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lCOOPERATIVESUSDA / Rural Development September/October 2000USDA / Rural Development September/October 2000

Po r k A m e r i c a :H o g p r o d u c e r s l o o k t o n e w c o - o p t o g a i n m a r k e t a c c e s s

Po r k A m e r i c a :H o g p r o d u c e r s l o o k t o n e w c o - o p t o g a i n m a r k e t a c c e s s

2 September/October 2000 / Rural Cooperatives

America observed National Cooper-ative Month during October, a timewhen we pause to consider the impactof user-owned and controlled business-es on virtually every city, town and vil-lage across the nation. There are about48,000 cooperatives in the UnitedStates generating more than $500 bil-lion in annual economic activity.

Whether it’s a credit union provid-ing consumer loans to members, a day-care cooperative providing affordablechild care, a farmers’ co-op that sellssupplies or processes and markets itsmembers’ crops, or a rural utility co-opthat meets the energy and telecommu-nications needs of rural communities,cooperatives are getting the job done.

The U.S. Department of Agricul-ture has been assisting rural Americansin forming and improving the opera-tions of cooperatives for 74 years, andwe continue in that role today underthe banner of USDA Rural Develop-ment. In addition to USDA’s traditionalrole supporting co-ops with technicalassistance, research and educationalmaterials, a major thrust of the pastfive years has been to expand USDA’srural business programs to help launchnew cooperatives and to expand theoperations of existing cooperatives.

A major emphasis of this effort hasbeen to help finance farmer co-ops thatprocess their members’ crops and live-stock, thus keeping more of the value-added profits at home in rural America.In 2000 alone, USDA provided nearly$100 million in financing for agricul-tural cooperatives. That’s up from $29million in 1998.

Farmers who transition from beingproducers of a commodity to beingowners of a co-op that processes cropsinto value-added products stand a bet-

ter chance of surviving the cyclicaldownturns in the farm economy thathave mercilessly reduced the ranks ofthe nation’s family-owned farms.

Last May, Congress enacted theAgricultural Risk Protection Act, whichincludes provisions for a new grantprogram to provide assistance to pro-ducers in marketing value-added agri-cultural commodities. This legislationcompliments USDA’s efforts to bolsterfarmer-owned cooperatives. The Actalso provides for a pilot project todevelop a resource center to coordinateresearch, data, business, legal, financialand logistical operations involved indeveloping markets for new products.The latter is similar to the incubatorconcept that is being used widely inproviding the foundation for new hightechnology business ventures.

In enacting this provision, Congressrecognizes that American producersare without parallel in the productionof agricultural commodities, but fre-quently lack the experience and knowl-edge needed to successfully markettheir products. This is particularly truewhen developing new markets for newvalue-added products.

A strong rural infrastructure is alsocritical to the nation’s future. USDARural Development provided about $2billion last year to help finance theexpansion and maintenance of thenation’s rural electric systems, most ofwhich operate as consumer-ownedcooperatives. It provided about $1.5billion to build rural water/wastewaterand telecommunications systems. Thelater program now includes efforts tospread the Information Superhighwayand Distance Learning and Telemedi-cine services throughout rural America.

We are currently working with other

lending institutions to provide morefunds to speed the construction of com-bustion turbine generators to help meetpeak energy demands in many parts ofthe nation. Rolling gray-outs and black-outs and sharp peaks in energy pricesthat impacted some areas last summerunderscore the need for this effort.USDA is also working to finance morerenewable energy sources — includingwind turbines and solar power — tolessen the nation’s dependence ofexpensive foreign oil.

If you want to learn more how USDAcan help your co-op, or help you form aco-op, call our national cooperative officeat (202) 720-7558, or call (202) 720-4323, then press “1” to be connected toyour USDA Rural Development stateoffice. You can also visit our website at:www.rurdev.usda.gov, which includesmore than 100 cooperative publicationsand past issues of “Rural Cooperatives”on-line.

Jill Long Thompson, Under Secretary USDA Rural Development

C O M M E N T A R Y

Cooperatives: Getting the Job Done

Rural Cooperatives / September/October 2000 3

RURAL COOPERATIVES (1088-8845) is publishedbimonthly by Rural Business–Cooperative Service,U.S. Department of Agriculture, 1400 IndependenceAve. SW, Stop 0705, Washington, DC. 20250-0705.The Secretary of Agriculture has determined thatpublication of this periodical is necessary in thetransaction of public business required by law of the Department. Periodicals postage paid atWashington, DC. and additional mailing offices.Copies may be obtained from the Superintendent ofDocuments, Government Printing Office, Washington,DC, 20402, at $3.50 domestic, $4.38 foreign; or byannual subscription at $15.00 domestic, $18.75 for-eign. Postmaster: send address change to: RuralCooperatives, USDA/RBS, Stop 3255, Wash., DC20250-3255.

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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).

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Dan Glickman, Secretary of Agriculture

Jill Long Thompson, Under Secretary,Rural Development

Wilbur Peer, Administrator,Rural Business–Cooperative Service

Gladys Rodriguez, Director of Public Affairs

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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COOPERATIVESSeptember/October 2000 Volume 67 Number 5

O n t h e C o v e r :

Gary Ledger is a hog farmer in Williamsburg, Iowa, and a board member ofthe new Pork America cooperative. He and many other like-minded produc-ers say that without a strong, national marketing cooperative, producers’ranks will continue to be decimated by market downturns. Story on page 6.Photo for USDA by Mark Tade, Cedar Rapids Gazette FPO

F E A T U R E S

4 Lower commodity prices cause drop in co-op sales

6 Last train leaving?Some say Pork America represents best, and possibly last, chancefor hog farmers to gain significant market access.By James Matson and Brad C. Gehrke

18 Trade takes a tumbleCooperative trade plunges 41 percent as Asian markets cool.By Tracy Kennedy

20 New Directions: Co-ops help tobacco farmers transition to new cropsBy Pamela J. Karg

D E P A R T M E N T S

2 COMMENTARY

12 IN THE SPOTLIGHT

16 MANAGEMENT TIP

25 NEWSLINE


Editor’s note: Information for this articlewas compiled by the statistics staff of theRural Business-Cooperative Service, adivision of USDA Rural Development:Charles A. Kraenzle, Celestine C. Adams,Katherine C. DeVille, Jacqueline E. Pennand Ralph M. Richardson.

he nation’s farmer-ownedcooperatives experienceda drop in both sales andincome in 1999, reflect-ing a general, 9-percent

downturn in farm commodity values.However, cooperatives’ combined totalassets reached a record-high $47.7 bil-lion, 2.4 percent ($1.1 billion) morethan in 1998.

The 3,469 farmer cooperatives sur-veyed by USDA account for nearlyone-third of U.S. farm output and farmsupply sales.

Total cooperative business — whichincludes receipts from the sale of crops,livestock, farm supplies and services —was $100.1 billion in 1999, down 4.4percent from $104.7 billion in 1998(table 1).

A 19.2-percent (or $4.1 billion)decline in the value of grains andoilseeds marketed and sharp drops infeed and fertilizer prices were amongthe major causes for the decrease.

Cooperative-provided services(such as cotton ginning, livestockbreeding, trucking, etc.) and miscella-neous income was a bright spot in thesales picture, rising an impressive 12.1percent, to nearly $3.9 billion. Dairyco-ops also bucked the downtrend,with a 3.8-percent gain in sales to $26.3

L o w e r c o m m o d i t y p r i c e s c a u s ed r o p i n c o - o p s a l e s Farmer-owned co-op assets hit record $47.7 billion

T

Table 1 — Farmer Co-ops’ Net Business,1 1999 and 1998Commodity or function 1999 1998Products marketed: Million dollarsCotton 2,083 2,961Dairy 26,287 25,329Fruits and vegetables 9,707 9,391Grains and oilseeds2 17,196 21,291Livestock and poultry 9,530 9,555Rice 912 932Sugar 2,514 2,445Other products3 4,420 4,737Total 72,650 76,642

Supplies sold:Crop protectants 3,082 3,166Feed 4,639 5,405Fertilizer 4,834 5,170Petroleum 6,388 6,616Seed 781 732Other supplies 4 3,795 3,462Total farm supplies 23,518 24,551

Related-services5 andother income: 3,894 3,473Total 100,062 104,667

Note: Preliminary. Totals may not add due to rounding.1 Excludes inter-cooperative business. Volume includes value of products associated with

cooperatives that operate on a commission basis or bargain for members’ products.2 Excludes cottonseed.3 Includes dry edible beans and peas, fish, nuts, tobacco, wool and other

miscellaneous products.4 Includes building materials, containers, hardware, tires-batteries-accessories (TBA), farm

machinery and equipment, food and other supplies.5 Includes trucking, ginning, storage, artificial insemination, rice drying and other.


billion in 1999. Also posting anincrease were fruit and vegetable co-ops, up 3.4 percent to $9.7 billion.

Co-ops realized $72.7 billion frommarketing farm commodities (selling,bargaining for and/or processing mem-bers’ crops and livestock) and $23.5 bil-lion from the sale of farm supplies(including fertilizer, crop protectants,seed, feed, etc.).

Total net income of $1.4 billion forfarmer cooperatives in 1999 was down19.8 percent from $1.7 billion in 1998(table 2) — the lowest level since 1993and well under the record of $2.36 bil-lion set in 1995, according to datacompiled by the Rural Business-Coop-erative Service of USDA Rural Devel-opment.Cooperatives earned $940.6million in net income from marketingfarm commodities and value-addedgoods in 1999, a decline of 7.6 per-cent; they earned $350.5 million fromfarm supply sales, 39.4 percent lessthan in 1998.

The number of U.S. farmer-ownedcooperatives dropped to 3,469, downfrom 3,651 in 1998, reflecting theongoing trend of mergers, consolida-tions, acquisitions and dissolutions.

Memberships in farmer cooperativestotaled 3.19 million in 1999, down 4.8percent from 1998. The number ofmemberships is larger than the numberof farms (about 2 million) becausemany farmers belong to more than onecooperative.

Agricultural cooperatives are majorsources of jobs in both rural and urbanareas, employing 172,814 full-timeworkers in 1999. ■

Table 2 — Farmer cooperatives’ net income,1 1999 and 1998Cooperative type 1999 1998

Marketing: Million dollars

Cotton 69.9 64.0

Dairy 303.9 447.2

Fruit and vegetable 99.7 76.9

Grain and oilseed 323.7 441.4

Livestock and poultry 62.1 -71.2

Rice 6.1 7.3

Sugar -19.3 -12.1

Other marketing2 94.5 64.0

Total 940.6 1,017.5

Farm supply 350.5 578.8

Related-service3 105.7 146.0

Total 1,396.7 1,742.3

Note: Preliminary. Totals may not add due to rounding. 1 Net income less losses and before income taxes.

2 Includes dry edible bean and pea, nut, tobacco, wool, fish and miscellaneous marketingcooperatives.

3 Includes trucking, ginning, storage, artificial insemination, rice drying and other.

The 3,469 farmer cooperatives surveyed by USDA account for nearly one-thirdof U.S. farm output and farm supply sales.


By James Matson and Brad C. Gehrke, Ag EconomistsUSDA Rural Development

Editor’s note: The authors have servedas USDA Rural Development’s technicalassistance team advising Pork Americaleaders on cooperative development issues.

n December 1998, anover-supply of market-ready hogs collided withthe nation’s limitedslaughter capacity, caus-

ing pork prices to collapse to the lowestlevel in nearly 50 years. The averageproducer’s portion of retail pork valueplunged to 12 percent, down from 39percent in 1997. The situation has leftpork producers grappling for ways tosecure a larger stake in the pork mar-keting chain. Their goal: to share inthe returns from the other 88 percentof retail value of the $36 billion porkindustry. Many are looking to coopera-tives — including the new Pork Ameri-ca cooperative — as the best way toensure market access for independentproducers and share in returns generat-ed beyond the farmgate.

Crisis for pork producers“Producers lost between $4 billion

and $5 billion of equity in the lastgo-round,” said Linden Olson, secre-tary-treasurer of Pork America, aproducer-owned cooperative whichseeks to help producers gain a stakein marketing their products. “Thefactors that brought about the pricecollapse of 1998 and 1999 have notchanged,” he continued. “In fact,those forces may have consolidatedand strengthened. The possibilities

ofithap-peningagain arestill there.”

