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lCOOPERATIVESUSDA / Rural Development May/June 2001USDA / Rural Development May/June 2001

A L L B O G G E D D O W N :C r a n b e r r y i n d u s t r ys t r u g g l e s t o f i n d b a l a n c e

A L L B O G G E D D O W N :C r a n b e r r y i n d u s t r ys t r u g g l e s t o f i n d b a l a n c e

2 May/June 2001 / Rural Cooperatives

There is always great interest around thecountry when a new federal, state or localgrant program is announced. The Agri-cultural Risk Protection Act of 2000,signed into law in June 2000, includes asection that provides $20 million in fed-eral grants during 2001 for market devel-opment of value-added agricultural prod-ucts. The program was announced in theFederal Register on March 6.

Rural Development’s Rural Busi-ness-Cooperative Service (RBS) wasgiven responsibility for administeringthe program. By the April 25 deadlinefor the first round of $10 million ingrants, the agency had received 211applications requesting a total of morethan $56 million. This is an indicationof the soaring interest among producergroups in value-added businesses.

Grants of up to $500,000 can beused for defraying costs of feasibilitystudies for value- added projects, fordeveloping business plans and for ini-tial working capital. They cannot beused for “bricks and mortar,” nor forengineering studies. A dollar-for-dollarmatch is required. Applications arereviewed and scored competitively.Applications for the second round of$10 million in grants are due on June27 (for more information, e-mail:[email protected]).

Lessons learned from previous expe-rience gained by USDA/RBS co-optechnical assistance staff suggest thatproducer groups should judiciously usegrant money. Over-reliance on grantshas been fatal for a number of newcooperatives. They are not a be-all andend-all to the cooperative developmentprocess. In the past, some producergroups have fallen into the trap of

believing that grants are a substitute forproducers putting their own capital atrisk. They have sought grant after grant,and when the source of grant fundsdried up, the cooperatives collapsed.

View a grant as an early boost, not a crutch.

USDA’s Agricultural OutlookForum 2001, held in February, featureda session on new value-added coopera-tive development in the livestock andpoultry industries. An article highlight-ing presentations at that session isfound on page 14 of this issue. SteveHunt, CEO of U.S. Premium Beef,discusses the achievements of this newcooperative and credits much of itssuccess to members’ willingness to stepup to the plate with up-front equityinvestments in their cooperative. InHunt’s words, “true commitment to acooperative only comes about throughownership.” Had members not made amajor financial investment in U.S. Pre-

mium Beef, he said the co-op probablywould have collapsed during the roughfirst year of operation. These are wordsthat should be heeded carefully by any-one starting a cooperative.

Other presentations were made atthe Outlook Conference by Minnesotapork producer Jim Lewis, representingPork America, Wyoming sheep growerPat O’Toole, and Iowa Turkey Grow-ers Cooperative CEO Ken Rutledge.Their comments yielded valuableinsights regarding how to launch a newcooperative. Similar investments arebeing made in the aquaculture, cropand forestry sectors.

Why are these well-planned effortsmeeting with success? Lee Egerstrom,Knight-Ridder business/farm reporterand contributor to the book “A Cooper-ative Approach to Local EconomicDevelopment,” says value-added, new-generation cooperatives will spreadbecause farmers can invest in them at afraction of the cost of spreading hori-zontally by buying out neighbors’ farms.Furthermore, this expansion verticallyin the market buys farmers a measure ofrisk-management protection. Investinghorizontally in more land does notreduce a producer’s risk exposure.

These reasons, along with the factthat farmers retain their independenceand have more control over their eco-nomic destiny through cooperative own-ership, suggest that these new value-added efforts are assured of a future thatwill continue to merit the support of thepublic and Congress.

Randall Torgerson, Deputy AdministratorUSDA Rural Business-CooperativeService

C O M M E N T A R Y

New USDA program supports growth of value-added ventures

Randall Torgerson sorts through some of the211 applications for valued-added marketdevelopment grants received by USDA RuralDevelopment. USDA PHOTO BY KEN HAMMOND

Rural Cooperatives / May/June 2001 3

Rural COOPERATIVES (1088-8845) is publishedbimonthly by Rural Business–Cooperative Service,U.S. Department of Agriculture, 1400 IndependenceAve. SW, Stop 0705, Washington, DC. 20250-0705.The Secretary of Agriculture has determined thatpublication of this periodical is necessary in thetransaction of public business required by law of the Department. Periodicals postage paid atWashington, DC. and additional mailing offices.Copies may be obtained from the Superintendent ofZDocuments, Government Printing Office,Washington, DC, 20402, at $3.50 domestic, $4.38 for-eign; or by annual subscription at $15.00 domestic,$18.75 foreign. Postmaster: send address change to:Rural Cooperatives, USDA/RBS, Stop 3255, Wash.,DC 20250-3255.

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

Unless otherwise stated, contents of this publicationare not copyrighted and may be reprinted freely. Fornoncopyrighted articles, mention of source will beappreciated but is not required.

The United States Department of Agriculture (USDA)prohibits discrimination in all its programs and activities on the basis of race, color, national origin,sex, religion, age, disability, political beliefs, sexualorientation, and marital or family status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means forcommunication of program information (braille, largeprint, audiotape, etc.) should contact USDA’s TARGETCenter at (202) 720-2600 (voice and TDD).

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

Ann Veneman, Secretary of Agriculture

Randall Torgerson, Deputy Administrator, USDARural Business-Cooperative Service

Dan Campbell, Managing 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 Department of Agriculture

COOPERATIVESRura

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COOPERATIVESMay/June 2001 Volume 68 Number 3

O n t h e C o v e r :

The surging size of the U.S. cranberry crop has caused prices to plummet.Growers hope new product development and a new marketing order willbring the industry back into balance. Here the crop is harvested inWashington. See article on page 6. USDA PHOTO

F E A T U R E S

4 All ag, all the timeFarmer-owned radio station has served rural Nebraska for 50 yearsBy Paul Hammel

6 All bogged downRecord cranberry crops, soft markets force industry to eye marketing orderBy Pamela J. Karg

11 Local co-ops embrace high-tech agronomy systemsBy E. Eldon Eversull

14 Hang on to the ranchYoung livestock and poultry co-ops share goal to strengthen producers’ role in marketplace.By Dan Campbell

23 Local cooperatives’ role in identity-preservedgrain industryBy Julie A. Hogeland

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

21 MANAGEMENT TIP

25 NEWSLINE

By Paul Hammel, World-Herald Staff WriterCopyright Omaha World Herald;reprinted by permission

exington, Neb.—Folkssaid it would be a coldday when a bunch offarmers started a radiostation.

They were right: It was about 20degrees below zero on the frigid Feb-ruary day in 1951 when the “RuralVoice of Nebraska”—KRVN—crackledto life.

“People didn’t think we’d last ayear,” said Max Brown, the station’sfirst general manager.

Now, 50 years later, that uniquefarmer/rancher ownership has built astation with an unmatched focus on thebusiness of agriculture and one that hasavoided the topsy-turvy trends andwhims of commercial radio.

Just as it has from the beginning,KRVN broadcasts an almost constantbarrage of weather forecasts, farmcommodity reports and livestock auc-tion updates, as well as regular com-mentary from 16 different agriculturalgroups. Its three farm reporters file livereports from ag conventions fromOrlando to Arizona and Lincoln toLexington.

While other radio stations changeownership, swap talk-show hostsand tinker with their musical formatwith every new listener survey,KRVN has stood as a solid rock at880 on the AM dial.

Only when time permits does acountry-music song sneak on air. RushLimbaugh will never bring his act to

KRVN—it would take away time forconstant news about pork bellies andcorn futures, black baldie calves andfarm legislation.

“It’s all ag, all the time,” said Pro-gram Manager Craig Larson. “Wejoke that some stations have a ‘song ofthe day.’ Well, we really have a song ofthe day.”

Built with donations of as little as$10—each solicited over kitchen tablesacross Nebraska—KRVN stands as thenation’s only farmer- and rancher-owned radio station.

With its sister stations, KNEB inScottsbluff and KTIC in West Point,KRVN is the only Nebraska stationwith a statewide reach during daytimehours. At night, KRVN’s signal ispointed west. The signal regularlyreaches former Nebraskans eatingbreakfast in California and Arizona.

KRVN listeners can recite the dateand circumstances when their initialswere called on the station’s longtime“Monogram Money” contest. A wheelwith letters on it is spun to select threeletters. If a listener’s initials match upwith the letters, they have two minutesto call the station and claim the prizemoney, which starts at $8.80.

Stories about furious sprints fromtractor to telephone to call in to thecontest are not uncommon.

The strong signal, a fanatical dedi-cation to farm news and a veteran staff(the station has had only two generalmanagers in its history and has threeannouncers with more than 20 years ofservice), have helped make the station aNebraska institution.

“I always felt as a candidate that if Icould land an interview on KRVN that

was worth a lot,” said Gov. MikeJohanns during a special broadcast onFeb. 1 to celebrate the station’s 50thanniversary.

KRVN has been able to stick to itsmission of serving farmers and ranch-ers because of its unique ownership andmission, said Eric Brown, the station’sgeneral manager since 1979 and MaxBrown’s son.

“We’re not like other commercialstations. I don’t have to have a 30 per-cent return on investment in this quar-ter,” Eric Brown said. “We say thatpeople get their dividends when theyturn on the radio.”

The station was born of necessity.Farmers and ranchers felt they weren’tgetting enough news about the live-stock and grain prices to make smartdecisions on where to sell.

There were no statewide weatherforecasts 50 years ago, leaving folksvulnerable to bad weather.

By 1947, Nebraska agriculturalgroups had enlisted Max Brown, a for-mer ag professor, to check out a projectby the Ohio Farm Bureau to launch aradio station.

It led to a campaign in Nebraskathat enlisted donations from 4,755farmers and ranchers from everycounty in the state. Each “member”gets one vote in the Nebraska RuralRadio Association, which is run like afarm cooperative, with a board ofdirectors and an annual businessmeeting.

Lexington became KRVN’s homebecause of its central location. Stationprofits are plowed back into radiooperations or donated to agriculturalresearch or education. Only farmers

A l l a g , a l l t h e t i m eFarmer-owned radio station has served rural Nebraska for 50 years

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Rural Cooperatives / January/February 2001 5

and ranchers can become members.“Our bosses are the guys out there

who listen,” said Mike LePorte, thestation’s farm service director and oneof three reporters whose total focus isagriculture reporting.

“Our reason for existence is to servefarmers and ranchers,” LePorte said.“That’s why we take it so seriously.”

KRVN pioneered the first statewideweather forecasts, paying for dailytelegrams from Scottsbluff, Lincolnand Omaha to put them together. Italso arranged for daily reports from the

major farm markets of the day, whichincluded the Omaha Stockyards andthe Omaha Grain Exchange.

The station almost went broke in itsearly days, Max Brown said.

It lost several thousand dollars afterbuying Omaha’s KOIL in 1952. Thestation was quickly sold after farmers,due to a drop in prices, had to renegeon pledges to finance the purchase.

The struggle to expand KRVN’sreach statewide led to a costly$500,000, 10-year campaign, whichculminated in 1972, to change the sta-

tion’s dial position from its original1010 to 880. Only one other station inthe nation is at 880 on the dial, WCBSin New York City.

KRVN’s daytime signal stretchesfrom Omaha to the Panhandle andfrom the Sand Hills to almost theKansas-Oklahoma border.

Although Brown had no radio expe-rience, his staff did. The station’s up-to-date market and weather informa-tion pulled in listeners, whose bottomline could be improved by thousands ofdollars by timing the market or bychoosing the higher-paying grain ele-vator or livestock auction.

Today, KRVN provides weeklyreports from 16 farm organizations aswell as several rural state senators. Mar-ket and auction reports are broadcastevery few minutes throughout the day.

On a recent weekday, the stationwas abuzz with activity. It’s prime timefor annual meetings of farm organiza-tions; advertisements for herbicides,seed corn and bull sales flood the air-waves; and the Nebraska Legislature’ssession is in full swing. All that meansplenty of programming and littleroom for music.

Plus, a snowstorm had caught cen-tral Nebraska by surprise, dumping upto a foot of snow in some areas whenonly an inch had been forecast.

“Let’s play that disclaimer again:KRVN is not responsible for morethan an inch of snow,” joked afternoonannouncer Don Colvin.

While the radio industry has seen astorm of mergers and programmingchanges, KRVN’s future seems secure.

Because of its unique ownership, itisn’t likely to be purchased by a largerchain. Despite a declining number offarmers and ranchers, the station stillhas the highest pull of any farm sta-tion in the country—more than 50percent of ag listeners in its area. Theneed for up-to-date information onfarm markets and weather is as strongas ever.

“If you’re serious about agriculture,”said program director Larson, “youneed to listen to us, or else you’regoing to miss something.” ■

KRVN remains the nation’s only farmer- and rancher-owned radio station. Here afternoon

announcer Don Colvin hits the airwaves with the latest farm and ranch news. Mike LePorte

(background) is the the station’s farm service director and one of three reporters whose

total focus is agriculture reporting. PHOTO BY JEFF BUNDY, COPYRIGHT OMAHA WORLD HERALD

By Pamela J. KargField Editor

here Ocean SprayCranberries goes, sogoes the entireindustry. These daysOcean Spray and

the cranberry industry are both in asevere slump. A glut of fruit hasdepressed prices to levels that havemany growers hovering on the brinkof bankruptcy.

In only a few years, the price of abarrel of cranberries has plungedfrom a high of $80 to lows of near$11. A grower needs to make about$35 a barrel just to break even.

