RuralCoop MayJune08 draft4 - Rural Development · 9/14/2009 · principal and interest on a loan....

Pages 8 & 11

USDA / Rural Development January / February 2011

Rura

lCOOPERATIVESCOOPERATIVES

Doing businesswith the new neighbors

By Kathleen A. Merrigan, Deputy SecretaryU.S. Department of Agriculture

n Sept. 14, 2009, we publicly launched theKnow Your Farmer, Know Your Foodinitiative, a USDA-wide effort that aims tocreate new economic opportunities andpromote healthy eating. At a time when more

Americans than ever are becoming interested in where theirfood comes from and how it isproduced, we are also seeing mid-sized farmers struggling to maintainsolvency. The Know Your Farmer,Know Your Food initiative seeks tocapitalize on this first trend whilereversing the second.

As I look back on our efforts overthe past year, it is clear to me thatthe initiative would not be what it istoday without the vibrantpartnership USDA has long enjoyedwith various cooperative businesses.Many of the co-ops highlighted ineach issue of this publication areparticularly well-suited to advancingthe goals of the Know Your Farmer,Know Your Food initiative.

Whether they take the form ofmobile slaughter units, food hubs ora myriad of others, these cooperativebusinesses are making it easier forconsumers to purchase healthy foodsand develop a relationship with thefarmers and ranchers who help put that food on their plates.In addition, because the cooperative business model makes itmore likely for wealth to remain in local communities, theseco-ops are helping rural communities maintain economicvitality.

The enduring relationship that USDA and ruralcooperatives enjoy is exemplified by the Hillside Farmers co-op in southeastern Minnesota, the recent recipient of a Small,Socially Disadvantaged Producer Grant from USDA RuralDevelopment (see page 13). The grant will help the co-op —

a partnership between new Latino farmers and establishedfarmers in the region dedicated to producing food insustainable ways — develop the network of producers andconsumers that is necessary for them to flourish.

Another example of a cooperative advancing the goals ofthe Know Your Farmer initiative is the Oklahoma Food Co-op, which began as a small buying club in 2003 with 20 localproducers and sales of $3,500 on its opening day. Today,thanks to a choreographed distribution system and an

Internet ordering program, the 200participating Oklahoma-basedproducers generate roughly$70,000 in monthly sales to amembership base that exceeds3,000.

Some consumers are notjust satisfied to know that theirfood has been produced locally.These consumers also want toknow exactly where their food wasproduced and by whom. A growingnumber of co-ops are respondingto consumer demand.

The farmer-owned PrairieFarms Dairy co-op, for example,recently held a casting call forfamily members of its producers.Winning entries of the photocompetition will be featured inpromotional material advertisingPrairie Farms products. Inaddition, the grower-ownedFlorida’s Natural orange juice co-

op includes a “meet the growers” section on its website,featuring biographies and photos of some of its members.Not only do these efforts satisfy the consumer’s thirst forknowledge, they are also helping producers generate repeatcustomers.

I look forward to the challenges and successes that awaitthe Know Your Farmer, Know Your Food initiative in 2011.Thanks in part to the enduring partnership between USDAand cooperatives across the country, I am confident that itwill be a very good year. �

2 January/February 2011 / Rural Cooperatives

CommentaryKnow Your Farmer, Know Your Co-op!

Deputy Secretary Kathleen Merrigan visitsFerolbink Farm in Warwick, R.I., where sheannounced a conservation easement, madethrough USDA’s Farm and Ranch LandsProtection Program. Ferolbink Farms isinvolved with a farmers’ cooperative that sellslocal Rhode Island potatoes — branded as“Rhode Island Royal Potatoes” — toindependent supermarkets.

Features

Rural Cooperatives / January/February 2011 3

Volume 78, Number 1January/February 2011

Rural Cooperatives (1088-8845) ispublished bimonthly by USDA RuralDevelopment, 1400 Independence Ave.SW, Stop 0705, Washington, DC. 20250-0705.

The Secretary of Agriculture hasdetermined that publication of thisperiodical is necessary in the transactionof public business required by law of theDepartment. Periodicals postage paid atWashington, DC. and additional mailingoffices. Copies may be obtained from theSuperintendent of Documents,Government Printing Office, Washington,DC, 20402, at $23 per year. Postmaster:send address change to: RuralCooperatives, USDA/RBS, Stop 3255,Wash., DC 20250-3255.

Mention in Rural Cooperatives ofcompany and brand names does notsignify endorsement over othercompanies’ products and services.

Unless otherwise stated, articles in thispublication are not copyrighted and maybe reprinted freely. Any opinions express-ed are those of the writers, and do notnecessarily reflect those of USDA or itsemployees.

The U.S. Department of Agriculture(USDA) prohibits discrimination in all itsprograms and activities on the basis ofrace, color, national origin, age, disabili-ty, and where applicable, sex, maritalstatus, familial status, parental status,religion, sexual orientation, geneticinformation, political beliefs, reprisal, orbecause all or part of an individual’sincome is derived from any publicassistance program. (Not all prohibitedbases apply to all programs.) Personswith disabilities who require alternativemeans for communication of programinformation (Braille, large print, audiotape,etc.) should contact USDA’s TARGETCenter at (202) 720-2600 (voice and TDD).To file a complaint of discrimination, writeto USDA, Director, Office of Civil Rights,1400 Independence Avenue, S.W.,Washington, D.C. 20250-9410, or call (800)795-3272 (voice), or (202) 720-6382 (TDD).USDA is an equal opportunity providerand employer.

Tom Vilsack, Secretary of Agriculture

Dallas Tonsager, Under Secretary,USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

Have a cooperative-related question?Call (202) 720-6483, or email:[email protected]

This publication was printed with vegetable oil-based ink.

p.4

04 Ownership Succession Crucial for Rural AmericaCo-ops can play role in helping keep farms and ranches in producer handsBy Bruce J. Reynolds

08 Groomed for SuccessKansas farm supply co-op adjusts to urbanizing market with new goods, servicesBy Stephen Thompson

11 Expanding Your Customer BaseKentucky supply co-op adapts to serve “mini” farms, homeownersBy Sarah Pike

13 Climbing the HillHillside Farmers Co-op helps Latino producersBy Adam Czech

14 Agriculture of the Middle: Opportunity for Co-opsBy Thomas W. Gray, Ph.D.

18 Tomato Co-ops Help Craft Better Food Safety StandardsBy Julie A. Hogeland

24 Sailing Turbulent SeasDespite volatile markets, co-ops need to look to long-term competitive advantagesBy Lynn Pitman

30 Co-op Ideas Can Help EducationBy Joe Nathan

Departments2 COMMENTARY

17 MANAGEMENT TIP

29 UTILITY CO-OP CONNECTION

31 NEWSLINE

p. 24p. 18

ON THE COVER: Gerald Schneider, a warehouseman at theLeavenworth County Cooperative Association in Kansas, loads bags ofhorse feed for a customer. Like many co-ops in urbanizing areas,Leavenworth has had to adjust its mix of products and services toadapt to a changing marketplace. Photo by Prudence Siebert

By Bruce J. ReynoldsAg EconomistUSDA/Rural [email protected]

lthough non-agricultural business isproviding an increasingshare of economicactivity in many rural

areas of the nation, succession of landownership to a new generation offarmers remains a vital issue for manyrural communities. Furthermore,independent farmers and ranchers areessential to cooperatives and othermembership organizations. Likewise,farmer cooperatives — both traditionalmodel co-ops and new generation co-ops — can help keep farms and ranchesin the hands of more producers,including more beginning producers.

Commodity programs and techno-logical change over several decades haveprovided incentives for farmers andranchers to increase the size of theiroperations, including investments inland and equipment. A parallel trend isthe greater longevity of ownership, asthe average age of U.S. farmers andranchers has risen. Taken together,these trends render the succession infarm ownership more financiallychallenging than in previous periodswhen farms were smaller, less capitalintensive and there was faster inter-generational turnover.

Many retiring farmers and ranchersremain in their homes and lease theirland to active producers. Leasing keepstheir land as an income-producing assetand a source of business for thecommunity.

When retiring producers sell their

farms and ranches, it is usually betterfor the local economy when ownershipis transferred to independent farmers,rather than to investors.

While many land investors continueagricultural production, they oftenoperate as absentee landlords. They areusually less involved in the localeconomy than are owners who reside inthe community. Where farms orranches include forestland, ownership issometimes transferred to hunters fromurban areas. These former farms andranches are typically used forrecreational hunting on weekends. Suchuses create less local economic activitythan farms and ranches that continueoperating with resident producers.

Succession planning is critical forownership transfers to youngergenerations. There are several steps in asuccession plan. Determining the


Ownership SuccessionCo-ops can play role in helping keep farms and ranches in producer hands

A

commitment of young family members,or other beginning farmers, to operate afarm or ranch is the first step. Anothermajor step in transferring ownership isa financial plan that usually involvesaccess to credit. This article reviewssome of USDA’s financial programsavailable for beginning farmers andranchers and considers policies forfinancing member succession incooperatives.

USDA programsThe Agricultural Credit

Improvement Act of 1992 begantargeting loans for beginning farmersand ranchers. Support for beginningfarmers from conservation programsbegan in 2002. In the Food,Conservation and Energy Act of 2008,this support was expanded in bothconservation payments and loan

programs. The 2008 Act also targetedsocially disadvantaged and limited-resource farmers for increased access tothese conservation and lendingprograms. In addition, USDA’s NationalInstitute of Food and Agriculture wasauthorized to initiate the BeginningFarmers and Ranchers DevelopmentProgram to provide grants for trainingand mentoring.

Since passage of the Act in 2008, idleland that is one year from beingreleased for farming under theConservation Reserve Program is madeavailable for beginning farmers. Thesefarmers can then make preparations forplanting in advance of their eitherassuming ownership or making leasepayments. In making these landsavailable to beginning farmers,participants in the ConservationReserve Program can receive payments

for two years following the expiration oftheir individual programs. Otheroutreach and support programs forbeginning farmers offered by USDA aredescribed in Economic ResearchService (ERS) Economic InformationBulletin 53.

The Farm Service Agency (FSA)administers USDA’s lending programfor beginning farmers and ranchers. Itincludes both direct lending and loanguarantees in support of borrowing bybeginning producers for buying andoperating a farm or ranch. FSA loansand guarantees are only available toapplicants who are unable to obtainloans from commercial lenders and whoare able to meet the program’s creditstandards, whether or not they arebeginning farmers.

Direct lending limits are $300,000each for either ownership or for


Crucial for Rural America

USDA photo by Stephen Thompson

6 J anuary/February 2011 / Rural Cooperatives

operating loans per applicant, up to amaximum of $600,000 if both types arefully used. L oan guarantees are madefor either ownership or operating, up tojust more than $1.1 million, withadjustments for inflation. Annualparticipation by beginning farmers andthe dollar volume of both types of loansand guarantees are reported for themost recent 11-year period in table 1.

Participation in FSA’s beginningfarmer program is trending upward,increasing from 8,109 in 2000 to 15,294participants in 2010. Beginning farmersrepresent more than 30 percent of loansmade under FSA’s farm program, upfrom 20 percent at the start of thedecade (table 1). But it should be notedthat since 2008, higher percentageshares of loans and guarantees are

reserved for beginning farmers. �eseset-aside reserves are relaxed near theend of a fiscal year if beginning farmershave not fully used the allocationsavailable (ERS Bulletin 53).

Loan guaranteesFSA loan guarantees support direct

lending to beginning farmers andranchers by the Farm Credit Systemand other agricultural lenders. FSAguarantees up to 95 percent of loss of

principal and interest on a loan. �eFarm Credit System, a producer-ownedcooperative, is the largest lender forfinancing ownership transfers tobeginning farmers and ranchers. In2009, more than 40 percent of itsbeginning farmer loans used the FSAguarantee program. Other institutionssuch as Farmer Mac, Small BusinessAdministration and state governmentsalso provide loan guarantees forbeginning farmers, but FSA is by far thelargest provider of this type of program.

A report by the GovernmentAccountability Office (GAO) in 2007pointed out that more research isneeded for better measurements of thereach, scope and success of theprogram. Subsequent research by theERS has addressed some of these

concerns. Specifically, census data wereused to develop an estimate of thebeginning farmer population in 2007.

Of those producing in 2007, therewere 305,964 that were principaloperators off arms and 446,121 thatwere classified as beginning operatorson active farms (ERS EconomicInformation Bulletin 53). Table 1reports 10,640 FSA beginning farmloans and guarantees made in 2007,which is a relatively small share of the

beginning farmer population. �esedata are a general indication ofpotential to assist more beginningfarmers in successfully establishing andsustaining farm or ranch businesses.

At a USDA farm policy hearing inSeptember 2010 in Fort Morgan, Colo.,participants from both the local farmcommunity and government concurredthat FSA lending programs forbeginning farmers are of insufficientscope to accomplish the objectives oftransferring farms and ranches to thenext generation of producers. MaryKraft, co-owner of a local farm, said:“In this age, ag producers must embracetechnology and efficiency in order tomake it, but young farmers can oftenspend all the aid they can get on onesprinkler system. �at leaves nothing toget the rest of the operation going.”Participants emphasized that theprograms need to reach far morebeginning farmers and to support morecontinuity in lending services overseveral start-up years (Fort MorganTimes, June 10, 2010).