Independent produc-ers suspect that the 1998-99 marketcrisis has accelerated the trend towardfully integrated production, as occurredin the U.S. chicken industry in the1960s. Independent operations areoften as technically sophisticated andefficient as integrated production units.In addition, they are predominantlyfamily owned and operated. However,many of these producers question theirability to remain in the industry underthese market conditions. These fearsmay not be unfounded.

The number of pork producers hasfallen from nearly 3 million in 1950 toless than 100,000 in 1999. In 1997, 40percent of hogs were farrowed and 44percent were finished through someform of production contracting.

Estimates show that 74 percent ofhogs were marketed by means otherthan spot markets in January 2000.This number rose from 59 percent injust two years. Independent productionsold into spot markets is not the waveof the future.

Pork supply chains — verticallycoordinated systems extending fromthe genetic base of a herd to retail sales— have emerged as the industry model.

Supplychains build

innovative alliancesamong vertical units in the marketchannel with the objective of deliveringgreater consistency, quality, specificityand reliability to meet or exceed theend user demands.

Despite the expansion of supplychains by investor-owned firms, oppor-tunities still exist for independent porkproducers to thrive and prosper.Growth of global markets offerstremendous potential for the U.S. porkindustry. The Meat Export Federationestimates that worldwide pork tradewill increase 36 percent during the next10 years. The U.S. pork industry, withthe world’s lowest cost of production, ispositioned to capture a significant partof this expansion.

Nonetheless, independent produc-ers cannot simply manage input costsand expect to remain competitive inthe supply chain model. Racing to thebottom of the long-run average costcurve is not the answer for these pro-ducers. The economic crisis presentsan opportunity for independent pro-ducers to band together and form pro-ducer-owned supply chains that willincrease their competitiveness.

Olson believes “control is not going

L a s t t r a i n l e a v i n g ?Some say Pork America represents best, and possibly last, chance for hog farmers to gainsignificant market access

I


to come through the ability to negoti-ate individual contracts with packers.It’s going to be joining with other pro-ducers and having leverage in the mar-ketplace.” Marvin Hayenga, Iowa StateUniversity economist, and others echothese producer concerns: “Access tomarkets for independent producers islimited, especially outside the Mid-west. They face the decision of becom-ing linked with packers either individ-ually or via cooperative processing ormarketing initiatives, or of becomingresidual suppliers inherently bearingmore risk.”

Producers and analysts both feel thatindependent pork producers must moveup the value chain to capture a greatershare of the consumer’s pork dollar.

Potential for co-op formationIncreased pork consumption is par-

tially the result of efforts by those inde-pendent producers who now are resid-ual suppliers. Producer-fundedprograms, including the National PorkProducers Council’s “other whitemeat” campaign, were designed toincrease demand. Independent produc-ers, however, have not been able totake advantage of the market opportu-nities these programs created.

Historically, livestock producers,

especially pork producers, have partici-pated in cooperative marketing effortsto a lesser degree than other agricultur-al producers. Evolving industry struc-ture and recent market conditionsmight change this. In the past 12months, independent producers haveofficially incorporated several organi-

zations and many more are consideringthe formation of cooperatively ownedpork marketing businesses.

The cooperative concept can directlyaddress many of the challenges facingtoday’s independent pork producers.“Valued-added cooperatives can provideproducers with the tools required tocapitalize on increasing world demandfor U.S. pork,” said Earl Dotson, vicepresident of research, environment andproduction research for the NationalPork Producers Council (NPPC). Hefeels that “cooperatives can help restore

the profitability of independent produc-ers and keep them in pork productioninto the 21st century.”

Agricultural economists at PurdueUniversity, including Don Paarlbergand Michael Boehlje, support the needfor livestock marketing cooperatives.“Cooperation and pooled productionand marketing appear to be key to off-setting the impacts of consolidationand integration in today’s pork indus-try.” They recognized, however, that“the livestock producing communityhas little experience and expertise inusing these alternatives and will likelyneed public policies and assistance toget them functioning.”

The primary objective of coopera-tive pork marketing is to increase mar-ket access for independent hog produc-ers, and allow them to participate inadditional levels of the marketing chainto increase their net returns. Despiteincreased interest in cooperative initia-tives, the economic inefficiency ofmany separate, uncoordinated effortsmay still leave independent producersat a disadvantage compared with largerinvestor-owned firms.

Task force studies potential The NPPC’s board of directors rec-

ognized this and decided to explore thepotential of a national cooperative. AlTank, NPPC chief executive officer,says, “Doing nothing is not an option.Producers cannot stand a repeat of thiscrisis….” In the spring of 1999, theNPPC formed a 15-member Coopera-tive Task Force to study the viability ofa national cooperative. Jack Rundquist,a producer who was instrumental in theformation of the Hog Inc., a regionalpork producer cooperative, headed thiseffort. The task force requested techni-cal assistance from USDA Rural Devel-opment, which assigned two econo-mists to work with them.

The closest available models onwhich to base a national cooperativewere found in the U.S. dairy and theDanish pork industries, but both ofthese groups had achieved their nationalscope through more than 100 years ofevolution. The NPPC staff and USDAadvisors worked with the task force to

The number of pork producers in the United States has fallen from about 3 million in 1950 tofewer than 100,000 today. USDA Photos (pages 6, 7 & 8)

“The factors that broughtabout the price collapse of1998 and 1999 have notchanged.”–Linden Olson

explore both governance and operationalstructures that would allow a nationalpork marketing cooperative tofunction successfully; incor-porate local, state andregional groups asmembers; and beresponsive to therapidly restruc-turing porkindustry.

Last Novem-ber, the taskforce presentedits findings to agathering of morethan 50 producers andproducer groups thatrepresented nearly 20 mil-lion market hogs. The producerssupported the task force’s efforts andunanimously voted to form a steering com-

mittee that would lay the groundwork fora national pork cooperative.

Pork America emerges Pork America wasofficially incorpo-

rated less than amonth later, onDecember 29,1999, as astock compa-ny underMinnesota’s

favorablecooperative

law. John Adams,a task force and

founding memberfrom Snow Hill, N.C.,

says “we needed to movefast, we couldn’t survive $8 hogs

again.” The founding board consisted of

In the midst of the nation’s largest hog producing region,not all producers are thinking big. Forced by the disastrouslylow prices of 1998, many pork producers began a desperatesearch for ways to retain more pork-generated dollars intheir pockets. In Iowa and Nebraska, this has meant thatmany family farm pork producers are finding ways in whichthey can skip the middleman and sell pork directly to theconsumers. Many are forming cooperatives or quasi-coop-erative businesses. Here are some examples of what pro-ducers in Iowa and Nebraska are doing.

Eden Farms — Kelly and Nina Biensen are selling high-quality Berkshire pork produced in Iowa. Pork is solddirectly to white-tablecloth restaurants in Des Moines,Chicago and Dallas. Eden Farms pork has been featured inarticles in the New York Post and Wall Street Journal.Eden Farms uses a USDA-inspected plant to slaughter itshogs. The pork is then delivered to various processors forfurther processing. Eden Farms currently has more than20 different products. The Biensens have developed along list of fine restaurants in the Des Moines area serv-ing Eden Farms pork.

Delaware County Meats — This group of family farmpork producers grew out of the Delaware County EconomicDevelopment Value-Added Agriculture Committee. DelawareCounty Meats has developed nine ready-to-eat products andtwo types of bratwurst. Recipes for their products weredeveloped with the assistance of Terry Kerns of the Edge-wood Locker. Product is currently being marketed throughNash Finch Co. food stores and at local food institutions.

Tabor Family Meats — Is a family-owned business that isselling top-quality pork directly to consumers. The hogs areraised in open lots, and are given no growth hormones orantibiotics in the finishing stages of production. Pork is soldeither in individual packages or in 12-45 lb. bundles.

Audubon County Family Farms — Is a group of five smallfamily farmers in Audubon County, Iowa, eager to share theirheritage and production from their family farms. Pork isprocessed locally in a state-inspected locker facility andsold directly to consumers in individual packages or bun-dles. Audubon County Family Farmers also sells chicken,honey and beeswax candles.

Northstar Neighbors — Is a group of small farm producers,

Small co-ops and marketing groups formed in wake of hog crisis By Jeff Jobe, Director, Cooperative ServicesUSDA Rural Development, Iowa


located around the former town of Northstar, Neb. NorthstarNeighbors sells farm-fresh meats directly to consumers orthrough farmers markets in Lincoln, Grand Island and Oma-ha. Products can also be shipped by mail. Newsletters aremailed to customers, asking them to place orders, and thendesignating a time and place to pick up their purchases.

Nebraska Farmers Choice —This cooperative is beingformed to market and process members’ pork for a greaterprofit. It has completed a feasibility study and is developing abusiness plan to begin operations.

Iowa Premium Pork Co. — This cooperative wasformed as a result of a task force initiated in December1998 by the Iowa Pork Producers Association. The taskforce was charged with determining whether independentIowa pork producers could increase their profitabilitythrough cooperative marketing of their products. IowaPremium’s initial focus will be on developing joint ventureswith existing packers or processors. In the first phase ofoperation, the cooperative will provide marketing servicesto its members, and will also begin gathering carcassinformation on members’ hogs to assist the cooperative intargeting marketing opportunities. Iowa Premium Pork Co.currently has more than 1,400 members.

Family Quality Pork Processors — Was formed as a resultof a task force formed in January 1999 by the Nebraska Pork

Producers Association to determine whether independentNebraska pork producers could increase their profitabilitythrough cooperative marketing of their products. The group isstudying the feasibility of building and operating a small porkprocessing plant for marketing under its own label. FamilyQuality Pork Processors . . . currently has 105 members.

• • •USDA Rural Development is often contacted by producer

groups that indicate they want to sell 30,000 hogs per yeardirectly to consumers. However, they have no idea as to thesize of market they must have to sell 30,000 hogs.

USDA makes rough calculations to determine the number ofconsumers required to support such an enterprise, which tendsto bring producer groups back to the reality that it may takeyears of hard work to develop the type of market they desire.

As a result of these many inquiries, USDA Rural Devel-opment and Iowa State University Extension’s Value-Addedoffice contracted with the Center for Industrial Researchand Services (CIRAS) to develop a value-added pork manu-al. The manual is available to the public over the web at:iowaagopportunity.org. Call (515) 294-5008 if you need a hardcopy. The manual provides producer groups with the toolsnecessary to determine if niche-marketing their own pork isfeasible for them. It also outlines the steps necessary forproducers to develop their own value-added business. ■

eight members from six states with JackRundquist, of Butler, Ill., as chairman.

The board asked USDA to continueproviding technical assistance and guid-ance during the cooperatives start-upoperations.

Jim Lewis, Pork America’s vicechairman and a hog producer fromWelcome, Minn., described the coop-erative as “a national umbrella organi-zation that will facilitate and coordinateamong local and regional groups, aswell as individual producers. The coop-erative will act as a resource center foractivities related to production, deliv-ery, and marketing of hogs.” Lewis saidthat in this capacity, Pork America willaddress future research and develop-ment needed to assure that the cooper-ative provides quality products precise-ly targeted to the needs and wants ofconsumers and end users.

One of Pork America’s first deci-sions was to conduct an in-depthstrategic study. This market planwas partially financed through acooperative agreement with USDA.Don Senechal, of Senechal, Jorgen-son, Hale and Company (SJH),which was hired to conduct thestudy, said, “This has more upsidepotential that any other plan SJHhas worked on.”

The study identified two keys forsuccess:

• First, the organization must bemarket driven — Pork Americamust develop innovative, dynam-ic models to meet marketdemand, and penetrate the mar-ket with solid deal making,through-the-chain alignment andcarefully structured producer-to-consumer coordination;

• Second, Pork America must be a sig-nificant national player — thisdepends on the ability to control,participate in, drive and createpork-based food activities on avery significant scale, by participat-ing in the top tier of the industry.

Nonetheless, the scope of the pro-ject may have slowed membershiprecruitment efforts. “We didn’t quiterealize how difficult it was going tobe, to get everything done on a legalbasis,” Olson says. “A national coop-erative had never been done like thisbefore. Most of the other nationalcooperatives had come together as aresult of mergers of regional cooper-atives. We’re starting somethingreally new.”