Ocean Spray has for many yearsbeen a poster child of success forfarmers who want to add value totheir crop by processing and mar-keting it themselves. Indeed, manycredit Ocean Spray for making the industry. But the markethas become so precarious that earlier this year some grow-ers—for the second time in two years—forced a referendumthat could have made the cooperative sell its assets to agiant beverage company. That effort failed, and now thecooperative is helping lead the fight to stabilize the marketand enable growers to survive the downturn.

Co-op boosts entire industry“Ocean Spray has really done a lot to benefit the entire

cranberry industry,” notes Nodji VanWychen. She and herfamily are independent growers near Warrens, Wis., thegateway to the state’s cranberry country.

A three-generation farm operation, the VanWychens grow,harvest, pack and market their own line of cranberries undertwo labels they own. As independent growers, they also mar-ket fruit for the private label business. That’s in direct compe-tition with Ocean Spray, the nation’s largest cranberry mar-keting organization headquartered in Lakeville-Middleboro,Mass. Yet VanWychen freely admits that the cooperative’s

success directly impacts member-growers and independents alike.

Like many other agricultural com-modities, the cranberry industry isbogged down with over-productionbecause of increased acreage andgood weather. Research and devel-opment of new products also slowedin recent years as the financial strainsstarted up. In response to the tur-moil plaguing the industry, OceanSpray has changed its top managersand has promised to roll out nearly50 new products in the next twoyears. It’s going to take time, saysChris Phillips, Ocean Spray commu-nications director. Meanwhile, finan-cial woes abound.

Ocean Spray reported last fallthat its sales rose slightly, from$1.36 billion to $1.4 billion. But netincome declined 45 percent, to$73.5 million, a chasm away from

the $280 million earned in fiscal 1998. It was the secondyear in a row the co-op reported weak financial results.

Ocean Spray’s disappointing numbers came as no sur-prise. Phillips said the co-op had been predicting seriousproblems for several years. Wisconsin co-op memberWilliam G. Hatch concurs. “However, the problem was thatthey had been ‘crying wolf’ for so many years that no onebelieved them,” Hatch says. “ I just think everything was sogood for so long, now we have enough blame to go aroundthe entire industry.”

So who is to blame for the challenges facing growers andco-op alike in an industry that has been around since Americaitself? It depends on who is speaking.

Phillips says the industry has expanded faster than consump-tion has risen. Some of that expansion was by the cooperative.Independent growers also expanded. In Wisconsin, for exam-ple, in 1989 there were 150 farmers with 10,000 acres of cran-berries. Today, 260 growers farm 18,000 acres of cranberries.

Under a new Ocean Spray management team, surveysshowed that consumers associated the co-op brand with


A l l b o g g e d d o w nRecord cranberry crops, soft markets force industry to eye marketing order

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high-quality products, but also higher prices. At the sametime, supermarket consolidations and shifts in the foodindustry meant processors were contracting production,packaging a range of foods under private labels. Those labelswere cheaper and still had perceived value with consumers.

And when grower prices were starting to head southabout two years ago, the Ocean Spray board voted to paymembers a little more money. That left the co-op with lessto invest in research and development and for new productintroductions.

Support grows for market orderJeff Kapell is an Ocean Spray member

who has grown cranberries near Ply-mouth, Mass., since the 1970s. He saysthis is the worst economic crunch theindustry has ever faced during all hisyears in the business.

“I was not able to cover my cost ofproduction last year,” says Kapell. “Folkswho have capital reserves and aren’theavily mortgaged will probably be ableto come out of this OK. But growerswho don’t have much in reserve and arecarrying a big mortgage will be hardpressed to survive.”

Does he think the cooperative is takingthe right road to turn the situation around?

“Only hindsight will tell for sure. Butif it does turn around, Ocean Sprayshould be in a good position to continueto be of major value to its growers in thefuture.”

Regarding the cranberry industry’srapid plunge from boom to bust, Kapellsays “there were subtle indications earlierof looming problems on the horizon.This is a relatively small industry and it isvery sensitive to even small shifts in sup-ply and demand. Right now we are look-ing at more than a small shift—we have asignificant surplus to deal with.”

He feels an industry-backed market-ing order is the best way to manage thesurplus.

Hatch walks the line between inde-pendent grower and Ocean Spray mem-ber. He and his father, William, have 360acres of cranberries, which makes themlarge growers. When the co-op waslooking to expand acreage, the Hatcheshad some acres they placed into co-opmembership. And they also have someacres which remained out of co-op mem-bership, the fruit from which is contractedto an independent handler. The younger

Hatch also serves as president of the Wisconsin State Cran-berry Growers Association (WSCGA).

“If you read the Stressline (an on-line cranberry newswebsite) you hear from lots of growers, anonymously, aboutwhat’s happening,” Hatch says. “And some of our own sur-veys with just our (WSCGA) members show that growers aredivided [over how to deal with the glutted market]. The onlything we know for sure right now is that growers have agreedthey want a marketing order in place this year.”

That’s a big step. A little more than a year ago, growers

Left: Cranberries are harvested in Wisconsin, which leads the nation in cranberry production.PHOTO COURTESY UNIVERSITY OF WISCONSIN. Above: Cranberry prices have plunged from a high of$80 per barrel to lows near $11. Growers typically need $35 per barrel just to break even.USDA PHOTO


could not agree on that vital issue. AWGCGA survey showed that morethan 90 percent of its membership sup-ported a marketing order to help theindustry achieve greater balance. Thecrux of the dispute is whether theindustry should be producing about 4.7million or 4 million barrels each year,says Hatch.

Tom Lochner, WSCGA executivedirector, agrees that this is the keyissue, adding that about three-fourthsof the membership supported eliminat-ing the surplus in one year. “Thedebate right now is what is the rightnumber?” he says. “As a board, weagreed that our association is going tourge USDA to enact a regulation. Butwe don’t have a consensus on what thatregulation should be,” adds Lochner.

How much is enough?So the industry finds itself divided

once again. The question centers

around how much to reduce produc-tion to ease the surplus.

At a meeting in early March inWisconsin Rapids, Wis., the Cranber-ry Marketing Committee (CMC)agreed to cut the surplus by 32 per-cent this year. The CMC representsgrowers and handlers and makes rec-ommendations to USDA, the onlypower that can mandate productioncuts. The committee hoped Agricul-ture Secretary Ann Veneman wouldaccept the plan by the end of March,in time to affect this year’s crop.However, no decision had beenannounced by mid-April and growerssuch as Van Wychen and Hatch weregetting nervous about how to managetheir cranberry marsh beds.

“It’s not like a corn or soybeangrower who finds out he doesn’t needto plant this year,” says Hatch. “Wealready had plants in the ground, mon-ey tied up in taxes and even more

resources into maintaining growingthose plants until they bear fruit.”

A marketing order that would limitthe 2001 crop to 4.7 million barrels,excluding fresh fruit, was recom-mended to USDA by CMC. Such amove would be expected to reduce thesurplus to 2.5-3.5 million barrels,officials said.

Dick Ducklow and Gary Jensen,members of CMC, voted against thisrecommendation during the Marchmeeting because it does not eliminatethe surplus in one year or raise growerreturns sufficiently.

Ed Jesse, ag economist from theUniversity of Wisconsin-Madison, rec-ommended a 4-million-barrel limit toCMC. He said it would reduce the 4.4-million-barrel surplus to 2 million bar-rels, which is considered a normalcarryover. Eliminating the surplus inone year, some growers contend, wouldbring grower returns in line with the

Cranberry fruit from North American growers will beused for beverages to be sold in China via an agreementbetween the Ocean Spray cooperative and BeijingHuiyuan Beverage Group, China’s largest juice company.The goal is to introduce Ocean Spray juices in China lat-er this year, starting with Beijing, Shanghai, Guangzhouand in other major markets within the next three years.

Ocean Spray, owned by 804 cranberry and 126 grape-fruit growers, said itwill grant a 10-yearlease to Huiyuan tomanufacture, marketand distribute OceanSpray products.Ocean Spray alreadyhas similar agree-

ments in place in the United Kingdom, Australia, NewZealand and several Latin American countries. Many ofthe member- growers have been suffering through thethird straight year of depressed market prices that arebelow production cost. Pressure to sell the cooperativeto private interests has been resisted by the board ofdirectors (see cover story).

Rob Hawthorne, the cooperative’s chief executiveofficer, said he expects the Chinese juice market tobecome the largest in the world in the next 20 years.It has the potential of using hundreds of thousands ofbarrels of cranberries. Opening the Chinese market isan example of Hawthorne’s plans for other market ini-tiatives aimed at increased demand and higher pricesfor the growers. But lack of demand for the current 5-million-barrel crop may force some growers to quit

the business. However, the Chi-nese market provides a breath offresh air at a time the cooperativeand its grower-owners could use anew home for their cranberries.The cooperative’s $220 millioninternational division has tripled insize in the past four years. ■

Ocean Spray opens China market for cranberry juice products

The Ocean Spray cooperative has led efforts toincrease consumption of the fruit by developinga wide variety of cranberry beverages andother foods. USDA PHOTO


$35 per barrel cost of production. Currently, the price is hovering at

$10-$15 per barrel. The 4-million-barrel plan would get the growerprice up to cover production costssooner, proponents say. They want toeliminate all the pain in one year,eliminating nearly all the projected2.3- million-barrel surplus so goodtimes can roll again. They also worrythere won’t be enough demand forthe 5 million barrels that still wouldbe produced.

But handlers supported carryingover a larger surplus. Ocean Spray, forexample, recommended a market orderthat sets the crop at 4.8 million barrels.“Any more and it cuts into new productdevelopment and new market expan-sion,” says Phillips. “We need enoughfruit to grow demand. We can controlsupply in the short term, but we stillneed enough fruit to meet new productdevelopment and market expansion.”

Either cutback would be considerablymore than last year’s 15 percent with-

Cranberry bogs use unique growing systems that includewetlands, uplands, ditches, flumes, ponds and other waterbodies. An entire cranberry wetland system can providediverse habitats to many rare animal and plant species.

In winter, bogs are covered with water that freezes andprovides insulation from frost. As the snow melts and springarrives, the bogs are drained and cranberry vines awaken.Soon after spring, light pink blossoms which resemble thehead and neck of the sandhill crane begin to appear. Asflowers bloom, honeybees and bumblebees work diligentlyto pollinate flowers, ensuring a good crop. In mid-July,petals fall from the flowers leaving tiny green nodes whichafter weeks of summer sun, become red, ripe cranberries.

Considered the life blood of cranberries, water is usedthroughout the year for irrigation and to protect vinesfrom weather damage in winter and frost in spring andfall. As fall approaches, water becomes essential to theharvesting process.

During harvest, many growers flood their bogs caus-ing cranberries, which have small air pockets in the cen-ter, to rise. Growers then use water-reel harvestingmachines to loosen cranberries from their vine causingthem to float on top of the water. These machines looklike miniature combines with cylindrical spool-shapedmetal beaters attached to the front. After floating to thetop, berries are corralled onto conveyers to waitingtrucks which take them to receiving stations and eventu-ally processing plants, where they are used for juice,sauce, and other processed foods.

Delivered to fresh fruit receiving stations, cranberriesare graded and screened based on their color and abilityto bounce (soft berries will not bounce).

In Massachusetts, 500 growers produce 38 percent ofthe nation’s cranberry supply, making the fruit that state’snumber one food crop. As urban sprawl overtakes Mass-

achusetts’ rural areas, growers have sold off some oftheir acreage so that Wisconsin is now number one incranberry production.

Commercial cranberry production in the BadgerState began in about 1860. Simply digging ditchesaround stands of native vines and encouraging theirgrowth helped early marsh development. Cranberriesare also Wisconsin’s leading fruit crop both in terms ofacreage and value. In 1996, cranberries were producedon about 13,600 acres in 19 of Wisconsin’s 72 counties.The farmgate value was about $75 million. That hasplummeted this year in all cranberry regions.

USDA’s National Agricultural Statistical Service estimat-ed in its August 2000 cranberry report that the total cran-berry harvest would be 5.84 million barrels, down 8 percentfrom 1999 but 7 percent above 1998 levels. Of the five majorcranberry- producing states, Washington (153,000 barrels)and Oregon (410,000 barrels) expected increases whileNew Jersey (550,000), Massachusetts (1.8 million barrels)and Wisconsin (2.9 million barrels) predicted decreases.

The 2000 harvest followed on the heels of record-high production in 1999 which totaled 6.37 million bar-rels. The 1999 area harvested was a record high 37,300acres. The average yield of 170.9 barrels per acre was22.2 barrels above 1998. The average price per barrelfor 1999 was $17, a decrease of $21.80 per barrel fromthe 1998 crop year. The steep reduction in the price perbarrel drove thevalue of pro-duction downto $109 million,a 49 percentdrop from 1998, NASSreported. ■

Growers use water-reel harvesters to loosencranberries from the vine, causing them tofloat on top of the water. USDA PHOTO

Cranberry production cycle revolves around water


holding, and those who forged theagreement say it shows the industry canwork together. But some growers stilllobby for deeper cuts that would make abigger dent in the surplus.

Grower/handler splitSome growers say the handlers,

who buy and sell berries, care moreabout keeping prices down than aboutprotecting growers, some of whom arecertain to fold if prices don’t increase.That criticism also goes against OceanSpray, which controls about 70 per-cent of the U.S. cranberry market.Like everyone else in the cranberryindustry, Phillips says there’s enoughblame to go around. Low prices alsohurt the co-op because it does nothave the financial resources to marketthe fruit, he adds.

“They all want cheap fruit. And whathappens with cheap fruit? That meansthe growers are going to be sacrificed,”counters Hal Brown, who runs thegrower “cranberrystressline” website.

