RuralCoop July06 WEB - USDA Rural Development1,500-gallon water trough in the hilly rangeland of north-central Oregon. The sound of the pump and running water soon attracts a file

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COOPERATIVESCOOPERATIVESUSDA / Rural Development July/August 2006

Country Natural BeefSustaining family ranchespage 4

Summertime, and the grilling is easy. Barbecueseason usually boosts both beef sales nationally andspirits in cattle country. As such, it is fitting that ourcover story this month is on the Country NaturalBeef cooperative, which has grown steadily fromsmall roots in Oregon to become a rising force in thenatural beef market. Its success is a good reminderthat adding value to members’ livestock or cropsdoes not necessarily mean having to build a process-ing plant.

There are three basic approaches to launching anagricultural marketing cooperative:

1. Organize producers to invest in a plant to process theircrops or livestock into a value-added food or other prod-uct. Examples of this approach are the producer-ownedbiofuels plants being formed all across the nation.

2. A new or existing co-op can buy an investor-ownedcompany and convert it to producer ownership.Examples of this approach include the Iowa TurkeyCooperative/West Liberty Foods and American CrystalSugar Co.

3. A producer group can contract with a third party to cus-tom process its product on a cost-plus basis. The co-opthen markets the product under its own brand (asOrganic Valley has done so successfully) or in the pri-vate label or generic markets.

This third approach can be prudent where only razor-thinmargins can be derived from processing, and where there areprocessors with extra capacity looking to maximize their plantoperations. Such an arrangement can allow the co-op to con-centrate on marketing and building its brand. And, of course,in some cases, these co-ops may eventually choose to build orpurchase their own plant.

Twenty years ago, with ranchers all over Oregon staringbankruptcy in the face, 14 families decided to pursue thethird way, forming a co-op without bricks and mortar to pur-sue a niche market for lean, natural beef. It started with just afew thousand head per year, but the co-op now markets morethan 40,000 head annually. Sales are growing an average of

16 percent annually and the co-op is expanding east of theRocky Mountains.

CNB doesn’t own a feedyard, processing plant or even abusiness office. But it does own an ever-increasing slice of thenatural beef market.

Equally impressive is CNB’s commitment to promotingland stewardship and its determination to play a vital part inhelping keep more family ranches in operation. Indeed, talk-ing to Brothers, Ore., rancher Connie Hatfield, you get theimpression that there is nothing she is prouder of than thefact that the co-op has helped bring a number of young fami-lies back to ranching who — were it not for the stable pricingand marketing of the co-op — probably would have leftranching behind.

Renewable energy conference slatedThose with an interest in renewable energy should mark

their calendar for Oct. 10-12, when USDA and the U.S.Department of Energy will be sponsoring a major conferenceon that topic in St. Louis. The nation’s leading experts onbiomass, wind and solar energy will be there to share ideasthat will help direct the future growth of these rapidly evolv-ing industries. See page 26 for more details.

Renewable energy is also the focus of Co-op DevelopmentAction (page 18), a new magazine department that will pro-vide highlights of activities being supported by the nation’snetwork of Cooperative Development Centers. The Centersreceive funding through the Rural Cooperative DevelopmentGrant program, administered by USDA Rural Developmentto help keep the wheels of business innovation turning inrural America.— Dan Campbell, editor ■

2 July/August 2006 / Rural Cooperatives

C O M M E N T A R Y

The Third Way

Rural Cooperatives / May/June 2006 3

Rural COOPERATIVES (1088-8845) is publishedbimonthly by Rural Business–Cooperative Service,U.S. Department of Agriculture, 1400 IndependenceAve. SW, Stop 0705, Washington, DC. 20250-0705.The Secretary of Agriculture has determined thatpublication of this periodical is necessary in thetransaction of public business required by law of the Department. Periodicals postage paid atWashington, DC. and additional mailing offices.Copies may be obtained from the Superintendent ofDocuments, Government Printing Office,Washington, DC, 20402, at $23 per year. Postmaster:send address change to: Rural Cooperatives,USDA/RBS, Stop 3255, Wash., DC 20250-3255.

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

The U.S. Department of Agriculture (USDA) prohibitsdiscrimination in all its programs and activities onthe basis of race, color, national origin, age, disabili-ty, and where applicable, sex, marital status, familialstatus, parental status, religion, sexual orientation,genetic information, political beliefs, reprisal, orbecause all or part of an individual’s income isderived from any public assistance program. (Not all prohibited bases apply to all programs.) Personswith disabilities who require alternative means forcommunication of program information (Braille,large print, audiotape, etc.) should contact USDA’sTARGET Center at (202) 720-2600 (voice and TDD). To file a complaint of discrimination, write to USDA,Director, Office of Civil Rights, 1400 IndependenceAvenue, S.W., Washington, D.C. 20250-9410, or call(800) 795-3272 (voice), or (202) 720-6382 (TDD). USDAis an equal opportunity provider and employer.

Mike Johanns, Secretary of Agriculture

Thomas C. Dorr, Under Secretary,USDA Rural Development,

Jack Gleason, Acting Administrator, Rural Business-Cooperative Programs

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

Have a cooperative-related question?Call (202) 720-6483, orFax (202) 720-4641, Information Director,This publication was printed with vegetable oil-based ink.

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COOPERATIVESCOOPERATIVESJuly/August 2006 Volume 73 Number 4

p. 4

p. 10

p. 14

p. 20

F E A T U R E S

4 The Natural“Brickless” marketing co-op helps ranchers tap market for natural beefBy Dan Campbell

10 Summit focuses on common challenges facing all co-op sectors

14 Carving a NicheArctic co-ops serve as midwife to birth of Inuit artBy Kathy M’Closkey

20 USDA/co-op partnership aids producer quest for market powerBy James Baarda

24 On & Off the Top 10025 years of tracking the largest ag co-opsBy Bruce Reynolds, David Chesnick

D E P A R T M E N T S

2 COMMENTARY13 LEGAL CORNER18 CO-OP DEVELOPMENT ACTION26 NEWSLINE33 PAGE FROM THE PAST35 INSIDE RURAL DEVELOPMENT36 NEW CO-OP PUBLICATIONS

O n t h e C o v e r :

Mary Forman, a CPA who is equally adept at balancing books or round-ing up cattle on her family’s Oregon ranch, relaxes after a cattle drive.The Formans are founder-members of Country Natural Beef, dedicatedto sustaining healthy rangeland and family ranches. See story, page 4.USDA Photo by Dan Campbell

By Dan Campbell, editor

eering out from under thebrim of his straw cowboyhat, Lowell Forman looksas if he would be right at

home belly up to the bar of the LongBranch Saloon, shooting the breezewith Matt Dillon and Miss Kitty. But the Antelope, Ore., rancher isserving, not drinking, as he hits theswitch to start the pump that fills a1,500-gallon water trough in the hillyrangeland of north-central Oregon.The sound of the pump and runningwater soon attracts a file of thirstyred angus-mix heifers, part of a herdof 450 cattle that graze a 20,000-acreranch he and his wife, Mary, operateabout three hours east of Portland.


The Natura l “Brickless” marketing co-op helps rancherstap growing market for lean, natural beef

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Rural Cooperatives / July/August 2006 5

The range grass is still green in mid-June, but it won’t be for long. “Withina couple of weeks, it will all fade to drybrown,” says Forman as he scans thehorizon of the ranch that four genera-tions of his family (sons Spencer andFloyde, currently away at college, willbe the fifth generation if they choose toranch) have worked through hot, aridsummers and frigid winters. When therange dries out, the cattle will have toroam over ever-greater areas of theranch to get the forage they need —typically 50 acres per head.

“This was all sheep and horse coun-try until after World War II,” Formansays, as he aims his pickup truck forhome. A large coyoteeyes him warily beforedarting into the brush asthe truck crests a hill.

Early the next morn-ing, Mary and Lowellsaddle up their quarterhorses and form a quickgame plan for driving 120pairs into the corralsaround their barn. TheFormans obviously knowthe cowboy trade, makingshort work of it as theydeftly zigzag their horsesin and around the cattle,working them ever for-

ward. Mary veers off onto one of theflanks to bring in some strays as Lowellcontinues to drive the main herd downinto a small creek gully, then up a slopeand into the corrals.

And so ranch life goes as theFormans move cattle from one part ofthe ranch to another to keep them fedand watered. In winter, when the rangealone can no longer support the herd,supplemental hay will be provided. InJuly and August, 18-month-old steerswill be rounded up one final time andtrucked to the feedlot for finishing.

The process is repeated on tens ofthousands of ranches all over the west-ern United States every year. But from

this point forward, the process will takea decidedly different twist, due to theFormans’ membership in the CountryNatural Beef cooperative.

Co-op without bricks or mortar Most ranchers sell their cattle upon

arrival at the feedlot or just after finish-ing, but co-op members retain owner-ship through the feedlot and processing(technically, they sell their cattle to theprocessor, then buy the boxed beefback). They maintain ownership untiltheir beef is sold to retailers.

The Formans are among the 76ranch families (93 counting transitionalmembers awaiting full membership sta-

tus) in eight westernstates and Hawaii whohave banded togetherunder the umbrella of theCountry Natural Beef(CNB) cooperative. Theco-op formerly did busi-ness as Oregon CountryBeef prior to its expansioninto other states. CNBhas grown slowly, butsteadily, in the 20 yearssince it was founded by 14family ranches and as thereputation of its naturalbeef has attracted a cadreof loyal customers.

CNB is a cooperativewithout bricks or mortar.

“We own zero net assets and have zeronet liabilities,” Lowell says. It is strictlya marketing a cooperative, withoutemployees. The functions of produc-tion, feeding, marketing and finance areperformed by teams headed up by indi-vidual CNB ranchers. These “internalpartners” have their own employees andare responsible for their area of expert-ise. In the beginning, everyone volun-teered their time and talent, but theseranchers are now compensated for theirefforts. Mary, a CPA, heads the financeoffice from a house on the ranch nearAntelope. The co-op’s sales now top$40 million annually, and are growingabout 16 percent each year. Last year,the co-op shipped more than 40,000head to market.

Lowell Forman (facing page) says that the traceability of CNB beef is another factor thathas gained customers for the co-op. Lowell and Mary Forman (above) discuss the day’splan of action, then mount up and drive home a herd of about 120 cattle pairs (top). USDA photos by Dan Campbell

There is no mystery as to what conditions sparked the cre-ation of the Country Natural Beef cooperative. “We were allgoing broke in 1986 selling beef into the commodity market!”recalls Connie Hatfield, who along with herhusband, Doc, runs a herd of 400 mothercows on 28,000 acres. (Like most co-opmembers, their ranch includes both landthey own and lease from the Bureau ofLand Management). The nearest town isthe tiny hamlet of Brothers, Ore. — “one ofthose ‘blink and you missed it towns,’” saysConnie.