One farm owner at the meetingdescribed a succession plan for his farmworkers whereby they gradually earnownership. Another aspect of his planinvolves mentoring these workers tohelp them gain farm management skills.Others pointed out the importance ofcontinued access to credit and high-quality succession planning for creatingsuccessful transfers of farm and ranchownership.

One way to use FSA programs tobetter meet credit needs in some casesis to guarantee loans for transferringownership in stages. Financingownership in stages more readily worksin tandem with succession planning andmentoring than a one-time, 100-percent transaction. FSA may allowloan guarantees to be applied forpurchase of partial interest in a farm orranch. In partial ownership transfers, allowners, buyer and seller, must besignatories in securing the loan.

Guarantees for rural businesses�e challenges for beginning

farmers are analogous to those involved

Table 1— FSA loans & guarantees for farmand ranch purchases and

operations, Fiscal 2000-2010 (millions of dollars)

2000 8,109 716.2 3,571.3 202001 8,003 706.6 3,168.5 222002 8,691 839.5 3,496.8 242003 8,633 851.2 3,502.9 242004 8,572 867.5 3,073.6 282005 9,592 1,030.3 3,022.9 342006 10,677 1,082.8 3,073.6 352007 10,640 1,110.8 3,133.3 352008 10,992 1,249.9 3,307.7 382009 14,523 1,587.4 4,474.4 352010 15,294 1,706.2 5,283.6 32

Number ofbeginningfarmerloans

Beginningfarmer loandollarsobligated

Totalloandollarsobligated

Percentage ofloans tobeginningfarmersYear


in transferring ownership of non-agricultural businesses. Some of thetasks in transferring family businesses tothe next generation of owner/operatorshave been discussed in previous issuesof Rural Cooperatives magazine(Jan./Feb. 2009, page 10). Whilefarmland usually continues in some typeof economical use, many non-agricultural businesses permanentlyclose after their owners retire, which iseconomically detrimental to ruralcommunities.

USDA Rural Development providesloan guarantees in its Business &Industry (B&I) Program fortransferring ownership of businesses.However, under its regulations, a loanguarantee can only be used forfinancing a total ownership transfer.This restriction protects against non-borrowing owners benefiting from loanguarantees, but there is recognition thatit inhibits effective succession planning.

Discussions are underway to haveflexibility for loan guarantees withpartial ownership transfers to either thechildren of a family business or to itsemployees when forming a workercooperative. There is also potential forrevisions in the B&I program so thatloan guarantees could be applied to thefinancing of stock transfers from thosewho are retiring to new members ofeither worker or agricultural newgeneration cooperatives.

New generationcooperatives (NGC)

Neither beginning nor experiencedfarmers will stay in business for long ifthey are not profitable. Cooperativescontribute to the profitability of manyfarmers and ranchers, andorganizational innovations in the co-opbusiness model in recent years havebeen aimed at better achieving thatobjective. One such innovation is theNGC.

Members of an NGC invest in stockshares with delivery-rights that can betransferred to others. If an NGC issuccessful, farmers have appreciatedstock shares that upon their retirementfrom the cooperative can be sold to new

members.The challenge is that most beginning

farmers, especially those with farmdebt, cannot afford to buy appreciatedshares in an NGC. In recent years,many value-added enterprises have beenfunctioning as NGCs, but have beenformed as Limited Liability Companies(LLCs). In this way, farmers have alarger market for selling shares, onethat includes non-farmer investors.Ownership and control of thesebusinesses will become increasinglyunavailable to beginning farmers, or toany farmers, for that matter.

Thus, the new generationcooperative may not become thecooperative for the next generation offarmers.

Several NGCs have establishedprograms for gradual transfers of stockshares to new members. A potential taxpolicy action to help transfer NGCs tofarmers would involve deferral ofcapital gains on stock sales to farmersbut not if shares are sold to non-farmerinvestors. A retiring farmer from anNGC would have a deferral from taxesby re-investing in stock, financialinstruments or some type of accountthat would satisfy criteria of theInternal Revenue Service.

This type of capital gains tax deferralwould parallel the Internal RevenueCode 1042, which applies to the sale ofa business to employees to form eitheran Employee Stock Ownership Plan ora worker cooperative. There is also aspecific provision, 1042(g), for anagricultural processor to obtain taxdeferrals on the sale of processingplants to farmer cooperatives.

Since it is public policy to providetax deferrals on the sale of a business tocreate either a worker or a farmercooperative, it is logical to extend thesame benefits to retiring members whenthey sell stock to new employees or tofarmers. This will help ensure thatownership remains with farmers orworkers, rather than transition thebusiness to non-cooperative status inthe future.

Together with flexible B&I loanguarantees, a 1042 tax deferral would

make NGCs more financially attractivefor farmers and contribute to thelongevity of all types of transferrablestock cooperatives.

Future ownership of farmsThe ownership of farms in the future

may take a variety of forms other thanthe tradition of a single family as soleproprietor. Some of the high-valuefresh product farms near urban areasprovide ownership shares to theircustomers. For some of the largecommodity farms that are oftenrelatively far from major urban centers,various methods of shared ownershipand partnerships are being applied tomanage the high cost of farming. Inaddition, commodity farmers willincreasingly need to make investmentsfor delivery rights to food, fiber or bio-energy businesses.

Future needs for USDA lendingprograms to assist beginning farmers toachieve ownership in farms and rancheswill likely persist. Making these start-upagricultural enterprises sustainable mayinvolve more lending programflexibility to support gradual ownershiptransfers. In addition to lending,training on succession planning andoffering supportive tax policies onownership transfers can have a positiveimpact. Lastly, cooperatives — bothtraditional and NGC — can make asignificant contribution in helpingbeginning farmers create a financiallysustainable enterprise.

References• Barker, Dan. Producers: USDA does not do enough,Fort Morgan Times, Fort Morgan, CO, Sept. 10,2010.

• USDA, Economic Research Service. BeginningFarmers and Ranchers (Economic InformationBulletin Number 53) May 2009. Available athttp://www.ers.usda.gov/Publications/EIB53/EIB53.pdf.

• USDA, Farm Service Agency. Farm LoanPrograms. Available athttp://www.fsa.usda.gov/FSA.

• USDA, Rural Development. Rural Cooperatives,“Building a Bridge for Ownership Succession,”Jan-Feb 2009.

• U.S. General Accounting Office. BeginningFarmers: Additional Steps Needed to Demonstratethe Effectiveness of USDA Assistance, GAO-07-1130, Washington DC: Government PrintingOffice, Oct. 2007. �


By Stephen Thompson, Assistant Editor

Editor’s note: Many farm supply co-ops have had to shut their doors when large-and medium-size production farms have been replaced by hobby farms and housingdevelopments. Other co-ops, such as the operations featured below and on page 11 ofthis issue, have learned how to supplement their traditional farmer business withsales and service aimed at the “new neighbors.”

hat do you do if you’re a small rural service co-op and thearea in which you operate is getting less rural?

That’s the question that faced the Leavenworth CountyCooperative Association in Kansas, which operates in anarea that used to be farm country but has become

progressively urbanized during the past 20 years. The cooperative faced thechoice of becoming increasingly irrelevant, or changing the way it doesbusiness. It chose the latter course and has found a way to attract a newcustomer base while still serving its traditional market.

Leavenworth was founded in 1963 as a traditional service cooperative toprovide fuel, agricultural chemicals, seed and other necessities to memberfarmers, filling an important niche in the local agricultural community. Ithad a filling station and convenience store at its headquarters, as do manysimilar rural cooperatives.

However, the situation began to change in the 1980s, says Roger Brandt,a farmer whose family has been with the co-op from the beginning.Drought and high fuel prices coincided with a boom in demand forresidential lots, he says, as people from nearby Kansas City sought to live inthe outer suburbs.

Many farmers decided they’d be better off taking advantage of thatdemand. “A lot of guys would sell 80- and 160-acre parcels to developers,”Brandt says. “It changed the whole community.”

Cropland replaced by housingSoon there were housing tracts where there had been row crops. Hog and

cattle operations were replaced by horse stables. The cooperative’straditional business began to dry up. By 2004, says General Manager SueElniff, the corner on which the co-op’s headquarters stood — whichoriginally was “out in the country” — was part of an urban area. Theagronomy department had been moved eight miles away into more ruralsurroundings in 1997, but the headquarters property presented a problem.

“It’s hard to run an ag co-op when you’re sitting in a residential area,”Elniff says. “The property is on a very high-traffic corner, so we had todecide whether to sell it to realize its value, or to exploit its advantages.”

Clockwise from upper right: The addition of a petgrooming service has been a successful adaptationto the Leavenworth County Co-op’s urbanizingmarket. Here, Cassandra Elkins clips a customer’sdog. Josh Demaranville, a co-op truck driver,attaches a propane hose to his truck at the co-op’smain bulk plant in Lansing, Kan. Patty Delpercio callsthe feed warehouse to request bags of milo for acustomer. All photos by Prudence Siebert

W

Kansas farm supply co-opadjusts to urbanizing marketwith new goods, services

Groomed for Success


As Brandt puts it, “They had to decide whether to go withthe flow or do something different.”

In 2002, part of the property was sold as the site of a newgrocery store. The rest, including a 24-hour filling stationand convenience store, was retained. With many new horsefarms in the area, the co-op decided to include tack and otherequine-related items in the farm store section, and to offergardening supplies. At the same time, it opened a pet suppliesdepartment, which soon began to do well.

In 2008, the property was remodeled, combining twoadjacent buildings into one larger space. A small kitchen andcafé with four booths, called “Good News,” was built in, anda pet grooming business was started.

The tack shop has languished in recent years, apparentlydue to the dip in the economy. “People are staying away fromlarge animals,” Elniff says. “We’re just not getting the horse-hobby traffic.”

One the other hand, the pet business has taken off.“Customers who are having a hard time financially will stillspend money on their pets. And 50 percent of the peopleliving around here have pets.”

The pet grooming business has proved to be a real moneymaker. The cooperative has three groomers working for it,with the service available six days a week, 12 hours a day.Even so, its popularity means customers have to makeappointments up to three weeks in advance.

Elniff says the service also helps sell more pet food andsupplies. People hang around the co-op while their pets arebeing washed and groomed, giving them the chance towander aisles packed with pet goodies of every description.

TV advertising draws businessThe café, open for breakfast and lunch, is also making a

difference, and there are plans to expand it with additionaltables. “We serve a lot of breakfasts, especially,” Elniff says.

One of the biggest obstacles the transformed co-op store

faced was a perception on the part of some members of thepublic that the cooperative only sells to members.

“Once you get them in the door, you can offer them allkinds of things,” says Elniff. “But you have to get them in thedoor.” The co-op’s answer was a television ad campaign, firstaired in 2009. Five spots resulted in a notable increase intraffic, as did a follow-up spot in the summer of 2010 toutingthe café. The co-op has also aired some radio advertising.

Meanwhile, the cooperative’s more traditional businesscontinues. Five trucks run full time delivering propane andbulk fuel to urban and rural customers. A new fuel salesmanhas successfully gone after new business, says Brandt. “Andhe makes sure you don’t run out.”

Seed and farm chemicals have also seen increased sales:“The agronomist was given the room to take the initiative,and he’s done it,” says Brandt. “He and his employees aredoing a heck of a job.”

Leavenworth’s experience offers hope for other smallsupply and service co-ops caught in similar circumstances. Ifchanges in your neighborhood hand you a lemon, makelemonade. �

“Once you get them in the door, you canoffer them all kinds of things,” says co-opmanager Sue Elniff (left). The co-op alsoprovides some part-time clerk jobs for highschool students (below).

By Kara Keeton, Keeton Communications

The Kentucky Center for Agriculture & Rural Development (KCARD) fosters business success and growth bydeveloping and delivering technical assistance and by providing education opportunities for agriculture and ruralbusinesses seeking to enhance their economic opportunities in and around Kentucky. For more information,contact Larry Snell at 270-763-8258 or [email protected].

n Marshall County, Kentucky, when you hear someone talking about the co-op, it isn’ta commodity receiving station he or she is referring to. It is the long-standing farmsupply store. During the 70-some years it has been in operation, the Marshall CountyCo-op has moved around the area and gone through several marketing changes, butits status as a member-based cooperative remains.

Building a c ooperativ eThe Marshall County Co-op — the official name is the Marshall County Soil Improvement

Association — began in 1935 as a part of a program between the Tennessee Valley Authority (TVA)and the University of Kentucky Extension. The objective was to test newly developed fertilizersproduced by TVA.

The local organization incorporated in 1940 and began providing agriculture supplies to farmers,along with the TVA fertilizer for testing.

In 1946, the farmer-owners and the board of the cooperative decided that there was a need and adesire to expand the farm supply services. That fall, the co-op hired a full-time manager and

Rural Cooperatives / J anuary/ February 2011 11

I

E xpanding Your Customer BaseKentucky supply co-op adapts

to serve “mini” farms, homeowners

The co-op's grand opening celebration drew a large crowd. Photos courtesy Marshall County Co-op


purchased a warehouse to accommodate the initial operationsof the supply business.

Enthusiastic cooperation from farmer-owners led to theco-op’s growth over the next 30 years. By 1975, the co-ophad grown to an annual sales volume of more than $1million, and it enjoyed a solid financial rating. The co-op hadmore than 2,300 members and operated in one of the finestfarmer-owned cooperative facilities in the entire area.

The next 20 years saw a dramatic change in the area’sagricultural operations, which had an impact on the co-op.High interest rates in the 1980s led to the collapse of farmsthroughout the area, and many of those that remained werelarge commercial farms. Although the co-op suffered severalyears of losses during this period, it was able to maintain itsposition as a viable agribusiness in the area and continue togrow into the new millennium.