Hatch admits poor prices haveimpacted his operation. Farming nearNecedah, in the central sands regionof Wisconsin, Hatch has released 50percent of his workforce. All growersare spending less in town, and “peopleare just trying to survive; we’re justtrying to lose as little money as possi-ble and cutting back wherever wecan,” he says.

“A lot of growers will probably goout of business if this marketing orderis implemented the way they’ve writtenit,” Doanne Andreisson, a grower fromDuxbury, Mass., recently told theBoston Globe.

The loyalties are complicated, howev-er. Ocean Spray, which has four seats onthe eight-seat CMC, is the largest han-dler, but also represents 70 percent ofthe growers and is obligated to defendtheir interests. Phillips says the 4-mil-lion-barrel-agreement is a good deal inthe long term for growers. “It was animportant decision, not a popular deci-sion with everyone, to be sure,” he says.

Ocean Spray needs the fruit becauseits revamped marketing plan shouldincrease demand, it claims. The co-op

plans to roll out as many as 21 newproducts this year and 32 next year.“You’ve got to have new product intro-ductions to keep consumers interested,”Phillips says.

Meanwhile, in the cooperative’s lastannual report, Ocean Spray’s new CEOH. Robert Hawthorne and ChairmanSherwood J. Johnson express hope thatbetter days are ahead. “We do expectproceeds to turn upward this fiscalyear,” they wrote.

Phillips adds that initiatives the co-op put in place this past year will stim-ulate demand and reduce the surplus.Besides introducing new products, theco-op plans to re- vamp its familiarblue-tidal-wave label, will implement$76 million worth of cost-cutting mea-sures and will narrow the price-gapbetween Ocean Spray and store-brandcranberry juices. Ocean Spray also hascreated a new distribution network forits single-serve products, and it vowsto improve marketing efforts as itbrings its new products to marketthese next two years.

Co-op’s sale still supported by someNevertheless, some growers still

think Ocean Spray should be aggres-sively exploring opportunities to sell

itself to a giant beverage conglomerate.For the past two years, some growershave tried to force the issue onto theco-op’s annual meeting agenda.

For all intents and purposes, OceanSpray shares have a fixed value of $25.But if Ocean Spray were sold, thoseshares could be worth far more, somegrowers contend, citing studies byOcean Spray’s own consultants.

In 1999, Ocean Spray’s board weigheda number of strategic options, including asale. In the end, a decision was made toremain a cooperative, to hire a new CEOand to focus on reorganizing operations.Efforts at both the 1999 and 2000 annualmeetings by members who wanted to sellwere not successful.

The Ocean Spray sale appeared asthough it could provide growers withenough money to hang on until barrelprices rebound. But when it was turneddown in 1999, a group of growers fileda lawsuit to force Ocean Spray toreconsider a sale. The matter was final-ly put to rest when it was defeated atthe co-op’s 2000 annual meeting in SanDiego in December.

“We believe the turnaround strategywe’ve set in motion is the right strategyfor recovery,” Hawthorne and Johnsonconclude in the annual report. ■

Native Americans in the Great Lakes regions first called the fruit crane-berries because sandhill and other cranes feasted on this native species. InNew England, Native Americans referred to them as sassamanash and madecakes prepared with lean, dried strips of meat pounded into paste and mixedwith animal fat, grains and cranberries. Later used to make dyes and poul-tices by the Pilgrims, cranberries soon become a vital source of vitamin C forwhalers and a valuable resource to New England residents.

Cranberries actually grow wild from the Carolinas to the Canadian Mar-itime Provinces. However, they prefer sandy soil, an abundant fresh watersupply and a growing season that lasts from April to November. That makesplaces such as southeastern Massachusetts, central and northern Wiscon-sin and pockets of Oregon some of the more abundant growing areas.

The Cape Cod Cranberry Growers’ Association is one of the oldest farmerorganizations in the country and probably the oldest cranberry association. Itwas established in 1888 to standardize the measure—100-pound barrels—used to sell berries. ■

The history of crane-berries


E. Eldon EversullAgricultural EconomistUSDA Rural Business-CooperativeService

ocal cooperatives arerapidly adapting to thetechnological revolutionin agronomy practices.How fast? In just three

years, local cooperatives more thandoubled their adoption of high-techagronomy systems, according to aUSDA study.

In 1996, only about 24 percent ofthe local cooperatives reported havingfertilizer application equipment thatused global positioning system (GPS)and global information system (GIS)technology. Three years later, that per-centage more than doubled—to 57 per-cent—among the same respondents.Sixty-eight percent of local co-ops arenow able to prepare field maps with theaid of GPS and almost half can com-bine the maps with crop protectantapplication for record-keeping purpos-es. And an additional 16 percent wantto add GPS services.

This information is from a recentsurvey of local co-ops conducted byUSDA’s Rural Business-CooperativeService. Cooperatives were askedabout their crop protectant sales, sup-ply sources, competitors, type ofcompetition and what services theyoffer. Almost 400 local farm supplyand marketing cooperatives respond-ed. These co-ops have combined cropprotectant sales of $830 million, or40 percent of local agricultural coop-eratives’ crop protectant sales. Theresults of this survey are discussed in

a pending study, Crop Protectant Oper-ations of Local Farm Supply and Mar-keting Cooperatives.1

The crop protection industry hasundergone many changes during thepast two decades. Increased input costs,environmental concerns and low cropprices in the 1980s placed moreemphasis on sustainable agriculture,

using less fertilizers and crop protec-tants. Interest in technology increasedduring the 1990s. Technology permit-ted crop protectants to be applied inprecise amounts and locations.

GPS technology pinpoints within sev-eral yards the location of crop protectantapplication equipment in a farmer’s field.GIS maps can then be made that com-

L o c a l c o - o p s e m b r a c eh i g h - t e c h a g r o n o m y s y s t e m s

L

Farmers can use the global positioning system (note the GPS marker behind them) for theirpest control programs. Local co-ops have doubled their use of this high-tech equipment injust the past three years. PHOTO COURTESY GROWMARK


bine the location within the field with soilsamples, scouting reports on pest andweed damage and yield monitor results.

More recently, genetically modifiedorganisms (GMOs) have gained atten-tion. Some GMOs allow the farmer touse less crop protectants by plantinginsect-resistant varieties, such as Btcorn and Bt cotton. Other GMOs areresistant to popular broad-spectrumherbicides so they need less crop pro-tectant treatments and because of thereduction in weed pressure on the crop,promote no- or minimum-till practices.

Scientists, as well as farmers, havebroadly embraced the benefits of GMOsand supported their use. Some suggestGMOs may provide the opportunity forfarmers to produce enough food to over-come world hunger. Some consumersand/or consumer groups will continue toobject to GMOs until they can be shownto be safe and directly benefit con-sumers, such as GMO crops that helpfight disease.

Even with this new technology thatuses field maps, scouting reports and aeri-

al photos, farmers still have many decisionand interpretation problems. Farmer-owned cooperatives, recognizing the needfor better information and analysis, havebeen on the forefront in providingcrop/agronomy specialists to interpret thetechnology and help with recommenda-tions on crop protectant application, fieldmapping and record keeping.

Cooperatives leading the wayThe 185 surveyed cooperatives that

provide GPS/GIS field maps are largerthan the average survey respondent.Their crop protectant sales average $3.1million, compared with $1.3 million forthe 198 survey cooperatives that do notprovide GPS/GIS maps. The GPS/GIScooperatives purchase about 73 percentof their herbicides and insecticides fromregional cooperatives, the most com-mon sources (in this study) being CHSCooperatives (Cenex Harvest States)/Land O’Lakes, Farmland and Grow-mark. These same regionals are mostlikely supplying both crop protectantsand promoting agronomy technology to

many of these local cooperatives. Theother 198 cooperatives have looser tieswith regionals, purchasing only about58 percent of their crop protectantsfrom them.

Almost 100 percent of the GPS/GIScooperatives employ crop/agronomyspecialists to help farmers choose thecorrect crop protectant and scout fieldsfor pests and weed damage (table 1).While all of the GPS/GIS cooperativesmake field maps, half of the other coop-eratives would like to do so in thefuture. Almost 80 percent of theGPS/GIS cooperatives have crop pro-tection application equipment that canbe guided by GPS units. Only 10 per-cent of the other cooperatives haveGPS-guided application equipment, but43 percent would like to. Keepingrecords of farmers’ fields can be done by69 percent of the GPS/GIS cooperativeswhile about 3 percent of the other coop-eratives are capable of doing so. Again,about 43 percent of the other coopera-tives would like to be able to do this.

Regional comparisonsThere are large regional differences

among cooperatives in their use ofagronomy technology. Ten standardfarm production regions2 are used toanalyze responses in a regional format.Because of the small number of respon-dents in four regions, the Northeast andAppalachian, and Southeast and Delta

Table 1—Crop protectant services that GPS/GIS field-mapping cooperatives and all others offer, or wouldlike to offer, weighted by sales

Currently Would like Currently Would like Services offer to offer Services offer to offer

- - - - Percent - - - - - - - - Percent - - - -Crop/agronomy specialists—recommendations & scouting Application equipment with GPS units

GPS/GIS cooperatives 98.85 0.47 GPS/GIS cooperatives 78.22 12.19All other cooperatives 80.78 4.76 All other cooperatives 9.99 42.81

Field mapping/recommendations using GPS/GIS Record keeping with GPS/GISGPS/GIS cooperatives 100.00 — GPS/GIS cooperatives 69.02 16.99All other cooperatives — 49.77 All other cooperatives 3.26 42.53

— = Not available.

A co-op agronomy specialistuses CPS equipment to takesoil samples that will beused to develop grid maps.COURTESY CHS–LAND O’ LAKES


States are combined into two regions.The Corn Belt, with 143, has the mostrespondents, followed by the LakeStates and Northern Plains, both with89. The Corn Belt also has some largerespondents, resulting in crop protec-tant sales averaging almost $3.2 million.

Cooperatives in most regions have ahigh incidence of offering crop/agrono-my specialists for recommendations andfield scouting (table 2). The use ofGPS/GIS technology is centered in theCorn Belt, where the cooperatives aresome of the largest respondents and cornand soybeans are the predominant crops.Almost 69 percent of the Corn Beltcooperatives have application equipmentwith GPS units; field mapping can bemade with GPS/GIS technology by 85percent of the cooperatives, and recordkeeping with this technology by 66 per-cent. The use of GPS/GIS technologyfalls as cooperative size decreases andwhen the predominant crops are notcorn and soybeans.

Crop protectants are applied basedon pests and weed pressure, soil tests,infrared, satellite and aerial photo-graphy, and field scouting. Additionalanalysis of GPS/GIS information isonly as good as its interpretation. Manyfarmers rely on outside help to scouttheir fields for crop protection. In theCorn Belt and Lake States, where 85percent and 66 percent of the respon-dents, respectively, provide field map-ping, cooperatives also employcrop/agronomy specialists more than94 percent of the time.

Strong sales growth Local cooperatives studied generally

have experienced strong growth incrop protectant sales, with an averageannual increase of about 11 percentfrom 1991 through 1999. These coop-eratives support the cooperative agri-cultural inputs system, purchasingmore than 68 percent of their herbi-cides and insecticides, 48 percent of

their fungicides, and 50 percent of allother crop protectant products fromregional cooperatives.

Their primary competitors for thesesales to farmers are private suppliers,followed by other cooperatives. Cropprotectant price is the strongest com-petitive tool, but advisory scouting andother services is also important.

Most cooperatives apply crop protec-tants for farmers. Crop/agronomy spe-cialists are often employed by local coop-eratives to assist the farmer in makingcrop protection decisions. Many cooper-atives also provide a record service totrack the farmers’ use of crop protectants.

The use of GPS/GIS technology isbeing championed by local agricultur-al cooperatives. Field mapping is avail-able to 68 percent of the crop protec-tant volume. The GPS/GIStechnology is expensive, so largercooperatives are more likely to offer it.Many of the respondents not offering

Table 2—Crop protectant services that cooperatives offer, or would like to offer, by regions, weighted by sales

Currently Would like Currently Would like Services offer to offer Services offer to offer

- - - - Percent - - - - - - - - Percent - - - -

Crop/agronomy specialists—recommendations & scouting Application equipment with GPS unitsNortheast and Appalachian 94.42 — Northeast and Appalachian 61.56 18.41Southeast and Delta States 100.00 — Southeast and Delta States 76.20 —Southern Plains 71.87 1.62 Southern Plains 53.53 14.72Corn Belt 96.15 0.78 Corn Belt 68.98 13.59Lake States 94.30 0.48 Lake States 47.49 28.19Northern Plains 85.40 8.11 Northern Plains 38.46 33.25Mountain 99.45 — Mountain 43.25 51.96Pacific 71.35 — Pacific — 47.13

Field mapping/recommendations using GPS/GIS Record keeping with GPS/GISNortheast and Appalachian 73.83 6.75 Northeast and Appalachian 24.46 19.23Southeast and Delta States 46.63 — Southeast and Delta States 30.52 —Southern Plains — 36.91 Southern Plains — 36.91Corn Belt 84.94 6.38 Corn Belt 65.82 15.20Lake States 65.85 18.38 Lake States 40.72 30.65Northern Plains 48.11 26.06 Northern Plains 31.53 40.17Mountain 40.68 54.53 Mountain 28.06 59.65Pacific 17.52 64.86 Pacific — 48.73

—= Not available.

continued on page 30

By Dan CampbellEditor

nce they were“Marlboro Men”(cigarettes option-al), riding free andeasy in the saddle

(or ATV) as they kept watch overtheir herds and flocks. Theywere self-reliant loners whostood up to whatever fate dishedout. They bounced back upwhen they got knocked downand they learned to survive inconditions in which most of uswould wilt under the strain.

