theCooperative Marketing Act of 1926—that Cooperative Services extendscooperative education services andproducts to cooperatives, rural resi-dents, and the general public. Theongoing need for education on cooper-ative principles and practices will notdiminish and Cooperative Services hasan enduring commitment to being aprincipal provider. ■

Conducting business-like, informative meetings that encourage member participation is essential for a strong cooperative. For 75 years,member education services and information products from USDA’s Cooperative Services program have been helping co-ops conduct bettermeetings and member-relations programs.


By James Haskell,Assistant Deputy AdministratorUSDA/RBS Cooperative Services

lthough still in a rudi-mentary state, a string ofmore than 50 villagebank cooperatives havebeen established to bring

a measure of individual and communitystability via financial services to theformer “Homelands” of South Africa.Dozens more are in the developmentstage. All are operating with a smallprofit and have no delinquencies.

For the first time, thousands ofthese rural African residents haveaccess to financial services. Projectfunding came principally from USAID,with development work administeredby staff of USDA/RBS CooperativeServices and private firms under con-tract for specialized financial services.Cooperative Services developed mod-els of a business plan, a marketingstrategy and an operations manual foruse by the cooperative banks. A two-week study tour in the United Stateswas conducted for two South Africangovernment officials to acquaint themwith our systems for delivering finan-cial services to rural areas.

This type of international develop-ment work is an adaptation of authoritycontained in the Cooperative Market-ing Act of 1926 and the AgriculturalMarketing Act of 1946. The 1926 lawdirected the Secretary of Agriculture“to work with institutions and interna-tional organizations throughout theworld on subjects related to the devel-opment and operation of agriculturalcooperatives.” That activity today is

conducted by Cooperative Services .One drawback to Cooperative Ser-

vice’s international development work isthat Congress has not provided a specificbudget marks for the program’s interna-tional work. So most of our assistanceover the years has either been throughinformation exchanges and meetings, orthrough in-country technical assistanceactivities funded by international donorgroups outside the appropriationsprocess. This effort has tended to centeraround U.S. foreign policy directions atany given time (Central and SouthAmerica in the 1960s and 1970s, the

Pacific Rim in the 1980s, and Africa inthe 1990s). Numerous requests for tech-nical assistance came in from EasternEuropean countries following the fall ofthe Iron Curtain.

Each year, Cooperative Serviceshosts hundreds of foreign visitors whoare interested in U.S. cooperatives andwant additional information or adviceon how our cooperative practices and

operations might be adapted to theircountries. These groups often involvefarmers (or representatives of farmerassociations), parliamentarians or otherpolicy makers, and state or national gov-ernment officials. Some of the initialcontacts are received directly by Coop-erative Services while others stem froma variety of donor agencies, such as theWorld Bank and USAID. In some cases,they come through foreign or U.S.-based economic development entities.

Cooperative Services publicationsthat explain how U.S. cooperatives arestructured and function are in high

demand from these groups andthrough direct communications withother foreign and domestic entities.Many of these basic cooperative pub-lications have been reprinted in sever-al foreign languages and are widelydistributed by governments, non-gov-ernment organizations and throughthe Internet. The “U.S. style” ofstructure and operations, where farm-ers are the users, owners and benefi-ciaries of successful cooperatives, hasobvious global appeal.

This is certainly true in South Africa.During the apartheid years in SouthAfrica, the black population was shut-tled into these remote rural “Home-lands” areas with no services. They

carved out a subsistence living. They hadno access to financial services and had noplace, for instance, to deposit their smallmonthly government pensions.

Although still small in terms of the sizeof the country, these locally owned coop-eratives are located principally in agricul-tural areas and some are starting to makeloans. The banks are self-regulated

A

A f r i c a n v i l l a g e b a n k s p r o j e c ts h o w s r e n e w e d e m p h a s i s o ni n t e r n a t i o n a l c o - o p d e v e l o p m e n t

South Africans on their way to pick up pensionchecks scan the goods in a street market. Coop-erative Services is helping establish a network ofcooperative “village banks” to provide financial ser-vices to rural areas in South Africa. Photo courtesy

Jon Greeneisen

Years



By R. Jon Lee, CEO, JelProductions

Editor’s note: This is the first of twocolumns dealing with major communica-tions projects undertaken recently by BlueDiamond Growers, a California-basedalmond cooperative. In this issue, the focusis on development of the co-op’s new Website. The author is the CEO of Jel Produc-tions, a web development firm. In anupcoming issue, the focus will switch to howthe co-op produced a new book tracing thehistory of Blue Diamond.

he Internet is an excel-lent medium for a coop-erative or other businessseeking to save money,reduce the amount of

time required to market its product orservice and strengthen its position inan industry. However, in today’s econo-my, gone are the days when anInternet project can go onlinesimply by a CEO boldly pro-claiming, “Make it happen!”without first asking, “Can it bedone in less time and with lessmoney?” Blue DiamondGrowers, an almond grower-owned cooperative, recentlybuilt an exceptional Web sitein record time. But it didn’thappen by accident.

12 ways to saveAny project, online or off,

can be broken into four phases:Discovery, Design, Develop-ment and Deployment (thefour Ds). Removing any one ofthe four phases is not a viable

means to reduce costs. Indeed, adheringclosely to the goals of each phase avoidscost over-runs and scope creep (theprocess by which costly add-ons aretacked on to a project mid-stream).

In the Discovery phase, the projectteam (determined by scope and budget)meets to answer the basic questions ofWho, What, Where, When, Why andHow. A vital step in producing the“road map” for the project, this phaseis time and resource intensive as itrequires representation from the majordivisions of your co-op.

(1) Blue Diamond assigned an inter-nal project manager, Joe Potts, managerof information and technical services, tothe project. This gave Jel a central pointof contact for all project decisions,avoiding unnecessary delays when man-agement and other co-op decisionmak-ers were unavailable. Having an internalproject manager also creates a sense of

ownership and accountability for client-specific deliverables.