Pork America’s initial activitiesincluded its Foundation Membership


drive, which closed June 30. These members receivepriority to participate in all future Pork America pro-jects. Foundation members are from 17 states, andinclude individual producers and 30 regional and localpork producer groups.

About 10 million hogs, approximately 10 percent of theU.S. total, are produced by Pork America’s members. PorkAmerica is accepting members from states where it is reg-istered, and continuing to pursue Securities ExchangeCommission (SEC) registration in other states.

“The model we are building — the virtual, verticalfood company — is somewhat unique,” said JohnMcNutt, hired as director of development for PorkAmerica after completing his term as NPPC president.“It will primarily operate by undertaking activitiesthrough partnerships, alliances, contractual production,brokerage programs and other arrangements.”

Jim Lewis feels that “success in these types of ven-tures generally comes from good management, a thor-ough understanding of the industry and significantcontrol of at least one vital segment of the industry.Our ultimate goal as a vertical food company is toparticipate in every segment of the business. Sharingin the risks and rewards of our cooperative value-added enterprise.”

Pork America recognizes that it may require someinnovative financing. If producers had considered a coop-erative option prior to the economic crisis, Olson says“…the lost equity could have bought all the processingfacilities in the United States; we could have controlledthe whole thing.”

Board members believe that the equity needed toenter the industry on the scale advocated by the SJHstudy may exceed the liquid capital pork producermembers can generate. However, they feel that PorkAmerica’s leveragable asset is hog production — andthe control of that production through the marketchain. “We have $4 invested in production facilities forevery dollar they have in processing; we need to usethat leverage,” Olson says.

If these financing hurdles can be overcome, PorkAmerica and its independent pork producers believe itwill be able to operate successfully — generating sustain-able income for producers and retaining those producersand their operations as viable rural businesses.

Pork America has identified five strategies to achievethese goals:

• Increase efficiency by improving producer-to-con-sumer information flow;

• Coordinate production, processing and marketingthrough real-time internet-based information man-agement systems;

• Develop systems and partnerships to sell as close toretail consumers as possible, including developmentof an independent producer brand;

• Avoid head-to-head competition with existing

By Bill Brockhouse, Agricultural EconomistUSDA Rural Development

The Central Kentucky Hog Marketing Association

(CKHMA) got off the ground in 1991. USDA Rural

Development provided the group with technical

assistance to help in its formation.

The hog producers who formed the cooperative

began shipping truckloads of hogs to a local packer.

This was less expensive than shipping individually

and the 25 members were also able to negotiate a

better base price with the packer.

Even though some members have retired, the

cooperative is marketing more hogs now than when

it was formed. This year the cooperative will sell

more than $2 million worth of hogs and continues to

expand the services that it offers to its members.

In 1991, producers didn’t realize how the cooper-

ative would help them in other ways. For example, in

December of 1998, when the hog-price collapse

was at its worst, CKHMA hog shipments were never

turned away by their packer, as were shipments

from some other small-scale producers.

The cooperative’s leadership was instrumental in

starting Pork America. Two of CKHMA’s members

are founding members of the board of directors for

Pork America.

The members perceive supply chain manage-

ment and industry integration as potential threats to

future viability as independent producers. To com-

bat this, the producers are receiving technical

assistance from USDA Rural Development to study

the feasibility of further value-added activities for

the cooperative. Their experience in developing

their own cooperative is invaluable as they move on

to a bigger project. ■

Kentucky hog co-op toexplore value-added alternatives


large players by identifying and supplying underserved segments and niches; and

• Support new and existing producer groups and returnprofits to the local level by developing and supportingpork merchandising opportunities.

Not everyone in the pork industry feels that PorkAmerica can succeed. In the June 18 Des Moines Register,Jerry Perkins recounted his interview with SmithfieldFoods chief executive Joseph Luter III. Smithfield Foodsis the largest pork processor in the world and is aninvestor-owned firm. Luter predicted that farmer-ownedpork marketing organizations will fail. Luter declared,“They’ll have their head handed to them… The idea that abunch of farmers are going to get together and build aplant and make money is laughable.”

Thousands of independent producers from other agricul-tural sectors, though, have clearly shown that “a bunch offarmers” can succeed in creating and operating viable busi-

nesses to participate in value added beyond the farmgate.Charles Kraenzle, director of the Cooperative Services Sta-tistics Division at USDA Rural Development, reports thatnearly one-third of all U.S. farm commodities and productswere marketed through cooperatives in 1998. Leading theway were dairy cooperatives, marketing 86 percent of U.S.milk and milk products.

Whether the efforts of Pork America or other recentlyorganized pork cooperatives prove Luter right or wrongremains to be seen. Still, despite the high level of risk, inde-pendent pork producers are motivated by the stories of new-generation cooperatives such as the Dakota GrowersPasta cooperative. The prospect that producers can form acooperative, build a plant, and develop a producer-ownedbusiness that is among the three largest pasta manufacturersin the United States is tempting when the only other palat-able alternative is exiting the industry.

As John McNutt said, “Pork America may be the last trainleaving the station for independent pork producers.” ■

By Joe Folsom, Program DirectorCommunity and Cooperative DevelopmentUSDA Rural Development, Minnesota

‘The small group of Minnesota hog producers who

formed Prairie Farmers Cooperative has developed a

strategy to take advantage of a segment of the pork mar-

ket not being served by the larger meat processors.

The cooperative is committed to delivering a high-

quality pork product through a new, 72,000- head-per-

year slaughtering/processing facility with:

• a shorter time interval from slaughter to delivery;

• a pricing mechanism that reflects the quality of pri-

mal cuts from each producer’s hogs;

• information transfer on production and genetics that

enhances product quality and service;

• flexibility in providing a value-added product mix

of fresh and processed products, including

meeting requests for specialized products and

packaging.

Pork cut, wrapped, labeled and ready for the grocer

case is an example of a fresh product designed to

meet the needs of a retail store without a meat cutter.

High-quality, custom pork products such as barbecued

pork, sausages and precooked products using propri-

etary recipes will be high-margin activities for the

cooperative.

“The flexibility gained from small-scale plant opera-

tions provides an opportunity for the cooperative to

serve niche market areas rejected by the larger proces-

sors,” says Kevin Edberg, marketing director for the

Minnesota Department of Agriculture.

Marketing channel attention will focus on direct store

deliveries, distributors and food service companies.

Small local retail chains that market to more upscale

consumers, wanting a fresher product not containing

moisture enhancements or pumped additives, will be

targeted. Products will be targeted for local and regional

distributors and food service companies.

Entry into this mature and competitive environment

will be challenging. “We firmly believe opportunities are

present without going head-to-head with the large

processors and that we will be able to return added val-

ue to our producer members,” said Dennis Timmerman,

chairman of Prairie Farmers Cooperative. ■

Finding new ways to market ‘this l itt le piggy’



Patrick Duffey, USDA Rural Development

Editor’s Note: In late September, JohnMalcheski departed for Siberia on his 14thmission for ACDI/VOCA and the eighthcountry he has traveled to for that organi-zation, which uses American co-op volun-teers to help improve the food-productionsystems of other nations. In this interview,Malcheski relates some of his extensiveexperiences with cooperatives at home andabroad.

Malcheski came from a family back-ground with strong cooperative roots, whichbecame his springboard into a career as aprominent Wisconsin dairyman and coop-erative leader in both national and inter-national arenas. Today, at 68, Malcheskistill operates a 500-acre dairy farm nearhis hometown of Pulaski, near Green Bay.

Rural Cooperatives: Where didyou gain your strong commitment tocooperatives?

Malcheski: My father, Edward,lived and breathed cooperatives. It wasa big part of our home life. He was anactive leader in Wisconsin agricultureand in 1927 opened a small cheese-making cooperative that served 12 areafarmers. This was in addition to hisdairy farm operation. After all, he had awife and nine kids to feed! The cheesefactory continued operating until 1947,when big changes began in the dairyprocessing business. He helped formand was a director of three area cooper-atives: Pulaski Chase for farm supplies;the Brown County Production CreditAssociation and Federal Land Bank,which provided post-Depression creditfor farmers; and a Pulaski livestockshipping association to give farmers

L i f e i n t h e c o o p e r a t i v e l a n eJohn Malcheski, Wisconsin’s roving co-op ambassador, spreads cooperative skills and knowledge worldwide

“Those cooperatives that don’tsee the changes coming won’tlast,” says Wisconsin dairymanJohn Malcheski, at home on his500-acre farm near Green Bay.USDA photos by Patrick Duffey

I N T H E S P O T L I G H T


access to better prices at the Milwaukeeterminal market.

The idea of foreign service alsostemmed from my father. Poland, theformer breadbasket of Europe, wasdemolished in World War II. Peopleneeded food, so the United Statesintroduced the Marshall Plan forrebuilding Europe. It was administeredby the United Nations (U.N.). Myfather headed its farm machinery distri-bution program in Poland. While hewas gone, my mother and the familyoperated the farm. My sister, Helen,took over the cheese factory andbecame the first woman to be alicensed cheesemaker in the state.

RC: When did you first becomeactive with cooperatives?

Malcheski: I was a delegate to Bad-ger Breeders (now Genex) and Consol-idated Badger dairy marketing cooper-ative and later was elected to the boardsof Pulaski Chase and ConsolidatedBadger. During my 20 years on thedairy cooperative board, six of them aschairman, we changed its corporatename to match its popular brand name,Morning Glory. It was the third largestdairy marketing cooperative in the statein 1988 when we merged with Associ-ated Milk Producers, Inc. (AMPI).When AMPI was realigned in the early1990s, Foremost Farms dairy coopera-tive, based at Baraboo, purchased theassets of Morning Glory. During my 25years on the Pulaski Chase board, itssales grew from $3 million to $20 mil-lion. In 1978, I joined the LandO’Lakes (LOL) board, served for 15years and witnessed a lot of changesand growth.

Our Wisconsin Federation of Coop-eratives (WFC) is one of the finesttrade organizations in the country. I’mcurrently in my last term on its board.With an annual operating budget of $3million, it brings together cooperativesfrom varied interests under oneumbrella. Members range from farmsupply and marketing cooperatives tothose representing insurance, housing.health, rural electrics, town and homemutuals and credit unions.

WFC also monitors proposed legis-

lation related to our broad member-ship, much of it with a rural base. Inour alliance with Minnesota Associa-tion of Cooperatives, we discuss waysto make our programs more efficient,with emphasis on improving coopera-tive education. The future of youngmembers lies in educating new genera-tions about how cooperatives work andwhy they need to support them. Wealso want to reinforce the knowledge ofthose who are already involved withcooperatives. Our state organizationsalso cooperate with the Iowa Institutefor Cooperatives in a common cooper-ative development program.

RC: Wisconsin is served by a num-ber farm supply cooperatives. Is thereany pending consolidation activity?

Malcheski: Our cooperatives aremoving in that direction, trying to keeppace with shrinking numbers but largersize of remaining farms. Fewer coopera-tives in the future will cover larger terri-tories and provide more technical ser-vices to create more efficiencies for theirmembers. Local cooperatives will either

volunteer or be forced to merge withtheir neighbors. Cooperatives need totap more of the profits from movingfarm products to consumer markets.Feed and agronomy centers already arecreating more efficiencies for farmers.And since labor is a critical part of farmoperations, cooperatives such as oursmust provide technical services with ahighly trained staff.

Although our cooperative’s farm sup-ply business is larger, we also buy and sellfarmers’ grain. In time, we’ll offer ser-vices members want if the cooperativecan make a profit at it. Those coopera-tives that don’t see the change comingwon’t last.

RC: How have the Malcheskis sur-vived when so many dairy farmers havebeen forced to quit in recent years?

Malcheski: As evidence of howdairy farm numbers have shrunk onjust our country road, at one time 14dairy farmers flourished comparedwith only five today. We brought inthe second generation and have farmedin partnership with my sons John andScott since 1996. We developed arent/purchase agreement with my sonsso the cattle, farm and equipment willeventually flow to them. The milk pro-duction average for our 200-cow herdis 25,000 pounds per cow per year. Myson Steve operates an adjoining farmof nearly 100 acres and milks 60 cows.We market our milk supply to LandO’Lakes, Inc. (LOL).