But globalization of agricul-ture and concentration in themeat packing and food retailingindustries has proven to be a big-ger challenge than drought, dis-ease or coyotes ever did. As theirranks thinned and their profitsplummeted, many livestock andpoultry producers have graduallycome to the conclusion that—gulp—maybe that guy over onthe next ranch or farm could bean ally rather than a competitor.

Thus, there has been a surgeduring the past five years of new,producer-owned livestock andpoultry cooperatives. They arebeing formed by ranchers andfarmers who see group action as the best way to retain owner-ship of their livestock and to process and market it themselves.

Representatives of the four major livestock sectors—beef,pork, poultry and lamb—gathered in Washington, D.C.,recently for a mini-summit held as part of USDA’s annualAgricultural Outlook Forum. They shared their experiencesin helping launch a grassroots co-op revolution, the goal ofwhich is to help livestock producers keep more of the dollars

traditionally siphoned off by middlemen. The new beef and poultry co-ops represented at the

meeting are already considered to be successes, althoughtheir track records are still short. The new pork and lambcooperatives hope to emulate the success of the beef andturkey co-ops.

“Cooperatives give producers marketing power so thatthey can compete with the corporate interests that are


H a n g o n t o t h e r a n c h Young livestock & poultry co-ops share goal to strengthen producers’ role in marketplace

O

Kelly Giles, a board member of U.S. Premium Beef, says the survival of his cow-calf stocker operation hingeson the ability of the co-op to add value to his cattle through processing and marketing. So far, the co-op hasdone just that by working with Farmland Industries to create value-added products such as Farmland’s Ground& Browned packaged beef (at right). USDA PHOTO BY BOB NICHOLS. BEEF PRODUCT: PHOTO COURTESY FARMLAND INDUSTRIES

attempting to dominate agriculture, as well as an opportunityto improve their product quality and consistency to meet therising demands of consumers,” said Randall Torgerson,deputy administrator for USDA’s Rural Business-CooperativeService and the session organizer and moderator. He was oneof several speakers to use the “Marlboro man” as a symbol forthe stockman of old—producers who now realize that theyare “at the 11th hour” to make needed structural changes.Otherwise, most of them could wind up as little more than“piece-wage producers” working for huge food corporations,if they survive at all, he warned.

Selling meat & meals, not cattleKansas cattleman Steven Hunt said there was no secret

about the motivation for forming U.S. Premium Beef: fear!In the mid-1990s, young producers such as himself could seethe end of their ranching way of life fast approaching. “A lotof us who had invested a vast amount of capital into our live-stock businesses realized that if we didn’t make a drasticchange, we would have to get out of the business.”

The system was broken and had to be fixed, he said. Theproblem was similar to an industrial model in which GeneralMotors sells Cadillacs and Chevrolets for the same price.“Ifthat was true, how much longer do you think General Motorswould make Cadillacs?” Hunt asked.

Yet that is the system in which the cattle industry has tradi-tionally operated, he said. “We group our cattle in feedlots andsell them for one price. It’s a system that rewards mediocrity. It’sa marketing system that led us to a situation where our industryproduces too many Chevrolets and not enough Cadillacs.”

This realization helped lead to the formation of U.S. Pre-mium Beef, a producer-owned marketing and processingcooperative that has been highly successful so far in imple-menting its strategy to “sell meat and meals, not cattle.”

Membership in the co-op, of which Hunt is now CEO,has grown from 200 producers at inception in 1997 to 1,400ranchers, backgrounders and feedlot operators in 38 statestoday. The co-op now holds a 29 percent interest in Farm-

land National Beef,the nation’s fourthlargest beef processorand marketer. Its pro-gram to pay premiumsfor high-quality car-casses has helpedmembers earn signifi-cantly better paymentsthan the industry aver-age. The co-op’s pre-miums-for-qualityprogram has also stim-ulated some of thecompetition to imple-ment a quality-gridpayment system.

Hunt listed three principals that have been keys to the co-op’s success:

1) Cattle are marketed in a system that pays based on thequality of the carcass, not just the weight;

2) Producers get detailed grading data from the co-op tohelp them improve the quality of their product;

3) Producer commitment—producers must not onlycommit to meeting the co-op’s quality standards, but investa significant amount of capital in the co-op. True commit-ment to a co-op “only comes about through ownership,”Hunt said.

When it was being launched, many observers advised thefledgling co-op not to get involved in “brick and mortar”ownership. But the economic analysis performed for the fea-sibility study said the co-op needed an ownership stake in aprocessing facility.

The economic analysis also showed that cattle producers,on average, invest from $2,000 to $3,000 per animal unit(which includes the cost of livestock and all their otheroverhead expenses). But the overhead investment to processbeef is only $100 to $200 per animal unit, Hunt said. “Sowhen you look at the economics of vertical integration, is itmore likely that a processor will go out and invest up to$3,000 per animal unit (to produce cattle), or would a pro-ducer be more likely to invest $100 to $200 per animal unit(to process it into beef)? This was the point when we inU.S. Premium Beef said not only can we do this [launch aco-op], but we have to.”

As a new-generation co-op, the amount of stock the mem-bers buy in the co-op establishes their delivery right (andobligation). Producers originally invested $55 per head ofcattle. For a producer who bought 1,000 shares in the co-op,the investment would have been $55,000, giving him theright to deliver 1,000 head annually to the co-op.

By the time U.S. Premium Beef closed its membershipdrive in November 1997, it had raised $38 million frommembers and secured an additional $38 million in debt.

Know your limitationsHunt said a key to success in a value-added venture is to

know your limitations. “We were producers—pretty smartproducers, we liked to think, and we had varied backgrounds[he, for example, had worked as an ag lender]. But we weren’texperienced marketers or processors.”

So the co-op leaders felt it was essential to partner with asuccessful beef processor and marketer.

In this search, they talked with the nation’s six largest beefprocessors. “If you walk into a packer’s office with nearly amillion cattle to offer, you will get an audience,” Hunt said.“But when you start to talk about ownership and governancestructure, the crowd thins out pretty fast. But a couple ofthem stuck around, and we ended up with an agreement withanother cooperative: Farmland Industries.”

Farmland was not chosen because it is a cooperative,Hunt said, but because Farmland National Beef leads the



industry in number of value-added beef products. Morethan 30 percent of its revenue comes from value-addedproducts, and more than 16 percent of its products are soldoverseas, he noted.

“And as the fourth largest beef processor, we also felt itwas about the right size—that we could buy a large enoughpiece of it that we could look our members in the eye and tellthem they had some control in this company.”

Convincing producers that they would have to give up alittle independence at first in order to gain independence forthe long-haul was the biggest hurdle U.S. Premium Beef hadto clear, Hunt said. “Yes, it was difficult to bring more than$70 million in capital together, and yes, it was hard to negoti-ate a deal with processors. But the single most difficult thingto do was to bring together independent cattle producersfrom all over the country.”

Hunt advises others to focus on doing what it takes tocreate a successful business, with consideration of the co-op’s impact on local economies being secondary. “Whatscares me is when economic development goals drive a pro-ject—where the motivation is to employ people andincrease the tax base. That is not a bad thing, but the priori-ty should be on putting together a project that will generateearnings for the owners. Then the rest [the jobs, increasedtax base, etc.] will come.”

He noted that an additional 1,000 employees have beenhired since the co-op took partial ownership of the meat-

packing operation, boosting total employment to 4,500. Butthat was never a stated goal in the feasibility study.

U.S. Premium Beef closed the deal with Farmland on Dec. 1,1997, and by the following week it had delivered the first 10,000cattle to the processing plants in Dodge City and Liberal, Kan.In a little more than three years, U.S. Premium Beef hasprocessed 1.8 million cattle, paid out premiums of $24 million,has $36 million in earnings and more $1.5 billion in sales (that’sjust its share of the processing operation). Not surprisingly, it islooking to expand, possibly into a multi-species livestock co-op.

Quitting, cold turkeyIf anything, Iowa

Turkey Growers Coop-erative was formed undereven greater duress thanU.S. Premium Beef. KenRutledge, the co-op’spresident and CEO, saidthe alarm sounded inMay 1996 when OscarMayer (then a division ofKraft Foods, which wasin turn a division of Gen-eral Foods which was inturn a division of PhillipMorris) announced that

Up-front capital key to surviving a slow startU.S. Premium Beef’s premium payment program got off

to a slow start. “We soon found out that not all of us pro-duce the best animals,” Steven Hunt said. In the first sixweeks of operation, the co-op’s producers earned less thanthe industry average. For all of 1998, members averaged just$7 per head in premiums. “It was not a fun year,” he said.

“No, they didn’t trust the plant. No, they didn’t trust ourcompany. Fingers pointed everywhere, but nobody waslooking in the mirror.” The co-op supplied members thecarcass grading data and other information they neededto improve their programs, and soon the premium pay-ments began climbing.

Despite the rough start, few members quit. Hunt cred-its that in large part to the fact that co-op promoters“underpromised and overdelivered. I’m an old banker, andwe realized the need to capitalize aggressively up front,assuming we would have a tough start. We told membersnot to expect a lot of money out of the company for thefirst three years, and not to be surprised if their cattle didnot grade as well as they thought.”

The co-op survived the painful start-up phase without

the need for additional capital from members, “althoughsome forgot what we told them and we had to show themthe (marketing) presentation again. If we had not requireda big financial commitment up front, I would not be stand-ing here today.” When things got rough, members “wouldhave walked away.”

Three years later, members are smiling much morebroadly today as they average nearly $20 per head in pre-miums. The top 50 percent of the co-op’s producers areearning over $30 in premiums. The top 25 percent areearning $40 over the market.

For any producers who would like to buy into the co-opwith some of those $55 shares, forget it. They last tradedfor $90 a share, but none are currently for sale. The over-all return on investment from the beginning is now over200 percent.

Ken Rutledge said six of the initial 47 members of the IowaTurkey Growers Cooperative dropped out during the roughfirst 18 months of the co-op’s life. Most of them left when theco- op had to request additional equity investments to keepthe operation afloat. “It was pretty tough times.” ■

Processed turkey rolls through theIowa Turkey Grower Cooperative’splant in West Liberty, Iowa. PHOTO COUR-TESY IOWA TURKEY GROWERS COOPERATIVE


it would be closing its turkey process-ing plant in West Liberty, Iowa. Thatcould have spelled the end for theturkey producers who supplied theplant, as there were no other plantsin the area that could handle theirvolume.

By the next month, 47 growersbanded together to form a new coop-erative under the motto “strive to sur-vive.” The task before them wasdaunting: they had to find another wayto continue to produce turkeys, “orelse convert their buildings to boatstorage, which is not a very attractiveoption if you know much about centralIowa,” Rutledge said. “They foundthey would have to mortgage all theyowned in order to continue to produceturkeys, taking a risk few others wouldbe willing to take.”

But they were determined, and gothelp from USDA Rural Development,the state of Iowa and others to launchtheir co-op. In December 1997, Kraft’sfacilities in Iowa were transferred tothe Iowa Turkey Growers Cooperative.

The co-op processed its first birdsin January 1997, but the timing for

launching the operation could not havebeen worse. Turkey production was ata record level and prices soon plungedto the lowest level in the modern histo-ry of the U.S. turkey business. Thedepressed market continued through

June of 1998. The normal break-evenpoint for turkey breast meat is about$1.60 a pound, but during this period,the market dropped as low as $1.07.

The co-op’s management team hadbeen formed in November 1996, whichRutledge said “was much too late. Asales program was non-existent [at theoutset]. The only commitment onhand was from Kraft to take a portionof the product.”

But then, the worm turned. “Sometimes it’s good to be in the

right spot at the right time—and wehappened to be there” when supplyand demand came back into balance,Rutledge said. Two of the co-op’smajor competitors either closed theirplants or converted to chicken. And,after a year and a half of struggling tosurvive, the co-op’s sales and marketingprograms began to bear fruit.

Strategic alliances were put intoplace, including a deal that saw the co-op become the supplier for a privatelabel line of deli products with thelargest retailer in the United States. Asimilar deal was sealed with a mid-sizeretailer. A large-volume co-manufactur-

ing agreement was alsoconcluded with one oflargest food companiesin the world and a pro-gram with Oscar May-er was strengthenedand continued beyondan initial two-yearperiod. The West Lib-erty plant also beganproduction of beef,pork and chickenproducts.

Today, the co-op’splant is the largestproducer of deli itemsfor two of the largestsandwich shop chainsin the nation: SubwaySandwich Shops and

Schlotzsky’s. The co-op has receivednumerous awards for product excel-lence and the Iowa Governor’s Awardof Excellence for 2000 for being aninnovative producer of value-addedfood products.

Rutledge noted that in 1998 the co-op ranked 157th among the nation’smeat processors, and estimated that theco-op will climb to 75th by 2000, ayear in which it reported $135 millionin sales.

Bringing home the baconJim Lewis, a hog producer from

Welcome, Minn., and vice chairman ofPork America, said his co-op was alsoborn in a time of crisis. With hognumbers building and processingcapacity falling, the pork marketplunged in 1994. That turned out to“be a shot over the bow,” Lewis said.The real crunch came in 1998,brought on by the closure of a majorpork processor and increased importsfrom Canada, which caused the hogsupply to exceed U.S. processingcapacity on some days.

“Actual prices fell lower than in theGreat Depression—it was devastating,”Lewis said. Hog producers lostbetween $4 and $5 billion in equity.

Producers knew they had to goafter the pork business beyond the saleof live hogs, he said. “Some producersmay still be under the delusion thatthey can produce their way to profits—but we don’t think they can.” Thoseproducers who hope to survive on theprofits from production alone are in a“death spiral,” Lewis said.