It’s surprising the number of timeswe’ve been told that the target audi-ence is “everybody.” Instead, a businessmust get to (2) know its audience andidentify their spending habits, incomebrackets, behaviors and motivations. Itis essential to be honest about yourproduct or service and its ability tomeet the audience’s needs.

Ryan Thompson and Craig Rolfe ofJel worked with Potts to determine theBlue Diamond strengths to be empha-sized in the Web site and the obstaclesto overcome. “We broke their audi-ences into four categories and assigneda priority to each. Then we asked whatservices or products could be madeavailable online to serve each audi-ence,” Thompson says.

Most importantly, (3) do the researchbefore hiring a development firm. Spend

time on the Internet visitingthe sites of competitors or oth-er businesses in the sameindustry. Visit nationallybranded sites to become famil-iar with what is standard in asite and what functionalitymight need to be included.Read up on new technologiesfor online ventures.

“We researched our indus-try, reviewed client feedbackand performed a department-by-department needs analysisprior to the redevelopment ofour corporate Web site,” saysPotts. As a result, Blue Diamond asked Jel to per-form a complete redesign anddevelopment of its corporate

M o v i n g e - f f i c i e n t l y i n t o e - c o m m e r c e A guide for businesses ready to go online, big time

T

M A N A G E M E N T T I P

Joe Potts, on the right, led the team that developed Blue Diamond’snew Web site. Photo courtesy Blue Diamond Growers

Web site, including the addition of e-commerce capabilities. Because BlueDiamond had performed preliminaryresearch, the discovery process wasmore productive and the solutions andservices provided to it resulted in ahigher return on investment.

Building from the Discovery phase,the Design phase tackles the structureof the site (primary, secondary and ter-tiary navigation) as well as the morecomplex functions and applicationdesign. In others words, chosen tech-nologies need to meet objectives.

To get a headstart, (4) draw a dia-gram or flowchart of the desired siteand pinpoint what information will beneeded for each section of the site. A lotof time can be chewed up deciding whatto label the primary navigation tools.Instead, decide these elements beforesigning with a development firm.

Tell your development firm whatyou want, (5) and be specific. Blue Diamond outlined the business logicbehind the desired application. To support its new online store, Blue Diamond’s customer service needed anadministrative application that wouldchange orders, perform refunds, takephone orders and update inventory. Jelprogrammed and deployed an easy-to-use administrative application for ordertracking in less than one month.

The design phase is comprehensivein scope, tackling everything from content and design to functionality anduser interface. Rather than launchingand waiting to hear how the targetaudiences react, spend some time on(6) usability testing prior to launch. Thisis an invaluable tool that can save timeand money, not to mention face. BlueDiamond tested the new site with usersof all skill levels. The feedback assistedin refining the entire site.

(7) Begin the content gathering,writing and editing process as early asthe discovery phase. Content is the No.1 cause of project delays.

“It can be difficult to ask busy man-agers and directors to participate whenthey are focused on other priorities.You must provide these professionalsplenty of lead time,” Potts said.

The Development phase is whenthe Web firm rolls up its sleeves andproduces the site. From static HTMLcoding to dynamic, online applications,the site is produced, integrated and putthrough a series of quality assurancetests. Improvements are catalogued andscheduled. At the end of this phase, aseries of “beta” tests are conducted in asecure environment, allowing the clientto preview the product prior to launch.

We advise that the team be heldaccountable for delays. Throughoutthe timeline, Blue Diamond was askedto review, sign and turn over deliver-ables to the development firm and toreview designs, pages or applications.

(8) Stick to the schedule. Delays onthe client side can impact productionschedules and create project conflictsfor the development firm. Rush fees,cost creep and delays can be avoided bysticking to the schedule. The Blue Diamond site was a challenging projectunder tight deadlines, but all con-cerned were pleased that the finalresult met all project criteria withineight weeks. Last-minute changes,adding new functions or changes inclient personnel can hinder the project.

(9) Avoid surprises by taking extratime in the discovery and design phases.This can eliminate “Oh, I’ve got a greatidea!” change orders that can affect project costs and launch date. The devel-opment phase is notoriously non-clientrelated. At this point in the project, thedevelopment firm should have all theanswers and deliverables it needs. It maycheck in with project status and last-minute corrections, but for the most partthis phase requires less client interaction.

This is an advantageous time to (10)prepare for launch. Work on the mar-keting plan for announcing your newsite, upgrade internal processes to han-dle online product sales or train cus-tomer service staff on how to handleInternet customers. Blue Diamondtrained each department on the proce-dures for updating the new site, as wellas the e-mail communication assign-ments, prior to launch.

Deployment is the exciting phase,when the switch is turned on and thesite is live. Training and documentationare provided if needed and a mainte-nance plan generated for the upkeep ofthe site. (11) Review the documenta-tion produced in the discovery phase.Has anything been left out? Were deci-sions made along the way that affectedthe end product negatively? Are projectgoals and objectives fulfilled by the fin-ished site? These are questions thatshould be asked throughout the project,but most importantly prior to launch.

And remember that no matter howbeautifully designed or easy to use, yoursite will never succeed if your audiencesdon’t know it exists. (12) Promote it,update it, change it often to keep itfresh. Blue Diamond launched a bannercampaign to announce the launch of itsnew online store. Blue Diamond alsoinitiated a press campaign announcingthe launch of the new corporate site,www.bluediamond.com. And, to contin-ue the growth of online product sales,Blue Diamond frequently providesonline product discounts.