RC: How has your cooperative ben-efited from the joint agronomy venturebetween CENEX and LOL?

Malcheski: It made our fertilizer sys-tem more efficient and lowered mem-bers’ nutrient costs that were passed onin patronage returns. We also built ourcooperative’s service base with improvedfacilities, delivery equipment, and atrained staff. Some further centralizingof local services may be in the offing.

RC: Does your cooperative encour-age young farmers to participate on theboard of directors?

Malcheski:. We meet twice a yearwith local young farmers to providecrop and livestock production infor-mation and also educate them about

This shrine near the Malcheski farm wasbuilt by Polish Catholic farmers who settledin large numbers around Pulaski, Wis. Thetown is home to the largest rural church inthe world.


cooperatives. We also participate ineducation programs of regionals andthe WFC. Producers need continuouseducation about how to use andpatronize cooperatives and how theyare structured and controlled. TheUniversity of Wisconsin Center forCooperatives in Madison also has pro-grams for young farmers that encour-age them to get involved with theircooperatives and serving other mem-bers. Those leadership skills oftenpour over into local communities. Bycontrast, non-cooperatives offer nosuch leadership opportunities.

RC: How did you become involvedin international development work?

Malcheski: When communism inEastern Europe collapsed along withits centralized food production systemin 1989, it left a void. Food costs wererunning 60-80 percent of people’sincome. Congress expanded thefarmer-to-farmer program to includeU.S. support to the former Sovietstates to address food production, mar-keting and finance needs. Dr. VernFreeh, LOL’s vice-president of interna-tional development while I was on itsboard, was also a director ofACDI/VOCA, which was affiliatedwith the National Council of FarmerCooperatives. He invited me to partici-pate in its program. I was one of thefirst seven to enter the program inPoland in 1990. I had seen the failureof communism there firsthand duringprivate visits in 1983 and 1985.

When the Soviet empire collapsedand ACDI/VOCA wanted volunteers, Iwas eager to share my farming and coop-erative experiences with people who werebeing introduced to capitalism and freeenterprise. We tried to show the Polishfarmers that our U.S. cooperatives wereexamples of building better agriculturalenterprises and markets. The idea waschallenged in Eastern Europe becauseproducers likened our cooperatives to theold communist system. It took time toreeducate them as to the real goal ofcooperatives: to strengthen the hand ofproducers, not the state.

RC: How does the ACDI/VOCAprogram work?

Malcheski: We plant “seeds” byencouraging producers to look at theU.S. cooperative system as a way toprovide supplies and market produceand livestock. We sought people with aburning in their bellies to move for-ward. When the old state collectivefarms were split, land was returned tooriginal owners or their relatives.Parcels were small according to the oldEuropean system and often scattered.Former office workers, cooks and truckdrivers were becoming new farmers.We encouraged them to swap parcelsto gain more contiguous acres. We alsoworked with government agriculturalministries to help farmers expand thisprivate sector.

ACDI/VOCA established offices invarious countries and developed con-tracts with groups or individuals whohad ideas on helping agricultural orga-nizations. Usually, ACDI/VOCArecruited volunteers and provided mon-ey for food and lodging. The hostrecipients provided transportation andtranslators. It was always nice to findaggressive persons or groups who want-ed to change or improve their system.

We found the right person inPoland and in three short weeks puttogether Agro-Wisconsin, a farm sup-ply and grain marketing cooperativecomplete with bylaws, elections and amanager. The cooperative purchasedgrain from local farmers. I workedwith Norval Dvorak, a retired execu-tive from Packerland Packing Compa-ny at Green Bay. We each invested$100 to give Agro some start-up cashflow. The cooperative lasted for atime, but later fell apart due to bicker-ing on the board. That led to itsfinancial ruin. In subsequent visits toPoland by other volunteers, includingDvorak, Agro was consolidated withanother cooperative, so our effortsweren’t entirely wasted.

Former Agro leader Alex Bohenskiis now the sweet corn king of Poland.He slowly began planting sweet cornand selling it on the streets of majorPolish cities and to a government pro-cessing plant. He now owns the plant,contracts with farmers to grow sweet

corn, sells it to Burger King and alsomarkets it under the trade name ofZolty Ameriky, which translated means‘Gold of America.’ Thanks to anothervolunteer, a retired executive withDean Foods at Green Bay, surplus pro-cessing equipment was purchased fromthe company and installed to updatethe plant in Poland.

RC: What was your most memo-rable experience with ACDI/VOCA?

Malcheski: All my trips were mem-orable, but Egypt stands out because ofits early recorded history, the pyramidsand their culture. I was impressed withthe Egyptians’ ability to produce foodby irrigation. Canals laid out during thedays of the pharaohs 4,000 to 5,000years ago are still in use and are helpingthe Egyptians turn the desert green.

Four of my 14 volunteer trips wereto Egypt. I kept getting involved andgoing back on a new project. Egypt wasthe most eye opening because of thetremendous amount of hand laborrequired to produce food. The kidsstart working at age 6 and 7. Manycan’t read or write. It’s very sad to see.So, we need to tie in some basic level ofeducation in future programs. But, thepeople we met were very happy andhard working. Poverty was prevalent byour standards, but they don’t see pover-ty as such. Something as common as athree-tine pitchfork from an Americanfarm would be an innovation in somecountries. If I go again, I’d like to takeone along just to show what can beaccomplished with a simple pitchfork.

Egypt’s long-standing, two-class sys-tem is gradually changing with the riseof a middle class. But it will take anoth-er 50-100 years to raise the living stan-dards for a lot of people. My work inEgypt was always with different dairyfarmers, large and small. We tried tooffer technical advice to fit particularsituations we encountered such as cat-tle comfort, milking procedures, nutri-tion, feed storage, genetics and raisingcalves and heifers. To help Egyptbecome more self-sufficient, in 1997ACDI/VOCA instituted a five-yearAgLink program. A cooperative will bein place when the project is completed


so they can help themselves in any areaneeded. They have a tremendousknowledge about dairying in Egypt,but individual farmers don’t share theirexperiences with others. The AgLinkprogram will change that. The returnon investment will be a lot more agri-cultural trade with Egypt.

RC: What obstacles did you en-counter in other countries you visited?

Malcheski: In Macedonia, aboutone-third the size of Wisconsin, theyhad many languages and customs topenetrate. Armenia was the toughestassignment. During my visit, most peo-ple had no electricity for a number ofhours each day due to a fuel shortagebrought on by a war with neighboringAzerbaijan. Farming equipment fromthe old collective farm system was inshort supply, so we encouraged the for-mation of cooperatives that could renttilling and harvesting equipment tofarmers.

Latvia showed the need for moreopen borders between small countriesto allow freer movement of suppliesand produce. The farmers had alabyrinth to penetrate to accomplish

what to us was the simplest of tasks. If afarmer was running short on hay forhis cattle, his herd might be halfstarved by the time he could get in anemergency supply. By contrast, if myfarm’s hay supply is running low, I cancall a source in Kansas and have atruckload delivered overnight.

In Lithuania, I worked with ChuckSteen from Growmark helping newlyprivatized farmers with cattle manage-ment, improving milk quality andbuilding design. We’d team up fornight meetings to discuss marketing,food packaging, appearance and cus-tomer satisfaction — things they didn’thave to deal with under communism.

RC: What other problems do vol-unteers encounter in host countries?

Malcheski: One of the primaryimpediments is inadequate legalstatutes to assist cooperative develop-ment. Others are inflation and highinterest costs, unwillingness to investin agriculture, political instability, lackof marketing information and trans-portation, government price settingand poor transfer of research fromuniversities to farmers. Worse yet,

there’s nothing compara-ble to the agricultural edu-cation provided by ourExtension Service andother USDA agencies.Some people in this coun-try, with a mouthful offood, criticize these pro-grams. Yet, those pro-grams created our systemthat produces ample foodsupplies.

RC: What connectiondid you see between foodproduction costs andnational stability?

Malcheski: These pro-grams help build the agri-cultural sector of hostcountries, but are a smallpart of U.S. foreign aid,which accounts for four-tenths of 1 percent of thetotal federal budget. We’regetting a good return onour investment. In just

dairying, for instance, as we help othersimprove that sector, we open the doorto expanding our agricultural exportmarkets. Because of our extensive expe-rience, we can help them avoid some ofthe pitfalls we faced years ago.

In every country I visited, I triedto find out what percent of an aver-age worker’s income was spent onbuying food. It was shocking — from40 percent in Egypt to 80 percent inArmenia and Russia. You cannot havenational peace and stability withthese conditions. I think the devel-oped countries such as the UnitedStates and Western Europe shoulddevote more foreign aid moneytoward improving food production inthese developing countries.

RC: Would you encourage others toparticipate in ACDI/VOCA?

Malcheski: Participation bringsyou great experiences and personalenrichment. We encountered wonder-ful people in all of our visits. You’lllearn more than you think and you’lllike sharing ideas. It will enrich yoursoul and you’ll come back reallyappreciating the USA. ■

Malcheski explains changes needed in a dairy operation in Egypt during one of this many overseas trips as anACDI/VOCA volunteer. Photo courtesy ACDI/VOCA


By David Cummins, Agricultural EconomistUSDA Rural Development

et savings averages weregenerally lower in 1999than in 1998 for localgrain cooperatives in theCorn Belt and Pacific

Northwest, particularly for large grain

co-ops in the Corn Belt. This was pri-marily because of continuing declinesin grain prices and higher operatingexpenses.

Lower net savings in 1999 was report-ed by 64 percent and 62 percent of thelarge and medium-sized grain co-ops,respectively, in the Corn Belt. Compara-ble percentages for the Pacific Northwestwere 70 percent and 25 percent.

For medium-sized local grain coop-eratives in the Pacific Northwest, theplunge in average net savings thatoccurred in 1998 was reversed in 1999,largely because of poorly performingco-ops going out of business.

Positive factors on the grainincome side were increased grainvolumes marketed and improvedgrain margins and margin rates.

N e t s a v i n g s d i p p e d i n 1 9 9 9 f o r m o s tc o r n - s o y b e a n a n d w h e a t - b a r l e y c o - o p s

N

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

Table 1 - Compare your corn-soybean cooperative withaverages for similar cooperative operations

Total sales group (million dollars)Group/Item Unit 5-14.9 15 or more 5-14.9 15 or more Your

(1998 Data) (1998 Data) (1999 Data) (1999 Data) Cooperative

Storage capacity Million Bu. 1.288 5.471 1.597 6.477 _____________

Grain marketed Million Bu. 2.013 9.079 2.665 10.793 _____________

Turnover rate Times 1.56 1.66 1.67 1.67 _____________

Proportion grain Percent 75.9 71.0 76.2 69.3 _____________

Total assets Million $ 3.448 16.086 3.839 18.530 _____________

Long-term debt1/ Percent 6.7 12.5 9.4 13.8 _____________

Member equity1/ Percent 60.1 47.3 58.5 47.0 _____________

Total sales Million $ 9.712 44.633 9.899 42.736 _____________

Margins on sales Million $ .573 3.206 .640 3.634 _____________

Total expenses Million $ .859 4.364 .994 5.096 _____________

Net savings (losses) Million $ .174 .909 .168 .816 _____________

Labor of total expenses Percent 44.7 46.2 45.7 46.6 _____________

Net savings paid in cash2/ Percent 34.5 33.7 37.2 35.3 _____________

Current ratio Number 1.48 1.24 1.42 1.21 _____________

Debt/assets Ratio .15 .20 .19 .27 _____________

Net savings(loss)/tot. sales Percent 1.8 2.0 1.7 1.9 _____________

Gross margins/total sales Percent 5.9 7.2 6.5 8.5 _____________

1/ Of total liabilities and member equity. 2/ Of total patronage allocation.


Farm supply sales and farm supplymargins and margin rates were higherin 1999. Except for the slight increasefor the medium-sized grain co-ops inthe Corn Belt (where corn-soybeanco-ops predominate), total sales aver-ages were lower there and in thePacific Northwest, where wheat-bar-ley co-ops are most common.