Here as elsewhere, the mid-1980s werethe worst period for agriculture since theGreat Depression of the1930s, she says.Over-production, plummeting land valuesand soaring interest rates took a heavy tollon farms and ranches all across Oregon.

To make matters worse, beef in the1980s was a whipping boy for dieticiansand food faddists. “All you heard in themedia at that time was ‘don’t eat red meat,’and that ranchers and farmers were rapingthe land,” Hatfield says.

She got the co-op ball rolling after a visitto a health and fitness club in Bend, Ore.“At that time, it was the only health club intown; now there are about eight,” she says.She asked the fitness trainer his opinion on eating red meat.“He said he recommend all his clients eat beef at least threetimes a week.” This was music to Connie’s ears, but shecrashed back to earth a minute later when he added, “But wehave so darn much trouble getting beef from Argentina herein Bend.”

When pressed as to why he preferred Argentine beef, hesaid it was because they raised beef without antibiotics or

growth hormones and it was “shortfed,” meaning it spent less time onthe feedlot, making for leaner meat.

“He had no idea we were raisingbeef that way just 50 miles awayfrom his club,” Hatfield says. “Itwas our own fault. We had a greatproduct, but we didn’t market it. Wejust sold our calves to buyers whenthey came around, and then wewhined about the prices they paidus.”

Soon thereafter, the Hatfieldsorganized a meeting with about 34other Oregon ranchers and invitedthe health club director over to talkabout beef. After that, 14 of theranch families agreed to form CNBto pursue the lean-beef market.

One of the first tasks of the newco-op was to draft an organizationalgoal, which reads in part: “Market-ing is consumer driven. Our goal isto provide a sustainable means

through a group to profitably market quality beef ...whileretaining every possible bit of independence.” It goes on tosay that the co-op will be producer controlled and containadministrative costs to a bare minimum, while costs of opera-tion come from a percentage of producer’s revenue. It con-cludes: “Country Natural Beef is an idea that needs to beconstantly examined, not an entity that can be bought andsold.” ■

The co-op is currently expandingeast into Colorado, Texas and NewMexico, due in part to the urging of itslargest customer, Whole Foods, a grow-ing, up-scale grocery chain that attractsa demanding, health-conscious clien-tele.

Lowell tips his Stetson to Doc andConnie Hatfield of Brothers, Ore., forhaving the foresight and energy to ini-tialize the formation of the co-op in themid-1980s (see sidebar, below). At thattime, yearling calves were fetching only

a bankruptcy-inducing 65 cents a pound.One major goal of the co-op was to helplevel out the beef-market rollercoaster— which sees prices soar one year, onlyto plunge the next — by pricing theirbeef at an amount that covers a mem-ber’s cost of operation, a return oninvestment and a reasonable profit.

In 1986, the co-op picked threeranches to use as a baseline to deter-mine average cost of production. Thatbaseline is updated every year to reflectcurrent market conditions. This prac-

tice also provides stable pricing forCNB customers. Unlike most beef mar-keters, CNB does not sell based onweekly price sheets.

Members are paid in five install-ments, which begin to flow back tothem from time cattle arrive at thefeedlot. At the finishing feedyard, eachprogram animal gets a pre-numbered,CNB ear tag which identifies it throughthe packing house. This provides arecord that enables the co-op to tracebeef back to its source.


Co-op member Doc Hatfield prepares samplesof CNB beef during an in-store promotion.These events help ranchers learn what cus-tomers and retailers want. Photo courtesy CNB

Meeting the Argentine challenge“Country Natural Beef is an idea thatneeds to be constantly examined, not anentity that can be bought and sold.”

Ranchers meet consumersduring in-store promos

All members of the Country NaturalBeef cooperative do at least one in-storepromotion each year, where they meetand greet their buying public. Membersusually cook beef, hand out samples andrecipes while answering questions. Thein-store promo days allow co-op mem-bers to hear firsthand what consumersare looking for in beef.

The “in-stores” also help rancherssee the market through the retailers’eyes.

Connie Hatfield says in-store promodays provide members with a tremen-dous boost in morale. “The in-storeshave helped to give us back the pridewe had lost back in the 1980s when thecattle and beef industry was under con-stant attack. When we meet the cus-tomers, we always make a point ofthanking them for buying our beef andtelling them they are helping to keepfamily-owned ranches in business.

“Many times the customers will giveyou a hug and thank you right back,saying how much they appreciate thebeef products we are producing.Sometimes they can get emotional,relating their memories of their grand-parents’ farm or ranch and how theymiss it. You are never the same when

you go home after those kinds ofexchanges.”

“Natural” not for all ranchers The “natural” label has been misused

and abused by many, Lowell notes.USDA stipulates that a product thatcontains no artificial ingredient or addedcolor and is only minimally processed —in a way that does not fundamentallyalter the raw product — may be labeled“natural.”

For CNB, “natural” also meansstrictly following a low-input method ofproduction and adopting a philosophyof careful land stewardship. All mem-bers sign affidavits promising to raisecattle without the use of antibiotics,growth hormone implants or feed addi-tives that promote forage conversion.

They also must adhere to the co-op’sland ethic, which means never over-grazing and managing limited waterresources to maintain grass and plantdiversity and healthy streams. “We basi-cally strive to leave the land in bettershape than we found it,” says Lowell.

To ensure enforcement of these stan-dards, CNB contracts with the FoodAlliance to do third-party verification.

“This approach to ranching does notappeal to everyone,” Lowell notes.“That’s fine; we don’t want to commod-

ify our product. There are plenty ofranchers who are interested in raisingcattle the way we require and belongingto a co-op that requires members beactive participants in it.”

When asked if the co-op has consid-ered going organic, Mary Formanresponds that it just wouldn’t be practi-cal for operations that often cover20,000 acres or more, such as hers.“Organic means that every bite of feedan animal ever consumes should beclassified as organic. Can you imaginequalifying a million acres of range? Ifwe can’t guarantee it, we don’t evensuggest it,” she says.

The only way for CNB members toguarantee that all feed source is organicwould be to confine animals and feedthem only forage or grain from certifiedorganic sources. “We are striving forsustainable range land, families andcommunities and we cannot reach ourgoal by being organic,” Mary says.

Sponsorship required for membership New members have to be sponsored

by an existing member, and then gothrough a two-year trial membershipbefore they become full members of theco-op.

Member ranches range in size from aWyoming ranch with 12,000 cows to


Lowell Forman rounds up somestragglers. Managing limitedwater resources to maintain plantdiversity and healthy streams ispart of the co-op’s land ethic.

one long-time member with only 60cows. Marketing “slots” are allocated tomembers, determining the dates whenthey must ship their cattle to the feed-lot. Once a member has slots assigned,they cannot be bumped out of them.

Jim and Maria McNamee, who man-age 550 mother cows near Maupin,Ore., became full members inDecember 2005. They can’t be accusedof making a snap decision to join. Jim,Mary Forman’s brother, has beenwatching the co-op grow and prosperfor 20 years and Maria has worked inthe CNB finance office for 12 of thoseyears. They were invited to join in thespring of 2003 when the need for cattlewas growing.

“We joined in a year of what turnedout to be record-high prices for genericbeef,” Jim says with a laugh. Still, hehas no doubt that he’ll do better mostyears by being a member of the co-op.“I like the idea that we will have morecontrol over our own destiny by mar-keting through the co-op,” Jim says.

“The biggest change means that now

if we treat an animal with antibiotics, itcannot be marketed with our co-op cat-tle,” Jim says. But it can still be raisedand sold outside of the co-op for gener-ic beef.

Every member a directorEvery member of the co-op is also a

board member. Participation in a week-ly conference call every Wednesdaymorning is encouraged. Attendance attheir two annual membership meetingseach year is required, as is participationin an event involving customers or con-sumers.

During the conference calls, mem-bers hear reports on which ranchesshipped cattle for processing the priorweek. They also get updates on salesand promotions, freight and feedlotcosts, etc. Team leaders for the market-ing, finance, environmental and produc-tion committees also hold weekly con-ference calls.

Will this policy of having every co-op member also serve as a director stillbe feasible as the co-op passes the 100-member mark? “We frequently havethat discussion: are we getting too bigto operate this way?” says Hatfield.“We’ve decided to keep doing businessthis way until it becomes impractical; sofar, it is working just fine.” Indeed, it isa strength of the co-op, she says, addingthat “we’ll know when it’s time tochange.”

Shorter time on feedAll CNB cattle are processed at AB

Foods in Toppenish, Wash. However,with the co-op expanding membershipto the east side of the Rocky Moun-tains, use of a second feedlot and pro-cessing plant (probably in Colorado orTexas) is being considered to cut downon trucking costs to the Northwest.

All CNB cattle are fed at BeefNorthwest Feeders in Boardman, Ore.,where feedlot owner John Wilson isalso a member of a CNB family ranch.The working partnership with BeefNorthwest is important, because notonly does it have to provide space for12,000-15,000 head at any one time, italso must segregate the co-op cattle and

provide a special feed truck and otherspecial care.

“We constantly collaborate with theranchers on animal handling, health andnutrition,” says Wilson. “Beef North-west Feeders essentially acts as a part-ner in a vertically integrated extensionfor CNB.”

Because CNB customers want leanbeef and smaller cuts, its cattle stay onfeed an average of only 92-94 days, asopposed to the industry average of 120-140 days. CNB carcasses typically areabout 600 to 700 pounds in an industrywhere 1,000-pound carcasses are thenorm.

“Ideally, we feed to produce a carcassthat will yield 40 percent Choice and 60percent Select beef,” Lowell says. SinceSelect beef is leaner, it is a bit morechallenging to cook properly. But forhealth-conscious consumers looking forsmaller, leaner cuts of beef, that’s a smallprice to pay. Indeed, a primary reasonthe co-op was launched was to recaptureconsumers who had stopped eating beefon a regular basis (see sidebar).

“Working with Whole Foods, we arecreating a strong, consistent market forour shorter-fed beef,” Lowell says.Whole Foods currently buys about 60percent of the co-op’s beef.