“We must unify with others andmove up through the marketing chain.Pork America is not out to fix theentire industry, but we can help ourshareholders,” he said, thanking USDA(as did the other speakers) for its assis-tance in establishing their cooperative.

Another concern of producers is thedramatic increase in hogs being pro-duced under contract to meat proces-sors. In 1994, Lewis said about 71 per-cent of hogs were sold on the openmarket, but by January 2001, that sharedhad declined to only 17.3 percent.

“So the question is: do we really havean open market?” Ag lenders are a majorforce driving this trend, he said. “Withhuge losses in equity and capital, lendersare pushing growers to sign contracts.”But with plants running at near capacity,

Cooperatives have traditionally not played a major role in thepoultry industry, but the success of the Iowa Turkey GrowersCooperative has generated renewed interest in them. USDA PHOTO


some growers are also worried aboutfinding a home for their hogs.

There is also good news: demandfor pork is climbing. New retail pricerecords were set in each of the first sev-en months of 2000, and the UnitedStates has been a net exporter of porkfor the past five years, a situation thatlast occurred in the 1950s.

“Producers are more efficient thanever; but they face bigger risks andsmaller rewards than ever. We do notwant to continue on this road,” Lewissaid. For those who want to reducetheir risk, Lewis said there is nothingwrong with entering into contracts.But many others still want the chancefor greater rewards and are willing totake some risk.

To help these producers, theNational Pork Producers Councilformed a task force in 1999 to lookinto new opportunities for producers.Taking inspiration from U.S. PremiumBeef, the council appointed a taskforce of producers to research theseopportunities. The task force gave itsreport to a group of 53 producers, whorepresented 20 million hogs, who vot-ed unanimously to form a steeringcommittee to pursue a national porkco-op. By the end of 1999, Pork Amer-ica was incorporated.

“Through funds from USDA’s RuralBusiness-Cooperative Service and anagreement with the National Pork Pro-ducers Council, a major feasibility

study was performed which noted thatmany old packing plants will soon haveto be replaced, creating an opportunityfor the new cooperative,” Lewis said.The study found that the cooperativecould not succeed on a small scale, andthat supporters of the concept wouldhave to think big, with the goal ofbecoming one of the top three proces-sors within five years.

Members include producers, co-opsand groups of producers; all must bearthe risk of producing their own pigs.Pork America will be an umbrella orga-nization that will help members shareinformation, coordinate marketing andprovide other services. It also plans toinvest in a processing facility.

“We didn’t intend to get into own-ership of bricks and mortar at the start,”Lewis said. “But it looks like our bestoption at this point. We think we can

buy one of these plants at a discount.”Indeed, the co-op hopes to sign a con-tract for a plant that will enable it torecoup its investment in only one year.It is also looking into possible partner-ships and co-marketing ventures.

Many pork processors, he said, arein a similar situation as producers.“They are very successful, family-owned businesses, but are also beingsqueezed by consolidation,” he said,adding that such a processor couldmake a good partner for the co-op.

“We don’t think anything on thescale of Pork America has ever beentried before coming out of the blocks,”Lewis said.

Guarding their flocksPatrick O’Toole, co-chairman of

the new Mountain States LambCooperative, said lamb producers

Ken Rutledge said there are three main trends in the meat industry whichthe Iowa Turkey Growers Cooperative will be pursuing, and he advised otherco-op value-added food ventures to pay close attention to them as well:

■ Brand marketing—major food companies will look for strategic alliancepartners to grow, slaughter and process product. “This is already happeningat our co-op, with four separate co-manufacturing agreements with four of thelargest food companies in the country.” He said Nike athletic wear is the “ulti-mate brand marketing program—it owns no production facilities. All of itsproducts are co- manufactured. This trend bodes well for cooperative foodprocessors.”

■ Private label market—this sector of food production is today very differ-ent from the old, generic-label product formerly seen in grocery stores. “Majorretailers today want to place their names on upper-end, high-quality productsthat will compete against the major brands,” Rutledge said. The private labelbusiness in 2000 grew at a rate of more than 9 percent, while brand sales wereflat. “Because most food brands do not want to produce private label prod-ucts, this situation creates a continuing opportunity for co-ops,” he said.

■ Food safety—Rutledge called this the most important trend and “theissue of the millennium for food processors. If you are planning to open a food-production facility, you have a golden opportunity to build a state-of- the-artfacility with food safety as the integral part. If you expect to be chosen as amajor food processor for a food company...you better provide it with reason toselect your company.”

Rutledge concluded by stressing how different the frame of reference andthe demands of today’s young consumers are from those of their parents’ gen-eration. Quoting Carol Christiansen of the Dairy Deli Bakery Association:“Their idea of home cooking will be take-out like mom used to buy.” ■

Food trends bode well for co-ops

Hog farmers hope to limit the impact ofmarket plunges, such as the one thatoccurred in 1998, by uniting under theumbrella of the new, Pork Americacooperative. USDA PHOTO


hope to rally their sagging industrywith a venture similar to U.S. Premi-um Beef and the Iowa Turkey Grow-ers Co-op. There is no time to waste.The U.S. sheep population hasplunged to 8.5 million head, the low-est level since USDA began keepingrecords in 1867. The industry peakedat 56 million head in 1947.

Carbon County, Wyo., whereO’Toole ranches, once had more sheepthan any other county in the nation—360,000 in the early 1950s. Today, heis one of the last full-time sheep ranch-ers in the county. Where sheep oncegrazed the mountain valleys in thisregion, today the land sprouts expen-sive subdivisions and “trophy homes”of the nouveau-rich. As ranch land is

moved out of livestock production andinto residential and resort develop-ment, it has a big impact on openspaces and wildlife, he noted. “We losemuch more than farms when we losefamily farms,” O’Toole said.

Things started to get extremelyhairy for wool producers about adecade ago, when congress eliminat-ed the support programs for wool andhoney. “The buzz word then wasdeficit reduction,” O’Toole said, andthese two industries became sacrifi-cial lambs. He recalls a visit to then-Senator Alan Simpson of Wyoming,who told him the industry would suf-fer severely as a result of the action.His blunt warning proved prophetic.Since that day, Wyoming’s sheep

population has plunged by half. The industry has also been shrink-

ing under pressure from an onslaughtof imported lamb from Australia andNew Zealand. This trend has beenaccelerated in recent years by thestrong U.S. dollar, which makesimports much cheaper.

“The mission of our cooperative isto find a way to stabilize a very goodindustry,” O’Toole said. Like the othersuccessful cooperatives, they hope tomanage this by uniting producers whowill invest in their own processing andmarketing ventures.

The co-op includes predominantlysheep ranchers from six western states:Wyoming, Colorado, Utah, Idaho,Montana and South Dakota. Part ofthe initial strategy is to market a supe-rior product which he said is alreadywidely perceived to be “the best lambin the world.” The fact that nearly halfof the co-op’s lambs can be raisedmostly on grass and without antibiotics“is a definite selling point.”

Co-op officials have visited virtuallyevery major sheep marketer in thenation. They have formed a genetic/technical committee which is workingwith experts from major universities tohelp focus the cooperative on uniformhealth, carcass standards and marketstrategies. The co-op is also consideringa partnership with an existing packer, orbuying its own plant.

While other meat industries havemade progress in moving to a system ofpaying producers for high quality car-casses, O’Toole said the sheep industryhas not kept pace. However, he saidthis provides a void for the cooperativeto fill, and the co-op members hope toemulate the role U.S. Premium Beef isplaying in this area for its members.The co-op is also interested in produc-ing for the kosher market. O’Toole’sown lambs kosher at more than 90 per-cent, an indication of the quality andhealth of co-op lambs.

The co-op has tentatively sched-uled an equity drive which will chargemembers $10 a head. It has held 25meetings so far, and has signed upmore than 100 members in all six

The Mountain States Lamb Cooperative hopes to sign up producers with more than350,000 lambs to help pull the industry out of a steep recession. PHOTO COURTESY AMERICAN

SHEEP INDUSTRY ASSOCIATION


states it plans to operate in. “Thistask would have been much easier adecade ago, but since then, thedepressed market has eaten up theequity in their operations,” O’Toolesaid. The co-op is well on its way tosigning up producers with 350,0000lambs as an initial base.

USDA’s role USDA’s Torgerson noted that Con-

gress has recognized the need for new,

farmer-owned, value-added coopera-tives such as these, and is supportingthem through various technical assis-tance, loan and grant programs offeredthrough the Rural Business-Coopera-tive Service (RBS) of USDA RuralDevelopment. The 1996 Farm Billextended USDA’s Business and Indus-try (B&I) Loan Guarantee program toinclude producer loan guarantees forstock purchase in new, value-addedcooperatives. USDA/RBS has also

established a set aside in the B&I pro-gram, reserving $100 million to $200million annually for use by farmer-owned cooperatives.

USDA is also supporting Coopera-tive Development Centers to provideanother source of technical assistancefor co-op start-ups throughout RuralAmerica. As part of the AgriculturalRisk Protection Act of 2000, Congressestablished a value-added productmarketing grant program to furtherpromote this type of business activity.

The cooperatives that participatedin the forum all benefitted in one wayor another from these USDA pro-grams. Torgerson noted: “These newinitiatives represent examples of proac-tive efforts to fight concentration intheir industries and to provide mem-bers with continued market access.” ■

In her first formal speech as secretary of agriculture,delivered at USDA’s annual Agricultural Outlook Forum inFebruary, Ann Veneman cited several farmer-ownedcooperatives—including U.S. Premium Beef—as exam-ples of the types of operations growers will need for suc-cess in the 21st century. She stressed that farmers mustproduce based on the needs of consumers, and saidsmall-scale farmers seeking to add value to their prod-ucts may benefit from group action.

“Consolidation and mergers in the food sector areforcing new strategies for operations and production inall sectors of the food chain,” Veneman said. “The ever-demanding consumers drive the market today. They wantsimplified, tailored solutions that bring convenience andhelp improve their lives.”

The combination of globalization, technology andchanging consumer demands means “a more tightly con-nected food chain with stronger linkages among produc-ers, processors and retailers,” Veneman said. “Evolution ofthe new food system may be viewed in different ways, butultimately, requires new relationships and new thinking.”

Structural changes in the grain and meatpacking indus-tries have left many farmers feeling vulnerable about theirability to benefit from the changes, she said. But manyfarmers, large and small, are “finding ways to participatein the changing market for food products, while improving

their bottom lines. These farmers are taking the lead inmore efficiently synchronizing farm production with marketdemand by recognizing higher value production and value-added processing businesses.” This trend is being seenboth among large farmers and smaller farmers who bandtogether in alliances, she noted. As successful examplesof the later, she mentioned Dakota Growers Pasta cooper-ative, U.S. Premium Beef and Tennessee Pork Producers.

Veneman said her initial focus at USDA will be onexpanding trade opportunities for U.S. agriculture, support-ing development and the adoption of new technology to pro-mote increased production and new products—such asethanol and bio-diesel fuels—and exploring ways to easeregulatory, burdens on farmers, making sure regulations are“based on sound science and common sense.” She’s alsofocusing on USDA’s food safety and disease prevention pro-grams and ways to improve farm safety-net programs.

Quoting Ken Blanchard’s book “Mission Possible,”Veneman said, “If you are not involved today in creatingtomorrow’s markets, or knowledgeable about what’s hap-pening in these markets, you are unlikely to find your-selves competing in them.” ■

Editor’s note: Secretary Veneman’s entire Outlook Con-ference speech can be read at the following web site:http://www.usda.gov/news/releases/2001/02/0031.htm

Steve Hunt of U.S. Premium Beef shares hisexperiences during the USDA AgriculturalOutlook Conference. To the right are: JimLewis of Pork America, Patrick O’Toole ofMountain States Lamb Cooperative and KenRutledge of Iowa Turkey GrowersCooperative. USDA PHOTO BY DAN CAMPBELL

Veneman cites cooperatives as vehicle to help growers add value to products


Beverly L. Rotan, Ag EconomistUSDA Rural Business-Cooperative Service

ow does your cooperative’s performance com-pare with cooperatives with similar functions?Was it higher, lower or about the same as theaverage of a cross section of local farm cooper-atives for such factors as sales, product mix,

etc.? Comparisons with other cooperatives—including trendlines and industry-norms—may help to determine how wellyour cooperative is doing.