Following these simple steps, cor-ners can be cut without jeopardizingthe project. ■


Blue Diamond Growers is the world’s largest tree nut processor and mar-keter. Headquartered in Sacramento, Calif., 4,000 California almond growersdeliver more than one-third of the state’s almonds annually to their coopera-tive. The crop is marketed to all 50 states and more than 90 foreign coun-tries. Almonds are California’s No. 1 food export, and the sixth largest U.S.food export, based on value. The California crop is valued annually at about$1 billion. Blue Diamond’s sales average about $500 million annually. ■

About Blue Diamond Growers

Farmland sells grain division to joint venture with ADM

A new joint venture between Farm-land Industries and Archer DanielsMidland (ADM), being managed byADM, completed takeover of Farm-land’s grain division on June 1. ADMabsorbed 280 of Farmland’s employ-ees, but 175 were left unemployed orseeking relocation elsewhere in thecooperative’s system.

The joint venture gives ADM con-trol over the bulk of Farmland’s grainoperation of 24 elevators with a totalcapacity of 174 billion bushels. Includ-ed in the action was the cooperative’sbrokerage arm, Atwood Commodities,and grain-testing laboratory at BonnerSprings, Kan. Both services are dupli-cated elsewhere by ADM’s operations.Profits from the new joint venture willbe shared by ADM and Farmland.

The pact was the latest in restruc-turing steps Farmland has been takingto improve its financial standing. Theco-op suffered a $29.25 million lossfor fiscal 2000, its first loss since 1993.The rising price of natural gas, amajor component in fertilizer manu-facturing, has been a prime factor inits losses. The cooperative also plansto close its canned ham plant at Car-roll, Iowa.

On the brighter side, Farmland’soperations for the first six months offiscal 2001 are showing after-tax earn-ings of $5.4 million, up from a $48.6million loss a year earlier. Total salesreached $6 billion, up from the $5.8billion reported for the correspondingperiod in 2000.

Meanwhile, the cooperative hasshut down its fertilizer plants at

Lawrence, Kan., and Pollock, La., dueto a weak fertilizer market and highgas costs. The plants produced ureaammonium nitrate and anhydrousammonia. Operations at the fertilizerplant at Enid, Okla., have beenreduced. Cooperatives can purchaseand sell fertilizers brought in fromthe Gulf of Mexico cheaper than itcosts to produce them at Lawrence.About 60 of its 158 employees werelaid off.

Looking ahead, Farmland hopes towean itself away from the high-cost ofnatural gas by buying energy fromSynFuel Technologies, a growingyoung company in the alternate fuelindustry.

Farmland and SynFuel will partici-pate in an $800-million coal gasifica-tion plant adjacent to Farmland’s fer-tilizer manufacturing plant at Enid.Under a long-term supply agreement,Farmland will purchase steam andnitrogen from SynFuel for use atEnid.

This will be the first plant for thetwo-year-old firm, based at Glen Car-bon, Ill. The plant should be ready inJune of 2004 if necessary permits areobtained. Plant engineering has begunand construction could start in Augustof 2002.

The company also expects to sell gasto a power utility to generate electrici-ty. The process also creates nitrogenthat can be used to make fertilizers.

Farmland believes coal gasificationcould generate a savings of 40 percentbelow the current natural gas price. Asimilar technology is being used atFarmland’s new fertilizer plant at Cof-feyville, Kan.

Agri-Mark has $1.9 million profitImproved butter markets and

record sales of Cabot products werecredited for $1.9 million in profits forAgri-Mark’s fiscal 2000 business year.The New England dairy cooperative’sbranded products continued to grow,said President Paul Johnston. Thenew whey protein plant and othermanufacturing facilities are operatingwell, he said. During the year,improvements were made in butteroperations, cheese packaging and cul-tured products to keep pace with thegrowing demand. “The growth andsuccess of our Cabot brand showswhat dairy farmers can do if theybelong to a cooperative like Agri-Mark and work together to markettheir milk,” said Chairman CarlPeterson, a dairy farmer from Delan-son, N.Y. The board has allocated sixcents per hundredweight to all mem-bers based on their milk productionduring fiscal 2000. Meanwhile, Cabothas introduced a Greek feta-cheddarcheese to the market. The new cheeseis made exclusively by Cabot.


N E W S L I N E


Wosje: ‘Stay alert, flexible & profit from opportunities

“We need to stay alert to changingconditions and pay attention to busi-ness every day,” Walt Wosje, generalmanager of Michigan Milk ProducersAssociation told the cooperative’smembers in his annual meeting report.“We have experienced some good for-tune of market price increases when wehave had large product inventories inour warehouses. But that is not goingto happen every year,” he cautioned.“We need to be flexible, fleet footedand be able to change course in mid-stream when positive opportunitiespresent themselves.”

In looking at the wave of dairycooperative mergers and consolida-tions during the past 10 years, heobserved, “Today, they (co-ops) marketa larger percent of the milk supply thanever before,” even though the numberof dairy cooperatives continues todecline. “Three cooperatives now mar-ket almost 50 percent of all the milkproduced in the United States. Ourorganization handles and markets asmuch milk today as we ever have, eventhough we look smaller than othercooperatives.

“That shouldn’t give us any sense ofinferiority as long as we concentrate onthe basics of our business and operatethe company in a very controlled man-ner. We can successfully fulfill our mis-sion objective,” he said. “Our relativesize causes us to be more intense inrunning the business. We concentratemore intently on servicing our cus-tomers who purchase our milk anddairy products. Our performance interms of customer service and productquality has never been higher.”

Livestock certification to help reassure public that beef is OK

A Wisconsin livestock marketingcooperative has instituted a producer-signed certification program aimed atassuring consumers of the safety of beefsupplies. Greg Beck, president and chiefexecutive officer of Equity LivestockCooperative Sales Association, Baraboo,instituted the program April 1.

“We know that our patrons pro-duce the safest, most wholesome beefin the world and we are proud to cer-tify that to the consuming public,”Beck said. The move was in partprompted by letters the cooperativereceived from every major packerindicating they wouldn’t purchaselivestock without the certification.“This certification is a direct result ofthe outbreak of Bovine SpongiformEncephalopathy (BSE, or “mad cow”disease) in Europe and the subsequentworldwide media attention on foodsafety,” said Beck.