From its formation, CNB has usedthese principles as its guiding light:

• Providing humane care for ourlivestock, native plants andwildlife is a first priority;

• Healthy land is biologicallydiverse;

• Land management decisionsare based on long-term healthrather than short-term gain;

• We never use growth-stimulat-ing hormones, feed additiveantibiotics, genetically modifiedgrains or animal byproductfeeds;

• By grazing thoughtfully, webenefit not only the land and itsranching families, but societyas well. ■

Country NaturalBeef ’s principles:


Jim and Maria McNamme, with daughtersLisa and Kate, recently completed theirtwo-year trial membership and are nowfull co-op members.

“We believe their high-quality feed,less stress and better living conditionslead to a more tender cut of meat and abetter flavor,” says Jim Thomas, meatassociate coordinator for Whole FoodMarket’s Northern Pacific Region.

Other major buyers include morethan 100 restaurants, New Seasons natural food stores in Portland, BonApatite (which supplies colleges andhospitals), and Burgerville, a Northwestburger chain that prepares burgers onlywith fresh beef.

A community of shared valuesMarge McClaran, an 80-year-old

CNB member from Joseph, Ore., saysthat rural America is changing in such away that she often feels as if “we arelosing our community of place.” Shecites the closure of her community’slocal school and livestock auction yardas examples of this trend. But when shegets together with the rest of the co-opmembers for CNB annual meetings, shefeels as if this community of place has

been replaced by something even bet-ter: “a community of shared values.”

As further evidence of the favorableimpact the co-op is having, young peoplewho once had little or no intention ofreturning to their family ranch after col-lege are now coming back home to con-tinue the family tradition as cattle pro-ducers. Hatfield says the co-op has beencredited for helping to attract 11 youngfamilies back to ranches. Her owndaughter, Becky, married into the Hydefamily, CNB ranchers who own theYamsi Ranch near Chiloquin, Ore.

“At our last co-op meeting, we hadmore than 200 in attendance, and there

were 25 children under the age of five,”Hatfield notes. The co-op arranges forbabysitters at these meetings so thatparents can fully participate in the busi-ness sessions. Connie has insisted onoffering this service, recalling that whenshe was a young mother, how frustrat-ing it was for her to have to miss busi-ness sessions so that she could care forher young children. “I always sworethat if I ever got in a position to dosomething about it, I would work toarrange things so the wives could fullyparticipate.”

“We hope our business modelspreads,” she continues. “We’re helpingto sustain family ranches and doing itby producing a product that is bringingmore people back to beef. I’m sure itcan be replicated by others. We wouldgive our right arm if sharing informa-tion about what we’ve done can helpothers do something similar. It is ourhope that 100 years from now, familieswill still be raising cattle on theseranches.” ■


“It is our hope that100 years from now,families will still beraising cattle onthese ranches.”

here is Teddy Rooseveltwhen America needshim? Glenn English,CEO of the NationalRural Electric

Cooperative Association (NRECA),raised this question during an addressthat was one of the highlights of the firstNational Cooperative Summit, held May3 in Washington, D.C.

Roosevelt — the nation’s monopoly-busting president — would doubtlessbe sorely aggrieved if he returned nowto see how business power has beenconcentrated into fewer and fewer cor-porate hands. This makes the role ofcooperatives more important than ever,English noted. Three decades of corpo-rate mergers and deregulation haveresulted in the rise of a new class ofrobber barons in some industries, hesaid.

In the 1970s, there were more than60 railroads competing with each other.Then deregulation began, and todaythere are but four national railroads,English said. This has impacted ruralutilities by contributing to soaringprices for coal.

“What would Teddy Roosevelt haveto say? This nation needs a good doseof Teddy Roosevelt!” said English,adding that NRECA has engaged in anine-year struggle on energy legislationneeded to help address some market-place imbalances. NRECA’s 900-plusmember co-ops provide electricity to 39million people and are growing at twicethe rate of investor-owned utilities,English said.

“Some say co-opsshould evolve intohybrid businesses,combining elements ofco-ops and investor-owned businesses.Others urge membersto cash-in [selling orconverting their co-ops], sacrificing thegood of the member-ship for personal gain,”he continued, soundinghighly skeptical ofsuch moves. Instead,co-ops need torecruit managers whoare “true believers inco-op principles,”English said.

“Co-ops represent the ultimate inself-reliance; they let people do forthemselves,” he said. But new toolsmust be developed to carry co-op ideasand principles to millions more peoplein America and around the world. Co-ops are different from other businessesbecause they have “heart and soul,”English continued, and they are com-mitted to the concept of providing serv-ice to their communities (the seventhco-op principle).

English saluted the NationalCooperative Business Association(NCBA) for hosting the Co-op Summit,calling NCBA “the keeper of the flamefor the co-op movement.”

Summit’s cross-sector focusThe Co-op Summit brought togeth-

er 300 national cooperative leaders for aday-long series of seminars on topicsranging from strategies for fighting co-op conversions to ways of improvingcooperative identification with con-sumers.

Some saw the summit as a first steptoward developing a cross-sector co-opagenda to address common needs andto begin flexing more co-op politicalmuscle, which has never been commen-surate with the impact co-ops have onthe national economy.

The Summit also had an internation-al flavor. More than 20 representativesof the International CooperativeAssociation attended the Summit, andDame Pauline Green, CEO of Co-operatives UK, the United Kingdom’slargest consumer cooperative, was a fea-tured plenary session speaker. She dis-cussed efforts to develop a common co-

Summit focuses on commonchal lenges, oppor tun i t ies fac inga l l co-op sectors

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Identification badge ribbons await pickup at the conferenceregistration desk. The Co-op Summit attracted 300 co-op lead-ers from around the world. Photos courtesy NCBA

op “master brand” for thecooperative, which includesvarious types of businesses,including food and drugstores.

Green explained that thepilot program in the U.K. wasaimed at creating a consistentco-op identity around a com-mon logo and slogan. Overall,she said, the pilot projectshave been successful, boostingsales and customers andincreasing the profile of theco-op stores. It is now up toU.K. co-ops to decidewhether to adopt the brandpermanently.

Subsequent events haveproven that food, pharmacyand travel stores all outper-formed control groups andbrand standards improvedacross the board. As a result,The Co-operative Group hasdecided to roll out the newidentity campaign across morethan 3,400 outlets across the UnitedKingdom. Many other U.K. cooperativesare also adopting the common brand.

Other featured speakers includedWisconsin Sen. Herb Kohl and DeputyAgriculture Secretary Charles F.“Chuck” Conner. Kohl hailed coopera-tives as “the good news in Americanbusiness” while Conner said withoutco-ops “rural America would not bewhat it is today.”

Conner: co-op identity runs deep in rural America

Pinch hitting for AgricultureSecretary Mike Johanns, who was calledaway to crucial trade talks in Geneva,Switzerland, at the last minute, Connernoted that the Summit coincided withan important anniversary. “USDA andrural cooperatives are celebrating the80th anniversary of a great partnership:the Co-op Marketing Act, whichbecame law in 1926 and mandates thatUSDA operate a co-op program.”Conner noted that some have suggestedthe Act be updated to expand the mis-sion to include all types of co-ops — an

idea that was popular with many of thenon-ag co-ops at the summit.

“Those of us who grew up in farmcountry learned early on the value ofco-ops,” Conner said. “We got ourelectricity from the REC, our phoneservice from a rural telco, and did ourfarm business down at the co-op. Theidentification of co-ops with ruralAmerica runs deep,” even extending tothe White House, he said.

“President Bush himself gets hiselectricity down at the ranch from arural electric co-op,” Conner said. “Healso gets his water from a USDA RuralDevelopment-financed rural utility. Youcan talk co-op in the Oval Office to thisPresident and be understood. Thathasn’t always been the case in the past.”

Of course, the cooperative move-ment as a whole is much broader thanjust rural America and agriculture,Conner said, acknowledging and wel-coming the non-farm and non-rural co-operatives present.

The mission of USDA RuralDevelopment, which administersUSDA’s rural business and cooperativeprograms, is to increase economic

opportunity and improve the quality oflife in rural America. “You don’t need tobe a farmer, an REC or a telecom to dobusiness with us,” Conner said. “If youare doing any kind of business in ruralAmerica — whether it’s elder or farmworker housing, or health care, orschools or child care, or worker co-operatives in any field, or making use ofour housing, community facilities andbusiness programs — we can provideresources you can draw upon. We areeager to work with you.

“We know we can’t stand still, andneither can you. Rural America isincredibly diverse. The rural economyis highly diversified. The world ischanging. Your businesses — and ourmission — change with it.”

A better business model NCBA President Paul Hazen kicked

off the Summit by proclaiming that U.S.co-ops “aren’t simply an alternativebusiness model; they are a better busi-ness model.” He offered reasons why:• Cooperatives distribute capital widely

among average Americans, whilestock companies make the rich richer.


The summit ended with a panel discussion that included (from left): Sheldon Petersen, CEO, NationalRural Utilities Co-op Finance Corporation; Stephen Caruso, CEO, Florida’s Natural Growers Co-op; PaulHazen, NCBA president; Alfred Plamann, CEO, Unified Western Grocers; Charles Snyder, president,National Co-op Bank.

• Cooperatives keep capital in thecommunity, while stock companiesexport it elsewhere.

• Cooperatives exemplify the “owner-ship society,” while stock companiesconcentrate ownership among theinvestor class.

• Cooperative governance is open anddemocratic, while stock companygovernance is closed and easilymanipulated.

• Cooperatives have both economicand social goals, while stock compa-nies are motivated solely to makemoney for shareholders.

Cooperatives largely police them-selves while government must provideextensive oversight and control overstock companies, Hazen said. “As longas the newspapers are full of scandalsinvolving investor-owned companies, aslong as a greedy few seek to convert co-ops for personal gain and as long aseconomic forces keep widening the gapbetween rich and poor, I’ll keep sayingit. Co-ops are a better business model.”

Co-op program deserves support Sen. Kohl, the ranking minority

member on the U.S. Senate AgricultureAppropriations Subcommittee, saidcooperatives deserve greater attentionfrom the federal government for allthey do to foster economic develop-ment. He noted that co-ops serve near-ly 40 percent of Americans and pump atleast $200 billion into our economyeach year.

“Cooperatives are vital to our econ-omy, and they do it with a conscience— a conscience that is centered on thenotion that we get more done byworking together,” Kohl said. “Yet,while investor-owned businesses canturn to the Commerce Department,and small business has the SmallBusiness Administration, cooperativeshave just one office at the Departmentof Agriculture, which makes it theirsole business to advocate for co-ops.”He urged that a leader with strong co-op credentials be appointed to reinvig-orate USDA’s Cooperative Programsoffice.