The two tables below contain average financial datacompiled from a survey of 291 cooperatives for 1998 and1999. Fill in the blanks and compare these benchmarkswith your cooperative’s financial data. How’s your coopera-tive doing? ■

Table 1—Compare your local farm supply cooperative with industry averages1

Size (1998) 2, 3 Size (1999) 2, 3 YourMeasure/Item Unit Small Medium Large Super Small Medium Large Super cooperative

Sell farm supplies only Percent 85 38 26 5 85 38 26 5 ____Total assets Mil. dol. 1.6 4.4 7.7 14.2 1.8 4.8 8.3 14.9 ____Long-term debt Thou. dol. 76.8 420.9 827.0 1,982.1 70.2 438.5 919.0 2,112.7 ____Total liabilities Thou. dol. 390.9 1,413.2 3,029.9 5,999.3 393.9 1,660.0 3,392.1 6,204.4 ____Total sales Mil. dol. 2.5 6.6 13.1 24.9 2.5 6.6 13.2 23.6 ____Total service revenue Thou. dol. 65.5 236.1 322.7 718.3 84.7 227.1 348.4 743.0 ____Total revenue Mil. dol. 2.7 7.0 13.8 26.3 2.7 7.1 14.0 25.0 ____Net income (losses) Thou. dol. 100.0 334.1 501.7 900.3 89.4 263.6 461.2 820.0 ____Labor of total expenses Percent 54.1 52.0 54.2 53.0 54.1 52.0 54.7 53.5 ____Patronage refunds received Thou. dol. 70.5 194.0 281.9 531.8 61.2 173.9 275.0 484.7 ____Liquidity ratiosCurrent Ratio 2.50 1.84 1.37 1.34 2.35 1.90 1.40 1.41 ____Quick Ratio 1.49 1.00 0.70 0.77 1.38 1.05 0.75 0.63 ____Leverage ratiosDebt Ratio 0.24 0.32 0.39 0.42 0.09 0.12 0.17 0.19 ____Debt-to-equity Ratio 0.32 0.47 0.65 0.73 0.07 0.12 0.15 0.13 ____Times interest earned Ratio 7.28 6.46 4.64 4.63 5.87 6.83 5.37 5.88 ____Activity ratiosFixed asset turnover Ratio 7.23 5.49 5.24 5.03 6.62 5.97 5.02 5.79 ____Total asset turnover Ratio 1.56 1.49 1.70 1.75 1.57 1.57 1.60 1.68 ____

Profitability ratioGross profit margins Percent 17.41 17.93 20.19 17.08 17.86 18.15 19.56 15.88 ____Return on total assets beforeinterest and taxes Percent 7.11 8.97 8.32 8.07 8.76 8.30 8.85 ____Return on total equity Percent 10.36 13.37 13.34 14.47 7.20 10.21 10.13 11.22 ____

1/ 100 percent of sales were generated from farm supply sales. 2/ Small = Sales are $5 million or less; medium = over $5 million to $10 million; large =over $10 million to $20 million; and super = over $20 million. 3/ There were 329 cooperatives surveyed in both years.

H o w d o e s y o u r l o c a l f a r m s u p p l y c o - o p r a t e ?

H

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


Table 2—Compare your mixed farm supply cooperative with industry averages1

Size (1998) 2, 3 Size (1999) 2, 3 YourMeasure/Item Unit Small Medium Large Super Small Medium Large Super cooperative

Sell farm supplies only Percent 85 38 26 5 85 38 26 5 ________Market farm products andsell farm supplies Percent 6 16 13 16 6 16 13 16 ________Total assets Mil. dol. 1.2 3.9 7.5 16.4 1.3 3.8 8.3 17.4 ________Long-term debt Thou. dol. 21.7 616.3 808.0 1,899.9 62.9 438.8 1,417.4 2,180.3 ________Total liabilities Thou. dol. 390.9 1,4 59.8 2,782.4 7,436.1 379.0 1,390.8 3,544.0 7,556.7 ________Total sales Mil. dol. 2.7 7.2 13.8 32.9 2.7 6.9 13.3 31.2 ________Total service revenue Thou. dol. 64.1 349.6 568.7 1,241.2 80.8 402.8 626.8 1,563.3 ________Total revenue Mil. dol. 2.8 7.8 14.8 35.0 2.9 7.5 14.4 33.6 ________Net income (losses) Thou. dol. 10.7 259.2 414.3 1,041.4 50.9 202.4 318.9 994.1 ________Labor of total expenses Percent 50.9 48.1 51.3 48.8 53.4 48.8 51.0 50.0 ________Patronage refunds received Thou. dol. 35.4 135.3 319.4 639.1 34.5 109.7 253.0 548.0 ________Liquidity ratiosCurrent Ratio 2.05 1.67 1.41 1.35 1.71 1.56 1.39 1.38 ________Quick Ratio 1.31 0.97 0.70 0.64 0.83 0.86 0.70 0.69 ________Leverage ratiosDebt Ratio 0.27 0.38 0.37 0.45 0.30 0.37 0.43 0.43 ________Debt to equity Ratio 0.37 0.61 0.59 0.82 0.43 0.58 0.74 0.77 ________Times interest earned Ratio 1.55 4.60 3.96 3.75 3.54 4.10 3.11 3.74 ________Activity ratiosFixed asset turnover Ratio 18.55 5.63 5.87 7.03 10.55 5.75 4.79 6.11 ________Total asset turnover Ratio 2.21 1.86 1.84 2.00 2.16 1.83 1.60 1.79 ________Profitability ratioGross profit margins Percent 9.44 13.36 14.96 15.10 11.62 14.30 16.03 16.27 ________Return on total assets before

interest and taxes Percent 2.51 8.56 7.38 8.63 5.60 7.07 5.66 7.79 ________Return on total equity Percent 1.37 14.48 10.58 13.36 7.58 11.97 8.12 11.44 ________

1/ 50 to 99 percent of sales were generated from farm supply sales. 2/ Small = Sales are $5 million or less; medium = over $5 million to $10 million;large = over $10 million to $20 million; and super = over $20 million. 3/ There were 329 cooperatives surveyed in both years.

Olive growers have formed a cooperative that haspurchased a Madera, Calif., olive cannery from bankruptTri Valley Growers (TVG). According to the Modesto Beenewspaper, California Olive Growers bought the canneryfor only $1, but committed to spending $9.5 million onenvironmental cleanup around the plant.

The new co-op hopes to have the plant ready by Sep-tember to process this year’s crop. When productionresumes, the cooperative will focus on frozen blackolives for the food-service industry. The deal includesthe popular Oberti olive brand.

The U.S. Bankruptcy Court also recently approved thesale of nine other TVG canneries and most of its assets

to a new subsidiary of the John Hancock Life InsuranceCo., which was the co-op’s largest creditor.

The Madera olive cannery site is saddled with envi-ronmental problems. Production of black olives over theyears has left a chloride residue in the groundwaterunderneath the cannery. Even though evaporation pondswere used, chemicals leached into the soil and affectedwater quality. The growers have reached an agreementwith the Central Valley Walter Quality Control Boardwhich gives them 25 years to complete the cleanup. Thecooperative will continue pumping and cleansinggroundwater as part of the cleanup. TVG closed theplant in 1999 due to the water quality problems.

New olive co-op buys TVG cannery

Julie A. Hogeland, Ag EconomistUSDA Rural Business-Cooperative Service

dentity-preserved grains have generated asmall revolution in the marketplace and offer acase study on how and why local cooperativeschoose to innovate.

Like the grain industry in general, local co-ops are oriented toward mass marketing, buying in bulk frommany producers, co-mingling and blending lots for an average(No. 2) quality. Such grain is then re-sold to a variety of users.

It has been up to users to adapt the grains to their specificprocessing requirements. But improvements in processingcharacteristics or nutrient value recently introduced bygenetic engineering and advanced plant breeding techniqueshave begun to shift the burden of adjustment back to thegrain elevator and feed mill.

Capturing the greater inherent value of these grainsrequires specially dedicated elevators or grain bins foridentity preservation (IP). Mill cleaning between runs andtesting to assure purity of incoming and outgoing grain arealso required. Re-valuations of other established prac-tices—including market development, contracting withgrowers, specialized facilities and grower education—mayalso be required. Recent news reports about specializedfeed grains filtering into the food chain suggest that han-dling margins may not cover the cost of segregation orother adjustments.

In mid-1999, just before controversy about health andsafety issues exploded in the European Union, USDA/RBSconducted a survey of local cooperatives’ interest in andexperience with such identity preserved grains. Respon-dents surveyed were local cooperatives with at least $15million in annual sales (with about 40 percent from totalgrain sales).

The survey offered a window on how cooperative cul-ture—including priorities and established ways of doingbusiness—influenced local cooperatives’ response to IPgrain. Respondents, who included general managers orfeed or grain department managers, picked one of the fol-lowing three choices to describe the operating style oftheir cooperative:

a. We value being “first” with new products, markets and tech-nologies, even though not all efforts prove to be profitable. We typi-cally respond rapidly to early signals about areas of opportunity.

b. We seldom are “first” with new products. However, we moni-tor our major competitors to see if we can be second with a morecost-efficient, perhaps more innovative product.

c. We try to maintain a secure niche in a relatively stable prod-uct or area. We try to protect our domain by offering higher quali-ty, superior service, lower prices, etc. We tend to ignore industrychanges that have no direct influence on current areas of operationor commodity priorities.

Those who chose the first category were classified as“Innovators”; the second, “Followers”; and the third, “Status Quo.”

It was expected that most would consider themselves Sta-tus Quo. Cooperatives are often considered to be conserva-tive organizations, reflecting the orientation of producer-members buffeted by weather and a constantly changingpolitical landscape. Change within cooperatives is seldomfast because operational and structural changes are carefullydeliberated to determine the impact on the organization’sfuture course. The service orientation of cooperatives, cou-pled with industry overcapacity in feed mills and elevators,means members may be reluctant to upgrade facilities orinvest in new ones.

Success in the grain industry has generally depended onmaximizing facility turnover and maximizing the spread,the difference between the buying and resale prices forgrain. Cooperatives that have been successful by this stan-dard may see no reason to jeopardize that success byinvesting in an innovation that requires a lot of add-ons tomake it work.

In the course of seeking the highest resale price formembers’ grain, such locals may regard their regional coop-erative as just another bidder. This may be an outgrowth ofgrain producers’ willingness to sell anywhere that earns anextra penny per bushel. But minimal producer commitmentat the local level can reduce a local cooperative’s commit-ment to its regional cooperative, lowering coordinationwithin the system as a whole. Nevertheless, competitionbetween regionals and locals appears to be the norm incooperative grain marketing.


L o c a l c o o p e r a t i v e s ’ r o l e i ni d e n t i t y - p r e s e r v e d g r a i n i n d u s t r y

I

Local co-ops cope with the constant possibility of memberturnover by striving for a loyal customer base. The resultmay be a niche of relatively small, often older, diversifiedfamily farmers. The link between local and producer is atrust based on familiarity (“We grew up together,” was acommon comment). Established loyalties may mean that ifthe cooperative doesn’t get new customers, neither does itlose establishedones. Unlike moreaggressive suppli-ers, such coopera-tives are oftenparticularly sensi-tive to farmersother suppliersmight write off asinefficient. Thesecooperatives mayexpend theirfinancial resourcesby not building orupgrading facili-ties, but byextending creditto a clienteleviewed as neighbors.

Although the222 respondents were evenly split between the three cate-gories, the “Follower” category seemed to closely resemble,in volume and attitudes, the “Status Quo” group. The con-trasts between Innovators and the Status Quo and Followergroups suggests that the small revolution triggered by IPgrains portends a cultural divide among local cooperatives.

Respondents from the “Innovator” group handled a muchgreater volume of IP grain than the Follower and Status Quogroups, replicating the volume-driven commodity marketwithin an IP context. Interdependence demonstrated throughpartnering with regional cooperatives and investor-ownedfirms (IOFs) appeared to underwrite Innovators’ willingnessto bet on new products. The more traditional and indepen-dent Status Quo/Follower cooperatives were more likely toregard regionals as competitors.

The Follower and Status Quo groups appeared to resistchange, and, not surprisingly, they saw less evidence ofproducers adopting IP grains in their marketing territorythan did Innovators. Sixteen percent of Innovators saw IPgrains making substantial inroads in their marketing terri-tories, measured by farm numbers or sizes, compared with7 percent of the Follower and 1 percent of Status Quogroups. Twelve percent of the Status Quo group did notexpect IP grains to affect producers in their area in thefuture. Only 5 percent each of Follower and Innovator

groups felt the same. Fourteen percent of the Status Quogroup acknowledged they didn’t know the extent of farmeradoption in their territory, compared with 4 percent ofInnovators and 7 percent of the Follower group.

Slightly over 40 percent of all respondents sawincreased planting of IP-grains from 1998 to 1999, coin-ciding with industry observations. Sixty percent of Inno-

vators observedincreased planti-ng, comparedwith 36 percentof Followers and26 percent ofStatus Quo. Sim-ilarly, StatusQuo respondentswere the leastlikely to knowwhat size of pro-ducers wereadopting IPgrains.

Here again,Innovators werethe most knowl-edgeable. StatusQuo locals pic-tured themselves

being an industry in-and-outer according to grain prices,whereas Innovators were more likely to commit to a specificrole using IP grain, such as feeding livestock. A “wait andsee” attitude was common among Status Quo locals.

These results demonstrate the truth in the observationthat organizational environments are not given realities;they are created through a process of attention and interpre-tation. Status Quo and, to a lesser degree, Follower local co-ops preferred to get the best prices for grain by continuingto focus on traditional marketing practices. Theirs was anarrowly honed strategy. In contrast, Innovator co-ops oper-ated in a multi- dimensional world where many avenues, andperhaps some money-losing detours, could ultimatelyachieve a similar end.

These survey results suggest that a new cooperativeculture appears to be emerging alongside the establishedframework that includes managers who continually scanthe environment for new opportunities, spread risk bypartnering, and are psychologically at ease with the timerequired for new investments to mature. While continuedcontroversy over IP grain may justify a conservativeapproach, survey results suggest some two-thirds of localcooperative elevators—and perhaps their members aswell—may change only when forced to do so by industryconditions. ■



‘Best of the best’ inducted into Co-op Hall of Fame

John B. Gauci, David A. Hamil,and Otis and Mary Lee Molz havereceived the highest honor bestowedby the cooperative community: induc-tion into the Cooperative Hall ofFame. Hundreds gathered at a cere-mony April 25 at the National PressClub in Washington, D.C., to honor

them and their outstanding contribu-tions to cooperatives.

To mark the 25th anniversary of theCooperative Hall of Fame, a numberof past Hall of Fame inductees attend-ed the event. The anniversary was alsomarked by the launching of a newCooperative Hall of Fame Web site,www.coopheroes.org.

Master of Ceremonies HarveySigelbaum, co-CEO of MultiPlan

Inc., explained that the 2001 inducteeswere selected by two committees ofnational co-op leaders based on their“genuinely heroic” contributions tocooperatives. “They truly are the bestof the best,” said Sigelbaum.