Specifically, he said, “All slaughtercattle marketed through or to Equitymust be accompanied by a signed pro-ducer certificate, which indicates thatto the best of the producer’s knowl-edge, the cattle have not been fed anyfeed containing protein derived frommammalian tissues – meat or bonemeal – and that none of the cattle havean illegal level of drug residue.”

Beck pointed out that even thoughthe feeding requirement has been onthe books since 1997, the U.S. cattleindustry – producers, marketers, pack-ers and retailers – “is taking the proac-tive step to assure meat consumers (andworld export markets) that the U.S.food supply is the safest in the world.”Certificates must be signed prior tomarketing and will be held on file bythe cooperative. Beck said that whilethe certification may inconvenience thecooperative’s 60,000 patrons, it “issmall compared with the benefits ofreassuring the beef-consuming public.”

Marketer for Idaho potatoes favors statewide planning

The marketing director for an Idahoseed potato cooperative believes grow-ers must cut back acreage this year toreduce the surplus that is depressingprices. Dan Margraves, who representsTeton Seed Marketing Association, isquoted in press reports as saying thestate needs better planning in theamount of acres grown in Idaho.

Margraves would like to see a reduc-tion of about 80,000 acres of fall pota-toes this year, which would be about a

10- to 15-percent reduction from lastyear. He said the state’s biggest prob-lem was the failure to develop astatewide potato marketing plan.

Teton Seed, which markets Idahoseed potatoes in the Northwest, had 16growers who supplied the cooperativewhen it formed four years ago. Today,only eight remain, but during that timethe cooperative has expanded its mar-ket by about 15 percent. The coopera-tive shipped 3,000 semi-truck loads ofseed potatoes this season, which repre-sents its entire crop.

A federal program pays growers$1.50 per hundredweight to divertquality potatoes from the market, eventhough the producer’s cost is about$7.50. Margraves said only 2 of thepast 12 seasons have been successfulfor producers and he is worried abouthow many growers will survive a 13thlosing season.

Many growers are heavily mort-gaged and have reduced equity in theirfarms, which makes them less attractiveto lenders. He fears that unless growersdevelop a statewide marketing planthat emphasizes the fame of Idahopotatoes, industry fortunes won’tchange. And worse yet, some growersmay increase their plantings this yearand hope to cash in while many othersare cutting their acreage. On the otherhand, a sharp cutback could boostindustry morale, Margraves said.

Sunkist taps Gargiulo as new president

California-based Sunkist Inc., thenation’s oldest and largest citrus market-ing cooperative, has named Jeffrey D.

Gargiulo, atone time one ofthe state’slargest produc-ers of fresh fruitand vegetables,as its new presi-dent and chiefexecutive offi-cer. JamesMast, Sunkist’sformer chair-man, had been

Jeffrey D. Gargiulo


It didn’t take David Roche, the new CEO at Minn-Dak Farmers Cooperative, a Wahpeton, N.D.-basedsugarbeet cooperative, long to learn the differencebetween being president of a large publicly heldcompany and CEO of a cooperative. As an officer of abillion-dollar, investor-owned company, it was highlyunlikely that Roche would ever bump into one of thecompany’s directors or large stockholders while hewas pumping gas or shopping for groceries. Howev-er, as the new CEO of Minn-Dak Farmers Coopera-tive, Roche has those chanceencounters with stockholders anddirectors on a regular basis.

Outgoing by nature, Rochewelcomes these conversations,noting that there is somethingvery positive that happens ininformal, unplanned meetingswith members and staff. “Ienjoy the spirit of communityI’ve found in the Red River Val-ley,” he says. “There are manyopportunities for me to interactwith the people in informal set-tings. I find that refreshing.”

After four months on the job,Roche is fitting comfortably intohis new post as Minn- Dak’s CEO.From the beginning, he made it a priority to get outto meet as many of the cooperative’sstockholder/growers as possible, and within weekshe had done just that. In addition to threegrower/stockholder meetings held across theregion, he has also visited with growers on theirfarms and as they picked up seed for the new crop.

“I want to have an open-door policy with grow-ers and employees,” Roche says. “I give them myoffice number and encourage them to call whenev-er they have a concern.”

Roche says that Minn-Dak directors have astrong direct interest in the success of the overalloperation because they are all active growers ofsugarbeets and have a better understanding ofoperation, production and even local politics.

Roche’s own experience and knowledge of thesugar industry also runs deep. In fact, it dates back tohis childhood when his father worked at MichiganSugar. Although Roche didn’t set out to make hiscareer in the sugar industry, it didn’t take long for himto join the ranks. After earning his MBA with an

accounting emphasis, he worked for five years in oneof the largest public accounting firms in the nation.

After that he accepted the position of controller atMichigan Sugar, which was bought by SavannahFoods and Industries in 1985. He rose steadilythrough the company’s ranks until he was namedpresident of Michigan Sugar in 1994. Eventually,Roche went on to serve as president of a subsidiary,Savannah Foods Industrial, and then was namedmanaging director and senior vice president at Impe-

rial Sugar Co. after it bought outSavannah Foods and Industries.

The domestic sugar industrywas going through majorchanges associated with diffi-cult economic times in theindustry and, in October 2000,Roche resigned from ImperialSugar Co. and considered leav-ing the industry. But when theCEO position at Minn-Dak Farm-ers Cooperative became avail-able, he applied.

“Minn-Dak is known as acooperative owned by produc-tive, efficient farmers and theemployee team is recognized astop notch,” Roche explains. That

reputation made the job opening attractive to Roche.“The cooperative is well focused and in equilibri-

um in an industry that had lost its equilibrium, expe-riencing bankruptcies, closures, sales and reducedfinancial returns. This co-op is coping well in tumul-tuous times, and I wanted to be a part of that.”