Cooperative in transitionIn 2005, Tim Ferrell, the co-op manager, began looking to

the future. He was seeing more and more changes in hiscustomer base as the agriculture industry continued tochange.

“We had large commercial farmers who were going tolarger farm stores or direct to a dealer for their needs,”explains Ferrell. “What we were seeing in our store weremore and more mini-farmers, people who own 5, 10 and 20acre parcels with a few animals and a garden.”

One day, while Ferrell was having lunch with LincolnMartin, the Marshall County Extension agent, Martinsuggested that KCARD might be a good resource to help inthe planning for the future of the co-op.

Ferrell contacted KCARD and, after an initial meetingwith staff, it was determined that a business management andoperational audit would be the first step in the collaboration.

“KCARD came in and spent three days with our staff andcustomers, reviewing information, doing competitive

shopping in the area — it was just much more than Iexpected,” says Ferrell. “Then they presented the results toour board on that Thursday, it was a great experience.”

Beyond the efficient and thorough evaluation process,Ferrell was impressed by the information KCARD presentedin the report. Ferrell, a former stock broker, felt the financialanalysis was a key component in explaining businessrecommendations to the board.

“A cooperative is a business, and for a business to surviveit has to make money,” says Larry Snell, executive director ofKCARD. “In a business management operational analysis, wetry to show this to a board by explaining the finances of thecooperative.”

Ferrell says the co-op has used the analysis results toimprove on pricing at the store now that the staff has a betterunderstanding of the price points for the main products. Ithas also allowed them to branch out beyond the traditionalitems carried in the store, to meet the needs of the changingclientele.

“The one thing that was extremely helpful for me was thatthe KCARD study showed that our cooperative had majorname recognition in the area,” said Ferrell. “We had beenconsidering a name change, and these results kept us fromcommitting [a major error].”

Community cooperativeFerrell has continued to work with the KCARD team over

the last several years as he and the staff at the co-op havetransitioned from the traditional commodity cooperative toinclude a lifestyle market to reach out to an urban customerbase.

In 2009, the retail market was expanded and renovatedallowing the co-op to meet the growing demands from itsnew urban customer base.

“I think our farmer base is only 20 percent of ourcustomer base today; this is a big change,” says BettyTravghber, the co-op bookkeeper. “Our gift department andour pet department are probably two of our biggest andgrowing departments.”

While the co-op has diversified its products and expandedthe retail market, it continues to focus on providing servicesto those individuals who were the foundation of the business:area producers.

The co-op is still the source of information for theagriculture community. The hay bulletin posted at the storecontinues to be the best place in the area to find hay for sale.

Special educational seminars and demonstrations are heldthroughout the year to provide a service to the community.There is also Ferrell’s daily agriculture radio show on a localradio station that mixes agriculture news and entertainment.

“Meeting the needs of the co-op’s members is the mainfocus of the co-op,” explains Ferrell. “It has also beeninstrumental in the survival and is critical to the growth ofthe co-op. �

Rick Carrico (left) and Brad Fest of Land O' Lakes Purina Feed helpedout at the grand opening of the co-op's remodeled store.


By AdamCzechUSDA Rural DevelopmentMinnesota State Officee-mail: [email protected]

he Hillside FarmersCooperative has somebig goals for L atinofarmers in southeasternMinnesota. With the

help of a Small, Socially DisadvantagedProducer Grant (SSDPG) from USDARural Development, Hillside FarmersCooperative has taken another steptoward reaching some of those goals.

Hillside Farmers Co-op includesL atino immigrants and established

farmers in southeastern Minnesota whoare committed to producing sustainablefoods and building healthiercommunities. Immigrant families arematched with established area farmerswho rent out their land for gardeningand poultry production.

The SSDPG will help the co-opconduct a feasibility study, develop a

business plan, provide training and helppay for other related expenses indeveloping a network of L atino-ownedbusinesses in the free-range poultryindustry. The primary objective of theSSDPG program is to provide technicalassistance to small, socially disadvan-taged agricultural producers througheligible cooperatives and associations ofcooperatives. This is the first SSDPGawarded in Minnesota.

Dev eloping c ompetitiv esustainable farms

Many L atino families have strongbackgrounds in rural living and

Hillside Farmers Co-op helps Latino producers

The Hillside Farmers Co-op is helping Latino immigrants rent farmland for gardening and poultry production. Above: Maria Sosa and her family worktheir garden plot near Northfield, Minn. Photo by Natascha Shawver. Below: (from left): Reginaldo Haslett-Marroqui, Todd Prink and Eladio Carpio-de-Evans. Photo by Morgan Sheff Photography, courtesy Edible Twin Cities

T

continued on page 37

By Thomas W. Gray, Ph.D.Rural SociologistCooperative ProgramsUSDA Rural Development

Editor’s note: The author welcomesfeedback from readers on this article and onbroader topics of family farm survival.Their thoughts may be used in futurearticles and can be e-mailed to:[email protected]. Supportiveresearch is referenced by author’s name anduniversity affiliation.

uring the past severaldecades, U.S. farmnumbers have increasedin two farm categories:those with annual sales

of less than $2,500 and those with salesof more than $1 million (see chart, page20). Thus, when measured by sales,only the very largest and very smallestfarms have increased in number. Thistrend reflects the emergence of twoparallel food and agriculture systems inthe United States.

One farming system produces hugevolumes of commodities into avertically integrated, global andcorporate food system; the other iscomprised of much smaller and morediverse farms that are orientedprimarily to metro-local and regionalmarkets. These small farms cater toorganic markets, community-supportedagriculture associations (CSA), farmersmarkets and farm stands, and otherdirect marketing and local outlets.

Between these two extremes are“farming occupation” farms, or theagriculture of the middle (AOTM) —also referred to as “the disappearingmiddle.” AOTM farms tend to becommodity based with larger outputsthan “metropolitan-local” units, but aresmaller than their mega-farmindustrialized cousins.

Many of these AOTM farms arestruggling for survival, in part becausethey produce large volumes of a low-value, homogenous product (acommodity), while competing directlywith the massive-scale industrializedfarms. Further, their large volumes and

distance from metropolitan areas tendto preclude entry into specialized“local” metropolitan markets.

Farm loss hurts rural townsThe loss of these AOTM farms has

direct implications on the sustainabilityof rural communities. A series of studieshas found that small- to mid-size farmsgenerally have greater positive impactson nearby communities than do largeindustrialized farms.

Such measures as median familyincome, college education andparticipation in local civil society wereall found to be greater in communitiessurrounded by a base of small- to mid-size farms, though the most recentstudies find a mix of small and largefarms having the greatest impacts (RickWelsh, Clarkson University). Thesefindings have been replicated numeroustimes by various anthropologists andrural sociologists (Fred Buttel, OlafLarson, Gilbert Gillespie, and TomLyson of Cornell University; LindaLobao, Ohio State University; andWalter Golschmidt, UCLA).

However, shifts in consumer fooddemand may be opening expandedmarket potential beyond commodityproduction. A series of studies hasdocumented significant shifts inconsumer demand toward organic,environmentally sensitive and/or locallyproduced foods. These studies arebroad ranging and include researchconducted in Missouri, California,Colorado, Oregon, Washington, Ohio,Tennessee, Illinois, Indiana, Iowa,Kansas, Minnesota, Nebraska andWisconsin, as well as national studies bythe Hartman Group, Health Focus andWhole Foods.

Richard Schneiders, CEO of SyscoCorporation, reports that his customersare “wanting memorable, high-qualityfood, produced with a farming storythey can support [i.e., family farms],and brought to them through a supplychain they can trust.” This underscoresa growing preference among manyconsumers for local and “mid-tier-sized” companies, rather thanmultinational corporations. As thesenew markets open, they represent

greater potentials for smaller scaleproduction.

Commodity production, on the otherhand, lends itself to output on anindustrial scale. The production/marketing strategy is one of largevolumes with thin margins. Commodityfarms with smaller volumes (AOTMs)simply cannot compete, and thousandsdrop from financial viability each year.They do not make a sufficient returnper unit of output over their totaloutput to survive.

Niche markets harderto industrialize

Differentiated niche products are notas easily industrialized as arecommodities. The scale advantages ofindustrializing production are moremuted. Production/marketing emphasesare on what some term “craft-growingsystems” (Julie Guthman, University ofCalifornia-Santa Cruz) and, in somecases, products are specifically producedand branded as “family farm raised.”

George Stevenson (University ofWisconsin), Fred Kirshenmann (IowaState University) and others suggestAOTM survival will depend on movinginto this emerging “alternative” foodarea. Stevenson has developed a flow-


D Agriculture of the Middle:Opportunity for Co-ops


chart (figure 1) to help sort out thealternatives.

In this chart, the lower left quadrant(labeled the “Troubled Zone”), are theAOTM farms. For reasons specifiedabove, farms with a production/market-ing strategy of commodity output willlikely not survive. �e trends chartedon page 16 document their demise.

�e social organization of thesefarms tends to be based on a familyfarm structure (i.e. labor, managementand ownership are held under onekinship group). Individual farms maysurvive by moving into “very largecommodity marketing” (quadrant three)by buying out other farms,consolidating and seeking to produceever larger volumes of commodities.

�e surviving farms then move intothe large industrial farm category, with

all the incumbent community andenvironmental challenges and loss oftheir family farm structure. Totalvolumes will likely expand and overallmargins may “thin-out” entirely.

Rather than increasing volume ofproduction, AOTM farmers mightconsider adding value to their output bymoving out of commodity productionand into direct marketing (quadrantone). �is option might includecapitalizing on local foods from anearby metropolitan market, convertingto organic production, developing aCSA and/or entering into other directmarketing alternatives (farm stands,Internet sales, farm-to-school sales,farm-to-restaurant and otherinstitutional sales).

Unfortunately, even if AOTM farmsare close enough to a “local”

metropolitan market (and most are not),markets in general are not large enoughto absorb their large volumes of output.

Opportunity to add valueQuadrant two of figure 1, “the

opportunity area,” may represent themost likely option for the largestnumber of AOTM farms. �is arearepresents the development of value-added, value chains. However to takeadvantage of the developing“alternative” food market, Stevensonand Kirshenmann reason the valuechains must take shape as “values-based,value chains.”

“Values-based” refers to productsand production that incorporate variousorganic, environmentally sensitiveand/or locally identified food. �eygenerally incorporate various aspects of

Figure 1


economic, social and environmental sustainability.

Cooperative developmentFour cooperative examples that fit within “the opportunity

area” are Organic Valley, OFARM, Country Natural Beef andThumb Oilseed Producers Cooperative. Each of thesecooperatives markets its products by emphasizing superiortaste, health and nutritional qualities of foods produced bysmall- and mid-size farmer-members of the co-op. They alsoemphasize their members’ concerns for environmentalresponsibility in production methods and in final productcharacteristics.

As individual producers, the farmers of the middle willcontinue to struggle to survive economically, as well associally, to maintain their family farm structure. Shifting to avalues-based, value-added agriculture may hold promise andnew opportunities, given an expanding demand for high-value differentiated products.

However, like any new product initiative, marketdevelopment is required. No single farmer can take on thiskind of development. Agricultural cooperatives are social-economically positioned to facilitate this emergingopportunity with their tradition and close connection tofarmers and their communities. The production and marketdevelopment of this genre of products requires certain basictasks of purchasing inputs, local assembly, grading, packing,shipping and more. To differentiate the product and protect

it from potential competitors, complex tasks of branding,advertising, packaging, intensive processing and productmolding — as well as research and development — areneeded.

Small- to mid-size farmers can little afford to performthese functions as individuals. However, their mutualinterests as a group can be pursued with the facilitativefunctions of a cooperative. Agricultural cooperatives havebeen performing these functions for decades.

Furthermore, a rural development advantage ofcooperative organization, different from other organizations,is their member-patron orientation. Benefits flow to themembers of the organization, rather than to non-farmabsentee owners. To the extent that cooperative membersfarm locally and regionally, the benefits can flow to local andregional communities.

Historically, cooperatives have had a distinct role inseeking to keep farmers in business. Helping to shift AOTMfarmers to a more survivable quadrant of figure 1 may openup greater possibilities for farmers, their cooperatives andtheir larger communities.Author’s note: Readers may also examine the web pages of

Organic Valley, OFARM, Country Natural Beef and ThumbOilseed Producers Cooperative to see what these cooperatives aredoing in this area of development. �


By John Dilland

Editor’s note: John Dilland recentlyretired as CEO of Michigan MilkProducers Association.

efore relating myperspective oncooperativemanagement, let meprovide a brief

description of the Michigan MilkProducers Association (MMPA) andhow I became involved in co-opmanagement. MMPA is a regionaldairy marketing cooperative witharound 2,200 members in Michigan,Indiana, Ohio and northeasternWisconsin. Total annual revenues haverecently ranged from $550 million to$800 million per year. The total ishighly dependent on the price paid fornearly 4 billion pounds of milkmarketed for its members each year.

Roughly 45 percent of the membermilk is sold to fluid milk bottlingcompanies and other bulk-milkmanufacturing customers. About 20percent of the member milk is sold to amajor cheese manufacturer and theremaining 35 percent is processedthrough MMPA’s two manufacturingplants located in Ovid and Constantine,Mich. Member equity in MMPA isroughly $45 million, which will likelydouble in the next 10 years as a result ofan equity capital-retain program thatwas approved by members in 2008 tohelp finance a major capital expansionof MMPA’s manufacturing plant inOvid, Mich.