Kohl helped secure $4.5 million infederal funding to establish a farmerhealth care cooperative pilot project inWisconsin to increase access to afford-able health benefit plans. The fundingis being used to develop health carepurchasing alliances for Wisconsinfarmers and small businesses in thestate’s rural communities.

“If this program works in Wisconsin,I see no reason why it can’t work inother parts of the country,” Kohl said.“It’s a textbook example of cooperativesoffering an innovative solution to a vex-ing national problem.”

He also authored a bill that will resultin the expenditure of $500,000 to collectdata and research on the contributionscooperatives make across our economy.That program is being overseen byUSDA’s Cooperative Programs office.

The Summit concluded with aroundtable of co-op CEOs moderatedby Hazen. The CEOs discussed the topissues facing U.S. co-ops today, includ-ing capital and equity needs, as well asideas for better co-op marketing. ■


The continuing debate over the wisdom and needfor states to enact legislation authorizing the creationof “cooperatives” with many characteristics of limitedliability companies was the focus of one Summit break-out session. Donald Frederick, USDA Cooperative Pro-grams specialist in law and policy matters, reportedthat four states (Wyoming, Minnesota, Iowa and Ten-nessee) now have such laws and a fifth (Wisconsin)was close to adopting one [it since has].

Thomas Geu, professor at the University of SouthDakota School of Law, discussed the project of theNational Conference of Commissioners on UniformState Laws (NCCUSL) to draft a model statute in thisarea. He explained that NCCUSL is a nonprofit associa-tion of lawyers, appointed by the states, that research-es, drafts and promotes enactment of uniform statelaws in areas where it believes uniformity is desirableand practical.

In the summer of 2003, NCCUSL created a draftingcommittee to write a uniform cooperative associationslaw in response to the Wyoming and Minnesota laws

that were already on the books at that time. ProfessorGeu, who serves as the reporter (chief draftsperson)for the committee, said that the committee has meteach fall and spring since then. In 2005, the originalscope of the project, agricultural cooperatives, wasbroadened to include most lines of business. NCCUSLplans to complete work on its uniform statute in thesummer of 2007 and submit it to the legislatures of thestates for possible enactment in their 2008 legislativesessions.

The panel concluded with a discussion of key provi-sions of the various pieces of legislation. Frederickexplained provisions of the existing state “LLC/Cooper-ative” laws and questioned calling entities createdunder these laws “cooperatives” when a substantialportion of the ownership, control and financial rewardscan be bestowed on non-patron investor-owners. Pro-fessor Geu responded by explaining how the NCCUSLdraft attempts to protect patron-member interestswhile still creating flexibility and incentives for out-siders to provide equity capital to cooperatives. ■

Model co-op law examined

By Donald A. Frederick

Program Leader for Law,Policy & Governance;USDA Rural [email protected]

or over 150 years, a coop-erative has been definedas a business with twounique characteristics:first, it is owned and con-

trolled by the people who use its servic-es, and second, earnings are returned tousers (patrons) on the basis of use(patronage).

Since 2001, five states — Wyoming,Minnesota, Tennessee, Iowa and mostrecently Wisconsin — have enacted lawsauthorizing entities called “coopera-tives” that permit substantial non-patronownership, control and benefit. Each ofthese laws permits two classes of votingmembers: patron-user members andnon-patron investor members. The firstfour state laws were major deviationsfrom traditional cooperative principles:• Up to 85 percent of the voting con-

trol can be allocated to non-patroninvestors, and

• Only 15 percent, or even less, of theearnings need be allocated to patronson the basis of patronage.

Wisconsin has moved somewhatcloser to traditional cooperative norms.Patron members must have at least 51percent voting control of the associa-tion. And the minimum threshold forearnings allocated to patron memberson the basis of patronage is 30 percent.

LLC characteristicsWhile traditional cooperatives have

been corporations, entities formedunder these new laws are more like lim-ited liability companies (LLCs). Thisgives the organizers considerable flexi-bility in determining the ownership andfinancial interests of the members,while still providing them with protec-tion from personal liability on a parwith that given to owners of corpora-tions, including cooperative corpora-tions.

Because these associations are notcorporations, they also have additionalflexibility in handling their federalincome tax obligation. They canchoose to be taxed either as a partner-ship under Subchapter K of the InternalRevenue Code or as a corporation withthe additional tax deductions providedfor cooperatives under Subchapter T.

NCCUSL’s roleThe National Conference of

Commissioners on Uniform State laws(NCCUSL) is an association of 300representatives (all of them attorneys)from all states, dedicated to promotinguniformity among various state laws.NCCUSL drafts model state laws andpromotes their adoption by theirrespective state legislatures.

After the first cooperative associationlaws were adopted in Wyoming andMinnesota, NCCUSL named aDrafting Committee to prepare aUniform Cooperative Association Act.While the original application of thelaw was limited to agricultural coopera-tives, in 2005 the scope of the law wasexpanded to include all business activity.NCCUSL is currently considering oneor more specific exceptions to the scopeof its law. The new Wisconsin statute is

specifically not available to groupsorganizing a cooperative to supply “nat-ural gas, heat, light, power or water toits members.”

The Drafting Committee expects topresent its finished product to the fullNCCUSL membership for approval atthe group’s annual meeting in the sum-mer of 2007. If the model law isapproved, the NCCUSL Commission-ers will begin working to have it enact-ed by their states beginning with the2008 legislative session. So this maywell be a political issue in the comingyears in many states that have not con-sidered it up to now.

Implications for existing co-opsThe new laws are an alternative to,

not a replacement for, existing statecooperative incorporation laws. So, ifyour state enacts such a law, it will haveno impact on the structure or legalrights and responsibilities of existingcooperatives at the state or local level.

Also, changes in state law do notusually alter federal rights and obliga-tions. For example, if an agriculturalmarketing association decides to permitnon-patron memberships, it will simplynot qualify for the limited antitrustprotection provided producer associa-tions under the Capper-Volstead Act.Nor will it be covered by statutory andadministrative exemptions from theregistration and prospectus require-ments of the Securities Act of 1933.

But will less reliance on SubchapterT by “cooperatives” weaken support onCapitol Hill? Will clouding the pictureof what is a “cooperative” weaken sup-port for Capper-Volstead and otherfavorable laws? Only time will tell. ■


L E G A L C O R N E R

Un incorporated co-op laws pro l i fe ra te

F

By Kathy M’Closkey, PhD

Department of Sociology and AnthropologyUniversity of Windsor, Canadae-mail: [email protected]

ne of the great “cultural miracles” of the 20thcentury occurred when the world discoveredthe beauty of art produced by the native Inuitpeople of Canada’s Arcticregions. This process,

which began in the 1950s, waschronicled by Nelson Graburn,an anthropologist at theUniversity of California atBerkeley, in a series of articlespublished during a 40-yearperiod (1967-2004), in whichhe described the spectacularrise of Inuit art and its recep-tion internationally.

This article draws onGraburn’s writings as it exam-ines how the cooperative busi-ness structure helped Inuitcommunities that were spreadacross the broad expanse of northernCanada to combine forces and tapinternational art markets, generatingdesperately needed revenue for theirpeople. A half century later, these arti-san-owned businesses remain a vital cogof the region’s economy.

Fur market collapse necessitates change

The shift to trapping animals such aswhite fox, which occurred at the end ofthe 19th century, was a short-livedfinancial success for many Inuit. Afterthe collapse of the fur market in the late 1940s — due tocompetition from Russia, fur farms and synthetics — theCanadian government expanded its presence in the North toaffirm its sovereignty and administer welfare. Until World

War II, the typical Inuit winter settlement consisted of aHudson Bay Company (HBC) store, a Royal CanadianMounted Police (RCMP) post, Anglican and RomanCatholic churches and a few Inuit households whose mem-bers were employed by the non-Inuit institutions.

Dozens of small satellite camps near favorable hunting,fishing or trapping sites were spread out over a vast region.

Inuit only congregated near the permanent settlements dur-ing the summer to trade, socialize or to find temporaryemployment unloading supply ships. The Inuit populationhovered around 11,000, with 500 non-Inuit. About 60 per-


O

Carv ing a Niche Arctic cooperatives serve as midwife to birth of Inuit art

cent of Inuit livelihood was derivedfrom government subsidy.

Small carvings of bone, ivory orstone had played a peripheral role intrading activity with both whaling crewsand the HBC. The government encour-aged production of souvenirs to allevi-ate welfare payments and provided theHBC with credit to buy crafts.

After World War II, the federal gov-ernment moved into the north on amassive scale. The Cold War prompt-ed development of the Distant EarlyWarning (DEW) line. National andinternational political events forced theCanadian federal government to takemore direct responsibility for itsnorthernmost residents. Day schoolsand nursing stations were built along-side housing for southerners.

In 1948, painter James Houstonjourneyed north and serendipitouslydiscovered the souvenirs carved byPort Harrison (now Inujjuaq) Inuit.Captivated by their charm, he broughtthem to the Canadian HandicraftGuild upon his return to Montreal.When Houston returned north in1949, he purchased 300 carvings for $5each. These sold quickly at a Guild-sponsored event.

Houston returned to the Arctic,backed with $8,000 provided by theNorthwest Territories Council.Although 20,000 carvingssold within three years,such rapid success near-ly capsized the project.By Christmas 1952, theshipment was far toolarge for the Guild tohandle.

Houston contactedEugene Power, along-time friendand successfulbusiness-man from

Ann Arbor, Mich. Power purchased theentire output for $15,000 and formedEskimo Art Inc., a nonprofit corpora-tion that garnered exclusive importingrights into the United States. He thensold many of the sculptures through hisinfluential connections. Throughoutthe 1950s, the HBC also purchasedcarvings, but when inventories failed tomove, it stopped buying.

The birth of Inuit artAlthough off to a rocky start, within a

decade of Houston’s inaugural treknorth, Inuit carving was transformedinto a multi-million-dollar enterprise.How did this miracle happen? Small

producer/consumer co-ops subsidizedby the federal government were

organized during the 1960s. The firstArctic co-op was incorporated in

George River in spring 1959. Withinfour years, there were 52 co-ops,

including 11 in Arctic Quebec.Quebec marketed Inuit art

through La Fédération desCoopératives du NouveauQuébec (FCNQ), runby Inuit managers,

whereas the government of theNorthwest Territories (NWT) formedCanadian Arctic Producers (CAP) in1965 with non-Inuit management. Bythe mid-1970s, CAP wholesaled sculp-tures, fine arts and crafts to over 700dealers in 11 countries. Building on theCanadian Guild of Crafts, CAP set andmaintained standards including cultivat-ing an elite clientele.