John B. Gauci was recognized for hislife-long devotion to developing co-opsthroughout the world to help peopleimprove their lives. In his acceptance

speech, Gauci empha-sized the need for allcooperatives and co-op leaders to committhemselves to ongoingand new co-op devel-opment initiatives.

David A. Hamilserved as administra-tor of the Rural Elec-trification Administra-tion for 14 yearsunder four presidentsand was a drivingforce behind the cre-ation of the NationalRural Utilities Coop-erative Finance Cor-poration. He was visi-bly touched by thehonor bestowed uponhim. At age 92, he

thanked the group for remembering the“old timers” and their efforts.

Otis and Mary Lee Molz werehonored for their years of volun-teerism in cooperatives in the UnitedStates and overseas. Otis acknowl-edged the support of others in theirefforts while Mary Lee urged theyoung cooperators in the room todevote themselves to co-ops.

The Cooperative Development

Foundation, a national foundationpromoting self- help and mutual aid incommunity, economic and socialdevelopment through cooperativeenterprise, administers the Coopera-tive Hall of Fame.

DFA sells interest in Suiza for cash, six dairy plants

On the heels of a merger betweenSuiza Foods of Dallas and Dean Foodsof suburban Chicago, Dairy Farmers ofAmerica (DFA) has sold its nearly 34percent interest in Suiza. In return,DFA gained more than $165 millionplus ownership in six dairy plants locat-ed in: Miami and Winter Haven, Fla.;Birmingham, Ala.; Cincinnati, Ohio;Charleston, S.C.; and Salt Lake City,Utah. The plants represent areaswhere Suiza and Dean, the nation’s twolargest dairy processors, had overlap-ping operations.

Suiza paid $1.5 billion in cash andstock to buy Dean Foods and absorbedits $1 billion debt. The AssociatedPress and The Wall Street Journalreport that the new company, whichwill carry the Dean name, will have anestimated $10 billion in dairy and spe-cialty food sales. It will control a 30- to35-percent share of the fluid milk mar-ket, depending upon the outcome ofsome antitrust issues. The deal isexpected to be closed later this year.Suiza has completed 43 acquisitions inits eight-year history.

Meanwhile, DFA has placed its newplants in a new company called NationalDairy Holdings, LP. It will share owner-ship with three dairy entrepreneurs. Thefirm will also operate the Valley Richplant at Roanoke, Va., which had been

The newest inductees into the Cooperative Hall of Fame werejoined by some Hall of Fame alumni during the induction cere-mony in Washington D.C. in April. Seated, from left, are: JohnGauci, David Hamil and Mary Lee Molz (all three are newinductees for 2001). Standing (from left): Henry Holloway, GonzeTwitty, Ed Jaenke, Roger Willcox, Stan Dreyer, David Smith,Glenn Webb, Otis Molz (new inductee) and Malcom Harding.PHOTO BY KEITH BARRACLOUGH, COURTESY COOPERATIVE DEVELOPMENT FOUNDATION

N E W S L I N E


jointly owned by DFA and Allen Meyer,one of the three entrepreneurs.

According to newspaper reports,U.S. Sen. Patrick Leahy of Vermontexpressed reservations about the Suiza-Dean merger. “The acquisition wouldcreate a company with vast marketpower not only over consumers, butalso over farmers who can expect to beoffered even lower prices for theirlabor and products,” he said. Last year,Leahy had asked the Justice Department to look into potentialanti competitive activities of Suiza.“It already controls or handles 70percent of the fluid milk in NewEngland, and regional retail milkprices already have risen because ofthe concentration.”

In other DFA news, its corporateboard of directors has been reducedfrom 116 to 48, marking the end ofthe cooperative’s initial restructuringperiod following its formation. Thenew board was seated at the April 3annual meeting in Kansas City, Mo.The directors had been chosen earlierfor a one-year term to represent alocal district within DFA’s seven geo-graphic marketing areas in its 45-stateterritory. In the officer election, Her-man Brubaker of West Alexandria,Ohio, was re-named chairman of theboard, the post he has held since DFAwas formed in 1998. Other officers

are: Tom Camerlo, Florence, Colo.,first vice chairman,; Charles Beck-endorf, Tomball, Texas, vice chair-man; Bill Siebenborn, Trenton, Mo.,vice chairman; and Randy Mooney,Rogersville, Mo., secretary-treasurer.

DFA, the nation’s largest dairycooperative, last year processed andmarketed 45 million pounds of milkfor its 27,000 members.

Swiss Valley sets dividendThe board of directors for Swiss

Valley Farms, Davenport, Iowa, hasdeclared a 22-cent per hundredweightdividend to members who deliveredmilk to the cooperative in fiscal 2000.Swiss Valley earned a $6 million profit,

from which it paid 12 cents per hun-dredweight in cash (54.5 percent) andthe balance in stock.

The year was marked by tremendousgrowth in market share, membershipand growth in equity for the coopera-tive, said Gene Quast, the cooperative’schief executive officer. The coopera-tive’s milk supply increased 37 percent.Plant expansion this summer at Min-doro, Wis., will increase blue cheeseproduction. Production and storagecapacity has been expanded at the plantin Cedar Rapids, Iowa, which willincrease the supply of cultured prod-ucts, such as cottage cheese and yogurt.

In other news, the cooperative hastotally revamped its website, www.swiss-valley.com, to offer members a myriadof information about the dairy coopera-tive. Each division has a site with infor-mative pages linked from the main page.Members can also access extensive pro-ducer information, including check his-tory and test results. Swiss Valley has1,700 members farming in Iowa, Illi-nois, Wisconsin and Minnesota.

Farmland, ADM launch grain joint venture

When Bob Honse assumed the reinsas CEO of Farmland Industries lastSeptember, he faced an immediate chal-lenge to reduce the regional coopera-tive’s level of borrowing. Several yearsof declining earnings and substantiallosses from a depressed fertilizer marketin 2000 sparked a top-to-bottom reviewof all the cooperative’s operations.Proactive measures to improve the bal-ance sheet were identified as part of thisreview. Staff reductions, sale of assetsand possible joint ventures for some ofits operations were all considered.

One of the first results from thereview is a new, grain-marketing jointventure with Archer Daniels Midland(ADM), a major investor-owned agri-cultural processor. This joint venturecould generate potential savings ofabout $10 million annually, the cooper-ative projects. Farmland’s internalreview showed that its grain businessborrowed the most but returned theleast among its operating units. The

To meet the growing demand for bluecheese, Swiss Valley Farms is increasingproduction of its Mindoro Blue. PHOTO

COURTESY SWISS VALLEY FARMS

Land O’ Lakes and Dairy Farmers of America have formed a joint venture—Melrose Dairy Proteins LLC—to help stabilize local milk markets for UpperMidwest dairy farmers. As a key to this effort, the two co-ops have pur-chased the Kraft Foods cheese plant in Melrose, Minn., which producescheddar and other hard natural cheeses. The plant purchases 1 billionpounds of milk annually from 850 Minnesota dairy farms. PHOTO COURTESY DFA


new ADM/Farmland company willlease and operate the cooperative’s 24elevators and share the profits.

The Kansas City Star reports thatFarmland will receive $3 million annu-ally in lease fees. All of the 400 elevatoremployees will retain their jobs whileanother 100 employees at the co- op’sheadquarters will join the venture or bereassigned at Farmland. In addition toreducing the co-op’s debt, the pact willenhance patronage-based earnings forthe grain business, Honse said.

The grain business is characterizedby low margins and high capitaldemands. Honse said the cooperative’sonly export facilities are on the TexasGulf Coast. With the new venture,Farmland gains access to marketsserved through the Mississippi River,the Great Lakes region and the Pacific

Northwest while ADM expands to theGreat Plains wheat market.

In early May, Farmland announcedthat it was closing its canned-ham plantin Carroll, Iowa, which will cost thecommunity 150 jobs. The 51-year-oldplant was aging, and the popularity ofcanned hams has also declined, the co-op noted. The cooperative has also idlednitrogen fertilizer plants in Lawrence,Kan., Pollock, La., and Enid, Okla.

Diamond sales top $244 MillionSales revenue from walnuts and oth-

er nuts increased 13 percent, to morethan $244 million, for Diamond ofCalifornia in fiscal 2000. Diamondgenerated net earnings of $18 million,17 percent higher than in 1999. Grosssales from Diamond Nut Co., whichmarkets nuts other than walnuts, grew

from $39 million to $53 million whileearnings before interest and taxesincreased 33 percent, from $3 millionto $4 million. Diamond’s equityresources now total $54.

Diamond completed it’s transitionfrom the former Sun-Diamond Grow-ers partnership and established separateresources for managing sales and distri-bution, sales administration and infor-mation system functions. Internationalretail sales volume climbed 300 percentin the past five years. Food service andingredient business grew 29 percent lastyear in the domestic market and 45 per-cent in the international market. Dia-mond is not only America’s top walnutmarketer, but also the leading brand ina variety of other nuts. CooperativePresident Michael Mendes noted,“This extraordinary level of awareness

A business jet that crashed into a cooler warehouseat the Morning Glory Dairy milk bottling plant at DePere,near Green Bay, Wis., on April 2 killed the pilot andcaused several employees to be hospitalized with severeburns. As of late April, two of the burn victims were still incritical condition at a Milwaukee burn center.

Cause of the accident is under investigation by theNational Transportation Safety Board. The plant is ownedby Foremost Farms USA,Baraboo, Wis. The crashsparked an explosion,ammonia leak and fire in acooler and product storagearea. Neither the dollar lossnor amount of insurancecoverage have been dis-closed, said Joan Behr,Foremost Farm’s director ofemployee relations andcommunication. The rebuiltcooler won’t be back in ser-vice until Labor Day.

The accident occurredduring a late afternoon shift change when only 35-40 of the187 employees were in the plant. Employees followed anevacuation plan, escaped the premises and reported todesignated gathering area so firemen could quickly fightthe fire. Bottling and some other production resumed with-in 24 hours while other plant functions gradually returned.Most employees returned to work within 48 hours. Duringthe interim, the cooperative is renting 23,500 square feet of

cooler space from a private firm in Green Bay. Wisconsin Gov. Scott McCallum flew to Green Bay

with cabinet members and advisers, and toured thecrash site to assess the damage. The explosion wipedout a supply of dairy products about to be shipped tofood services, schools and grocery stores. The plantprocessed about 500,000 gallons of milk a week for retail,food service and school customers and 1 million pounds

of sour cream a week forhundreds of customers innorthern Wisconsin andupper Michigan.

During the week afterthe accident, the cooper-ative diverted 25 percentof its production and dis-tribution to Foremost’splant at Waukesha nearMilwaukee. Milk for somecustomers was brieflysourced from Swiss Val-ley Farms and LandO’Lakes, neighboring

dairy cooperatives. Area counselors were engaged byForemost to assist the employees after the fire. Direc-tors, employees and the media received daily updatesand newsletters carried articles about the accident.Milk pickup schedules at member farms were alteredfor only a day or two. “Support for the cooperative andemployees from the community has been overwhelm-ing,” Behr said.

Plane crash stalls production at Foremost dairy plant

The pilot was killed and heavy damage was done to this ForemostFarms USA milk bottling plant in DePere, Wis., when a small busi-ness jet crashed into it. PHOTO COURTESY FOREMOST FARMS USA.

derives from the company’s investmentin the brand.”

AMPI leader urges more member participation in co-op

One of the basic tenets of coopera-tives is member participation, althoughit’s not always emphasized the way it

should be.Mark Furth,general man-ager of Associ-ated Milk Pro-ducers Inc.(AMPI), atNew Ulm,Minn., feels sostrongly aboutthe issue thathe madeincreasedmember par-ticipation oneof his five-yeargoals for thecooperative.Last on his listwas “growingnew roots.” Writing in

the coopera-tive’s “Dairy-men’s Digest”

magazine, Furth explained, “AlthoughAMPI has experienced near-recordgrowth in membership and milk vol-ume, member involvement has to keeppace. In a cooperative, involvementshould not be optional. You have aninvestment in this farm-to-marketbusiness. It’s your company. Is it work-ing for you?” The magazine included alisting of the cooperative’s electedleaders. “This listing is a useful toolwhen wanting to propose a resolution,discuss an issue or learn more aboutyour cooperative,” Furth continued.“Becoming involved may be as simpleas calling a fellow AMPI memberabout a concern or as rewarding asaspiring to be on the corporate boardof directors. You decide. It’s your busi-ness. Accept the challenge!

“As an AMPI owner, 4,800 Midwestneighbors are your business partners.

Together, you own a farm-to-marketbusiness that processes, packages andmarkets your milk. In an age when pro-ducers everywhere are striving to movetheir products up the food chain, youare well on your way,” Furth remindedthe membership.

During fiscal 2000, AMPI achieved$1 billion in sales, had increased earn-ings of $9.8 million and revolved $8.9million back to members. Amidst anenvironment of rising producer exitsand retirements, more than 300 newproducers joined AMPI last year. Thecooperative’s record-breaking sales andvolume of packaged cheeses were thecatalyst for a $3 million facility expan-sion at Portage, Wis. The building pro-ject will be completed later this yearand increase the plant’s sales coolercapacity. “Our consumer-packagingfacilities are a long-term investment forour business,” Furth said. “New cus-tomer orders of aseptically packagedproducts made in Dawson, Minn., andcheese packaged in Portage resulted indouble digit sales growth.”

In the officer election following theannual meeting, Paul Toft, Rice Lake,Wis., former vice president of the boardand a director for 14 years, was electedpresident. He succeeds Wayne Bok,Geddes, S.D., who is retiring from thedairy industry. The board has beendownsized from 34 to 33 members. Tofthas been marketing milk through AMPIto its plant at Jim Fall, Wis., since 1973.His youngest son, Mark, returned tothe dairy farm this spring.