I have worked for cooperatives fornearly my entire working career.Following military service and graduateschool, I began my cooperative career

working for the St. Paul Bank forCooperatives as a credit analyst andloan officer. In the mid-1970s, MMPA

B

Management TipThe most important thingsI learned about running a co-op

Manager pursuedvalue-added strategy

During his 35 years with Michigan MilkProducers Association (MMPA), JohnDilland is credited with having helped toshape MMPA into one of the mostfinancially stable cooperatives in thecountry.

His initial challenge at MMPA was torestructure the balance sheet of thecooperative. He then helped to lead thetransition from the fluid market into ahigh-quality line of value-added dairyproducts. This move, coupled withstreamlining plant production,strengthened the overall economy forMichigan dairy farmers. While serving asthe co-op’s director of finance, Dilland helped craft one of the first dairycooperative partnerships with Leprino Foods Inc.

In 2003, Dilland was appointed MMPA’s general manager, in whichrole he fine-tuned the cooperative’s marketing structure. In 2005, anotherlandmark arrangement between Leprino Foods, Dairy Farmers ofAmerica and MMPA was signed, further solidifying the milk-supplyagreement.

Dilland was saluted by the co-op’s board for his ability to project long-range goals in a turbulent business environment, allowing thecooperative to take advantage of changing market trends withoutsacrificing MMPA’s mission to market the members’ milk to the greatestadvantage possible.

In addition to his work for MMPA, Dilland has held leadership roleswith the National Council of Farmer Cooperatives, National Society ofAccountants for Cooperatives and the National Milk ProducersFederation. He also served on the board of the Michigan FFA Foundationand the Michigan Dairy Memorial and Scholarship Foundation.

John Dilland


By Julie A. Hogeland, Ag EconomistCooperative ProgramsUSDA Rural Developmente-mail: [email protected]

ears before the Food Safety ModernizationAct was passed in December 2010, twogrower-owned cooperatives, the FloridaTomato Growers Exchange (FTGE) andCalifornia Tomato Farmers (CTF),

developed a comprehensive market-based solution toconsumer demands for safer food. These cooperativesanticipated the Act’s call for science-based minimumstandards of food safety for commodity-like produce,including updated good agricultural practices and guidancecovering production and harvesting. This article explores thehurdles these cooperatives overcame to become champions offood safety within the fresh tomato industry.

Attention to food safety is an example of how cooperativeslegitimize markets by developing rules of conduct benefitingboth producers and buyers. Early in the 20th century,Sunkist, Sun Maid and Sunsweet brought order, coordinationand predictability to produce markets described as “chaotic”by contemporaries. The cooperatives’ grades and standardsshowed members the value of what they were selling,providing leverage against unscrupulous buyers and greateraccess to credit. Through their willingness to go intouncharted areas such as food safety, FGTE and CTF havelikewise created and safeguarded a market fundamental —safe food — and given tomato growers a similar control overtheir destiny.

A key difference between the last century’s collectiveaction and now is that cooperatives are more likely to enlistthe support of others in the supply chain to attain their goals.Emphasis on cooperative “difference” and self-reliance —“doing it all” — has diminished. Cooperatives increasinglyrecognize that grower needs must be situated and solvedwithin the context of the entire supply chain. The shift fromindependence to interdependence marks a profound culturalchange within cooperatives. CTF and FTGE were stronglymotivated to streamline and clarify tomato food safety by theneeds of key foodservice suppliers, notably Taco Bell and Jack


TOMATOCO-OPS HELPCRAFT BETTERFOOD SAFETYSTANDARDS

Y

in the Box, andretailers such asWegman’s. Theresult was substantialindustry progresstoward eliminating foodsafety claims as a basis forindustry competition.

Pre-1998 food safety practicesPrior to 1998, fresh produce was regarded as raw

agricultural commodities; as such, it was not addressedby the U.S. Food and Drug Administration’s (FDA)regulation of processed foods. In 1998, FDA identifiedgood agricultural practices (GAP) for all producegrowers, irrespective of commodity, by publishing the“Guide to Minimize Microbial Food Safety Hazards forFresh Fruits and Vegetables” (U.S. FDA 1998). Theguide relied heavily on industry recommendations forwater, manure and municipal bio-solids, worker healthand hygiene, sanitary facilities, field sanitation, packingfacility sanitation and transportation issues.

At that time, paying attention to the “early” (on-farm)parts of the food-marketing chain was a relatively newconcept. In contrast, the microbial processes that ensureproduct safety in the packing of low-acid canned foodswere well understood.

Nevertheless, recurring food safety incidents indicatedthat a more intensive approach was needed. Between1996 and 2004, FDA tallied 14 outbreaks of salmonellaexposure resulting in 859 cases of food-borne illnessfrom consumption of fresh lettuce or fresh tomatoes.The industry-wide catalyst for change was a letter fromFDA, advising lettuce and tomato growers, shippers andhandlers to make food safety a top priority.

Turning pointIndustry observers cite the FDA letter as a turning

point that convinced the tomato industry it needed “newrules of the game.”

Harvard Business School analyst Michael Porter saysthat industries forced to adapt to significant cultural

change (such as consumer pressure forsafer food) will resemble new,

emerging industries. Firms in suchindustries compete to identify the

technologies and processes that willbecome the industry standard, allowing the

industry to survive and prosper. Sinceemerging industries lack critical technological

and strategic information, firms experiment withdifferent approaches to product/market positioning,marketing and servicing.

Emerging industries experience heighteneduncertainty and risk because the consequences ofparticular choices may not be known for some time. Forexample, the industrializing pork industry experimentedwith different breeds to raise productivity (pigs per sowper year) and minimize the potential for PSE syndrome— pale, soft, exudative (watery) meat resulting fromanimals that could not stand the stress of confinement.

Initially, the produce industry seemed to find thecredibility it needed through voluntary third partycertification (TPC) providing production processverification through periodic auditing. The public orprivate organizations conducting TPC used scientificstudies and technical requirements to interpret the 1998FDA GAPs. By 2005, TPC seemed to be an importantemerging institution for enforcing both private andpublic standards.

Nevertheless, imprecise, conflicting and subjectiveresults accumulated over time, suggesting that theindependent verification of process, product quality andsafety claims offered by TPC might be subject toconflicts of interest. It appeared that the best that couldbe said was that food was either very safe, safe enough,barely safe or that safety could not be determined.

Retailers drove the adoption of third partycertification to ensure that suppliers were in compliancewith the 1998 guide. Yet different interpretations of theguide, coupled with ad hoc extensions, made uniformityand consistency among TPC providers a significantindustry problem.

The existence of third party certifiers, with varying


Recurring food safetyincidents indicated that

a more intensiveapproach was needed.

claims to authority, made it difficult to identify whetherstandards were accurate and unbiased. The likelihood thatauditing was being used strategically led industryobservers to wonder whether audit outcomes wereinfluenced by whether a company was “signed on” or not.Pressure for positive evaluations undermined thecredibility of the assessments, contributing to whatobservers called “a spiral of distrust.”

“Audit mania”Outbreaks of food-borne illness in 2004 and 2006

triggered what industry observers called an “audit mania.”Retailers asked: “Can we make our standard stricter thananyone else?” Buyers seemed to believe: “If this standardis good, another will be better.”Multiple audits fostered thebelief that: “My food issafer than yours.”

Retailers,especially thosecompeting formarket share inthe emergingmarkets of China,India, EasternEurope and SouthAmerica,differentiatedthemselves by thestrictness of the “privatestandards” they adopted tomonitor food safety.

Retailers’ competitive “race to the top” based on evermore rigorous standards resembled a “spiraling food safetyarms race.” Private corporate standards fueled“increasingly aggressive on-farm management practicesdespite a more widely accepted set of standards,” said theProduce Safety Project (2010). As standards wereratcheted upwards by auditors, inspectors and other foodsafety professionals, normal production risk became high-stakes decisions.

The evolution of norms is not well understood. Onepotential explanation is that norms undergo a process ofcompetitive selection, enabling the best standard to prevail(Hayek, 1960). Tomato industry experience suggests thatconflicting standards prolonged the competitive filteringprocess.

In the decade following 1998, intense pressure toimprove food safety fostered the assumption that it couldbe accomplished without environmental consequences.Lettuce growers in California’s Salinas Valley were amongthe first to encounter normative trade-offs. For example,critical habitat for some 80 species covered by the U.S.

Endangered Species Act could be eliminated if growerschose to use bare-ground buffers free of vegetation. Yet,vegetation filters and absorbs pollutants from drainagewater and from surface water run-off that otherwise wouldreach cropland through bare ground. The Produce SafetyProject found that farmers seeking to co-manageenvironmental and food safety risks face “tremendouspressure” by auditors and inspectors to remove wetland,riparian and other habitat, and eliminate wildlife on ornear farmland. Grower efforts to protect air, water andsoil quality were reduced or discontinued as auditors andinspectors associated particular conservation practices withfood safety hazards.

The second phase of industry evolution includedincreasing awareness of the cost of multiple

audits. Growers shouldered the costof audits with conflicting

standards that put them atrisk for failing, or forgetting results that did notmake sense. Ed Beckman,chief executive officer ofCTF, saw the pain ofaudit fatigue getting tothe point where people

were ready to set asidepersonal agendas. This

provided an incentive toconsolidate and standardize (or

harmonize) multiple tomato GAPaudit forms into a common set of

guidelines — the third phase of industry adjustment.

Streamlining standardsTo establish consistency in leafy green production and

handling, Western Growers Association (WGA) supporteda national marketing agreement with growers. Theconsistency provided by a national baseline standardcould, reasoned WGA, reduce the cost of multiple auditsand criteria and potentially prevent buyers fromtightening standards beyond the national level. Without anational agreement, WGA predicted that retailers, foodservice industries and states would try to improve theircompetitive position by creating mandatory, but notnecessarily scientific, standards.

Growers began demanding science-based standards.Standards became less arbitrary as people began askingquestions such as: “Is this a best practice? What controlsare you using? What kind of practices are equallyacceptable — animal or poultry manure or chemicalfertilizer? Should I use strip or overhead irrigation? Is thewater of adequate quality? How often do you want me totest it? How far should we be from a grazing area?”


Growers began demandingscience-based standards.

Better industry metrics emerged from thisprocess of determining “how many, howoften, how far?” When science was lacking,the experience of people who had “walked thefield” was used. One outcome of this processwas the California Leafy Green ProductsHandler Marketing Agreement and a similarprogram in Arizona.

Although the agreements were notdesigned for tomatoes, buyers liked themetrics, so standards for green leafyvegetables were indiscriminately applied totomatoes. From this, tomato growers realizedthey needed to work harder to let buyersknow about how much they had improvedtraceability and introduced scale-neutralprocedures (those not affected by farm size)covering worker hygiene, adjacent land use,water quality and equipment sanitation.

Cooperatives transformtomato food safety

The Fresno-based California TomatoFarmers (CTF) and Maitland-based FloridaTomato Growers Exchange (FTGE) representmore than two-thirds of the U.S. domestictomato supply. Formed in 1974, the FTGE isa cooperative of 20 first handlers of tomatoesfrom Central and South Florida. Florida is thelargest producer of fresh market roundtomatoes in the United States. Total annualvalue at the farm-gate level ranges between$400-500 million, depending on tomatoprices.

Prompted by the 2004 FDA letter toproduce growers, FTGE developed tomatoGAPs (T-GAPs) and best managementpractices (BMPs) in 2006, in conjunction withproducers, the University of Florida’s Instituteof Food and Agricultural Sciences, the FloridaDepartment of Agriculture and ConsumersServices and FDA. Florida was the first stateto develop a comprehensive food safetyprogram with mandatory governmentinspection and auditing of tomato production, handlingand packing.

California also drew on scientific research to formulateand update standards. In 1999, the California tomatoindustry and the California Tomato Commissionconducted food safety research through the University ofCalifornia, Davis. The group also created an advisorypanel of government agencies, customers, universityscientists and farm labor advocates.

Momentum spreadsTo maintain the improvements made at the grower-

shipper level throughout the supply chain, an industry taskforce was created in 2007 to develop commodity-specificfood safety guidelines for the fresh tomato supply chain.This covered tomato production in greenhouses and openfields, harvest and field packing, repacking anddistribution. The CTF and FTGE cooperatives; retailers,such as Wegman’s; and food service companies such as

Setting a ‘Fresh Standard’

The California Tomato Farmers (CTF) and the FloridaTomato Growers Exchange (FTGE) represent more than two-thirds of the U.S. domestic tomato supply. Growers createdCTF in 2006 to voluntarily address food safety, socialaccountability and sustainability through practicesmandated for members as “The Fresh Standard.”

CTF’s 54 grower-members supply nearly 90 percent of thefresh market tomatoes produced in California, representing$250 million in annual sales.

Formed in 1974, the FTGE is a cooperative of 20 firsthandlers of tomatoes from Central and South Florida. Floridais the largest producer of fresh market round tomatoes inthe United States. The total annual value at the farm-gatelevel is between $400 million and $500 million, depending ontomato prices.

Florida was the first U.S. state to develop acomprehensive food safety program with mandatorygovernment inspection and auditing of tomato handling,production and packing. California’s political and regulatoryclimate was less conducive to establishing state regulationson agricultural produce (Thompson, 2008). Nevertheless,CTF’s Fresh Standard is “compatible with the Florida BestPractices Manual, approved by USDA, and calls forinspections carried out by USDA officials” (Thompson,2008:41).