The most damaging negative factorwas the sharp drop in commodity pricesin 1999. The weighted averages of pricesreceived by large and medium-sizedlocal grain co-ops in the Corn Belt were21 percent and 23 percent, respectively,lower than in 1998. Corn, oats, wheatand soybean prices ranged from 19 per-cent to 26 percent lower. Comparablelower weighted averages for grain co-opsin the Pacific Northwest were 15 per-cent and 13 percent. In fact, weighted

average prices received by local grain co-ops in both areas in 1999 were the low-est since the mid-1980s.

Loss rates for the medium-sizedco-ops in 1999 were about the same(about 12 percent) as in 1998 in theCorn Belt and sharply lower in thePacific Northwest (29 percent to 12.5percent). In contrast, no losses werereported in both years by the largeco-ops in the Pacific Northwest andthe rate rose only slightly (from lessthan 3 percent to over 4.5 percent) inthe Corn Belt.

Total assets and member equityaverages were higher in the Corn Belt.For wheat-barley co-ops in the PacificNorthwest, total assets and memberequity averages were higher for medi-um-sized co-ops, but lower for largeco-ops. Total debt averaged higher

across the board in 1999, and repre-sented a significantly higher proportionof total assets for corn-soybean co-opsthan for wheat-barley co-ops.

Benchmarking your co-opBenchmarks are common in busi-

ness management to measure how wellyour cooperative is performing. How-ever, such figures don’t reveal how yourcooperative compares with others.

If your cooperative is primarily afirst-handler of wheat and barley orof corn and soybeans, comparativedata for 1999 are available below.Tables 1 and 2 contain average finan-cial and structural data compiledfrom a survey of Pacific Northwestand Corn Belt cooperatives market-ing wheat and barley and corn andsoybeans, respectively. ■

Table 2 - Compare your wheat-barley cooperative withaverages for similar cooperative operations

Total sales group (million dollars)Group/Item Unit 5-14.9 15 or more 5-14.9 15 or more Your

(1998 Data) (1998 Data) (1999 Data) (1999 Data) Cooperative

Storage capacity Million Bu. 4.344 8.932 4.324 9.807 _______________

Grain marketed Million Bu. 3.036 9.945 2.937 10.766 _______________

Turnover rate Times .70 1.11 .68 1.10 _______________

Proportion grain Percent 93.0 81.9 80.5 87.6 _______________

Total assets Million $ 2.702 12.732 3.736 11.080 _______________

Long-term debt1/ Percent 1.1 6.2 4.0 8.4 _______________

Member equity1/ Percent 89.6 58.7 73.0 63.8 _______________

Total sales Million $ 10.381 40.813 10.051 35.281 _______________

Margins on sales Million $ .226 1.972 .579 1.767 _______________

Total expenses Million $ .784 3.994 1.060 3.169 _______________

Net savings (losses) Million $ .022 .849 .171 .825 _______________

Labor of total expenses Percent 45.9 44.6 40.7 46.0 _______________

Net savings paid in cash2/ Percent —- 40.3 33.0 41.7 _______________

Current ratio Number 4.46 1.42 2.34 1.67 _______________

Debt/assets Ratio .04 .16 .18 .23 _______________

Net savings(loss)/tot. sales Percent 0.2 2.1 1.7 2.3 _______________

Gross margins/total sales Percent 2.2 4.8 5.8 5.0 _______________

1/ Of total liabilities and member equity. 2/ Of total patronage allocation.


Tracey L. Kennedy, Agricultural Economist USDA Rural Development

Editor’s note: The Rural Business-Cooperative Service of USDARural Development began an annual survey of cooperative involve-ment in international markets in 1997. Prior to 1997, cooperativeexports and imports had been measured at five-year intervals. Anoverview of survey findings for 1998, with comparisons to 1997, ispresented here. A follow-up article in a future issue will providefurther detail.

gricultural exports by U.S. cooperatives weredown more than 41 percent in 1998, reflectingdeclining demand and the subsequent fall incommodity prices in Asian markets, as well asthe economic pressures related to currency

devaluations and other policy changes in other regions. Cooperative exports had climbed to a record $7.8 billion

in 1997 before falling off to $4.59 billion in the wake ofworldwide economic woes (figure 1).

Participation in exporting has remained relatively steadywith 96 cooperatives reporting exports for 1998. Magnitudeof export sales ranged from less than $100,000 to more than$1 billion.

Exports continued to be heavily concentrated among a fewcooperatives, with the top five exporters accounting for 60percent of all cooperative exports. However, this compares to

a 76 percent concentration among the five largest coopera-tives exporting in 1997.

Cooperative exports were down from 1997 in all majorproduct groupings: bulk commodities, intermediate productsand consumer-oriented products (figure 2). Demand for bulkcommodities in particular showed the effects of the Asiandownturn, falling 54 percent to $2.5 billion.

Exports of intermediate products — partially processed oringredient products — fell 24 percent to $308 million, whileconsumer products, including fresh and processed fruits andvegetables, meats and other food products, turned in thesmallest decrease, falling by just 10.8 percent to $1.78 billion.

U.S. cooperatives also reported exports of nonagriculturalproducts — mainly farm inputs — valued at $83.5 million,for a total of $4.68 billion.

Bulk commodities continue to account for the largest— albeit a shrinking —portion of all cooperative exports,accounting for 53.7 percent in 1998 compared with 69.6percent in 1997. Intermediate and consumer-orientedproducts gained in importance in 1998, rising from 5.2 to

6.7 percent and 25.3 percent to 39.6 percent, respectively,of all cooperative exports.

After establishing a record 13.8 percent share in 1997, thecooperative share of U.S. agricultural exports fell back to 8.8percent in 1998. Cooperatives accounted for 12.8 percent ofall U.S. exports of bulk commodities, down from 23.3 per-cent in 1997.

Cooperatives’ consumer product share dropped to 8.8

T r a d e T a k e s a T u m b l eCooperative trade plunges 41% as Asian markets cool

A

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19971998Figure 1 Agricultural Exports by

U.S. Cooperatives, 1980-98

Figure 2 Agricultural Exports by Cooperatives, 1997-98


percent from 9.5 percent in 1997, while their share ofintermediate product exports fell from 3.2 percent to lessthan 1 percent.

Where the markets wereTrade patterns and flows for cooperative exports showed

significant change in 1998. Although Asia continued to bethe most important destination for cooperative exports,markets in this region accounted for only 31 percent of allcooperative exports, compared to almost 50 percent in1997. Significantly, the second largest regional market forcooperatives was Latin America, accounting for about 20.5percent of cooperative exports, vs. 10 percent in 1997.European markets increased marginally in importance from17.7 percent to 20.2 percent.

Canada fell from almost 9 percent to about 6 percent,while Africa became a more significant player, increasingfrom 5 percent to 8 percent of cooperative exports.

The impact of much of the global economic situation isclearly reflected in changes in trade flows to most major regionsfrom 1997 to 1998, with the only gains in Latin American,Middle Eastern and African markets (figure 3). As expected,exports to Asia experienced the most significant drop, down 63percent from $3.9 billion in 1997 to $1.4 billion in 1998.

Exports to Canada fell almost 60 percent, from $684 mil-lion to $275 million, while sales to Australia and NewZealand (Oceania) fell almost 54 percent, from $57 million to$26 million. On the other hand, export sales to Latin Ameri-can markets increased 20 percent, from $796 million to $957

million. Sales to Middle Eastern markets increased 7.5 per-cent from $236 million to $254 million.

Imports by cooperativesCooperatives import a variety of products, mainly non-

agricultural and consumer-oriented products. In 1998, coop-eratives imported products valued at $203 million, down

from $252 million in 1997. Non-agricultural products —mainly fertilizer and petroleum products, along with farmsupplies, equipment, and machinery — accounted for 67 per-cent of cooperatives’ imports.

Consumer-product imports — primarily of fresh andprocessed fruits and vegetables — accounted for almost 30percent of the total, while intermediate product imports (pri-marily sweeteners and frozen bovine semen) accounted for alittle over 2 percent (figure 4). A negligible amount (less than1 percent) of grain imports accounted for all bulk agriculturalcommodity imports.

The majority of consumer products — mostly horticultur-al products — originated in Latin American countries (46percent), while Canada was the largest originator of non-agricultural products (42 percent).

It remains to be seen whether 1998, the height of theworld economic instability, has had a long-lasting impacton cooperatives’ activities in international markets. A fol-low-up article in a future issue of this publication will takea more detailed look at 1998’s results and look ahead to1999 and 2000. ■

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Figure 3 Cooperative Exports by Destination, 1997-98

Figure 4 Imports by U.S. Cooperatives, 1997-98


By Pamela J. KargField Editor

obacco quotas have beencut by more than 60percent during the pasttwo years, leaving Ken-tucky with 110,000 acres

of quality farmland that’s “basically upfor sale as farmers try to figure outwhat they’re going to do next,” saysJim Mansfield, horticulture/aquacul-ture program director for the Ken-tucky Department of Agriculture.

While some Americans haveapplauded recent court settlementslevied against the tobacco industry, it’sthe small farmers across 20 states —stretching from Minnesota to Florida —who are paying the ultimate price. The1997 USDA Agriculture Census count-ed 89,706 tobacco farmers in the UnitedStates and approximately 286,500 farmswith assigned tobacco quotas. Thisyear’s quotas, announced at the begin-ning of 2000, dropped throughout thetobacco industry. So did prices.

In 1999, Congress appropriated$328 million under broad farm disas-ter legislation to help compensatefarmers for cuts made in tobaccoquotas. USDA, under the TobaccoLoss Assistance Program, administersthis one-time-only compensationfund. In late June and early July,farmers also received checks fromtheir state governments through the$5.15 billion Tobacco Growers Trust,established by tobacco companies tohelp cushion the fall for farmers. Thechecks can be spent any way a farmersees fit, but many officials hope farm-ers will use the money to find analternative to tobacco.

A huge challenge“Tobacco is a crop that is non-per-

ishable, fairly easy to grow and harvest,you know the value per acre and youknow what you’re going to get paid forit before you even plant it. To replacethat is going to be a big challenge,”Mansfield says.

But he believes some farmers do

N e w D i r e c t i o n s :Co-ops help tobacco farmers transition to new crops

T

Karen Calhoun (above) is making the switch toaquaculture to offset a two-thirds reduction in her tobacco quota. Photo courtesy of Kentucky State

University. Opposite page: University of Kentucky horticulture specialist Jim Mansfield (center) dis-cusses the fine points of growing eggplant, one of the vegetable crops seen as an alternative totobacco. Photo courtesy of Kentucky Dept. of Agriculture.

A migrant laborer from Mexico harvests tobacco in Virginia. USDA photo by Ken Hammond.


have options. They just need to bewilling to consider new crops, changehow they are farming and work withneighbors to market these new agri-cultural products. That’s a tall order,but one that was not lost on KarenCalhoun.

The Harrison County, Ky., tobaccoand beef cattle farmer had her burleyquota cut by more than two-thirds dur-

ing the past three years. She could raisemore beef cattle, but that requires moreland, and good farmland is somethingthat doesn’t come cheap. And she alsohas limited access to labor.

Calhoun found her niche, with assis-tance from the Kentucky Departmentof Agriculture and Kentucky State Uni-versity. “I’m trying new things. I amnow in the farm-raised shrimp business,

and it looks to have some real poten-tial,” says Calhoun.

To help spur the business, the stateprovided a $149,528 grant to the uni-versity to help build a shrimp hatcheryat its Frankfort research facilities. Thisinfusion of money into the state’s agri-cultural infrastructure enables Ken-tucky farmers to buy seed stock from anearby source rather than shipping it infrom Texas and running the risk ofhigh mortality.

Within an hour-and-a-half of har-vesting her first shrimp crop, Calhounhad sold out her entire crop directly to

local consumers. Because she’s the firstin her area to begin an aquacultureenterprise, the shrimp harvest generat-ed a large amount of publicity, attract-ing consumers eager to buy Kentucky-bred “seafood.” The high demand forher shrimp surprised Calhoun, whoplans to lease the remaining tobaccoportion of her farm this year so she canconcentrate on beef cattle and shrimp,and some vegetables and pumpkins.

Writing on the wall Mansfield says shrimp production is

just one example of aquacultureendeavors open to Kentucky tobaccofarmers. The state also has projects andfinancial programs that support trout,catfish, paddlefish, minnows and bassproduction farms.

“We have a progressive group offarmers. They see the writing on thewall that they’re going to have to bechanging their business because theycan’t just hang their hats on tobaccoany more,” Mansfield says.