As for the future, Roche believes Minn-Dak willneed to contribute in every way possible to helpthe sugar industry reach some stability. Otherwise,he feels outside factors could eventually put Minn-Dak’s continued success at risk.

“The problems hitting the sugar industry arecomplex,” Roche says. “But I believe that being astrong cooperative gives Minn-Dak an edge. Fromday one, I could see that Minn-Dak keeps its focuson the right things, providing a good return to ourgrower/owners and a good working environmentfor our employees. This is a cooperative that oper-ates under the assumption that everyone involvedwill put forth the best effort possible. And they real-ly do just that, year after year. I am thoroughlyhonored to be a part of that kind of team effort.” ■

Roche takes helm as Minn-Dak CEO

Minn-Dak CEO David Roche, left, has lunchwith member picking up seed for the 2001 crop.Photo courtesy Minn-Dak


acting president during the interim. Gargiulo is currently chairman and

president of Gargiulo Landco, a diver-sified company that deals in agriculturalland and real estate development, ownsa wine grape vineyard in Napa and is awholesaler and distributor of fine winesin Florida. Sunkist chairman AlWilliams said Gargiulo is recognizedthroughout the industry and knows thegrowing, packing and export markets.

Organic cooperative shapesnational product rules

George Simeon, a Wisconsin organ-ic farmer and chief executive officer ofthe nation’s largest organic cooperative,has been appointed to a five-year termon the National Organic StandardsBoard, which advises the U.S. Depart-ment of Agriculture on standards fororganic products. Simeon is a formerdairy farmer. He and his wife now raisechickens and horses at their farm nearLaFarge, Wis. He has a national repu-tation as an advocate of organic foods.

In 1988, he and a group of neigh-bors formed Coulee Region OrganicProduce Pool, more commonly knownas CROPP. The cooperative sells avariety of products, ranging from milkto juice and meat to cheese. It has 450members in 14 states, stretching fromCalifornia to Florida to Maine. Annualsales this year exceeded $100 million.The cooperative has a list of 50 dairyproducers waiting to join.

SSC to close 47 stores,cut staff in restructuring

Caught up in a slumping farm econ-omy, Southern States Cooperative(SSC), based at Richmond, Va., plansto close 47 of its 233 retail stores innine states. It will also close five otherfacilities involved in the manufactur-ing, marketing and distribution offarm supplies and services. Therestructuring will cut 300 employees,or about 6 percent of the co-op’s work-force. The distribution center in Rich-mond is being closed in favor of largercenters near Roanoke, Va., and inPennsylvania.

These actions represent the latest

wave in SSC’s efforts to counter aneconomic crunch confronting much ofthe nation’s farm sector. SSC earlier cut55 corporate employees in its restruc-turing. In March, SSC transferred itslivestock marketing division to UnitedProducers Inc., a Midwest livestockmarketing and credit cooperative basedat Columbus, Ohio. About 20 facilitiesand 190 jobs were involved.

Wayne Boutwell, SSC president andchief executive officer, said the decisionswere “painful,” but necessary. “We mustseize opportunities to consolidate forimproved efficiency and to eliminateoperations that generate more cost,”Boutwell said. “The reality of today’sfarm economy and ongoing consolida-tions of farming operations is that themarket won’t support as many localfarm supply and other agribusiness facil-ities as in the past. Most industries,including every aspect of agriculture, areundergoing consolidation. Our actionsare driven by our goal as a producer-owned cooperative to provide goods andservices to our member-customers asefficiently as possible,” he said.

The cutbacks won’t affect otherSSC facilities associated with its annu-al 350-million- gallon petroleum busi-ness or its 34.5-million-bushel grainmarketing operation. Contributing tothe restructuring are depressed cornand soybean prices, severe floods anddrought in some parts of the Mid-Atlantic trade territory, expansionthrough acquisitions in recent yearsand declining farm numbers.

Poor demand and costs associatedwith the closings are expected to pro-duce losses for SSC this year. For fiscal2000, net earnings were $4.96 millionon revenues of $1.55 billion. SSC hasabout 5,000 employees in 25 states andserves 300,000 farmer-members.Meanwhile, SSC will continue to man-age 85 local cooperative facilities andwork with a distribution network thatincludes 1,000 independent coopera-tives and dealers.

Bison farmers market directlyvia supermarket freezers

Bison ranchers in North Dakota

have taken steps to directly markettheir meat products to customers.About 50 members of the NorthDakota Buffalo Association are buy-ing and stocking supermarket freezersthemselves to increase demand fortheir bison meat. Their Adopt-A-Freezer program brought more than40 freezers to supermarkets through-out North Dakota, said Paul Thomas,executive director of the association.Three others are in Montana, four arein Minnesota and one is in SouthDakota. Growing pains in the indus-try two years ago prompted the asso-ciation to develop the program,Thomas said. Lagging demand wasdriving down prices, so membersdecided to take control and boostdemand for their product themselves.

Each $2,000 freezer is owned byindividual members. They are respon-sible for keeping the store stocked,advertising the product and conduct-ing in-store promotions. Grocers clearabout a 25 percent profit on sales inexchange for providing floor space,powering the freezers and keepingthem full each day. Featured under theNorth American Bison Cooperative’sBuffalo Nickel brand are steaks, roasts,ground meat, patties and preparedchili. The cooperative has about 350members across the Great Plains andoperates a processing plant in NewRockford.

Some Canadian ranchers want to jointhe program and one association mem-ber is interested in placing 30 freezers inMinnesota supermarkets. Meanwhile,the North Dakota Agricultural ProductsUtilization Commission has awarded an$18,500 grant to the group to promoteand market the freezer program.