Both programs have established food safety guidelinesfor farmers and handlers and stringent field verificationaudits by inspectors from their state departments ofagriculture.

Packinghouses likewise are subject to random andunannounced government inspections evaluating theirability to conduct tomato tracebacks. The tracebackrequirements mandated under the Florida and Californiaprograms exceed current federal requirements under theBioterrorism Act of 2002, as well as current California stateregulations.


Taco Bell,McDonald’s,Kentucky FriedChicken andSubway joined thiseffort. (Beckmansays food servicebusinesses drove theprocess much morethan did food retailers).

Coordinated by the UnitedFresh Fruit & Vegetable Association (nowUnited Fresh Produce Association), the task force soughtto meet FDA’s goal of making “best practice into commonpractice.”

To minimize the possibility that those who didn’t havea voice could reject the new standards, or that an end usermight co-opt the process, United Fresh sought broadindustry participation. Identifying how food safetyresearch could produce solutions was a prelude to buildingindustry consensus.

Within nine months, the task force developed aconsolidated, yet comprehensive, set of audit standards,followed by auditor training and field testing. In 2008, theFood Safety Programs and Auditing Protocols for theFresh Tomato Supply Chain were published. Harmonizedfood safety commodity-specific best practices for growers,re-packers and distributors had been achieved through thefood safety model initiated by the FTGE and CTFcooperatives.

Implications of food safety crisesGrowers developed T-GAPs and BMPs through their

cooperatives to defend themselves against a potentialSalmonella St. Paul “red scare,” said The Grower (2008).

The potential for erratic product quality is a significantproblem confronting emerging industries, however. “Afew firms with erratic quality can negatively affect theimage and credibility of the entire industry,” said Porter.Although only about 1 in 100 cases of food-borne illnessare reported in the United States, 1,400 people becamesick in 2008 from a rare strain of bacterium known asSalmonella St. Paul.

Epidemiology is difficult and time-consuming becausetomato outbreaks are generally associated withintermittent, low-level contamination and dispersed multi-state individual cases of illness. The difficulty of “teasingout” the source of the contamination increases when foodproducts are combined.

Tomato trace-backs are also complicated by supplychain complexity. The vast majority of domestic tomatoesare channeled into value-added processing, not sold fresh.

Most tomatoes are sold to re-packers for sorting, then resoldto retailers or food serviceoperators, who may chop, sliceor dice them before they reachconsumers. Tomato re-packersmay repack multiple times,

reusing the original boxes, and,as product is re-sorted, one kind

of tomato may land in a boxintended for another.

Epidemiologists from the Centers for DiseaseControl and Prevention initially attributed the 2008Salmonella St. Paul crisis solely to tomatoes. Later,jalapeno peppers appeared to have a more conclusive role(Thompson 2008). This ambiguity convinced tomatogrowers that they needed a better working relationshipwith the regulatory agencies, including broader diffusionof a fast trace-back method created by the CTFcooperative using electronic recordkeeping.

There were differences of opinion, however.Epidemiologists found that records of tomatotransactions, such as re-packing, tended to be either verypoor or nonexistent. The industry, in contrast, saw a needfor a common language. It was clear to both that moreroutine information about “who is handling what food andhow” was needed.

Review and conclusionsThis case shows that tomato growers sought to

maintain public confidence in their product by minimizingrisk. “Growers live and die based on product reputation,”said CTF’s Beckman. Reggie Brown, FTGE’s executivevice president, concurred: “The loss of buyer confidenceis absolutely lethal.” Economic historian Douglass Northemphasizes that norms evolve slowly and incrementally.This was true of the tomato industry, where the learningcurve was steep and growers needed more than a decadeto define the scope of the problem they faced.

Yet, what was possible by 2009 would not have beenpossible 10 years earlier. The protracted process ofidentifying where and how pathogens emerge taughttomato growers where they were most vulnerable tocontamination. The evolution to “co-management”initiated by the leafy greens industry began todemonstrate, for all produce items, the sometimes subtleand complicated relationship between production andenvironmental quality.

The transition to commodity-specific standards enabledtomato growers to learn how distribution systems worktogether. Progress was made in food safety science duringthis period, and gaps were identified. The 2008


“Growers live and die basedon product reputation.”

Salmonella St. Paul crisis challenged industry andgovernment to consider the interaction between tomatoesand the many other ingredients frequently combined withthem.

The most important accomplishment since publicationof the 1998 guide was substantial cooperative and industryprogress toward eliminating food safety claims as a basisfor industry competition. Together, the large market shareof the California Tomato Farmers and the Florida TomatoExchange provided an incentive to address the pervasiveuncertainty typical of industries redefined by newconsumer needs, such as an increased emphasis on foodsafety.

The standards developed in tandem by the two co-opseventually became a foundation for a universallyapplicable model of food safety marked by harmonizedand auditable standards applicable to each phase of thetomato industry. By eliminating contradictory standardsthrough a uniform audit metric, GAP harmonization ledto auditor harmonization. Without this, buyers could notfully trust those from whom they buy goods and services.Costly sanctions and guarantees typically are needed tocompensate for wariness and distrust.

L oss of buyer confidence in the aftermath of the 2008Salmonella St. Paul crisis — tomato sales have yet torebound to pre-crisis levels — could be considered anindustry sanction, measured by the consequences to publichealth, industry jobs and incomes foregone, as well as thedetrimental effect on the national agenda to increase fruitand vegetable consumption. The tomato industry lost$100 million from the 2008 crisis, says Beckman.

In this context, industry and government no longerdismissed mandatory standards as being “too radical.”Compared with private auditors, FDA had “real teeth”(The Packer, 2009). “They can’t survive without us, andwe can’t survive without them,” Beckman said. In July of2008, both Beckman and Brown testified at the HouseSubcommittee on Oversight and Investigations hearing toexpress support for nationwide food safety legislationmodeled after the two groups’ mandatory programs.

Profit was less important to Beckman than trying tostay in business. He adds that inadequate attention to foodsafety meant “you are contributing to the demise of anindustry. The industry cannot afford to take these hits.”

Inadequate recordkeeping is a factor that, in the porkand beef industries, prompted structural change throughindustrialization to capture productivity gains. Becausetomato growers want to present the message thattomatoes are safe, food safety crises may similarly promptthe produce industry to adopt a structure more conduciveto systematic recordkeeping. At the same time, inspectorsand other food safety professionals may progress toward a

common industry language, easing pressure to reviseconventional handling practices which have beensatisfactory in other respects.

Repeated measures of food safety through frequentauditing became a significant industry cost and an onerousburden for tomato growers, who might be contacted by asmany as 20 auditors during a month at a cost of some$400 to $10,000 per audit.

Multiple competing standards undermined thecredibility of any particular standard. Industry leaders,facilitated by trade association United Fresh ProduceAssociation, formed a task force to eliminate the excessand potentially spurious competition created by multiplesources of food safety standards.

The standards developed by the Florida TomatoExchange and California Tomato Farmers provided afoundation for developing a new set of harmonizedstandards legitimated by widespread industry acceptance.Nevertheless, to the extent that gaps in food safety scienceremain, any set of standards must be consideredevolutionary. The challenging and difficult nature ofcreating commodity-specific food safety standards in thetomato industry raises the question of how possible it isfor other commodities to move quickly from limitedproduct guidance to comprehensive standards reflectingbroad industry support.

A primary mandate of industrialized agriculture is “thelow-cost producer survives.” This normative belief mayaffect food safety outcomes. W hen supply is tight,particularly when weather conditions affect supply, buyersare more concerned about sourcing product than aboutfood safety practices. Comprehensive, harmonized andauditable food safety standards recognized as legitimate bymajor industry stakeholders represent significant progresstoward reducing the influence of this competing norm.

Selec ted Referenc es• North, Douglass C.

1990, Institutions, Institutional Change and Economic Performance.Cambridge: Cambridge University Press.

• Produce Safety Project2010, Managing for Food Safety and Ecological Health inCalifornia’s Central Coast Region. Stakeholders’ Discussion SeriesFebruary 17, Washington, D.C., Electronic document:http://www.producesafety project/org/admin/assets/files/wildlife.pdf.

• Selltiz, Claire, L awrence S., Wrightsman, and Stuart W. Cook1976, Research Methods in Social Relations, 3rd edition, New York:Holt, Rinehart and Winston.

• Thompson, Stephen A.2008, Feeling the Squeeze: Tomato growers take big hit in foodscare, Rural Cooperatives, September-October, Electronic document,http://www.rurdev.usda.gov/rbs/pub/sep08/sep08.pdf.

• U.S. Food and Drug Administration1998, Guide to Minimize Microbial Food Safety Hazards for FreshFruits and Vegetables, Center for Food Safety and Applied Nutrition,October.



By Lynn PitmanUniversity of Wisconsin Center forCooperativese-mail: [email protected]

Editor’s note: More information about theFarmer Cooperatives Conference, includingPowerPoint presentations, is available onthe University of Wisconsin Center forCooperatives website: www.uwcc.wisc.edu.

ike ships sailingthrough turbulent seas,co-ops will likely dealwith continued risk anduncertainty in 2011, but

there is opportunity on the horizon.

Indeed, despite ongoing structuralchallenges on the global and domesticfronts, agricultural cooperativesrepresent a long-term competitiveadvantage for the United States,CoBank CEO Bob Engel said duringthe 13th Annual Farmer CooperativesConference.

�e conference, held Dec. 6-7 inBroomfield, Colo., was presented by theUniversity of Wisconsin Center forCooperatives. It provided a broadoverview of the current issues affectingfarmer cooperatives. Challenges rangefrom continuing world economicvolatility to issues of sustainability andcreating new domestic markets.

Engel’s presentation contrasted thestrong growth in the emergingeconomies of China, India and Brazilwith expected challenges in the U.Seconomy throughout 2011, and perhapsbeyond.

Current policies, Engel said, havemerely shifted debt from the private tothe public sector. But the system stillhasn’t gone through a necessarydeleveraging.

Engel said he expects thatuncertainty and volatility will remainfor some time, but sees manycooperatives building flexibleorganizations that are capable ofbalancing member value with long-term

Despite volatile markets, co-ops need to look to long-term competitive advantages

SailingTurbulent Seas


stability for the enterprise. In the longterm, the expanding economies andpopulations of the countries which posecompetitive challenges will also offer anexpanding market for the high-qualityagricultural products that the U.S.agribusiness sector can produce, henoted.

Global c ompetitionTerry Barr, senior director of

industry research at CoBank, expandedon these themes and summarized theglobal competition, inventory and costtrends that will influence acreagedecisions for grain producers. W hilethe weaker dollar will push up the cost

of ag inputs, Barr said, passing onhigher costs of production to theconsumer will be difficult, given highunemployment rates.

More debates concerningimplementing protectionist tradepolicies can be expected. Barr said heexpects increased focus on acreage andcommodities investing. However, unlikeduring the 1970s, the marketfundamentals for these investments aresolid.

Providing one cooperative’sperspective on the global marketplace,Duane Nelson, president of GenexCooperative, described the benefits ofan international presence, from boththe board and member perspectives.Genex supplies livestock genetics andconsulting services to increase farmprofitability and is one of threesubsidiary cooperatives that own CRIInc., a holding cooperative. Genex sellsworldwide, maintaining low marketingcosts through an in-country distributornetwork based on commission.

The profitability of internationaloperations offsets the higher domesticcosts around member services and hasprovided some opportunity to importoutside genetics. Nelson expects thatwithin five years the units sold globallywill surpass domestic volume. Thisgrowth is made possible by buildingrelationships and knowing the politicsand culture of international customers.

Rick Browne, CHS Inc. senior vicepresident for grain marketing, observedthat a cooperative must be global if it isto compete globally. Global customerswant one or two suppliers that can meettheir needs year-round. CHS GrainMarketing is moving from contractualrelationships with internationalcustomers to supply U.S. commodities,to being a global supply-chain managerwith multiple sources of supply.Burgeoning demand in China is

especially driving the development ofcompeting global supply chains as newexport capacity is built.

Browne described a multi-stepprocess that CHS takes to establish newin-country presences. The processaddresses typical challenges that mayinclude local business conditions,sovereign governmental issues, counterparty risk and lack of alignment ininterests. However, these areoutweighed by the benefits ofinternational expansion, which includesaccess to both human resources andgrain supplies, as well as access toglobal demand for a wider range ofCHS business lines, including freightcapabilities.

A ntitrust, health insuranc eamong domestic issues

The Department of Justice andUSDA conducted a series of workshopsover the past year to examinecompetition issues in agriculture. Initialcomments about antitrust exemptionscaused some concern about the status ofthe Capper-Volstead antitrustexemption for agricultural cooperatives,said Marlis Carson, senior vicepresident and general counsel for theNational Council of FarmerCooperatives. NCFC, its members andother cooperative groups launched astrong education campaign regardingthe importance of Capper-Volstead tothe nation’s co-ops.

Carson noted that Assistant AttorneyGeneral Christine Varney made positivestatements about the role ofcooperatives during the workshops.However, this is an issue that co-opsmust continue to monitor andeducation efforts must continue, sinceco-op consolidations may triggerfurther scrutiny, Carson said.

The cooperative model is being usedto address another issue that has


significant impacts on farmer co-opmembers — the availability of healthinsurance. According to Bill Oemichen,president and CEO of CooperativeNetwork, surveys showed that during1995-2005, when Wisconsin was losingdairy farms rapidly, the primary concernof state dairy producers was the accessto affordable quality health insurance,not low dairy prices.