Cooperatives and quasi-cooperativeorganizations are playing a large role inhelping farmers make the transition tonew crops. Working with the KentuckyAgriculture Department are groupssuch as the Commodity GrowersCooperative Association; the KentuckyCenter for Cooperatives; KentuckyNetwork for Sustainable Agriculture;the Kentucky Farm Bureau and stateResource, Conservation and Develop-ment councils (RC&Ds).

In fact, the Jackson Purchase RC&DFoundation received a state value-added grant for $194,650 to pay fortwo efforts: construction of a catfishprocessing plant, to be owned andoperated by the newly formed Pur-chase Area Aquaculture CooperativeInc. (PAAC), and establishment of arevolving loan fund for aquacultureinfrastructure development.

The PAAC has a goal of producing1 million pounds of fish within twoyears. The plant will create approxi-mately 20 new jobs and is expected toneed production from more than 100farmers who will convert low-produc-tion soil into fishponds to meet PAAC’s

Where tobacco plants once grew, Jill Streck helps harvest shrimp, a new crop heraunt hopes will replace lost tobacco income. Photo courtesy of Kentucky State University.

need for 2,000 acres of water.“This alternative to tobacco should

aid many local farmers and will alsohelp our grain farmers, as there will bea need of 750,000 bushels of grain eachyear for feed,” said Robert B. Johnsonof the Jackson Purchase RC&D.

Other alternatives have potential In addition to aquaculture, Ken-

tucky tobacco farmers are switching togreenhouse and nursery crops, willowtrees, meat goats, beekeeping, grapesand wine production, Christmas treesand other fruits and vegetables. Stillothers are switching to more traditionalfarming endeavors, says Mansfield,

including beef andhog production, rais-ing dairy heifers forexport (especially forthe Mexico market),and grain production.

But in southeast-ern Kentucky, grainproduction is limiteddue to a lack of suit-able land and storagefacilities. Most of thecorn grown in thearea is fed to localcattle.

Research conduct-ed at the University


USDA photo

Grower co-ops to coordinate marketingFaced with a cut of more than 50 percent in their

tobacco quota, farmers of the Owensboro, Ky., arearesponded by forming the West Kentucky GrowersCooperative (WKGC) to help them produce and marketsweet corn and other vegetables.

“These farmers have taken action to ensure thestrength of agriculture in their region as well as the con-tinuation of their own agriculture-based economy withthe founding of this cooperative,” Kentucky AgriculturalCommissioner Billy Ray Smith said at the opening of anew farm market facility this spring.

The Kentucky Department of Agriculture approved agrant for $100,000 to assist the West Kentucky GrowersCooperative (WKGC). It now joins cooperatives alreadyestablished in Georgetown, Horse Cave and Monticel-lo/Russell Springs, Ky.

“We think there is a major opportunity for Kentucky inthe produce industry,” says Jim Mansfield, director ofKentucky’s Division of Value-Added Horticulture/ Aqua-culture. “Now is the opportune time to establish a net-work of facilities with coordinated sales and value-added processing.”

The WKGC leases a large facility originally built bythe J.C. Ellis family in Stanley, Ky. The plant has amplecold storage space, hydro-coolers, icemakers and aslush-ice injection unit suitable for produce grading,packing and cooling.

But the enterprise doesn’t stop there. WKGC isextending outside its borders to cooperate with another

growers’ cooperative. Owensboro farmers, together withrepresentatives from the state agriculture departmentand the University of Kentucky, traveled to Florida andentered into an agreement with the Pioneer GrowerCooperative of Belle Glade.

“Pioneer Growers Cooperative has corn growingin Florida and Georgia, and wants to become year-round marketers of sweet corn,” Mansfield said.“There is a 10-week period through July and August,however, when they are unable to produce sweetcorn. This is where the West Kentucky GrowersCooperative comes in.”

The Kentucky cooperative will grow 1,000 acres ofsweet corn that will be marketed by the Florida coopera-tive. A third of the corn will be tray-packed in Kentuckyand sold as value-added corn. Two-thirds will be sold toretailers.

Patrick Rupinen of the Commodity Growers Coopera-tive in Lexington, Ky., says that more and more tobaccogrowers are learning about the cooperative way of doingbusiness. Some are realizing that by pooling theirresources and their bounty, they are able to tap intomore retail markets.

“And if farmers can sell directly through some ofthese retail channels, that will mean better prices forthem,” Rupinen said. In addition to corn, the Kentuckyco-op is selling 150 acres of mixed vegetables grown bythe Owensboro farmers, although a different distributorwill market it. ■

of Montana suggests that echi-nacea — an herb which propo-nents claim has medicinal prop-erties — could be an alternativecrop for tobacco farmers. Otherresearch is focusing on theindustrial hemp market.

“We want to diversify andstabilize the number of farmenterprises that generateincome for our farm families,”

explains Jim Lacy of the KentuckyRiver RC&D Council. “So more andmore of our farmers are looking togrow vegetables to supplement theirincome from the lost tobaccopoundage.”

A farmers’ market was establishedin Campton, Ky., to allow producersto sell their crops at a central loca-tion. The state Farm Bureau hasassisted in the formation of new farm-

ers’ markets through its CertifiedRoadside Farm Markets program.

Interest high in vegetable co-ops In Lewis County, Ky., the Vegetable

Growers Association was formed inNovember and had 18 farms sign onfor the season. They received a grantfor just over $7,000 for vegetable pro-duction demonstration equipment usedin connection with the farmers’ market.

By Isaac J. BaileyThe Sun NewsMyrtle Beach, S.C.

For more than 30 years, Robert Boyd, a tobacco mar-ket sales supervisor, has heard the rumors. For more than30 years, the anticipated demise of the auction-styletobacco sale has been exaggerated. But time may finallybe catching up to the event that has for decades been acelebration of bountiful harvests for farm families.

Warehouses, such as Twin City Farmers CooperativeInc., where Boyd is supervisor, may become storing hous-es, he said. Tobacco companies are signing more farmersto contracts, with which a given company pays farmers adetermined amount, rendering useless the time-honoredtobacco auctions.

Companies want to better control the quality of cropsand the harvesting process, Boyd said, and better farmequipment has caused some of the changes.

``The number of farmers is decreasing every year,’’ hesaid. ``And companies want to get more mileage out oftheir tobacco.’’

Next year, or maybe the one after, could be the last ofthe auctions, but maybe the end will never come, Boydsaid.

``For the entire 35 years I’ve been in this business, Iheard that every day,’’ Boyd said Tuesday, sitting on an800-pound stack of baled tobacco during the opening ofmarkets in Loris. ``It may continue indefinitely. But itappears now it is closer than it’s ever been.’’

The scene of families gathering in the warehouses,maybe eating hot dogs and drinking lemonade, on open-ing day has been replaced by lone farmers checkingprices marked on small pieces of paper on the tops oftobacco piles.

Some visit on days when they aren’t selling to get a

glimpse of the price they can expect when they do. Thestrong scent of tobacco — sweet to some noses, over-whelming to others — permeates the entire place. Signsimploring farmers to keep their tobacco clean decoratewarehouses.

``Whole families used to do it, so this was a big day,’’said Sarah Strickland, who was in Loris Tuesday to sellher aunt’s harvest. ``You had snow cones and saw every-body you knew. Now, they just sell and go.’’

The farmers sell when they feel a fair price has beenoffered, and many sold tobacco in mid-August at the twowarehouses in Loris.

At Brick Tobacco Warehouse, 157,421 pounds oftobacco were sold for $249,743.90, an average of $158.65per 100 pounds. At Twin City Farmers Cooperative Inc.,251,505 pounds of tobacco were sold for $400,986.30, anaverage of $159.43 per 100 pounds. The total figures forLoris tobacco markets by Aug. 15 were: 408,926 poundsof tobacco sold for $650,730.20, an average of $159.13 per100 pounds.

Representatives of Dimon, Export Leaf, Standard Com-mercial and J.P. Taylor tobacco companies walked upand down rows of tobacco bidding on baled and loose-leaf crop, sometimes pushing prices more than 20 centsabove the minimum listed. They followed Steve Ivey, whohas been an auctioneer for 25 years.

``Dollar bill, dollar bill, dollar bill,’’ Ivey uttered in avoice distinguishable only to the trained ear. A bale heresold $170 per 100 pounds, a pile there sold for $160 per100 pounds, another for $155 per 100 pounds.

Loris farmer Marcus Gerald has seen a lot in the 25years he’s grown tobacco. While farming has been goodto him, Gerald said, all the change has made him feeluncertain.

``You don’t know whether to keep investing in farmingor not,’’ he said. ■

End nears for tobacco warehouse co-ops


“Commercial vegetable farming is anew challenge to our producers. A highlevel of management is required,” saysLacy, of the Kentucky River RC&D.With a grant from the Wolfe CountyConservation District and the stateagriculture department, the RC&Dcouncil received money to purchasemulching equipment so farmers couldbegin converting to commercial veg-etable farming.

However, if every tobacco farmersells fresh produce, there’s the possi-bility of a glut in the marketplacethat would drive down prices. Orproduction could fail to adequatelytarget what consumers want to buy.That’s why more grower associationsare being formed, and these groupsare coordinating their productionand marketing with other coopera-tives — even some outside theirregion, says Mansfield. (See relatedstory, on page 22)

“We have really been asking our-selves how we can form more market-ing alliances and partnerships to havebetter coordination of our value-addedproducts,” Mansfield adds.

The Commodity Growers Coop-erative (CGC) in Lexingtonaddresses both the dependence ofKentucky’s farm families on tobac-co and the need for a local, sustain-able food system by providing mar-ket development assistance tofarmers who are trying to diversifytheir crops. The CGC has alreadydeveloped markets for family farmproducts — primarily in the horti-cultural area — by building a basefor locally grown products. Theseefforts, due to the support of manypartners, have greatly increasedKentucky’s commitment to diversi-fication initiatives, says PatrickRupinen, CGC administrativemanager.

“Kentucky is the No. 1 one burleytobacco producer, and we have 40,000farm families out there producing it.We don’t want 40,000 burley tobaccogrowers to suddenly disappear. So thereare a lot of us trying to help farmersfind alternatives,” Rupinen says.

Now the CGC is collaborating withthe Kentucky Center for CooperativeDevelopment to award $80,000 ingrants to conduct market feasibilitystudies by groups interested in form-ing cooperatives. The deadline is Sep-tember 2001.

“We have a lot of interest by somepeople — people who are willing totake a chance on something new,”

Rupinen says. “You have to understandthat tobacco farmers didn’t really haveto work together with other tobaccofarmers. Now that they’re looking atother crops, cooperatives are slowlyforming. It’s a new idea for them thatwill come about as they realize thatthey can share equipment or facilities,and do more coordination to get thejob done.” ■


The Burley Tobacco Cooperative Association Inc., in Lexington, Ky., is par-ticipating in a pilot program with Star Scientific Inc. to experiment with low-nitrosamine burley tobacco. One hundred farmers in central Kentucky and theOwensboro area have entered into an agreement with Star to produce thelow-nitrosamine tobacco.

Nitrosamines are thought to be one of the major carcinogens in tobacco.Farmers will have to prime the burley tobacco and cure it in special curingstructures. If the experiment is successful, Star plans to expand its efforts andinclude more farmers next season.

Farmers also have the option of converting from chemically intensivetobacco production to organic production. Willing buyers exist, such as theSanta Fe Natural Tobacco Co. in New Mexico, but with a three-year restingperiod before soils can be certified as pesticide-free, few growers haveexplored that possibility.

A versatile crop, tobacco leaves can be used to create ethanol or bio-methane, alternative energy fuels. Biomass tobacco, a minimal-nicotine cropthat is converted to fuel, not smoked, can thrive in poor soil and a wide rangeof environments, is not labor-intensive and also requires minimal chemicaltreatment. Tobacco can also become animal feed. ■

Pursuing other uses for tobacco

USDA photo

Florida’s Natural breakssales record — again!

Record sales for the10th consecutive yearhave been announcedby Florida’s NaturalGrowers fruit coop-erative, based at LakeWales. Sales for fis-cal 2000 were up 10percent from 1999.The record $605 million salesincluded an average of 1 mil-lion cases of juice, or about 3 milliongallons boxed and shipped per week,and 23 million cases of citrus processedduring the year.