Jantzen to lead NCBA education unit Jean Jantzen, former vice president

of CHS Cooperatives at St. Paul andcurrently board chair for HealthPart-ners Inc., a Minnesota-based healthplan, will head the new educationcommittee for National CooperativeBusiness Association (NCBA) inWashington, D.C. The committeewas formed in January to direct

NCBA’s new strategic initiative oncooperative education. Jantzen has

more than 36years of expe-rience in thecooperativesector. She isalso vice chairof the Coop-erative Foun-dation boardof trustees.Meanwhile,Byron Hen-

derson has been named a vice presi-dent and will head development of.coop, the new Internet domainapproved for exclusive marketing use by cooperative organizationsworldwide.

Leonard new ACDI/VOCA VP Carl Leonard has joined ACDI/

VOCA as senior vice president of theLatin America and Global Programsdivision. He brings more than 30 yearsof USAID project management andleadership experience. As actingadministrator of USAID, he directedprograms in the Western Hemisphere,including 16 field missions and threeregional programs.

Accelerated Genetics is 60Accelerated Genetics, an innovative

livestock breeding cooperative based atBaraboo, Wis., is marking its 60th yearin the livestock breeding industry.Among its innovations: the first youngsire program, one of the first to providea mating program, working with WorldWide Sires. Now, 30 years later, it isone of the new owners of a global mar-keting network, the first to use com-puterized freezing and a pioneer ingenetic market research. PresidentRoger Ripley said the cooperative’sfuture lies in vision and long-rangeplanning and evaluating technologiesand their potential applications onbehalf of customers.

NCBA honors Sen. Kohl U.S. Sen. Herb Kohl (Wis.) has

been named an honored cooperator by

National Cooperative Business Associ-ation (NCBA) for his continuing com-mitment to cooperative businesses.“Sen. Kohl has always been a champi-on of cooperatives as an ownershipsolution to some of the toughest chal-lenges this country faces,” said RodNilsestuen, president of the WisconsinFederation of Cooperatives, one of theaward sponsors. Kohl was cited forsupporting USDA’s rural cooperativedevelopment grants program. Theprogram helped Wisconsin-basedCooperative Development Services(CDS) develop new forestry coopera-tives that provide farmers with anadditional long-term source ofincome. CDS has received nearly $1million in grant assistance from thefund. The award was sponsored by 16cooperatives, including five Midwestdairy cooperatives.

At its spring annual meeting, NCBAre-elected all its officers includingChairman Pete Creer, chief operatingofficer for Credit Union NationalAssociation and affiliates. DuringCreer’s first term, NCBA introducedthe new Internet cooperative domain –.coop – exclusively for cooperatives.Other elected officers are: Charles Sny-der, National Cooperative Bank, firstvice chair; Ann Hoyt, University ofWisconsin, second vice chair, andSteven Cunningham, IMARK GroupInc., secretary-treasurer.

Meanwhile, NCBA has launchedDotCooperation LLC, a wholly ownedsubsidiary that will provide domainname registration for .coop and othertechnology services starting this sum-mer. NCBA President Paul Hazen saidDotCooperation would help positioncooperatives in online markets.

Co-op, army cut energy costsFaced with a $7 million electric bill

last year, the U.S. Army’s Fort Knox inKentucky is joining forces with NolinRural Electric Co-op in nearby Eliza-bethtown to slash its energy costs. Theenergy conservation effort responds toan executive order to cut energy use in ahalf million federal facilities by 35 per-cent by 2010. The cooperative is one of

three utilities serving Ft. Knox. The con-tract is open ended. Installing energy-efficient lighting was the cooperative’sfirst project. Once these energy-efficientplans are approved, the cooperative willfinance the project through the NationalRural Utilities Finance Corp. Fort Knoxwill repay the loan over 10 years as partof its electric bill.

Agrilink recognizes farm partnersDiversification for New York State

farm partners has proved the key totheir successful operation that led toAgrilink Foods (owned by Pro-FacCooperative) citing them with itsannual Hugh Cummins Cooperator ofthe Year Award. The award recognizesindividuals who have made significantcontributions to the agriculturalindustry through cooperative andcivic pursuits. Craig Yunker and P.J.Riner of CY Farms in Elba, N.Y.,operate 5,700 acres of cropland inwest-central New York, where theygrow 2,000 acres of snap beans andpeas for the cooperative and operate acustom bean harvest unit for thecooperative, a dairy heifer enterprisein partnership with Agway and theBatavia Turf business, which providesinstant lawns to customers across thestate. “The award means a lot to us,”said Riner, “because Agrilink has beenan integral part of our business. With-out it, I don’t think we could havegrown so quickly.” Yunker creditedCY Farms success to the partnershipwith its 40 employees.

Eggstravaganza in MinnesotaThe tanker truckloads of liquid eggs

being shipped from Golden Oval Eggsto the fast food market, the bakingindustry and companies that makeprocessed eggs for grocery stores mightbe termed an “eggstravaganza.” But it’sroutine business for the new-genera-tion egg cooperative formed atRenville, Minn., in 1991. The coopera-tive is planning to open its ninth barnof a planned 2.7-million-bird egg plantlater this year. The stock offering inIowa last year expanded the coopera-tion to about 250 members.


Jean Jantzen

TFC, GROWMARK will not consolidateThere will be no consolidation of

Tennessee Farmers Cooperative(TFC) of LaVergne and GROW-MARK, Inc., of Bloomington, Ill.,after the TFC Board of Directorsvoted July 9 to end a feasibility studylaunched on March 26. The boardvoted to halt the study process afterdetermining that consolidation of thetwo regional cooperatives “would notbe in the best interest” of TFC, its 70member co-ops across the state andsome 73,000 farmers who own thefarm supply cooperative system, saidVernon L. Glover, TFC president

and chief executive officer.“From the very start of the study,

TFC’s directors have stressed that thewell-being of members and how theywould benefit would be foremost inanything that is decided,” said boardchairman David Rieben of FranklinCounty, Tenn. “One of the concerns wehad was low projected cost savings toour member co-ops as a direct result ofconsolidation.” Glover stressed that thevote was “by no means a vote againstGROWMARK.”