In 1961, the Inuit Art Section, a divi-sion of Northern Affairs, sponsored theCanadian Eskimo Arts Council (CEAC)as an advisory board of professionalartists and museum personnel to over-see development and promotion ofInuit printmaking, first introduced byHouston at Cape Dorset in 1959. Theboard’s most controversial responsibilityinvolved acting as gatekeeper related tothe rejection of prints created in work-shop co-ops. Regional styles were culti-vated or sustained by outside profes-sional advisors.

Due to controlled marketing andintensive promotional efforts, Inuit artdrew high prices. Full-page ads pub-lished by the NWT EconomicDevelopment and Tourism in Inuit Art


Counter clockwise from bear carving: “Sitting Bear” by Jacob Irkok; “Mother & Child” by Josephine Angma; [both photos courtesy ABoriginArt

Galleries, www.inuit.net; all other photos courtesy Kathy M’Closkey]. SaleaNakashuk at her loom, 1981. “Bird” by Takealook; an oil tanker brings winter

supplies to Pangnirtung in 1981 in what was the Northwest Territories, now called Nunavut.

Quarterly featured a large sculptureadjacent to the phrase: “Helping Inuitartists to help themselves.” Copy adja-cent to the igloo logo reads: “this tag isyour certification from the governmentof Canada that carvings bearing thislabel are genuine and can be importedduty-free anywhere in the world.” Inuitartists also enjoy protection from copy-right infringement and additionalincome can be generated through thesale of reproduction rights for calen-dars, stamps, illustrations, etc.

By 1975, carving had become the pri-mary occupation of many of the 9,000adult Inuit, providing money for expen-sive items such as guns and snowmo-biles. Cash income per family averaged asix-fold increase in less than 25 years. By1978, 52 co-ops sold $24 million worthof goods and generated $6.5 million inincome as the single largest employer inthe north. Eighty percent of the adultInuit population belonged to co-ops.

During the 1970s, Inuit artworks

also achieved widespread recognitionthrough international touring exhibi-tions, catalogues and conferences. Forexample, Sculpture Inuit: Masterworks ofthe Canadian Arctic, was organized byCEAC, funded by the Department ofIndian and Northern Affairs [DINA],supported by National Museum of Manand the Department of External Affairs,and circulated internationally. Theexhibit heightened demand for Inuitart. Carving and printmaking becamesymbols of Canadian identity globallyand simultaneously the largest source ofincome in the North.

During 1980, the wealthiest co-opsin Quebec purchased more than $1 mil-lion in carvings. A decline in demandoccurred shortly thereafter, whenFCNQ’s inventory reached $2 millionand CAP held inventory valued at morethan $1.5 million. Co-op memberssought ways to bypass costs associatedwith marketing through CAP by sellingdirectly to dealers.

Eric Mitchell, general manager ofCAP, cautioned against such a move,noting the low returns to Alaskan nativeartists who lacked a marketing system.By 1980, with the Inuit population hov-ering around 25,000, additional craftprojects featuring jewelry, pottery orhand-sewn articles were organized inseveral NWT Inuit communities. Butbudget constraints ensued, promptingthe territorial government to attemptprivatization.

These efforts eventually failed. Co-ops took over many of the originalshops, and, a decade later, theDepartment of Culture and Communi-cation injected more money into thearts and craft sector, managing mostfacets, including acquisition of materi-als, production, promotion, exhibitingand marketing.

When the new Canadian Museum ofCivilization (formerly the NationalMuseum of Man) opened in Hull,Quebec, in 1989, the inaugural exhibit


These Inuit villages scattered across Canada have used a cooperative business to market their artwork worldwide. Map courtesy Our Co-opNetwork.

featured 20th Century Native Art. Of9,000 works held in their collection,about 7,000 were created by Inuitartists. The Inuit Art Section of DINApublishes a Catalogue of Services andCollections. The IAC maintains biog-raphies on hundreds of artists, has cata-logued more than 100,000slides, organized exhibits andmaintains a large library. Thenonprofit, Inuit-owned InuitArt Foundation publishes InuitArt Quarterly.

In 1977, anthropologistHugh Brody wrote: “Eskimo[Inuit] carving, as it is nowinternationally known, is aconsequence of southern domi-nation of Eskimo economiclife.” Yet the 33 co-ops cur-rently in operation are inde-pendently owned and con-trolled Native businesses whichoperate retail facilities, hotels,outfitting, arts and crafts andproperty rentals, with com-bined revenues of nearly $100million in 2004. Since 1986,the Arctic Co-op DevelopmentFund has provided more than$300 million in financing.Arctic Co-ops Limited marketsInuit art to over 50 Canadiangalleries and 24 in the UnitedStates and Europe. The organ-ization also owns five retail outletscalled “Northern Images.”

Women artists in spotlightInuit women artists have achieved

widespread acclaim relative to womenartists in other native societies.Between 1965 and 1990, four Inuitartists — all of them women — havereceived the Order of Canada. Theappliquéd wall hangings from BakerLake have achieved national fame.These immense works of art are on dis-play at the National Arts Centre inOttawa and Legislative Assembly inYellowknife. While working on myMaster’s thesis in the early 1980s, I vis-ited Frobisher Bay (now Iqualuit) andPangnirtung, home of the PangnirtungTapestry Studio. The photographs that

accompany this article were taken at theweave shop and the “Misuvik” orsewing center at that time.

Since its inception, Canadian Inuithave been promoted as artists to adegree that no other ethnic group in theworld ever has. Between 1971 and 1994,

more than 1 million carvings were pro-duced! The better-known artists earnvery high incomes. But this “culturalmiracle” would not have happened with-out government-subsidized coopera-tives. Today, more than 55,000 Inuit livein 53 communities across the North.

In 1999, the Canadian governmentsettled a land claims agreement bydividing the Northwest Territories intotwo parts. Nunavut, which means “ourland” in Inuktitut, is now controlled byInuit. A 10 x 22-foot tapestry woven byseven artists of the PangnirtungTapestry Studio was recently installed inNunavut’s Legislative Assembly.

Co-ops bolster Arctic economy Although the financial importance of

art production has declined relative to

an increase in other means of liveli-hood, the co-ops continue to serve asthe financial backbone of most arcticcommunities. Given their outstandingsuccess over the past five decades, it’sunlikely that other forms of financingwill usurp their crucial role in sustain-

ing a broad range of Inuit-ownedbusinesses across the North. Viveles co-ops!

The following websites containadditional information regardingthe cooperative system in ArcticCanada:• http://www.arcticco-op.com/

co-op_location.html — Map ofregion;

• http://www.ainc-inac.gc.ca/pr/info/info114_e.html — InuitInformation sheet from Indianand Northern Affairs Canada.Other components of this websitecontain a wealth of informationincluding Arctic Co-ops Limited,case studies of particular co-ops,and an essay by Dr. IanMacPherson, director of theBritish Columbia Institute forCo-operative Studies. Dr.MacPherson notes how the Inuitsuccess story is one of the mostextraordinary examples of aborigi-nal entrepreneurship in the world.

• http://www.nacaarts.org/ — con-tains information on organizationsthat provide grants, support busi-ness development, education, etc.

• http://www.usaskstudies.coop/ngc/ —University of Saskatchewan websitefor the Centre for Study of Co-ops.

References This article draws upon source materialwritten by the following authors (forcomplete citations of source material,please e-mail the author at:[email protected]): Jean Blodgertt(1980); Hugh Brody (1979); HelgaGoetz (1993); Nelson Graburn (1967-2002); Diamond Jenness (1964); KathyM’Closkey (1996); Marybelle Myers(1984); J.K Stager (1982); Virginia Watt(1987). Photo scanning by AbbyRadouski and Steve Richter. ■


An Inuit girl with a hand-woven doll in Pangnirtung in 1981.

Editor’s Note: This column has been com-piled by CooperationWorks! to provide high-lights of cooperative development activitiesfunded under USDA Rural Development’sRural Cooperative Development Grants(RCDG) program. This article focuses onsustainable-energy technologies and facili-ties. CooperationWorks! is a network ofcooperative developers who share knowledge,develop skills and use the cooperative busi-ness model to create social and economicbenefits. For more information, visit:www.cooperationworks.coop.

New England goes solarIn largely rural western Massachusetts,

demand for solar energy is on the riseand Pioneer Valley Photovoltaics —also known as (PV)2 — is growing tomeet it. The worker-owned cooperativedesigns and installs solar electricity andhot water systems in Massachusetts andConnecticut. To date, it has installedalmost 100 residential, commercial andmunicipal photovoltaic systems.

In the past three years, the co-ophas more than doubled annual revenue

and has added eight newemployees who are on track forownership stakes in the cooper-ative. As one worker-ownerexplains, “People are really con-cerned about energy these days,both how much it costs andwhere that energy comes from.They like that we’re worker-owned — it helps them feelcomfortable that we’ll be thereto help them with energy forthe long haul. And we like itthat our successes have a posi-tive impact on the environmentand allow us to serve as a role

model for other businesses.” The Cooperative Development

Institute (CDI), headquartered inSouth Deerfield, Mass., and servingNew England and New York, has part-nered with (PV)2 since its earliest days.CDI assisted with the initial planningand launch of the co-op as well as itssales and marketing efforts, and helpedthem to secure $350,000 in incentivesfor photovoltaic installations from the

Massachusetts TechnologyCollaborative.

Hoosiers focus on forest fuelIndiana is home to diverse agricultural

based resources available for sustainablerenewable energy development. In addi-tion to the state’s emphasis on expandingthe production and use of bio-based fuelssuch as ethanol and biodiesel, opportuni-ties are also being explored to processwood waste from Indiana’s expansivehardwoods industry into a marketablewood fuel pellet. The IndianaCooperative Development Center(CDC), with offices in Indianapolis, isbringing together primary and secondarywood businesses with economic develop-ment partners to explore the potential ofcooperative and other collaborative busi-ness models to expand an emerging bio-mass industry within the state.

An exploratory meeting in early 2006with wood product business owners ledto a feasibility study, now being con-ducted. This comprehensive study,which will investigate the demand forwood fuel pellets in the home heatingand industrial-scale markets, the com-


Renewable energy sparks surge of new co-ops

C O - O P D E V E L O P M E N T A C T I O N

This Minnesota wind farm is generating $2.5 million in annual energy sales. Photos courtesyCooperationWorks!

(PV)2, a worker-owned co-op in western Mass-achusetts, designs and installs solar electricitysystems.

parative nature of fuel pellets with exist-ing energy resources in Indiana, theappropriate scale with cost of produc-tion at various levels, marketing strate-gies for the finished product, and thepotential for diversifying a productionfacility to utilize other emerging bio-mass residues.