Oemichen described the innovativeCo-op Care Project, which wasdeveloped to allow individuals and smallgroups to create cooperative purchasingalliances to contract with an insurer,which was implemented through anamendment to Wisconsin’s cooperativestatute. As a result of education andadvocacy efforts during the health caredebates, the new federal health carereform law supports the development ofnonprofit health care exchanges. Theseexchanges have cooperativecharacteristics and provide theopportunity to build on the health carecooperative model.

Natural resource managementResource management issues for co-

ops were explored in the context ofwater use in Colorado. ChristopherGoemans, assistant professor atColorado State University, describedwater-use trends, noting that waterallocations for agriculture inevitablyface strong challenges to identify watertransfer marketing arrangements togrowing population centers without“drying out” rural communities.

James Pritchett, associate professorat Colorado State University, exploredhow more efficient water use wouldallow agriculture to do more with less,as decreasing aquifers, urbanization andcompacts between states all willincreasingly affect water availability.Irrigated agriculture is an engine ofeconomic activity, and a watercooperative to handle farmer-municipaltransactions might be one option tosupport it, he noted.

There are unique challenges tomanaging and growing a farmercooperative with member-producerswho are dependent on water access, said

Keith Devoe, general manager forRoggen Farmer’s Elevator Association.Producer decisions to sell water rightsare dependent on individual goals andfarm leasing agreements, but the trendis toward more “dryland ” farmingacreage. This has significantly loweredboth agronomy sales and productionvolume for the co-op.

Devoe asked whether water pricingreflects its true replacement value. Hepointed out that municipal financing

mechanisms place the irrigatedagriculture industry at a disadvantage.But long term, economic growth mightbe better served through valuingagricultural use, he said.

Consumer concernsdrive sustainability issues

Resource management is onecomponent in the broader conversationabout sustainability and food. Whilesustainability may have negative

International operations are becoming increasingly important to GENEX, with foreign salesexpected to outpace domestic sales within five years. Here, a technician does fertilitymonitoring on a dairy herd. Photo courtesy Cooperative Resources International


Training sessions are held by GROWMARK to help cultivate the next generation of co-op leaders. Photo courtesy GROWMARK

The success of such strategic ventures — at both theenterprise and member benefit levels — is affected bydecisionmaking grounded in good cooperativegovernance practices. Brent Hueth, associate professorand director at the University of Wisconsin Center forCooperatives, provided the Farmer CooperativesConference with an update on the in-depth cooperativegovernance research project being conducted by theCenter.

Cooperative boards usually play an active role insetting strategy, although CEOs and board chairs oftenhave conflicting perceptions on the role of boards in theplanning process. Hueth also noted that in an era ofsignificant CEO turnover, more than half of the co-opssurveyed do not have succession plans in place for theCEO/general manager.

Jim Hoyt, vice president for strategic planning andcorporate Services at GROWMARK Inc., took a closer lookat the succession planning process. This is a strategicissue for cooperatives, especially as their leadershipteams begin to retire and take with them their institutionalmemory and accumulated knowledge. Planning alsoneeds to take into account the unexpected: departures,illness or other factors.

GROWMARK has made succession planning a priorityfor top management. It will be working with its memberco-ops to develop board training programs to cultivate the

next generation of board leadership. Hoyt suggesteddeveloping a “depth chart” that identifies the people atthe mid-management level and higher that could fill keypositions at present, or with additional developmenttraining.

There are a variety of individual and experiential typesof training programs that can be provided, but the processof selectively offering these opportunities needs to behandled sensitively within the organization. The boardshould understand the depth of the pool of possiblecandidates for key positions, whether there is a leadershipdevelopment process and/or whether the cooperative isattracting an appropriate amount of external talent.

Les Hardesty, a director with Dairy Farmers of America,described the governance structure used at DFA torepresent and strategically plan for the needs of diversemember operations, which range from an average offarmers with 55 to more than 3,500 cows. Regionalgovernance issues also exist, given DFA’s national scopeand variety of farm services. However, milk marketing isthe core business of the cooperative, and other servicesare only paid for by the members who use them.

The DFA governance structure uses regional delegatesto area councils that elect a 51-member board ofdirectors. There is an executive committee and anextensive use of board committees that also participate inregular revisions of the co-op’s strategic plan. �

Good governance and strategic decisionmaking

connotations for some in productionagriculture, the “triple bottom line” —which encompasses profit, people andplanet — is something that increasingnumbers of consumers and retailerscare about, explained Chris Peterson,professor at Michigan State University.Sustainability is an example of a“wicked problem,” in whichstakeholders have radically differentframes of reference. Cause-and-effectrelationships are uncertain, so solutionsare not “true or false,” but rather“better or worse,” he said.

Peterson noted that wicked problemsare not solved, but managed — fromboth impact and process perspectives.He discussed how sustainabilityquestions have been addressed in theBrazilian sugarcane industry and in theNetherlands. Managing sustainabilityrequires that all relevant stakeholdersbe part of the process and that they bewilling to leave behind old debates andembrace learning and innovation.

Peterson pointed out thatcooperatives, by their nature, representmultiple players in a supply chain andthey can be both an enabler and targetof sustainability.

Sarah Stokes Alexander, director ofSustainability and Leadership Programsat Keystone Center — a Colorado-based nonprofit that focuses on findingsolutions to environmental, health andenergy challenges — describedKeystone’s Field to Market project.Using a collaborative stakeholder groupof producers, agribusiness, food andretail companies and conservationorganizations, the project’s goal hasbeen to develop metrics for theenvironmental and socioeconomicimpacts of agriculture.

An online tool is now available forgrowers to help assess the operationalefficiency for their natural resourcemanagement decisions, and a newversion is in development, based ongrower feedback. Work continues ondeveloping benchmarks for otherenvironmental and socio-economicindicators.

A stakeholder perspective onsustainability was provided by RussellWilliams, director of regulatoryrelations for the American Farm BureauFederation. He described sustainability

as a process, not an end point, based onincremental and continuousimprovement. While the developmentof standards helps consumers makedecisions, they are inflexible and costlyfor producers, said Williams. He calledfor a grower-driven process andgovernmental support for transition tosustainable practices.

Growth strategiesThe conference also included a look

at several strategies that agriculturalcooperatives could pursue to expand thebenefits they provide to their memberowners. Brad Miller, vice president ofauctions and competitive bidding forCRA International Inc., a Boston-basedconsulting firm, described theglobalDairy Trade (gDT) auctionplatform, developed in 2008 for NewZealand-based cooperative Fonterra,one of the world’s largest dairyproducers. About 25 percent ofFonterra’s domestic production is nowon gDT, which provides reliable,credible prices and market information,benefitting both co-op members andthe market place. A similar tradingplatform has been developed for Ocean

Spray for cranberry concentrate. Millernoted that these platforms can bedesigned and tailored to meet the needsof both buyers and sellers in a variety ofmarkets.

Growth is also dependent on accessto capital. Stefan Shaffer, managingpartner with SPP Capital PartnersLLC, noted that the current borrowingenvironment is unique and most likelywill not continue.

Mike Jackson, president and CEOfor Adayana, a Minneapolis-basedconsulting firm, described joint ventureopportunities as a way to share risk andrewards with a partner while protectingcore asset ownership. To take fulladvantage of the growth possibilities ofa joint venture, Jackson suggestedlooking for partners that providecomplementary resources and skills, buthave similar cultures and a collaborativeattitude.

Detailed venture expectations andgoals are critical to successful executionof such deals. Upfront planning fordissolution, including grounds fortermination and partner rights, is also aprudent and necessary step whennegotiating a joint venture.

Interconnectivity:resource and opportunity

Online connections, opportunitiesand resources available to cooperativeswere also discussed. One example is thenational eXtension initiative, whichtakes advantage of online and socialmedia technologies to deepen the reachof Extension resources.

Greg McKee, assistant professor anddirector with the Quentin BurdickCenter for Cooperatives at NorthDakota State University, introduced theeXtenstion Cooperative Community ofPractice. He described how the publicwill use the site to gain informationfrom cooperative experts, as well as theother resources it will offer.

The collaborative dialog andlearning opportunities that digitalinterconnectivity provides were also thetopic of a creative presentation byDavid Warlick, director with theLandmark Project. �


Cause-and-effect relationships are uncertain,

so solutions are not “true or false,” but

rather “better or worse.”

By Anne MayberryUSDA Rural DevelopmentRural Utilities Servicee-mail: [email protected]

it Carson RuralElectric Cooperative inTaos, N.M., is amongseveral rural electriccooperative utilities

that were awarded funding under theAmerican Recovery and ReinvestmentAct of 2009 to deliver broadband torural communities. Just as electriccooperative utilities brought electricityto rural America 75 years ago with thepassage of the Rural Electrification Actof 1936, today’s cooperatives aredelivering broadband to ruralcommunities.

Projects such as that awarded to KitCarson will directly serve households,businesses, farms, and public safety andcommunity facilities. Rural areas havetoo often been among the last toreceive broadband service. “Much likeelectrifying the countryside 75 yearsago, low population density andgeographic features, such as mountainsor deserts, are often the challenges withrural broadband projects,” according toJonathan Adelstein, administrator ofthe U.S. Department of Agriculture’sRural Utilities Service (RUS), part ofUSDA Rural Development.

Along with the U.S. Department ofCommerce’s National Telecommun-ications Information Administration,RUS was tasked with implementing theRecovery Act broadband program.“During the past two years, we’vegained tremendous insights into theunique challenges of financingbroadband in rural high-cost markets,”

K

Uti l i ty Connect ionBridging the Gaps: New Mexico co-opexpanding broadband in rural West

The vast areas of land — including canyons, mountains and deserts — in the service territory ofthe Kit Carson Rural Electric Cooperative pose a challenge as it seeks to expand the availabilityof broadband services to its members. The Rio Grande Gorge Bridge (above), crosses one suchcanyon. Photo by Chris Dahl-Bredine, courtesy Taos Vacation Guide



CO-OP I DEA S CA NHELP EDUCAT I ON

By Joe Nathan

Editor’s note: J oe Nathan is a former public school teacher,administrator and PTA president. He is the parent of three publicschool graduates and now directs the Center for School Change atMacalester College in St. Paul, Minn. This article is adapted froma column that originally appeared in the “Mille Lac CountyTimes.” He welcomes comments at: [email protected].

or generations, some Milaca (Minnesota)area farmers have been members of a co-op.Now that idea is being applied, withencouraging impact, to public schoolteachers. That’s a central message of a recent

report, “Can Teachers Run their Own Schools? Tales fromthe Islands of Teacher Cooperatives” (online at:charlestkerchner.com/cr/uploadImages/Teacher_run_case.pdf).

Written by Charles Kerchner, a Claremont (California)College professor, it’s the story of another Minnesotaeducational innovation: public schools run like agriculturalcooperatives. But if you think about options that doctors,lawyers, journalists and other professionals have, this is notjust for rural communities. Kerchner notes: “The use ofcooperatives is much more widespread than commonlyrealized, involving as many as 100 million Americans.”

But don’t schools need school boards and administrators?Isn’t it vital to have school boards at the top, setting policy,hiring administrators who make recommendations to school

F

boards and are responsible for hiring and firing the teachers?Many would say “no.”

How often have teachers said to themselves, “If I were incharge, here’s how I would do it.” Some teacher-run schoolsare charters, some are part of a traditional district. The newMinnesota “site-governed law” provides the option forteachers wanting to remain part of a district. St. Paul andMinneapolis Federation of Teachers backed this law.

Kerchner shows that teacher-run schools are appearing allover the nation. He begins with Avalon, a teacher-run charterpublic school in St. Paul.

He recalls that in the legends of King Arthur, Avalon was“The Fortunate Isle.” The majority of board members atAvalon are teachers in the school. One board member is aformer business agent for the Minneapolis Federation ofTeachers.

The teacher-run school idea was born in Henderson,Minn., in 1994, with the creation of the Minnesota NewCountry School (MNCS). (Full disclosure — myorganization helped start this school, providing both financialand other assistance). Doug and Dee Thomas, and a numberof other public school veterans/visionaries created MNCS,with assistance from Ted Kolderie, a creative Minnesotapolicy thinker. Ladies Home J ournal recently named MNCSone of the 10 “most amazing public schools” in the country.

USDA Rural Development played an important role inthis school. It guaranteed the loan that allowed the schoolbuilding — complete with a grain elevator inside — to beconstructed. The large, mostly open-space building providesMNCS students with their own work area. Each of the grade7-12 students not only have her/his own computer, but also aspace that can be decorated (discretely) with pictures offriends, family, animals and other hobbies.

MNCS and a larger cooperative called EdVisions remainin Henderson, providing assistance and inspiration toeducators and families throughout the United States (as wellas visitors from a number of other countries.) There are 12EdVisions schools in Minnesota and 35 others around thecountry (for more information, visit: www.edvisions.com)

Kerchner is clear that “The range of test score resultsamong the teacher-run schools is very large, and so is thestudent population served. The schools appear to havebetter-than-average college test results and college-goingrates.” Most EdVisions schools also use the “Hope Study,”which reports: “Students with high Hope Scale scores believethat they have the ability to find workable routes to theirgoals and that they can meet them.”

Helping youngsters learn to set and reach goals is acentral value at these schools. It’s a very important part ofeducation.