The cooperative exports to 40 coun-tries, primarily in Europe, Japan and theCaribbean. The booming sales are relat-ed to growing popularity of not-from-concentrate (NFC) juice, said SteveCaruso, chief executive officer. In June,Florida’s Natural completed a $7.2 mil-lion purchase of Sun Pac Foods’ citrusprocessing plant in Barrow. It canprocess 5.5 million boxes of juice annual-ly into frozen concentrate. However, thecooperative will gradually convert it toprocess NFC juice. The cooperative’s 12grower organizations represent 1,100grower-owners with more than 60,000acres of citrus.

Neb. court backs co-ops on hedge-to-arrive contracts

The Nebraska Supreme Court hasdecided unanimously that eightNebraska farmers who reneged onhedge-to-arrive grain marketing con-tracts in 1996 will have to pay a total of$2.3 million in damages to two cooper-ative grain elevators. When grain prices

soared in 1996, the farmers sought tovoid the 1995 contracts they signedwith Tri-Valley Cooperative and GreatPlains Cooperative. The farmersalleged that the contracts outlined nodefinitive delivery date and that theyhad the right to defer delivery.

The court disagreed, ruling that thefarmers had knowingly entered into thecontracts that were clear and unam-biguous. The court noted the contractcontained no provision for indefinitelydeferring delivery. Great Plains,because of financial trouble, was forcedto merge with Aurora Co-op Elevator.The settlement money will be used topay off any outstanding debts of GreatPlains. Any remaining funds will bedivided among former customers.

A similar case involving 10 farmerswho reneged on their contracts in 1996with North Central FS, in Hampton,Iowa, is being appealed to the IowaSupreme Court. The Franklin CountyDistrict Court awarded the cooperative$3.18 million in damages. Both partiesagreed to the amount so it could formthe base of the appeal case. Claimsagainst another farmer were dismissedafter he and North Central reached asettlement.

Co-ops Blend Feed LinesIn a further consolidation of their

farm supply businesses, Land O’Lakesand Farmland Industries have formeda joint venture, called Land O’LakesFarmland Feed LLC, to consolidateall aspects of their feed businesses.Annual feed production will be about9 million tons and, based on 1999sales, will have initial sales of about$1.6 billion. The venture will be gov-erned by a management committeehaving an equal number of representa-tives from each cooperative. It will bemanaged under contract by BobDeGregorio, vice president of theLOL feed division. The venture willcreate North America’s largest live-stock feed company. Products sold willcarry current trademarks and brandnames used by each cooperative.

USDA fruit buys help TVG California’s Tri Valley Growers

(TVG), currently operating underChapter 11 bankruptcy protection, gota boost in the form of $9.1 million incanned fruit purchases by the U.S.Department of Agriculture. The cansof mixed fruit and peaches were ear-marked for USDA’s domestic food


N E W S L I N E

Photo courtesy Florida’s Natural Growers


assistance programs. The cooperativeis buying only 70 percent of its mem-bers pear crop, 85 percent of theirpeaches and 33 percent of their toma-toes due to an unexpected reduction inits operating loan.

USDA also has committed to buytomatoes from TVG to ease the finan-cial strain on the cooperative’s 500grower-owners. TVG’s three tomatocanneries remain shut under the bank-ruptcy protection program.

In a related development, CaliforniaCanning Peach Association’s tree-pulling program has removed 1,000acres of peach trees from production.Members were paid $160 per ton fortheir average production, with pay-ments capped at $3,500 per acre. Theaim was to prevent a glut of peaches onthe market, particularly when TVG,the intended fruit recipient, has cutproduction.

The Federal Land Bank Associationof Yosemite is providing $8 million inlow-interest loans to its borrowers whoalso are TVG members and to otherTVG members who qualify for a loan.

TVG will use its $270 millionfinance package to cover part of the$400 million it owes to more than 1,000creditors, with the rest used to processfruits and vegetables this season.

Glickman named ‘HonoredCooperator’

National Cooperative BusinessAssociationhas awardedU.S. Agricul-ture SecretaryDan Glick-man its hon-ored coopera-tor award.Participatingsponsors wereCoBank,LandO’Lakes,Kansas Coop-erative Coun-cil, Federa-tion of

Southern Cooperatives, National Rural

Electric Cooperative Association andNationwide Insurance. Glickman wascited for his work in promoting andsecuring resources for cooperativedevelopment. Under his leadership, theU.S. Department of Agriculture hasincreased funding for the Rural Coop-erative Development Grants program,thus providing critical help to groups topromote and support new and existingcooperatives.

Southern States expands aquaculture business with NMFS fisheries loan

With an eye toward a greater pres-ence in the food industry, SouthernStates Cooperative (SSC) at Richmond,Va., has received a $10 million loan toexpand its presence in the aquaculturebusiness. The loan came from theNational Marine Fisheries Service(NMFS), an agency of the U.S.Department of Commerce’s NationalOceanic and Atmospheric Administra-tion. Program Director Brian Squyarssaid SSC “will use most of the moneyto help farmers finance state-of-the-artclosed systems for tilapia productionthat we have been developing for sever-al years. Construction of a fingerlingnursery and a processing plant willaccount for the rest.”

Tilapia, also known as St. Peter’sfish, is a popular, high-protein, low-fatfish known for its mild, white-meat fil-lets. NMFS Director Penny Dalton saidthe SSC program was a way to encour-age environmentally sound aquaculture.“About 30 percent of the seafood theworld currently consumes is producedthrough aquaculture. We are lookingfor ways to encourage U.S. productionthat expands sources of healthy seafoodand also could help ease the strain onwild stocks.”

The world fish catch in oceans andinland waters has increased more thanfive-fold since 1950 and reached 93million tons by the mid-1990s. Thatdemand will rise to an estimated 115million tons annually by 2010. Howev-er, only a small increase in the wild har-vest is predicted because many of theworld’s major fishing grounds arestressed and stocks of fish are overhar-

vested. Aquaculture — the controlledcultivation of finfish, shellfish andaquatic plants — will have to take on anexpanded role if demand is going to bemet in the next decade.

SSC currently has 28 independenttilapia grow-out facilities in operation,under construction or on the drawingboard in southeast Virginia, northeastNorth Carolina and southern Georgia.SSC’s goal is to expand the program’savailability beyond the initial locations asbusiness conditions permit. Though itsFarmer’s Catch Division, SSC completedthe development work Aquaculture canhelp protect farm income through cropdiversification and can supplementincomes threatened by low commodityprices, plummeting demand for tobaccoand weather-devastated crop yields.

Participating farmers will purchase a6,000-square-foot production facilitythat is constructed on a five-acre farmplot. Producers supply labor (about twohours per day) and utilities and are paidpart of the wholesale farm-gate price,based on individual contract terms. SSCprovides the fingerlings, feed, technicalexpertise, training, grow-out facilities,insurance and financing plus transporta-tion, harvesting and marketing.

N.Y. grape co-op enters marketing pactWestfield Maid Grape Cooperative

at Portland, N.Y., has signed a 25-yearmarketing agreement with CliffstarCorporation. All Concord grapes con-tracted with Westfield will be deliveredto Cliffstar, which dominates the pri-vate-brand segment of the market. Itssales have almost doubled in the past

Agriculture SecretaryDan Glickman, withUnder Secretary forRural Development JillLong Thompson lookingon, receives the HonoredCooperator award. Photocourtesy NCBA

five years. The president of the 60-year-old cooperative said the corporation’s“willingness to commit to both the 25-year contract and to annual price nego-tiations will be important in stabilizingthe Concord grape market.” The West-field cooperative is one of the oldest inthe Lake Erie grape belt.

Select Sire Power formed Higher member returns brought on

by reduced duplication and improvedmarkets are expected from the merger

of a pair of artificial insemination (AI)cooperatives. Sire Power Inc.,Tunkhannock, Pa.., has merged withVirginia-North Carolina Select Sires tobecome Select Sire Power, part of theSelect Sires federation based at Plaines,Ohio. The merged cooperative servesproducers from New England and NewYork and along the east coast to Flori-da. Merger talks began five years ago.

“With the fiscal efficiencies we gain,Select Sires will be the most price-com-petitive A.I. organization,” said David

Thorgan, Select Sires general manager.“We will be able to lower our collectivecosts and, in turn, increase returns toour member patrons.” The Select Siresfederation will offer a 40-percentexpansion in sampling capacity, using360 bulls per year, believed to be thepool largest in the United States.

Lamb co-op conducts equity driveHaving completed a business plan

and identified markets for premiumand natural lamb, Dakota Lamb Grow-ers Cooperative embarked on an equitydrive in three states in September. Thecooperative will hire a chief executiveofficer and begin selling lamb productsin niche markets. The cooperativeattracted 126 grower-members fromNorth and South Dakota, Minnesotaand Montana when it formed in Aprilof 1999. Each initially invested $100 tobecome members. North Dakota’sAgricultural Products Utilization Com-mission, area banks and other organiza-tions also have made contributions.

NorthStar expands servicesNorthStar (dairy herd improve-

ment) Cooperative Inc., at Lansing,Mich., will expand services to new Wis-consin members following a favorablemerger vote by the Fox Valley DHICo-op, Appleton, Wis. Mike Bills,NorthStar general manager, said themajority vote “showed their strongsupport in these organizations becom-ing more value-driven. We feel thiscontinues to build on our long-termstrategic vision of being a total serviceprovider to our owners.”

Fox Valley had about 300 membersand operated a milk analysis lab whichwill now serve NorthStar customers. FoxValley customers will be issued one shareof voting common stock or 20 shares ofnon-voting preferred stock. To be eligiblefor either stock offering, a Fox Valleymember must use the association’s ser-vices, including DHI testing, for anotheryear. Those qualifying will be issued stockon June 1, 2001. Meanwhile, BioStarResearch, a subsidiary of NorthStar, isworking to develop a complete animalhealth testing program.


“Wags and Whiskers” is a new publication of Tennessee Farmers’ Cooperative,which will provide consumers with information on pet-care products, from fleacontrol to pet food. About 25,000 copies are being printed annually to be used asan in-store sales tool, and for sales staff to leave with farmers when making housecalls. The inaugural issue, above, is 31 pages, but next year’s edition should beconsiderably larger.


NorthStar is one of 10 regionalcooperative members of the SelectSires federation. In another develop-ment, North Star has been approved bythe American Embryo Transfer Associ-ation to export embryos internationally,with no restrictions.

Frozen dough co-op boostsproduction

An industrial line of equipmentinstalled at Value-Added Products,lva, Okla., has increased its produc-tion capacity from 3,000 pizza crustsper day to 4,400 per hour. Plans arebeing made to add a third shift by theend of the year and to increaseemployment to 70 people. Theagribusiness is owned by 750 wheatproducers and investors and useswheat for the pizza crusts.

Pasta plant lender namedFarm Credit Services (FCS) of

North Dakota has been named as leadlender for Semolina Specialties, a coop-erative planning to buy a pasta plant atCrosby, N.D. The cooperative willmake specialty shaped and flavored pas-ta. FCS will disseminate information,prepare papers and maintain open linesof communication between the compa-ny and lending agency. FCS has been alender for other value-added coopera-tives throughout its operating territory.Half of the needed funds will comefrom member stock purchases and therest from local lenders, with help fromstate and federal government agencies.USDA Rural Development is providingan 80-percent loan guarantee.

Caspers named interim leader atMinn-Dak

Minn-Dak Farmers Cooperative hasappointed Steve Caspers as interim pres-ident following the retirement of LarrySteward, the cooperative’s president andchief executive officer since 1990.Caspers has been executive vice presi-dent and chief financial officer since1985. He joined Minn-Dak in 1974 as anaccounting supervisor. He is also presi-dent of Minn-Dak Yeast Co. and serveson the boards of United Sugars Corpo-

ration and Midwest Agri-Cooperatives.The two marketing cooperatives areowned by Minn-Dak and other coopera-tives. Krabbenhoft has appointed a com-mittee of directors to search for perma-nent president candidates.