Midwest powers upIn the nation’s heartland, where

corn, soybeans and other potential fuelcrops dominate much of the landscape,renewable energy is on everyone’s mind— and cooperative development practi-tioners are no exception. CooperativeDevelopment Services (CDS) with

offices in Madison, Wis., and St. Paul,Minn., has been actively expanding intothe area of renewable energy in Wis-consin, Minnesota and Iowa.

During the past two years, CDS hascompleted feasibility studies and busi-ness plans on community-owned wind

Editor’s note: CooperationWorks! conducted a nationalconference call in June on “Current Trends in CooperativeIncorporation Models,” with guest speaker James R.Baarda, agricultural economist with USDA CooperativePrograms. In April, he prepared a comprehensive, 200-page discussion paper on “Current Issues in CooperativeFinance and Governance.” For an electronic copy, e-mailhim at: [email protected].

New category: ‘investor member’Recently enacted statutes in Wisconsin, Wyoming,

Tennessee, Minnesota and Iowa have created a new cate-gory of cooperative: “investor members.” These membersinvest capital for an expected profit and typically do notuse the co-op in other ways. But some of the new statutesafford these investor-members as much as 85 percent ofthe profits of the business and as much as 85 percent ofthe vote in its governance.

This is a dramatic departure from traditional coopera-tives, which give no voting rights to “preferred sharehold-ers” who invest in the co-op hoping to make money ontheir investment, but not demanding any control over thebusiness in return.

The new statutes are apt to make it possible for somefarmer co-ops to expand where they otherwise could nothave. But these statutes also are causing concern — evenopposition — from those who seek to protect the essenceof cooperatives as user owned and controlled enterprisesoperated for the benefit of their members. A national com-mission is examining this issue and is expected to make arecommendation in the near future regarding creation of auniform, national cooperative law, Baarda noted. (For moreinformation on this topic, visit the website of the NationalConference of Commissioners on Uniform State Laws(NCCUSL): http://www.nccusl.org/Update/.)

Look closely at co-op principlesDuring the conference, Baarda stressed that contention

over this issue is unnecessary. Instead, he said, what isneeded is a lot more information. “We need to know what

works and what doesn’t,” he said. Cooperatives — not justagricultural, but all co-ops — need to define their bedrockprinciples and build their businesses around them. He citedseveral versions of cooperative principles that are widelyused today, giving some historical context to explain differ-ing emphases.

Although he recognized that no co-op business model isperfect, “this is what we have to work with.” New econom-ic and social forces — including some never faced before— raise critical questions: Are there inherent limitations inwhat a co-op is? Or are limitations simply a result of howcooperatives work now, but need not work in the future?

“If you have one strong principle, can you reduce theimportance of other principles?” Baarda asked. “Is there abalance? Or is each and every one of these principles —however we state them — a mandate, without which wedon’t have a cooperative?

“We don’t have enough answers yet. We have a lack ofexperience with the new statutes. The increased focus oninvestment of capital is quite opposite to what traditionalco-op members thought about.” A corporation’s objectiveis to maximize return for investors. “The cooperative’sobjective is to maximize value for user-patrons. These mayor may not be the same thing.” The issue, he said, is howdoes the co-op protect the members?

Keep communications flowingIn this brave new world of cooperative finance and gov-

ernance, new statutes will be passed and lessons will con-tinue to be learned, Baarda said, emphasizing that the mostimportant thing is that — in the cooperative tradition —those who are testing the waters should share what theylearn with the rest of the cooperative world. Sharing lessonslearned and insights gleaned from both successes and fail-ures will be the key to effective cooperative development.

“I don’t know what the mechanism is to do that,”Baarda concluded. “That’s a little outside our resources atthe moment. Maybe CooperationWorks! is the organizationto do that.” After all, as he noted, “that’s what this groupalready does.” ■

Terrain is sti l l unclear for new co-op legal landscape


continued on page 30

By James Baarda, Ag Economist

Cooperative ProgramsUSDA Rural [email protected]

ighty years ago, farmercooperatives were, as theyare now, vital parts ofAmerican agriculture andrural communities. They

were growing in size, number andsophistication. Cooperatives hadreceived protection under the Capper-Volstead Act of 1922 against unantici-pated antitrust challenges, had beenrecognized as unique organizations forfederal income taxation from the verybeginning of income taxation, and cer-tain types of farmer cooperatives hadbeen favorably treated in the ClaytonAct of 1914. Almost all states had enact-ed special statutes under which cooper-atives could be incorporated.

Cooperatives had also learned somehard lessons. Inadequate attention toprinciples of cooperation, failedattempts to force price increasesthrough monopoly-type behavior andexpansions beyond member control ledto concerns about the role of coopera-tives in agriculture and in their abilityto consistently enhance farmers’ eco-nomic wellbeing.

Despite cooperatives’ early growthand importance, farmers who formedand used them needed support to fullycapture the benefits of well-run, finan-cially sound and strong cooperativebusinesses. USDA then stepped in. In1925, after noting the dramatic growthof cooperatives, Secretary ofAgricultural William M. Jardine said,“A movement of this magnitude, with

its tremendous economic and social sig-nificance, must be analyzed and guidedso that its highest possibilities may berealized.” With “analysis and guidance”as an objective, Congress acted quickly,and on July 2, 1926, President CalvinCoolidge signed into law theCooperative Marketing Act of 1926.

Ever since then, USDA has been an

active supporter of farmers who takeupon themselves responsibility to col-lectively market their products, to pur-chase their supplies, to add value tocommodities produced, to improve con-ditions of the market place, to engagein a great variety of activities toenhance individual farming operations,and to create new opportunities for


USDA/co-op par tnersh ip a idsproducer quest fo r market power

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farmers’ economic strength and forrural development.

Cooperative Marketing Act of 1926The Act established an extensive set of

tools USDA can use to analyze andunderstand cooperatives. The Actdirects five ways of providing assistanceto cooperatives. USDA is authorized to:1. Collect and analyze economic, sta-

tistical and historical informationabout cooperatives, including theirprogress, organization and businessmethods.

2. Conduct research on economic, legal,financial, social and other character-istics of cooperatives. This is toinclude organization, operation,financial and marketing problems.

3. Provide technical assistance to indi-vidual cooperatives upon request.

4. Assist those who are consideringcooperative formation.

5. Conduct educational activities toenhance the general understanding ofthe cooperative method of conduct-ing business.

The Act specified that the divisioncharged with the mission was to be locat-ed in USDA. Over the 80 years of themission, the organizational structure usedto achieve the mandates has changed sig-nificantly. The original organization wastransferred to the newly created FederalFarm Board in 1929. The work of thecooperative division was subsequentlytransferred in 1933 to the Farm CreditAdministration (which at that time wasan independent agency within USDA),where cooperative work continued until1953. When the Farm CreditAdministration became independent ofUSDA in 1953, USDA created theFarmer Cooperative Service to continueits partnership with cooperatives.

Farmer Cooperative Service existedfor nearly 25 years as an independentagency. In 1977, the cooperative pro-gram became part of the Economics,Statistics and Cooperatives Service.Independent agency status was restoredin 1980 with the creation of theAgricultural Cooperative Service. In1994, the cooperative unit, now known

as Cooperative Programs, was absorbedinto the then newly created USDARural Development mission area.

Cooperative contributionsHow have cooperatives contributed

to American agricultural and ruralAmerica? It is not possible here tochronicle the trends and events thatshow the enormous contributions thatcooperatives have made to agricultureand rural America in the past 80 years.A few general observations, however,will suggest the extent of cooperativeinfluence.

Standard business performance crite-ria can be used in assessing the impactof cooperatives. These include job cre-ation and skill development in theirlocal employment base, additions to

local and national income and the mul-tiplier effects of the dollars they gener-ate on the communities and region inwhich they operate. Benefits of a coop-erative are realized by the members, socooperative businesses tend to have agreater direct impact on the areas inwhich they operate.

There is no substitute for a vibranteconomic system. However, cooperativebusinesses go a step beyond “business asusual.” They are unique organizationsowned and controlled by farmers andoperated solely for their benefit as usersof the cooperative. The history of coop-

eratives in the past 80 years and earlierdemonstrates unique contributions bycooperatives. Following are examplesthat focus on such special attributes ofcooperation in the economy.

Changing under-performing marketstructures — Sellers, buyers, processors,retailers, consumers and producers arejust some of the groups that make up amarket in a particular commodity orgroup of commodities. Individual farm-ers who sell to buyers independentlymust take the price offered in theabsence of an alternative buyer. Inalmost every commodity produced, thegrowth of cooperatives has resulted in amarket structure in which the power ofa limited number of buyers is reduced.

The pricing system — now includingthe cooperative acting as either anintermediary or as a complete substitutefor a limited number of buyers —becomes more efficient. The final mar-ket price is conveyed to farmers moredirectly through their own cooperative,enhancing production responses to thechanging demands of a market.

Improving market performance —When farmers form cooperatives, theyusually improve the market’s perform-ance even where non-cooperative com-petitors continue to thrive and servefarmers who are not cooperative mem-bers. This impact was described manyyears ago as cooperatives’ “competitiveyardstick” role. If a non-cooperativebuyer pays a low price to farmers andmakes excessive profit from the prac-tice, farmers may form a cooperativethrough which they market their prod-uct. The price paid to farmer membersplus the patronage refund they receiveestablishes a market price. If the com-petitor refuses to pay better prices tofarmers, the farmers will join the coop-erative.

Therefore, the competitor must payhigher prices to obtain the commodity.The prices paid to farmers increases.Even those farmers who do not marketthrough the cooperative benefit fromthe cooperative’s presence. Market com-petitiveness is measured against thecooperative, creating the competitiveyardstick.


A cooperative business is orientedexclusively to servelocal areas, becausemargins flow tousers rather thanabsentee investors.

Increased farmer participation —As members and patrons, farmers par-ticipate in the market to the sameextent as their cooperative does. To agreater or lesser degree, they integratehorizontally and vertically in the marketsystem. Consequences of this participa-tion include farmers’ exertion of adegree of control over the pricing sys-tem, over the quality of products pur-chased and over strategic marketingdecisions that affect immediate andfuture returns.

Adding value to the commodity —Cooperatives effectively capture profitsfrom other segments of the market.Examples include cooperative process-ing of farmers’ lower-value commoditiesinto a value-added product, then mar-keting high-value prod-ucts. The profits fromadding value and market-ing a product are realizedby the cooperative andallocated to member pro-ducers. Absent a coopera-tive, the farmers wouldreceive only a commodityprice. Others wouldreceive the profits fromadding value. With thecooperative, the farmersreceive all of the benefitsof greater participation inthe market.