Kerchner acknowledges that the approach won’t solve allof education’s problems. But he makes a strong case that theyare “worthy of consideration.”

The Minnesota New Country Schools (MNCS) was named one ofthe “10most amazing public schools” in the country by “LadiesHome J ournal.” Photo courtesy of EdVisions Schools

30 J anuary/ February 2011 / Rural Cooperatives

Send co-op news items to: [email protected]

Co-op developments, coast to coast

USDA’s Lew is w ins honorEdgar L . L ewis, an agricultural

economist who has been a strongadvocate for small, limited resource andsocially disadvantaged producers, hasbeen awarded the Booker T.Washington Entrepreneurship andL eadership award. L ewis has been aUSDA ag economist for 44 years, mostof it spent with the CooperativePrograms office of USDA RuralDevelopment, where he manages ruralentrepreneurial outreach partnershipsbetween 1890 L and Grant Institutionsand USDA. He also serves as anoutreach coordinator for small andbeginning farmers and ranchers.

The award was presented during the15th Booker T. Washington EconomicDevelopment Summit at TuskegeeUniversity in Alabama. The theme forthe summit, held in September, was:Revitalizing Entrepreneurship andProcurement Opportunities in SmallTowns and Rural Communities.

Through his research, technicalassistance and outreach work, L ewis hasprovided an array of services tominority producers, small-scale farmersand cooperatives. He has helped toforge a number of partnerships andcollaborative efforts involving landgrant and 1890 institutions and otherswhile striving to raise income levels forsmall-scale farmers and improve theeconomic viability of small-farmenterprises.

A native of L ouisiana, L ewis pursuedhis love of agriculture at SouthernUniversity in Baton Rouge, where hereceived a Bachelor’s degree in ageconomics. His graduate studies weredone at Ohio State University and the

University of Maryland.L ewis has brought his expertise to

many task forces and committees,including USDA’s Small Farm WorkingGroup, the 1890s Scholars Programand Partners Meeting. He has alsoworked closely with USDA’s Office ofAdvocacy and Outreach to promoteinitiatives that advance the economicposition of minority and under-servedproducers in rural America. He hasbeen a regular participant in theProfessional Agricultural WorkersConference and is the winner of anumber of other awards for his workwith minority and limited-resourceproducers.

U.S. A gbank, CoBankpursue merger

U.S. AgBank and CoBank, two of

the five banks in the Farm CreditSystem, are pursuing a merger. A letterof intent has been signed, setting forthkey terms and conditions of theproposed transaction, which alsorequires regulatory and stockholderapproval.

The merged bank would serve as awholesale provider of financing to FarmCredit Associations, which providecredit and financial services to morethan 70,000 farmers, ranchers and otherrural borrowers in 23 states. It wouldalso serve as a direct lender toagribusinesses and rural electric, waterand communications service providersthroughout the country.

The merged bank would continue todo business under the CoBank nameand be headquartered outside Denver,Colo., but it would maintain U.S.AgBank’s existing presence andoperations in Wichita, Kan., andSacramento, Calif. Robert B. Engel,CoBank’s president and chief executiveofficer, would be the chief executive ofthe combined entity.

“Over the course of the past year, theU.S. AgBank board has engaged in astrategic review of our business todetermine the course that would bestserve our associations and the farmersand ranchers in our territory for thelong term,” says John Eisenhut,chairman of U.S. AgBank. A mergerwith CoBank will best achieve thatpurpose, he said.

“The merger will bring together twofinancially sound, profitable banks tocreate an even stronger cooperativefinancial services institution, under agovernance structure that will offerassociations, cooperatives and other

Edgar L. Lewis


customer-owners a fair and equitablevoice in the governance process,” saysCoBank Chairman Everett Dobrinski.

Wichita-based U.S. AgBank provideswholesale loan funds and financialservices to Farm Credit Associationsand other financing institutions inArizona, California, Colorado, Hawaii,Kansas, Nevada, New Mexico,Oklahoma, Utah, southeastern Idahoand the western edge of Wyoming. Ithas about $25 billion in total assets.

Denver-based CoBank provideswholesale funds to Farm CreditAssociations serving Alaska,Connecticut, Idaho, Maine,Massachusetts, Montana, NewHampshire, New Jersey, New York,Oregon, Rhode Island, Vermont andWashington. The bank also providesretail loans, leases, export financing andother financial services to agribusinessesand rural power, water and commun-ications service providers in all 50states. CoBank has about $60 billion intotal assets.

DFA members learn grazingstrategies; co-op acquiresHispanic cheese brand

About 150 producers andagribusiness professionals attendedDairy Farmers of America Inc.’s (DFA)2011 Grazing Conference in Louisville,Ky., in January. The two-day event waspresented by Dairy Grazing Services(DGS), a wholly owned subsidiary ofDFA that provides resources andconsulting services to producersinterested in pasture-based dairying.

“Increasing input costs and volatilemilk prices continue to create uncertainprofit margins for dairy farmers,” saidJackie Klippenstein, who oversees DGS.“However, some producers are findingthat utilizing existing pastures can helpcut costs and create a more secureprofit.”

Producers and industry expertsshared their strategies and tips forsustaining high-performance, pasture-based dairies. Larry Tranel, a dairyspecialist with Iowa State Extension

who assists producers in adapting theiroperations to intensive rotationalgrazing, presented a series of casestudies on successful grazing dairies.

Phil Wicks, U.S. general managerfor the Livestock Improvement Co., adairy farmer-owned cooperativegenetics supplier from New Zealand,provided insight on best practices fordesigning breeding programs forgrazing dairy farms. Eric and JulieNeill, dairy producers who started aseasonal grass-based dairy from scratchin 2010, shared their experiences inplanning the dairy, developing thegrazing system, building the milk parlorand the first year of operation.

Jay Waldvogel, DFA’s senior vicepresident for strategy and internationaldevelopment, discussed how grazingproducers in the United States fit intothe rapidly changing dairy globalindustry. For more information visit:www.dfamilk.com/grazing.

In other DFA news, its recentacquisition of Houston-based Castro

More efficient use of their pastureland is helping some dairy farmers reduce their overhead costs. Industry experts and producers sharedgrazing ideas at a recent Dairy Farmers of America (DFA) conference in Kentucky. Photo courtesy DFA


Cheese Co. means the co-op is enteringthe rapidly growing ethnic dairyproduct market. Castro Cheese ownsthe La Vaquita brand product line,which includes Queso Fresco, Panela,Queso Quesadilla and other artisanalcheeses commonly used in Hispanicdishes.

DFA will retain the company’scurrent 72 employees, who willcontinue to be led by Alberto Bandera,the current operating executive.

Urban co-op developmentinitiative launched

Congressman Chaka Fattah ofPennsylvania, chairman of theCongressional Urban Caucus, is leadingan initiative to support urbancooperative business developmentthroughout the United States. Fattah,an eight-term Congressman fromPhiladelphia, will partner with theNational Cooperative BusinessAssociation (NCBA), a Washington-based federation of cooperatives fromall sectors of the economy, andCooperationWorks! (CW), a nationaltrade association of cooperativedevelopment centers and individuals.

“Cooperatives provide an excellentmeans for economic development andcommunity enrichment,” Rep. Fattahsays. “This new initiative is catching onin our cities and urban areas. Thecooperative movement is a perfect fitwith the agenda of the bipartisanCongressional Urban Caucus, and I ampleased to provide this effort with astrong voice in Congress. Thesecooperatives will create jobs and wealthby helping new local businesses that areowned and controlled by theirmembers.”

The new initiative will includeseeking authorization of funds fortechnical assistance for urbancooperatives across the United States.

“A successful authorization of anurban cooperative developmentprogram could pass Congress in 2011and could potentially be appropriated asearly as 2012, the year declared by theUnited Nations as the InternationalYear of Cooperatives,” says Lisa

Stolarski, chair of CooperationWorks!Urban Circle.

“NCBA looks forward to workingwith Congressman Fattah and the co-op community in developing an urbancooperative development program,”says Adam Schwartz, NCBA vicepresident of public affairs and memberservices.

Nilsestuen Fund topromote co-op education

A new program being established inmemory of Rod Nilsestuen willestablish a fund to sponsor advances inresearch, education and outreach incooperative business and development.

The fund was launched at theCooperative Network’s annual meeting,which also honored the manyaccomplishments of the formerWisconsin state agriculture secretarythis week.

The Rod Nilsestuen Fund has beenorganized as part of the Ralph K.Morris Foundation, which shares adedication to the future of cooperativesand leadership development. One of itsprimary activities will be to establish asymposium devoted to in-depth,thought-provoking presentations onissues affecting cooperatives,conservation and leadershipdevelopment. The inaugural event isslated for 2012 and will be held at theUniversity of Wisconsin-River Falls,Nilsestuen’s alma mater.

For more information, visit:www.ralphkmorrisfoundation.org andclick “The Rod Nilsestuen Fund.”

CHS names Casalepresident and CEO

CHS Inc., a leading energy, grainsand foods company, has named veteranagribusiness leader Carl Casale as itsnew president and chief executiveofficer, effective Jan. 1, 2011. Casale,who most recently was executive vicepresident and chief financial officer forMonsanto Co., succeeds John Johnson,who retired Dec. 31. In his previousrole, Casale was responsible for finance,strategy and information technologyresources.

“The CHS board believes that inCarl Casale we’ve found an individualwhose impressive depth of domestic andglobal agribusiness knowledge, strategicability, financial acumen and leadershipexperience will carry CHS forward,”says Michael Toelle, CHS boardchairman and a Browns Valley, Minn.,farmer. “Most of all, we believe we’veselected a candidate whose rural roots,active involvement in agriculture,personal style and values are compatiblewith our culture and our strong,producer-focused company.”

The CHS board selected Casale tolead the nation’s largest producer-owned cooperative following an

extensive search, which included bothinternal and external candidates.

“I feel privileged and excited to bepart of a company owned by farmersand ranchers and to help CHS embracenew opportunities to add value forproducers in a dynamic globalmarketplace,” says Casale. Casale is anative of Oregon’s Willamette Valley.He and his wife, Kim, operate a family-owned blueberry farm near Aurora,Ore., which has done business with areasupply and marketing cooperatives forgenerations.

Casale joined Monsanto in 1984 as asales representative in eastern

Carl Casale


Washington. He has held numeroussales, strategy, marketing andtechnology-related positions withMonsanto. Before assuming duty asCFO in 2009, he was executive vicepresident for strategy and operations,overseeing its strategy, manufacturingand information technologyorganizations.

He holds a B.S. degree inagricultural economics from OregonState University and an executiveM.B.A. degree from WashingtonUniversity in St. Louis, Mo. TheOregon State University College ofAgriculture named Casale its 2009alumni fellow. He has served on theboard of the National 4-H Council.

Jeff Solberg newCEO at GROWMARK

Jeff Solberg assumed duty Jan. 3 asthe new CEO of Bloomington, Ill.-based GROWMARK. Solberg succeedsCEO Bill Davisson, who retired.Solberg is a 1974 businessadministration graduate of IllinoisWesleyan and received an M.B.A.degree from the University of Illinois in1976. He has held the positions offinancial analyst, cash manager, assistanttreasurer, treasurer, vice president offinance, and senior vice president offinance for GROWMARK.

Solberg is past president andchairman of the Institute forCooperative Finance Officers andserves on the board of directors forCitizens Savings Bank.

“GROWMARK is a $6 billionorganization that is experiencing aperiod of significant growth. Selecting achief executive is among the mostimportant and impactful actions we arecharged with taking,” says Dan Kelley,chairman of the board and co-oppresident. “Jeff has the skills,knowledge, experience and support tolead GROWMARK successfully intothe future.”

In other co-op news, GROWMARKhas agreed to acquire Lamb’s SenecaTerminal at Seneca, Ill. The acquisitionincludes 45,000 tons of dry fertilizerstorage, dock and acreage.

GROWMARK plans to add liquidnitrogen storage at the site. Financialdetails of the transaction were notdisclosed.

Rod Wells, the co-op’s director ofagronomy sales and operations, saysacquisition of the facility will enableGROWMARK to sustain its ability tosupply fertilizer products to local FScompanies and other customersthroughout the region into the future,expand storage capacity and productofferings from Seneca with the additionof nitrogen solution storage.

April class slatedfor co-op developers

CooperationWorks! is acceptingregistrations for session one of “TheArt and Science of Starting a NewCooperative Business,” to be held April18-22 at the University of Wisconsin inMadison. The five-day, intensivetraining will address the key steps tostarting a new co-op enterprise. Theprogram is designed for new co-opdevelopment practitioners, communityorganizers, economic developers andothers who will put the training incooperative strategies to use in theircommunities.

Using some of the best practitionersin the country, the program includeslectures, interactive sessions, case study

analysis of existing co-ops and tours tolocal co-ops to talk directly with co-opstakeholders about the developmentprocess.

Registrations are due by March 31and are accepted on a first-come, first-served basis. Some partial scholarshipsare available. For more information,contact Audrey Malan at: (307) 655-9162, or [email protected].

Landmark namesBob Carlson as CEO

Landmark Services Cooperative’sboard has selected Bob Carlson as itsnew CEO. Carlson succeeds CEOLarry Swalheim. Carlson had served asLandmark’s chief operating officer sinceFebruary of 2007. During that time, hehas been a part of the leadership teamthat has overseen the creation of VerityResources LLC, an ag lending andinsurance partnership with AgQuest ofMorgan, Minn., as well as a largeexpansion of Landmark’s grain storagefacilities and several other strategicgrowth projects.