Texas rice co-op formedA group of about 30 rice growers

near the Wharton County communityof Louise, Texas, have formed a newmarketing cooperative to earn morefrom the long-grain rice market. Pro-ducers are not only suffering from his-toric low prices, but also from the highcost of farm production supplies, par-ticularly fuel and fertilizer. The coop-erative hopes to handle members’ ricefrom the dryer to the grocery shelf.The interim board will canvass otherrice growers with an eye to increasingmembership. Simultaneously, it will

work on developing the legal and busi-ness framework of the cooperative.

The new rice co-op has set a mini-mum commitment of 1.2 million hun-dredweights of rice and a maximum of2.5 million hundredweights—aboutone-fourth of the rice grown in theTexas area west of Houston. The con-cept is similar to Riceland Foods, anArkansas rice marketing cooperative. Akey to the plan will be to buy or lease amill with established brands which earnmore than bulk rice in domestic andexport markets. The cooperative alreadyhas a small mill in mind to purchase.Rice acres hit a 30-year low last year, butthe yield was up due to improved vari-eties and ideal growing conditions.

Pork co-op faces obstaclesDespite opposition from a local

group, Family Quality Pork ProcessorsCooperative of northeastern Nebraskais taking steps to operate a $2.4 millionpacking plant that can slaughter250,000 hogs per year. In the first step,the Boone County Planing Commis-sion has approved a site east of Peters-burg. The next step will be to obtain aconditional-use permit to operate theplanned $2.4-million facility, whichwould employ about 40 workers. Thecooperative seeks to expand its currentmembership of 125 to 150.

Proponents say the facility will lookmore like a farm than a factory and haveless odor and runoff than traditionalslaughter plants. Investors see the coop-erative as a way of helping small pro-ducers stay in business. Members arebeing asked to pay a fee of $12 for everyhog they want slaughtered at the planteach year. Membership investment wasopen to the first 149 producers whowanted to invest up to $250 per personto fund the business plan.

Wisconsin co-op initiates semen research trial

Results are expected this summerfrom a sexed-semen research trial beingconducted in collaboration with Accel-erated Genetics of Baraboo, Wis., XYInc. and Colorado State University.The goal is to introduce sexed semen


Paul Toft

Mark Furth PHOTOS COURTESY AMPI


Transactions are pending with three new grower-ownedsugar beet cooperatives to purchase the major processingplants currently owned by Imperial Sugar Co. of Sugar Land,Texas, its subsidiaries, and Western Sugar Co., owned byTate & Lyle LLC of London. Imperial, the largest processorand marketer of refined sugar in the United States, filed forchapter 11 bankruptcy protection in January.

“Once Imperial sells Michigan Sugar and WesternSugar sells its factories, 90 percent of the sugar beetsplanted (nationwide this year) will be processed at coop-erative factories,” said Dick McKamey, president of theWashakie Beet Growers Association atWorland, Wyo. “The growers needed totake this risk not only for themselves, butalso for the community and the (factory)employees,” McKamey said.

The Washakie association has signed aone-year lease for the Holly Sugar factory.The company, which had planned to closethe plant unless growers leased it, willcontinue operating it and market the sugar.

Growers have been plagued with thelowest prices in 20 years, a glut of sugar,high energy costs and cheap imports fromCanada and Mexico. Plans have been postponed untilJune 30 by the Rocky Mountain Sugar Growers Coopera-tive to purchase Western Sugar Company at Scotts Bluff,Neb. The cooperative was formed last July when theWestern plants were offered for sale.

The delay is expected to help the cooperative to solidifyits financing. Also sidelined was a proposal by the ScottsBluff city council to commit $500,000 to a 10-year loan fromthe city’s sales tax proceeds to help the cooperative withoperating expenses. During the interim, the cooperativewill seek to increase its committed acres from 150,000 to170,000, especially in Colorado and Nebraska. The plantsoperate more efficiently at the 170,000-acre mark, althoughWestern Sugar’s six factories can process up to 185,000acres of sugar beets.

Growers in Wyoming, Montana, Colorado and Nebras-ka are subscribing to the new cooperative at a rate of $185per acre. The $78 million agreement will give sugar beetgrowers their first processing plant ownership stake in the90-year history of the North Platte River Valley’s sugarindustry. Hod Kosman, a Scottsbluff bankerer, volunteeredto assist the cooperative. If farmers don’t preserve theregion’s sugar industry and buy Western Sugar, Kosmansays land values could drop up to 20 percent. “It’s [invest-ing] an excellent way for farmers to participate upstream,and they don’t have that opportunity often,” he said.

Rick Dorn, a third-generation Montana beet grower andpresident of the cooperative, said “This is not the growers’burden alone.” Although prices have bottomed, coopera-tive backers believe that’s why the deal is within reach ofthe growers. The cooperative is offering to lease shares tonon-members at $70 per acre for two years; after that, pro-ducers can buy shares for an extra $140 per acre.

The lease will keep the plant open to handle this year’sbeet crop. The agreement was reached just as farmerswere about to sow the 2001 crop. The cooperative willhave title to all the sugar produced. In an Associated Press

report, Washakie President Rick McCameysaid, “The growers needed to take the risknot only for themselves, but also to supportboth the community and employees.”

Meanwhile, Imperial has signed a letterof intent to sell the capital stock of Michi-gan Sugar Co.’s four factories to MichiganSugar Beet Growers Inc., a new coopera-tive of 1,400 growers based at Saginaw.However, the cooperative recently learnedit did not qualify for tax- exempt bonds tofinance and purchase the facilities. It isseeking low-interest financing elsewhere.

The group needs to secure about $40 million plus an unde-termined line of credit to operate the processing plants.

The cooperative expects to secure 125,000 acres, orthe amount of sugar beets processed annually in theMichigan plants. Richard Leach, its executive vice presi-dent, said the only way growers will be paid for last year’scrop is for members to contract with the cooperative.

The transaction is subject to the negotiation of a definitiveagreement and approval of the company’s board of directorsand resolution of Imperial’s Jan. 16 petition for relief to theU.S. Bankruptcy Court for the District of Delaware.

Purchase terms include a cash payment of $55 mil-lion at closing, deferred payments of $10 million and thecooperative’s assumption of $18.3 million in industrialdevelopment bonds. The cooperative faces an Oct. 1financing deadline. If the deal is closed later, the com-pany will manage the four Michigan factories and mar-ket the processed refined sugar under a lease and man-agement agreement so the 2001 crop can be processed.Further, the cooperative will sign a sales and marketingagreement so the company will continue marketing therefined sugar processed by Michigan Sugar Co. afterthe sale. The cooperative has members in Michigan andOntario, Canada. A membership drive will follow to sellabout 24-million shares at $200 each plus delivery of oneacre of production.

Beet grower co-ops on brink of processing most U.S. sugar PH

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to the North American artificial insem-ination industry. It’s the first time an AIorganization in the United States hasconducted such a research trial. It willinseminate 1,200 virgin heifers in aconcentrated number of dairy herds.The semen was collected from threeAccelerated Genetics’ sires housed atXY Inc., in Ft. Collins. The ultimategoal is to predetermine the sex ofcalves from specific matings with theresult to have faster gain within herds.

MMPA returns $1.9 million in cashFor the sixth consecutive year,

Michigan Milk Producers Association(MMPA) has paid $1.9 million in cashpatronage refunds to its members.The funds represent 30 percent of the$65.7 million allocated earnings gen-erated by the cooperative in fiscal2000. The patronage includes all ofthe farm supply earnings and 25 per-cent of the milk marketing profits.Cash payments set a record becausethe $4.1 million returned in 1988 and1989 was paid in equities.

“The ability to make these cash pay-ments and maintain a competitive payprice is the essence of a strong cooper-ative,” said MMPA President EldwoodKirkpatrick. “We have consistently

generated premiums and net savings(since 1987) while requiring no capitalequity retains from our members,” hesaid. “We have operated without anyequity capital retain and relied on plantoperations, milk marketings and mem-ber dues to fund the cooperative.”

Foremost converts to mozzarellaA $91,000 grant from the Wisconsin

Development Fund to Foremost Farmsis being used to retrain the 50 employ-ees at its cheese production plant atRichland Center, Wis., which willswitch from manufacturing cheddar tomozzarella cheese. The major conver-sion comes on the heels of a tough yearfor the cooperative based at Baraboo.Earnings for fiscal 2000 reached only$10 million, down from $19 million ayear earlier. Similarly, revenuesdropped to $1.1 billion from $1.3 bil-lion in 1999 due to lower cheese pricesand higher energy costs.

Patronage refunds for fiscal 2000reached $12.6 million, or an average 23cents per hundredweight for milk mar-keted through the cooperative. DuaineKamenick, Foremost’s finance vicepresident, said it had been a trying yearfor dairy farmers. “Milk prices werelower than they had been in decades

and were followed by record prices in1998,” he said. The average milk pricefor Foremost members in 2000 was$11.62 per hundredweight, vs. $13.93per hundredweight in 1999. Membersreceived patronage refunds totaling$12.6 million, down $2.31 from the1999 price of $13.93 per hundred-weight. Members marketed 5.3 millionpounds of milk. As in past years, Fore-most will pay 25 percent of its patron-age in cash and add the rest to mem-bers’ equity accounts.

Record loan level for Texas FCBs

The Farm Credit Bank of Texas and23 local credit cooperatives in the five-state Tenth Farm Credit District end-ed fiscal 2000 with record loan volumeand strong earnings despite difficultweather and market conditions facedby many agricultural customers. Grossloan volume reached $5.2 billion, anew record for the 84-year-old districtand 9.1 percent higher than 1999.Improvements in the livestock industrycontributed substantially to the strongdemand for agricultural and equip-ment loans. Expansion in the integrat-ed processing and marketing sectoralso were factors.


Local co-ops embracing high-tech agronomy systems continued from page 13

it want to offer GPS/GIS technologyin the future.

Compared with cooperative fertiliz-er operations in 1996, there are manysimilar responses. Local cooperativesare still strongly supported by theregional cooperative procurement anddistribution system. Private suppliersand other cooperatives are strong com-petitors, especially on price.

Cooperative crop protectant appli-cation equipment with GPS/GIStechnology, combined with the farm-ers’ use of yield monitors on harvest-ing equipment, provides farmers withmaps showing where crop protectionworks and where pest damage lowers yields.

Local cooperatives, with long expe-rience in fertilizer and crop protectant

application and employing crop/agron-omy specialists, can help interpret ormake field maps for farmers. Workingwith regional cooperative personnel,locals provide agronomy record-keep-ing programs and innovative ways tocombine field maps, yield monitors,and fertilizer and crop protectant appli-cation equipment.

Use of GPS/GIS technology,crop/agronomy specialists and recordkeeping is expensive. Many of therespondents that do not offer some orall of these services want to offer thembut may be unable to because of thehigh fixed costs and large volume ofcrop protectants required. Smallercooperatives may be able to share acrop/agronomy specialist with a nearbycooperative or purchase GPS/GIS

application units with another coopera-tive(s) and share the use and expenses.These cooperatives might also considersetting up an agronomy subsidiary orlimited liability company to share theuse and expenses of new technology,equipment and personnel. ■

1 This study will soon be available for view-ing at www.rurdev.usda.gov/rbs/ pub/newpub.htm.

2 Standard farm production regions used,Northeast: ME, NH, VT, NY, MA, RI,CT, PA, NJ, DE, MD, and DC. LakeStates: MI, WI, and MN. Corn Belt: OH,IN, IL, IA, and MO. Northern Plains: ND,SD, NE, and KS. Appalachian: VA, WV,KY, TN, and NC. Southeast: SC, GA, AL,and FL. Delta States: MS, LA, and AR.Southern Plains: OK and TX. Mountain:MT, ID, WY, CO, UT, NV, AZ, and NM.Pacific: WA, OR, CA, HI, and AK.


Or, to go straight to the Library of Publications, access: http://www.rurdev.usda.gov/rbs/pub/newpub.htmIf 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 paragraph on thescreen 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 as pastissues of this magazine) available on the Internet for viewing or downloading. These titles cover avast array of topics, ranging from the general, such as “How to Start a Cooperative” or“Cooperatives 101,” to technical subjects, such “Tax Treatment for Cooperatives” or “ManagingCooperative 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 “CooperativeInformation Reports,” “Research Reports,” “Service Reports” or “Miscellaneous Reports.”

1.2.3.4.

Want to access other web sites about USDA programs that support cooperatives?

The Business and Industry (B&I) Loan Guarantee Program provides government backing for commercial loans to cooperatives andother businesses in rural areas and also guarantees loans to producers to pay for stock in new value-added cooperatives. Seehttp://www.rurdev.usda.gov/rbs/busp/b&i_gar.htm

Rural Cooperative Development Grants are made to nonprofit organizations and institutions of higher learning to establish and oper-ate centers for cooperative development. See http://www.rurdev.usda.gov/rbs/coops/rcdg.htm

Under the Market Access Program, Commodity Credit Corporation (CCC) funds are used to partially reimburse cooperatives andnonprofit regional and national agricultural trade organizations, among others, for the cost of conducting market development pro-jects for eligible products in specific countries. See http://www.fas.usda.gov/mos/programs/mapprog.html

In fiscal 2001 and 2002, USDA will use CCC funds to make cash payments of up to $150 million to bioenergy companies, includingcooperatives, that increase their purchases of corn, soybeans, and other commodities to expand production of ethanol andbiodiesel in the United States from products grown in the United States. See http://www.fsa.usda.gov/daco/bioenergy/bioenergy.htm

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