Innovation —Agriculture has a historyof innovation and pro-ductivity unmatched by any otherindustry on an extended basis. Thisspirit of innovation certainly holds truefor cooperatives. On the supply side,cooperatives have shown remarkablecreativity and focus in providing mem-bers with quality material, seeds andsupplies when and where they are need-ed.

Marketing innovations are amongthe most visible of cooperative contri-butions in consumer awareness throughbranding. New product development,new methods of marketing and distribu-tion and development of internationalmarkets are only a few examples of themany ways cooperatives bring creativity

to products, markets and ultimately toconsumers.

Business innovation — Farmershave, over a long period of time, creat-ed business forms that are ideally suitedto their peculiar occupation and theunique markets in which they purchaseand sell. Democratic voting, effectivemember directorships, the patronagerefund systems and patronage-basedfinancing systems are unique to cooper-ative businesses. Examples of workablecooperative solutions to business chal-lenges are distributed, then copied andmodified for other farmers in additionalregions and commodity systems.

Principles, practices and structureshave been suggested, tried, modified,discarded, adapted and adopted as need-

ed. Cooperatives have become part ofthe fabric of rural America through thecreativity, foresight and determinationof individuals with common goals andcompatible objectives. These innova-tions are in and of themselves contribu-tions that cooperatives have made dur-ing the 80-year existence of theCooperative Marketing Act.

Rural economic development —Cooperatives, by their nature, tend toenhance local economic development inunique ways. There are several reasonsfor this. A cooperative business is ori-ented exclusively to serve local areas,because margins flow to users ratherthan absentee investors. Their objective

is, in fact, to increase income forpatrons. When benefits are distributed,they go not to those who have excessinvestment funds but to farmers whocan then use the income for personal orfarming operations. This keeps familiesin farming, families whose existence isthe basis for vibrant rural communities.

Farmer cooperatives are only onetype of cooperative enhancing rural andcommunity economic development.Among many other examples are ruralelectric and telephone cooperatives thatenhance the quality of rural life. Thesecooperatives also have a partner in theRural Utilities Program of USDA RuralDevelopment, which provides themwith financial and technical assistance.The nation’s Farm Credit System, a

producer-owned cooperativesystem, offers vital creditthat would otherwise not beavailable for many farmersand other rural residents.

USDA’s roleDuring the 80 years since

the Cooperative MarketingAct was passed, cooperativeshave flourished and madeenormous contributions tofarming and rural America.USDA has been an activeparticipant in their growth.The Act’s “analysis andguidance” mission hasplaced USDA in a positionto have a real impact on

individuals and their cooperatives. It isnot possible to chronicle everything thisrelatively small office has done forcooperatives. A few highlights include:

Cooperative principles — Theunique business organization of cooper-atives is also their strength. This ideahas been the source of analysis andguidance throughout the history of theCooperative Marketing Act of 1926. Ithas also been one of the important con-tributions of USDA to cooperatives.From early expressions of cooperative“principles” in England in 1844,through a formulation of principles bythe Patrons of Husbandry in the UnitedStates in 1876 as a result of cooperative


President Eisenhower signs the act in 1953 which created the Farm CreditAdministration as an independent agency and the Farmer Cooperative Serviceas a USDA agency. To his left is Ag Secretary Ezra Taft Benson, who had alsoserved as executive director of the National Council of Farmer Cooperatives.

failures due to poor organizationalstructures, through failures in the 1920sbecause of misconceived ideas aboutwhat cooperatives can and cannot do,cooperatives have constantly soughtguiding principles.

Prior to the 1926 Act, principleswere included in state cooperativeincorporation statutes, federal incometax pronouncements and the Capper-Volstead Act of 1922. USDA continuedits analysis and guidance mission oncooperative principles to assure farmersgain the benefits of properly formedcooperatives. Numerous cooperativedefinitions and principles developedover the years.

In 1937, for example, a study ofEuropean cooperatives provided infor-mation about successful cooperativesthere. In 1987, USDA formulated threefundamental principles that are “stan-dards” in the industry. Principles arenot mere theory. They are guidinglights for successful business operatedon a cooperative basis. Because of this,USDA’s contribution to cooperativesthrough its dedication to principles hasbeen real and lasting.

Good business structures — In the80 years of its partnership with cooper-atives, USDA has observed cooperativescannot succeed — regardless of dedica-tion and good intentions — withoutappropriate business structures. Manystudies of co-op successes and failures,analyses of operations from all perspec-tives, and accumulation of greatamounts of data and experience havebeen applied to give guidance to thoseforming or already operating coopera-tives. These studies have also been usedby cooperatives looking to make signifi-cant changes in their own structure ortheir relationship with other organiza-tions with strategic alliances and jointventures.

Mergers and consolidations havebeen prevalent in cooperatives as num-bers decrease and efficient size increas-es. USDA has guided many such effi-ciency-generating changes and haslearned many lessons that are passed toothers, all under the authority of theCooperative Marketing Act.

Promoting financial strength—Farmer equity financing, debt capitaland unique methods used by farmersfor financing their cooperative throughpatronage are key to understandingcooperatives. Financing is often themost difficult task in forming or devel-oping cooperatives. At the same time,measuring cooperative financial healthis required, just as it is for any business.USDA has always employed widely rec-ognized cooperative finance expertswho understood cooperative finance

and who shared their expertise withcooperatives, their accountants andadvisors.

Special studies, including some thatfocus on patronage-based financing andequity redemption, have highlighted thepartnership between USDA and coop-eratives.

Directors, management and opera-tions — Running a cooperative success-fully is not an easy task. No outsideassistance can substitute for good direc-tors, good management and smoothoperations. Assistance can, however, beoffered through information and theexperience of others.

Director training, management assis-tance and dissemination of best practiceshave been developed and applied duringall of the 80 years of the Act’s mandates.

From technical assistance to directortraining sessions and publications toencouragement of strong co-op mem-ber-relations programs, many aspects ofcooperative governance and operationshave been the subject of USDA’s expert-ise and assistance.

Industry studies — Until relativelyrecently, USDA’s partnership withcooperatives included substantial indus-try studies. For both marketing andsupply cooperatives, the industries andmarkets in which they operate define

the need for cooperatives as well as themethods cooperative could use toimprove the market. Specialists in farmsupplies, grains and oilseeds, livestock,fruits and vegetables, specialty cropsand dairy worked with farmers andcooperatives to improve the farmers’positions in each industry through theircooperatives.

While USDA’s Cooperative Programretains dairy experts, few other staffnow specialize in particular commodi-ties or industries.

Legal and policy issues — As a cen-tral focus for national issues, a majorthrust of USDA’s efforts has been toeducate the cooperative community andpolicy makers about the special charac-ter of cooperatives and what that means


continued on page 31

The staff of USDA's Division of Co-op Marketing in 1926, just after President Calvin Coolidgesigned the Cooperative Marketing Act into law. USDA Photo

By Bruce J. Reynolds

David S. Chesnick

USDA Rural Development Ag [email protected], [email protected]

he January/February 2006issue of this magazinereported average financialresults for the Top 100cooperatives for 2004,

which marked the 25th anniversary ofthis important research program. Theannual ranking of businesses by size ofsales has been a popular performancebenchmark, beginning with publicationof the Fortune 500 list of America’slargest firms in 1955.

In contrast to the Fortune 500 rank-ing, USDA Cooperative Programs doesnot release the names of the Top 100agricultural cooperatives. The data aresummarized to show performance ofthe leading cooperatives as an aggregateand are grouped by major commodityand service sectors in the agriculturaleconomy.

However, since 1991 the NationalCooperative Bank (NCB) has publishedan annual ranking of the Top 100 coop-eratives from all economic sectors(farm, food, hardware, housing, etc.) InNCB’s 2004 ranking, the top three wereall agricultural cooperatives: CHS Inc.,Dairy Farmers of America and LandO’Lakes Inc. In all, 42 agriculturalcooperatives were in the NCB Top 100(www.co-op100.coop).

During the 25-year period the listhas been maintained, there has beensignificant movement on and off

USDA’s Top 100 agriculturalcooperatives list. Of these, 29cooperatives have consistentlyreported data, while severalother large cooperatives havebeen inconsistently includedon the list because of intermit-tent reporting of their data. Afew of these submitted data foronly a very brief period, about2-5 years, and then becameclassified as non-reporting.

Other cooperatives thatreported in 1980 no longerexist as either a cooperative oras a business of any kind. Thethree major causes for cooper-atives being permanentlyremoved from USDA’s Top100 list are: business failure,conversion to a non-coopera-tive entity and merger or con-solidation. A review of somegeneral financial measures forthose on-and-off the Top 100offers some history of how large coop-eratives have fared since 1980.

Failed businessesCooperatives are a stable form of busi-

ness, generally not inclined toward high-risk ventures. Nevertheless, since theinception of the list, 16 Top100 coopera-tives have gone out of business. Three ofthese cooperatives had closed by 1985,while seven did not go out of businessuntil after 1998. An additional five feder-ations that were reported in the Top 100in 1980 subsequently dissolved. However,in most cases their members stayed inbusiness.

The solvency ratios of these co-opsduring the last three or four years of

operation gave strong indication oftheir impending closure. Seven of thesecooperatives provided data right up to,or within 12 months of their last com-plete year of operation. The three-yearaverage debt-to-equity ratio for the co-ops was 0.75 while return on equity wasminus 0.21.

Merging to stay in businessA major strategy for maintaining

farmer ownership of services and value-added business has been to consolidateor merge two or more cooperatives.Merging helps carry overhead costs withmore operating revenue and otheradvantages to increase per unit earnings.Twenty-four cooperatives exited the Top100 through consolidations or mergers.


On & Of f the Top 10025 years of tracking the largest ag co-ops

T

Mergers — such as the creation of Dairy Farmers ofAmerica — have been the single biggest factor forchanges in the ranks of the Top 100 Ag Co-ops since1980. Above, Chris, Sarah and Benjy Heins ofHigginsville, Mo., replace their farm’s Mid-Am sign following the merger in 1998. Photo by Raymond Crouch,courtesy DFA.

Data for solvency ratios were collect-ed up to the time of consolidation ormerger for 21 cooperatives. The three-year average debt-to-equity ratio forthese co-ops was 0.66 while return onequity was 0.11. As would be expected,the financial condition of these mergedbusinesses was generally stronger thanfor cooperatives that went out of busi-ness. Some were in a weak financialcondition, but their status was notextreme because members of a survivingcooperative will usually reject mergerproposals from a business that is on theverge of failure.