“The feasibility process was a posi-tive and beneficial exercise for every-one involved,” he said. “TFC direc-

tors and employees as well as man-agers of some of our member co-opshave visited with counterparts atGROWMARK.” Additionally, Gloversaid, each cooperative studied closelythe internal operations of the other,noting similarities and differences andworking to determine how consolidat-ed efforts could be beneficial.

“While our board recognized thatTFC and its members could poten-tially derive some benefit from theconsolidation, it felt that this was notthe proper time to present the issueto the membership for a vote,”Glover said. ■


2001 USDA co-op survey on the wayEvery year, the Rural Business-Cooperative Service

(RBS) of USDA Rural Development collects key dataabout the cooperative sector through a mail survey. Aquestionnaire is sent to each cooperative two to threemonths after the end of their business year. Question-naires focus on the type of cooperative and dollar salesof farm products marketed and farm supplies sold, basicfinancial items, number of members, full-and part-timeemployees and wages and benefits. Questionnaires forthe 2001 survey will soon be mailed.

Each cooperative is also asked to provide a copy ofits annual, or audit, report. Information from the annualreport is used to complete the questionnaire, verify theinformation reported and gather additional data. Everyother year, questions are added to the questionnairesto gather information on cooperative sales and mem-berships by state.

RBS expands the data collected to represent allfarmer and fishery cooperatives and publishes pre-liminary findings. In the fall, USDA publishes anannual report summarizing progress, changes andtrends. This year’ report, Farmer Cooperative Statistics, 2000 will be placed on the Internet, aswere the 1999 results (Service Report 59). See:www.rurdev.usda.gov/rbs/pub/layout-s.pdf.

Other data uses include the development of cooper-atives’ market share estimates at the first-handler lev-el. In 1999, cooperatives’ share of U.S. farm market-ings was 27 percent, down from 30 percent in 1998.The co-op share of major U.S. farm production expen-ditures was 27 percent, down from 29 percent in 1998.Market share estimates are published in USDA’s RuralCooperatives magazine.

Farmer cooperative statistics are also publishedin the magazine, Agricultural Statistics, StatisticalAbstract of the United States and American Cooper-ation. Selected summary data are provided to theBureau of Economic Analysis in the Department ofCommerce and to USDA’s Economic Research Ser-vice for use in their Economic Indicators of theFarm Sector.

Data are also used to update a Directory of FarmerCooperatives, which can be found on the Internet at www.rurdev.usda.gov/rbs/pub/sr22.htm and Cooperative Historical Statistics atwww.rurdev.usda.gov/rbs/pub/cir/s26.pdf.

Cooperative leaders, educators, researchers andpolicy makers, among others, also use farmer coop-erative statistics. Cooperative Services staff frequentlyuse the data for important studies and presentations.Educational materials, from pamphlets to collegetextbooks, rely heavily on collected cooperative sta-tistics. Foreign visitors also contact RBS for informa-tion about the structure and operation of U.S. farmercooperatives.

Specific information about individual farmer coop-eratives collected by RBS is kept strictly confidential.Information published is combined to avoid disclosureof individual cooperatives. RBS is willing to work withpersons seeking aggregated data where no individualcooperative can be identified.

For questions regarding farmer cooperative statis-tics, please call, e-mail or write Charles A. Kraenzle at(202) 720-3189, or [email protected], orUSDA/RBS/Statistics, STOP 3256, 1400 IndependenceAve., SW, Washington, D.C. 20250-3256. ■

an agreement with the second largestItalian pasta manufacturer, GruppoEuricom, to serve as its exclusive dis-tributer of private-label and brand-label retail products and food serviceproducts in North America. Finally,DGP’s main brand, Dakota Growers,underwent an image change as thebrand began to penetrate more marketsoutside North Dakota and Minnesota.

The members of Dakota GrowersPasta also voted to change its bylaws toenable Canadian producers or associa-tions to become members and to pur-chase stock in DGP. The rationale isthat as members retire, some may wantto transfer their shares to other mem-bers. However, under current importrestrictions, Canadian members are notallowed to deliver Canadian-produceddurum wheat to DGP’s U.S. facilities.In addition, the poor quality of NorthDakota-grown durum wheat in 1999and 2000 increased DGP’s procurementcosts, because many of the co-op’s mem-bers’ wheat crops were of poor quality,forcing DGP to purchase high-qualitydurum wheat from other sources.

In 2001, DGP signed an agreement

with Semolina Specialties, a producer-owned cooperative in Crosby, N. D.Semolina Specialties produces hard-to-make pasta specialty products and fla-vored pasta products. Under that agree-ment, DGP sold the pasta equipmentfrom one of its two plants in Minneapo-lis to Semolina Specialties in exchangefor $50,000 worth of preferred stockand $1 million in cash. The equipmentfrom the Minneapolis plant (which wasthen closed) was installed in the Crosbyplant. Dakota Growers Pasta also wasto supply 35 million pounds of semolinaflour and assume marketing of theSemolina Specialties pasta products.

In 2001, first and second quarterearnings were lower than in previousyears due to the higher costs of procur-ing high-quality durum wheat, as wellas to increased energy and other inputcosts. The inability to pass along priceincreases due to excess capacity withinthe pasta industry has also hurt earn-ings. The cooperative anticipates areturn to profitability later in the year.

SummaryThe value of marketing rights or

growers agreements changes in responseto a cooperative’s own profitability andthe industry conditions in which thatcooperative operates. In the case of DGP,the value of its stock reflects the coopera-tive’s profitability due to its competitiveadvantage from vertical integration anduse of producer equity. Increases inindustry capacity, entry and exit of durummillers and pasta manufacturers, slowergrowth in pasta consumption, increaseduse of private-label brands, and poor-quality durum wheat changed industryconditions and caused greater rivalryamong competitors. This increased rival-ry caused changes in DGP’s stock price,as can be seen in Figure 2.