Prior to joining Landmark, Carlsonwas a national sales director for CofinaFinancial in St. Paul, Minn., where he

managed all aspects of its $82 millionproducer lending program. During his25 years as part of the ag cooperativesystem, he held several key leadership

Jeff Solberg

Bob Carlson


positions in cooperatives in Minnesotaand South Dakota.

After high school, Carlson servedfour years as a military intelligenceanalyst in the U.S. Army. He earned abachelor’s degree in business and publicadministration from the University ofNorth Dakota and an M.B.A. degreefrom St. Thomas in St. Paul, Minn.Recently, he completed the two-yearLeadership Wisconsin developmentprogram for leaders at the local, stateand international level.

TFC enjoys turnaroundyear in 2010

When Tennessee FarmersCooperative held its annual meeting atthe newly reopened Gaylord OprylandResort and Convention Center inNashville in November, the event’stheme of “Fresh” applied to more thanjust the remarkable recovery the hotelmade after historic spring floods shut itdown for nearly six months. “Fresh”also was a good way to describe the newproducts, programs and growthopportunities that led to a profitablefinancial performance for TFC and itssubsidiaries in fiscal year 2010, co-opleaders say.

More than 800 co-op directors,managers, employees and guestsattending the meeting heard TFCBoard Chairman Lowry “Whitey”Dougherty and CEO Bart Krisle reportconsolidated sales of $567 million forthe cooperative, with a net margin of$10.6 million. Those results were ahuge turnaround from fiscal year 2009,when TFC only made a minimal netprofit of $147,000, due to inventorywrite-downs and lower gross marginscaused by drastic devaluations incommodities like fertilizer, feedingredients and glyphosate.

“In 2009, TFC was barely in theblack, which was very disappointing,”said Krisle. “We anticipated andbudgeted for improved results in 2010,and I am happy to report that ouroptimism was warranted.”

In 2010, all TFC productdepartments were profitable, Krislereported, and total patronage paid to

member co-ops was $10.25 million,with 30 percent paid in cash.

Chairman Dougherty, a Madisonvilledairyman, said he and his fellowdirectors had asked some hard questionsover the past year as they, along withTFC management and employees,worked hard to create newopportunities for the system. “OurTFC board of directors is by no meansperfect — no board is,” said Dougherty.“But I can assure you with completeconfidence that we don’t make a singledecision without asking the question, ‘Isthis good for the membership?’ If wecan honestly answer ‘yes,’ we moveforward. If the answer is ‘no,’ we moveon to something else.”

Dougherty’s seven-year term on theTFC board ended with the annualmeeting. Larry Rice, a row-crop farmerfrom Covington, was selected by fellowboard members to succeed Doughertyas chairman. Wayne Brown, a tobaccofarmer from Chuckey, was selected asboard vice chairman.

LO’L updates socialresponsibility report

Land O’Lakes has adopted a 2010Corporate Social Responsibility Report(CSR) to demonstrate how the farmer-owned food and agriculture cooperativeis carrying out its commitment tocommunity and family, protectingnatural resources and working toachieve its goals through cooperationand highly responsible businesspractices.

“This publication is Land O'Lakes’second CSR report, and I am proud ofthe strides we have made — both inreporting on our commitments and inthe tangible progress we have achievedthroughout the organization,” saysChris Policinski, LO’L president andCEO. “Although the report coversmany aspects of CSR, one underlyingtheme comes through: at LandO’Lakes, the principles of corporatesocial responsibility are focused andintegral to the way we conduct businessand set our priorities.”


Tennessee Farmers Cooperative (TFC) CEO Bart Krisle addresses the co-op annual meeting.Photo courtesy TFC

Adelstein said. He notes that the RUS telecommunicationsportfolio of over $4 billion was built on more than 60 yearsof experience in funding rural telecommunicationsinfrastructure. RUS’ Community Connect and DistanceLearning and Telemedicine Programs have invested about$500 million in rural underserved areas.

The Kit Carson Electric Cooperative (KCEC) “fiber-to-home” project will allow greater bandwidth, providing thequality necessary for applications such as telemedicine,teleconferencing and video sharing for education, businessand entertainment. Once completed, the co-op’s project willmake broadband service available to 29 communities,reaching about 20,500 households, 3,600 businesses and 183community institutions, including hospitals, schools andother government facilities. Two Native American puebloswill also receive broadband service once the project iscomplete.

Telecommunications industry experts note that bandwidthrequirements increase rapidly every year, so deploying fiberwill provide the capacity needed to meet future needs. Forexample, KCEC’s fiber network will be used to enhance“smart grid” technologies, which can include energymonitoring, load control and automated metering systems.

The electric cooperative utility anticipates the networkwill also assist with electric power projects andcommunications between their operations center andregional power substations. In all, the network will spannearly 3,000 square miles of rural New Mexico.

KCEC will use its existing right-of-way to build a fiber-to-home network capable of at least 100 megabits per second for

residential customers and 1gigabit per second for broadbandservice for anchor institutions, such as schools, libraries andother community facilities. The smart grid functionality willassist the cooperative utility and its consumer members withmonitoring energy consumption, while the broadbandnetwork will provide the backbone for supporting smartappliances and managing peak power demands through theuse of automated meters at both residential and commercialsites.

“Kit Carson’s broadband project is an investment that willboost economic development by attracting new businesses,jobs, health care services and educational opportunities,”Adelstein noted. “This will enable the cooperative to furtherdeploy smart grid technologies and help with sustainableenergy development. It will better connect New Mexico andthe rest of the world.”

Bringing high-speed Internet service to unserved ruralareas helps meet Recovery Act priorities to invest ininfrastructure and technological development and promoteeconomic development and job creation. Kit Carson’s $63.8million project — which includes additional funds fromprivate sector investment — is expected to create 330 jobsdirectly, in addition to other jobs that will develop as a resultof the new networks.

Adelstein noted that, as with the other 320 RUS RecoveryAct broadband projects across the country, the rural NewMexico project will both create immediate jobs and provide aplatform for job growth for years to come. “Reliable,affordable broadband service is an essential, but too oftenlacking, resource in rural communities. Increasing ruralbroadband deployment and adoption in rural areas willremain a top priority for USDA for the foreseeable future.”�

Utility Connectioncontinued from page 29

Along with providing informationabout Land O’Lakes and its businesses,the CSR report discusses: thecooperative’s environmental stewardshipand sustainability efforts; how thecompany supports members throughfinancial returns and responsiblepractices; and its efforts to influencepolicies that promote Land O’Lakes’CSR goals. The report also highlightsexamples of the cooperative'sphilanthropy and community service, aswell as international developmentefforts around the world.

CWT launches membership driveCooperatives Working Together

(CWT) hopes a new membership drivewill expand participation in the self-

help program during the next two yearsto at least 75 percent of the nation’smilk supply, enabling it to fully fund anexport assistance program.

“Focusing CWT’s efforts exclusivelyon helping sell U.S.-made dairyproducts into foreign markets will havea positive impact on all dairy farmers,”says Jerry Kozak, president and CEO ofNMPF, which manages CWT. “Withthe investment in CWT at two centsper hundredweight by all dairy farmers,we believe the export assistanceprogram will be extremely effective inenhancing and maintaining producers’margins.”

An analysis of the program by PeterVitaliano, NMPF vice president ofmarket and economic research,

demonstrates the effectiveness of theexport assistance effort in enhancingdairy farmer revenue (his presentationcan be viewed at: www.cwt.com). Overthe life of the program, every dollarspent helping members export dairyproducts has returned $15.53, he found.

CWT expects to carry over morethan $30 million from its 2009-2010budget to provide funding in 2011 and2012. These funds will be supple-mented by the revenue generated froma two-year commitment by cooperativeand individual producers. Kozak saysCWT needs a commitment from atleast 75 percent of the nation’s milksupply at the two-cents-per-hundredweight level in order for theassessment to go into effect. �


agriculture. Hillside Farmers hopes to tap into that valuableexperience to develop small-scale, sustainable farms that arecompetitive in a regional economy. The project also aims tohelp Latino families increase income, improve theircommunity, eat healthier and develop valuable leadershipskills.

“We did not come into this with the perspective thatsomeone else will do this for us,” says Reginaldo “Regi”Haslett-Marroqui, director of the Rural Enterprise Center (aprogram of the nonprofit Main Street Project) in Northfield,Minn. He provides technical assistance and guidance to co-opmembers.

“We've got all these ideas and all of this experience, butwe need to turn it into something more competitive,”Haslett-Marroqui says.

So far, Hillside Farmers Cooperative “agri-preneurs” havesold about 35,000 chickens. As each immigrant farmercontinues to gain experience and train other agripreneurs,Haslett-Marroqui envisions the co-op expanding into grainsproduction, vegetables, medicinal herbs, soil composting andother areas.

“I didn’t think this would ever be possible,” says MariaSosa, board chair of Hillside Farmers. “Now it seemspossible, with hard work and a little bit of investment.”

Income can leadto land ownership

Poultry allows for quick turnaround times from chick tomarket, which means families can earn some incomerelatively quickly — possibly leading to a position in whichthey can purchase their own land and develop their ownfarms. The key is convincing people that it can happen.

“We’ve been successful early and people see that,” saysHaslett-Marroqui. “We feel our vision will result in aneconomic model that empowers people and changescommunities.”

Chickens raised by co-op farms are free-range and are fedwithout antibiotics. As much as possible, the birds are fedwith grains and grasses raised directly on co-op farms.

“Hillside Farmers Co-op is the ideal recipient for the firstSSDPG in Minnesota,” says Colleen Landkamer, statedirector for USDA Rural Development. “I believe HillsideFarmers Co-op is helping create the next generation ofLatino farmers and entrepreneurs.” �

Climbing the Hillcontinued from page 13


— one of my loan account customers — offered me aposition as controller of the cooperative. I later became itsdirector of finance and, subsequently, its general manager. Inall, I served more than 35 years with the company.

I have been asked to respond to three related questions.They are:

1. What is the most important thing I learned aboutmaintaining a strong working relationship with the co-opboard of directors?

The development of trust and integrity with boardmembers is critical to a strong working relationship with aco-op board. That can be achieved through full transparencyand disclosure of company operations that will illustrate one’sefforts to maximize the financial return for the co-op’smembership. That means sharing the bad news along withthe good news. There should be no surprises at your boardmeetings.

It is often challenging for some co-op boards to separatethe operating responsibilities from the monitoring andpolicy-establishing responsibilities. Through theestablishment of trust and integrity, the board is assured youare working in their best interest to achieve the direction andgoals they established for the cooperative.

Including key staff members for direct reporting to theboard at its meetings also helps develop confidence in themanagement team, which further strengthens relationships.The board needs to know that the success of the co-op is notdependent on just one individual, but dependent on a broad-ranged management team and a committed employee effort.

2. What is the most important thing I learned aboutmeeting the needs and expectation of co-op members?

Members of milk marketing cooperatives have manyexpectations, with one key requirement being the desire forthe co-op to have the highest possible pay price for theirmonthly milk shipments. That price expectation is usuallymeasured by comparing prices with their neighbor who mayship to a different company.

Management must balance those expectations with theneed to maintain a sound financial base for the co-op. Thereality is that no co-op can always be at the top of the payprice list.

Every co-op has a different source for its operatingrevenues. Co-ops with processing facilities can benefit fromrising dairy commodity markets one year and have significantfinancial burden in years when the dairy commodity productsdecline in price. Large swings in dairy commodity prices can

have significant impacts on the co-op’s operations and onproducer pay prices.

Management must manage pay price expectations bywinning the confidence of the membership with the under-standing that the co-op is being run for the members’ benefitand every effort will be made to pay the highest possibleprice while maintaining the financial integrity of the co-op.That requires looking out for both the short-term and long-term company interests.

Milk marketing co-ops also provide many other servicesand benefits for co-op members, such as field and testingservices, supplies, legislative and lobbying service, all ofwhich can greatly aid and enhance a producer’s ability tomaintain a profitable dairy farm. A manager that understandsthe mission of the cooperative and is personally available torespond to all member inquiries also develops a sense ofconfidence with the members that he is working for theirbest interests.

3. What is the most important thing I learned about howrunning a co-op differs from running another type ofbusiness?

All successful businesses must create value for their ownersand their customers. In public companies, the owners areinvestors and expect to gain returns from profitable companyoperations that provide services or products of value to thecompany’s customers. Cooperative owners are the membersof the co-op who not only provide the equity (ownership)capital for the co-op, but are also customers of the co-opthrough the marketing of their farm’s product and thepurchasing of necessary farm supplies.

Thus, co-op management has the dual responsibility ofserving its co-op member-customer with valued services andproducts and also providing a long-term return on themembers’ invested capital. This long-term return of membercapital in a dairy cooperative generally involves theretirement of member capital on a revolving basis or aftermembers exceed their base-capital target investment.

A co-op must have consistent annual earnings to revolvemember capital on a regular and reasonable term basis. Thisassures that the financing of the co-op is primarily in thehands of those producers who are currently users of the co-op’s products and services. Member commitment of equitycapital is also essential for the co-op to develop strongbanking relationships, which are necessary for any successfullong-term business venture.

In addition to the members’ ownership interests, theproducts being marketed by the co-op must also be of valueto the end customer buying the products or services, just likethe business of a public company. Co-op management isresponsible for balancing these expectations of owners andcustomers while assuring the long-term preservation of theco-op for current and future member-owners. �

Management Tipcontinued from page 17


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