Diamond buys Berner nutDiamond of California, the Stock-

ton-based walnut marketing coopera-tive, has purchased Berner Nut Co. ofIllinois. The purchase is expected toadd $50 million to the cooperative’sfiscal 2001 sales. The pact makes Dia-mond the nation’s leader for in-shellnut sales to consumers. Meanwhile,plenty of Diamond’s walnuts werepresent at the summer Olympicgames in Australia, just as there willbe at future Olympic games through2004. A spokesman for the Salt Lake

Olympics Committee, hosting the2002 winter Olympic games, said Dia-mond products would figure promi-nently in the recipes five dozen chefswill use in preparing meals for theathletes, sponsors and spectators.

Kelley succeedsWebb asGrowmarkpresident

Glenn Webb,chairman of theboard and presi-dent of GrowmarkInc., Bloomington,Ill., and a strongadvocate of coop-erative education,has retired, endinghis nearly 20-yeartenure as a Grow-mark officer. Hewill continue toremain active onthe boards ofCoBank andArcher DanielsMidland. In April,Webb was induct-ed into the Coop-erative Hall ofFame.

Dan Kelley, agrain farmer fromNormal, Ill., waselected to succeedWebb as chairmanand president for aone-year term.Kelly has been on

the board since 1995 and was one oftwo vice chairmen for the past twoyears. He earlier served as a director ofEvergreen FS Inc., a Growmark mem-ber company, and as a director at FirstFarm Credit Services of Bloomington,and as chairman of Agribank FCB at St.Paul, Minn. He has also been active inthe Ag Guild of Illinois, a group offarmers seeking ways to capture addedvalue from the commodities they pro-duce. Kelley farms 2,080 acres.

Growmark showed a dramatic busi-ness turnaround during fiscal 2000. It

Diamond of California walnut products were a popular item on theathletes’ menu at the Sydney Olympics and will also be featured infoods served at the upcoming winter games in Salt Lake City.

Glenn Webb (left) receives Cooperative Hall of Fame Award fromGrowmark CEO Bill Davisson at the National Press Club inWashington, D.C. Photo curtesy of NCBA


will pay $10 million in cash and stockpatronage to its member co-ops. Esti-mated after-tax earnings were $10 mil-lion, a major improvement on the 1999loss of $9.9 million, caused by thedepressed farm economy and the low-est commodity prices in 20 to 30 years.The change was attributed to cuttingoverhead costs by $13.8 million since1998, as well as to operating improve-ments and increased sales of $180 mil-lion to reach $1.3 billion.

The cooperative’s business strategy isto increase sales $500 million over thenext five years. Toward that goal, Grow-mark has expanded with agronomy andenergy sales beyond its traditional terri-tory of Illinois, Iowa, Wisconsin andOntario into Nebraska, Kansas, Indiana,Ohio and Michigan. Grain division vol-ume was up 5.6 per cent, focusing onspecialty programs aimed as both pro-cessing and export markets. For the 14thconsecutive year, MID-CO Commodi-ties, a hedging and market advisory ser-vice for member companies, will pay$625,000 in patronage refunds based onincreased earnings of $974,000.

Riceland completes trade with Iraq Riceland Foods Inc., at Stuttgaart,

Ark., sold 1 million bushels of rice val-ued at $5 million to Iraq in a food-for-crude exchange. It was the first Ameri-can rice sent to Iraq since internationalsanctions were imposed a decade ago.The cooperative recently shipped 20tons of rice to Guantanamo, Cuba, tohelp residents suffering from adrought. Dick Bell, Riceland’s presi-dent and chief executive officer, saidthat in addition to helping people witha food shortage, the shipment will helpthe cooperative if trade restrictionsagainst Cuba are lifted.

In other Riceland news, K. DanielKennedy has been named the new exec-utive vice president and chief operatingofficer. He will focus on the day-to-dayoperations of the cooperative. Mostrecently he was vice president of NorthAmerican markets at Monsanto Co.

LOL, DFA join Dairy.ComTwo major dairy marketing coopera-

tives, Dairy Farmers of America andLand O’Lakes Inc., are among initialinvestors in the new Internetwebsite called Dairy.com, to beused for trading milk withinthe dairy industry. Thebusiness-to-businessexchange is expected tolower costs by bringingwidespread buyers and

sellers together and reducing paper-work. The exchange is slated to openApril 1, 2001, with live trading of milk,cream and other commodities. Althoughthe founding members are financing thestartup, the exchange will be open toany producer or dairy industry company.The group is looking for a chief execu-tive officer for the business. A headquar-ters site has yet to be selected.

Calif. co-op/community parley slatedThe University of California’s Cen-

ter for Cooperatives will sponsor itsannual cooperative and communitiesconference Nov. 17-18 at PreservationPark in Oakland.

The program is aimed at bothexperienced and new cooperatorswho will share cooperative successstories. Conference topics will coverdirector education, accredited legalcourses and innovations in coopera-tive development. For further infor-mation, check the center’s web site:http://cooperatives.ucdavis.edu.

DFA returns $20 million in equityA $20 million equity-retirement

package — including $10 million tofully retire the equities of 9,300 inac-tive members of predecessor coopera-tives — has been announced by DairyFarmers of America (DFA), the nation’slargest dairy cooperative. Those equi-ties covered marketings with the coop-eratives before 1991. DFA — createdby the consolidation of four regionaldairy marketing cooperatives — beganoperating on Jan. 1, 1998.

Charles Beckendorf, chairman of theDFA finance committee and a dairymanfrom Tomball, Texas, said the new coop-erative wanted to return equity of formermembers in a timely manner so that pre-sent equity is supplied by active mem-bers. The board’s modified equity plancalls for all inactive accounts to be paidin the 10th year following last activity inthe account. Those who last shippedmilk in 1991 can expect full payment ofequity accounts by next August. Thosewith accounts less than 10 years old may

Blue Anchor closing operationsOne of California’s oldest fresh fruit cooperatives, Blue Anchor

Inc. at Sacramento, is closing its operations. It cited a declininggrower base, dwindling fruit volume and continued consolidationpressure on the retail and supply side of the produce industry.

Blue Anchor, which will shut down within a few months, was formedin 1901 as the California Fruit Exchange by several Sacramento tree fruitgrowers. The closure will not affect Mayflower TCLA, of Exeter, Calif.,a fruit marketing cooperative that had an alliance with Blue Anchor.


apply for early redemption at a discount-ed rate. Last year, DFA’s 24,000 dairyfarmer-members in 45 states marketed43 billion pounds of milk which generat-ed sales totaling $7.5 billion.

Ocean Spray gets boost from USDAIn an effort to bolster a cranberry

industry sagging under crop surplusesand falling prices, the U.S. Department

of Agriculture has purchased 5.5 mil-lion pounds of cranberry sauce fromOcean Spray Cranberries cooperativeat a cost of $2 million. The cranberrysauce will be distributed to the nation’sschools, food banks and other pro-grams that feed the poor.

In the face of over-production,USDA has ordered growers to cut pro-duction or dump 15 percent of the crop

this fall to stabilize prices. A spokesmanfor the 804-member Ocean Spraycooperative said the real pressure willbe on the cooperative to increasedemand through its own efforts. Pricespaid to growers have plummeted to $11per barrel from $60 two years ago.

Sunkist sells Argentine lemonsSunkist Growers has agreed to mar-

ket about 400,000 cartons of Argentinelemons in the United States this year.The fruit is coming from two principalgrowers who have given Sunkist exclu-sive marketing rights in the UnitedStates, said Sunkist President VictorLupinacci. Al Williams, chairman ofthe 6,500-member cooperative, said thepurchase was essential for Sunkist tocontinue meeting challenges andopportunities in the global market. TheCalifornia-Arizona citrus industry willproduce an estimated 20 million car-tons of lemons in the U.S. this year.

Allied Seed buys AgribiotechFuture supplies of legumes, forages

and turfgrasses for cooperative mem-bers of Southern States, TennesseeFarmers and Agway Inc., have beenassured by the purchase of certainassets of a bankrupt Nevada firm. Thecooperatives and a group of formeremployees of Allied Seed Cooperativerecently formed Allied Seed LLC. Itpurchased seed processing facilities inIdaho and Wyoming owned byAgribiotech Inc. of Henderson, Nev.

These facilities can handle about230 million pounds of product annual-ly. Allied Seed President DaveMcWilliams says research is constantlydeveloping new varieties of forages andturf seeds. Although new equipmentwill be installed in the Idaho plant,Allied Seed is already operating.

Potato growers OK dividendThe board of directors of Maine

Potato Growers (MPG) Inc., hasapproved a patronage dividend paymentof $200,000 to its members. They willreceive a dividend equal to 1.4 percentof their purchases from MPG duringfiscal 2000. The dividend will be madein a combination of cash and Class A

A C r e e d f o r C o o p e r a t i v e M e m b e r s

Editor’s note: This set of guidelines outlines how members should react to theircooperatives. It was popularized by the late Dr. Joseph Knapp in 1963 whileadministrator of USDA’s Farmer Cooperative Service. It is appropriate to reviewthem again during this year’s National Co-op Month observance. Consider sharingthis creed with members in your cooperative’s publication:

• I will keep myself informed on the affairs, problems, and methods ofmy cooperative so as to be an intelligent and constructive member.

• I will exert my influence to see that my cooperative has the best possi-ble directors and officers in terms of general competence and integrity.

• I will faithfully support my cooperative with my patronage and encour-age my friends to use it, because in volume there is strength.

• I will help build and maintain my cooperative by contributing my shareof essential capital.

• I will insist that full information be provided me on the operations andfinancial condition of my cooperative, based on accurate accountingand proper auditing.

• I will not expect miracles from my cooperative, but I will insist onreceiving from it honest values and efficient services.

• I will refrain from asking my cooperative to give me favors in the formof credit or other special services.

• I will take pride in my cooperative and use my influence to see that itassumes a fair share of community responsibilities.

• I will stand by my cooperative in its days of adversity and help protectit from weaknesses which come from prosperity.

• I will always remember that my cooperative is ME, and others likeME, and that its behavior is as reflection of MY behavior.


stock. Dividend payments of $300,000will be paid to shareholders and grower-members. Formed in 1932, the coopera-tive serves the needs of Maine potatoand blueberry growers.

Catfish processors mergeTwo catfish processors looking for

more market power have merged toform Fresh Aquaculture LLC, to beheadquartered in Hollandale, Miss.Farm Fresh Catfish Inc. merged withFarmland Catfish Processing Inc. JohnGentry, Farm Fresh chief executive,will be president of the new company.The company may also consider raisingother species of farm-raised fish or

shrimp. The Farmland Catfish cooper-ative servers catfish growers in the Mis-sissippi Delta. The joint venture willoperate out of a Farmland Catfish plantat Hollandale. Farm Fresh has fourother plants in the Delta.

Consolidated Beef formingFeedlots and individual producers

from Texas, Oklahoma and New Mexi-co have agreed to join the new Consol-idated Beef Producers, a marketingcooperative based at

Amarillo, Texas. Chairman PaulHitch, Guymmon, Okla., said thegroup seeks to match the market cloutof the four major meatpackers by secur-

ing rights to market about one-fourthof the fed cattle sold in Texas each year.

Facing an Oct. 1 deadline, the cooper-ative planned to have 1.5 million head ofcattle enrolled and to begin marketingsoon thereafter. Organizers recently dis-cussed their marketing plans to gain high-er prices with the Nebraska Cattlemen’sFeedlot Council. Traditional cattle saleshave only generated average prices, Hitchsaid, even for quality beef cattle. He saidthe cooperative seeks to enroll membersto improve their bargaining power byselling more cattle instead of smaller lots.He said the cooperative wanted to get thebest price by matching cattle to specifica-tions meatpackers prefer. ■

Correction:The article on the 65th anniversary of the Rural Electrification Administration in the July/August issue said that the REAwas initially part of USDA. Actually, the executive order, signed on May 11, 1935, created REA as an independent agency.When the permanent legislation was passed into law May 23, 1936, it continued the REA as an independent agency of thefederal government. REA was placed under USDA in 1939 as a result of the Government Reorganization Act of 1939. Withthe advent of World War II, REA headquarters was moved to St. Louis in 1942.

AGP ad wins plaudits: This advertisement developed by Ag Processing Inc, an Omaha- based soybean processing cooperative, wonfirst place honors from the Cooperative Communicators Association for the powerful, succinct message it relates regarding the “coop-erative difference” of member-owned businesses.

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