Authors’ note: This article isbased on an extensive case study thatwill be published in the Case ResearchJournal later this year. We would alsolike to thank Tim Dodd, chief execu-tive officer of Dakota Growers Pasta,and his staff for cooperating with usin this case study. We would also liketo thank Tom Stafford and USDARural Business Cooperative Servicefor assisting us with this cooperative


Finding a niche continued from page 8

with no government interference. Theirfinancial services include taking deposits,making loans, providing insurance andtransferring funds. However, to fit intothe country’s legal system, they wererequired to have a relationship with acommercial bank.

The local pattern was taken fromthree pilot village banks operating inthe North West Province of SouthAfrica. In time, the equivalent of ourFarm Credit Administration will bedeveloped to become a regulator ofthese village banks. RBS’ role inassisting with this growth was multi-faceted. Initially, a short-term researchproject conducted by RBS and SouthAfrica’s National Department of Agri-culture (NDA) determined the “Vil-lage Bank” model was applicable for

providing rural financial services. The Cooperative Services staff

helped gain an exemption to SouthAfrica’s Banks Act for these financialservices cooperatives (FSCs) by theCentral Bank and the minister offinance. It allowed them to legallyreceive deposits, but exempted themfrom conforming to stringent require-ments of the Central Bank for beingrecognized as a bank. Nearly as impor-tant was the registration of these villagebanks as FSCs, which was accom-plished by working closely with theNDA’s Registrar of Cooperatives whois responsible for all cooperatives inSouth Africa. The licensing establishedthe cooperatives as legal entities sothey could purchase deposit insurance. It also raised their stature in the vil-

lages and made it easier to attract newmembers. Cooperative Services alsoprovided extensive training for FSCdirectors and employees, as well as offi-cials in the NDA.

A final component of the project byCooperative Services was assistance inestablishing a regulatory framework foruse in providing supervisory oversightof the FSCs. This framework was con-sidered essential, not only to preservethe character of the individual coopera-tives, but more importantly to protectthe fragile “system” of FSCs. Althoughthe project is “officially” concluded,USDA continues to monitor theprogress of FSC development becauseit holds so much promise for the eco-nomic growth of rural areas through-out South Africa. ■

African village banks continued from page 21


Or, to go straight to the Library of Publications, access: http://www.rurdev.usda.gov/rbs/pub/newpub.htm

If you know the title or publication number of the report you want, scan down the list until you come to it.

To locate a breakdown of publications by subject matter:

1. Click on any one of the four “Reports” categories in the middle of the “RBS Library” menu.

2. Access our catalog by clicking on “Rural Cooperative Publications” in the first line of the second paragraphon the screen that appears (regardless of the type of “reports” accessed).

3. The first option under “Contents” is “Publications by Subject Matter.”

It’s easy to read and/or download USDA publications about cooperatives from the Internet

The Rural Business Cooperative Service has more than 150 cooperative reports (as well aspast issues of this magazine) available on the Internet for viewing or downloading. Thesetitles cover a vast array of topics, ranging from the general, such as “How to Start aCooperative” or “Cooperatives 101,” to technical subjects, such “Tax Treatment forCooperatives” or “Managing Cooperative Antitrust Risk.”

To access any of these reports, follow these easy steps:

Go to the USDA Rural Development home page, “http://www.rurdev.usda.gov”

Click on “Publications” in the lower blue bar at the top of the page

Click either “Rural Cooperatives magazine” or “Business/Cooperative Publications”

If you chose “Business/Cooperative Publications” in step 3, you can then click either “Cooperative InformationReports,” “Research Reports,” “Service Reports” or “Miscellaneous Reports.”

1.2.3.4.

USDA marks 75th anniversary of service to cooperatives continued from page 2

activities such as integrated pest man-agement programs, use of satellite tech-nology in field applications, geneticrecord keeping and propagation ofcrops and livestock, expanded farmcredit services and regional electric andtelecommunications programs.

Marketing, an early focus of coopera-tive efforts to enhance farmers’ market-ing power, has evolved vertically intoregional and nationally known brandedproducts and private-label product dis-tribution. Coordinated cooperative mar-keting efforts of locally owned coopera-tives and regionals have extended thereach of farmers’ outputs to nationaland international markets. Many coop-erative brands have developed a strongconsumers franchise for their productsand are looked upon with envy by com-peting national marketers.

Horizontal marketing efforts have

also achieved new heights throughnegotiated pricing over contract termsby cooperative bargaining associations,and through joint use of marketingagencies-in-common for pricing andmoving manufactured products intotrade channels, as well as through theuse of e-commerce technology as ameans of lowering transaction costs.

What is remarkable is the resiliencyand capacity for change demonstratedby many cooperatives. While somehave failed due to faulty practices andweak financial management, survivorshave demonstrated awareness of theneed to stay involved in a global, high-tech and consumer-driven environ-ment. They have an acute sense ofanticipating and knowing members’needs, adapting to new technology andgearing their products to changingconsumer desires. While adapting

operations to emerging needs, hugeopportunities challenge cooperativebusinesses and their leaders in terms ofgrowth in the share of marketing activ-ity, and of expanding horizons to fulfillunmet needs in rural America.

The goal of USDA’s Cooperative Ser-vices program is to expand knowledge—aform of intellectual capital—of the cooper-ative method of doing business. Consistentwith the missions identified in the 1926Act, Cooperative Services does this by col-lecting statistics, providing technical assis-tance, facilitating new cooperative starts,conducting cooperative-related research,and producing a wide variety of education-al/ informational products to promotepublic understanding of cooperatives. Ournation has benefitted from this work for 75years, and will continue to reap therewards for decades to come in the form ofa stronger rural economy. ■


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