ConversionsCooperatives are sometimes acquired

by non-cooperative businesses or decideto convert into investor-owned entities.Of former Top 100 cooperatives, tenconverted to investor-owned statuseither through acquisition or by a mem-bership vote to convert. While someacquisitions were made of cooperativesin weak financial condition, those thatconverted into investor-owned entitiesobviously had been experiencing goodreturns. As expected, the acquisitionand conversion group of five that con-sistantly reported had relatively lowaverage debt-to-assets of 0.49 anddecent return on equity of 0.23.

Staying on topThe cooperatives that have stayed in

the Top 100 over the 25-year periodinclude many that have been operatingfor more than 60 years. Large coopera-tives still in business today have success-fully operated through periods of eco-nomic recession and high energy costs.There are 29 cooperatives that haveremained on the list in all 25 years dueto maintaining sound operations (andbecause they faithfully completedUSDA’s annual survey each year).

Financial ratios for indicating solven-cy have remained relatively sound forthese 29 cooperatives over the 25-yearperiod. They individually maintained adebt-to-asset ratio below the three-yearaverage of the failed cooperatives overboth the 25-year period and for anythree-year period. Individually, with

only one exception, they also had ahigher return on equity in every three-year period than any of the seven coop-eratives that went out of business in thelast three years they reported.

A consistently high return on equityis not a sufficient measure of a success-ful cooperative. In fact, it may indicatethat a cooperative is not adequatelygenerating higher returns to membersin payments for delivered products or incosts of supplies. The return on equityfor each of the five cooperatives that

reported up until their conversion toinvestor-owned status was much higherthan the average for the 29 survivingcooperatives (as a group).

Intermittent reportingThe Top 100 agricultural coopera-

tives data base is determined by directcollection and analysis of surveys andannual reports, which is the primaryreason that the ranking of the organiza-tions is not published. Most publicizedrankings are collected from secondarysources, where only the annual revenueis needed. The cooperation of the busi-ness entities in these cases is not needed.

As an analytical data base, USDA’sTop 100 agricultural cooperatives list is

dependent upon annual reporting bythe cooperatives, which is not easilyaccomplished. As an indication of this,16 of the cooperatives that were on the1980 list have subsequently reportedonly intermittently.

Where they standThe Top 100 reports provide large

agricultural cooperatives with bench-marks and reference points to helpthem navigate their way in a highlycompetitive and often volatile economy.

Cooperatives face unique business chal-lenges. Member benefits are not onlycontained in a dividend check, but bysignificantly helping many independentfarm enterprises control their costs orto improve their product sales.

Working to sustain the independ-ence of farmers is the core objectivethat adds to the complexity of businessdecisionmaking for cooperatives. Forthis reason, they cannot rely on anysingle set of performance measures orsimply compare their businesses withnon-cooperative corporations. USDA’sTop 100 list and the accompanyinganalysis has filled a nitch in businessperformance information for 25 yearsand counting. ■


Intermittent reporting16

Closed federations

5

Remained on list

29Conversions

10

Mergers24

Out-of-business16

Factors contributing to changes in Top 100 Ag Co-ops since1980


N E W S L I N E

Send items to: [email protected]

USDA, DOE to hostrenewable energyconference

Agriculture Secretary Mike Johanns and U.S.Department of Energy (DOE) Secretary SamuelBodman have announced that the two agencies will co-host a national renewable energy conference to help cre-ate partnerships and strategies necessary to acceleratecommercialization of renewable energy industries anddistribution systems, the crux of President Bush’sAdvanced Energy Initiative (AEI). The conference,Advancing Renewable Energy: An American RuralRenaissance, is scheduled for Oct. 10-12, 2006, in St.Louis, Mo.

“Keeping America competitive calls upon us to worktogether to expand sustainable, market-driven, domesticenergy sources,” Johanns said. “The October conferencewill build upon the President’s vision for overcoming ourenergy challenges and help create new wealth opportuni-ties in rural communities.”

“Never has reducing our dependence on foreign oil

been such a pressing issue,” Bodman said. “We have thewill and the means to replace significant quantities offoreign oil with homegrown fuel. We are hopeful thisconference will identify major impediments and criticalpathways to get more domestically grown, renewableenergy sources out of the laboratory and into consumers’hands as soon as possible.”

The conference will focus on biomass, wind and solarresearch and commercialization. It will seek to identifymajor impediments, review challenges and make recom-mendations to help accelerate renewable energy technol-ogy development; examine key incentives that wouldhelp promote certainty and reduce risk for investors anddevelopers in the marketplace; review challenges ofdeveloping new distribution systems and raise publicawareness. The conference should be relevant for thosefrom diverse sectors, including agriculture, energy, trans-portation, financial and investment, federal and stategovernment and elected officials.

Information and on-line registration for the Octoberconference will be available on the Internet at:www.advancingruralenergy.com ■

Calcot eyes acquisition of SWIG The possible combination of Calcot

and Southwestern Irrigated CottonGrowers (SWIG), two of the nation’soldest cotton marketing cooperatives, istwo steps closer to becoming reality.Calcot’s board of directors, votingunanimously via conference call on June27, agreed in principle to acquireSWIG’s three warehouse facilities (twoin New Mexico, located in Las Crucesand Artesia, and one in Fabens, Texas)and to take over the marketing ofSWIG members’ cotton for the 2006season.

That action follows a June 21 mem-bership vote in Las Cruces, whereSWIG cotton grower-members over-whelmingly gave their assent to cease

operations and liquidate the company.Over 95 percent of the voting member-ship was in favor of the proposal. Thetwo cooperatives have been discussingthe possibility of combining operationsfor several months.

Financial details have not been madepublic, but if the merger comes tofruition, growers in New Mexico andaround the El Paso, Texas, area, will seetheir cotton marketed by the 79-year-old cotton co-op based in Bakersfield,Calif. Currently, Calcot markets onlycotton produced in California, Arizonaand South Texas.

“Assuming all details can be workedout to mutual satisfaction,” CalcotPresident Robert W. Norris said, “wewill own and operate what are currently

SWIG facilities. We look forward tomeeting all of our new members, work-ing with them in the months ahead andproviding the excellent service andfinancial returns that Far Western cot-ton growers have come to expect fromCalcot.”

Calcot owns and operates 145 ware-houses in California and Arizona.SWIG has 21 warehouses. Currently,the two co-ops’ combined market totalsabout a million bales of cotton eachyear, with similar cotton qualities andvarieties. The vast majority of sales byboth co-ops are to overseas markets.Calcot, formed in 1927, has about1,200 grower-members and SWIG,formed in 1926, has about 200 grower-members.

Garfield purrs for Swiss Valley As his 263 million readers worldwide

well know, Garfield the cat never met alasagna he didn’t like. But it turns outGarfield is also pretty fond of chocolatemilk. In addition to being the mostwidely syndicated cartoon character inthe world (Garfield appears in 2,600newspapers) the moody feline is alsonow appearing on milk cartons, includ-ing Swiss Valley Farms chocolate milk.

The release of the co-op’s Garfieldmilk cartons in June was timed to coin-

cide with the release of the secondGarfield movie: “Garfield: A Tail ofTwo Kitties.” The cooperative is usingGarfield in its advertising and promo-tion throughout the summer.

Garfield has already appeared onSwiss Valley skim chocolate and 1 per-cent chocolate milk in schools, whichthe co-op reports have been popularwith students. One school foodservicemanager wrote to Swiss Valley, saying:“I just wanted to tell you what a greatidea it was to put Garfield on the milkcartons. All of the children from K-12noticed and wanted to get their milk.Terrific!”

Swiss Valley Farms is a four-statecooperative owned and controlled by1,100 dairy producers, with headquartersin Davenport, Iowa. It has 700 employ-ees and annual sales of $425 million.

Energy & environment focusof Farmer Co-op Conference

The 9th annual Farmer CooperativesConference will be held Nov. 1–2 at theSheraton Bloomington Hotel, Minne-apolis South, Minn. This year’s themewill be “Opportunities for Coopera-tives: Renewable Energy and Environ-mental Management.” Renewable ener-gy topics will focus on:• the future growth of renewable ener-

gy sources;• involvement of regional and local

cooperatives in the sourcing of cornand soybeans for ethanol and bio-diesel fuels;

• marketing of these fuels and by-prod-ucts;

• business structures to finance renew-able energy plants.

New cooperative member serviceopportunities in environmental man-agement sessions will include:• enhancing woodlot and forest man-

agement;• nutrient management;• managing green house gas emis-

sions.

Updates on the conference and reg-istration information will be posted on

the University of Wisconsin Center forCooperatives website at:www.wisc.edu/uwcc/fc/fc.html

Faulkner deputy under secretaryfor USDA Rural Development

Agriculture Secretary Mike Johannshas appointed of Douglas L. Faulknerto serve as deputy under secretary forrural development. “Renewable fuelsare a vital component of America’senergy independence and an importantfinancial opportunity for our nation’sfarmers,” said Johanns. “Doug Faulknerbrings an impressive background in theenergy field to USDA and will help usachieve our goal of advancing the devel-

opment of renewable fuels technology.” Faulkner most recently served as

principal deputy assistant secretary forenergy efficiency and renewable energyat the U.S. Department of Energy andhas had a long association with USDA,working closely with the department topromote energy development in theareas of biomass, solar, hydrogen andefficiencies. He has served as a seniorpolicy advisor to two secretaries ofenergy and earlier this year received thesecretary of energy’s award for excel-lence. His first job in Washington,D.C., was as an aide to the late EdwardMadigan, a former Illinois congressmanand secretary of agriculture.

Faulkner will work closely withUnder Secretary for Rural Develop-ment Thomas Dorr to coordinate theactivities of the USDA Energy Councilthat Johanns announced last December.

Thatcher to manage CHS Foundation The CHS Foundation has named

Jennifer Thatcher as the new managerof the CHS Foundation, an independ-ent, private foundation affiliated withCHS Inc. that actively supports thefuture of rural America, agriculture andcooperative business through educationand leadership development. “Jenniferbrings a strong financial managementbackground, as well as a strong interestin community development,” saidWilliam Nelson, CHS Foundationpresident. “She will be a great additionto the staff that works with the CHSFoundation.”

In this role, Thatcher will workclosely with Nelson to manage the busi-ness operations for the CHSFoundation, with responsibility forfinancial management, as well asinvolvement with program develop-ment. Thatcher will also play similarroles with the corporate giving area forCHS Inc. and for The CooperativeFoundation, a private foundation man-aged by CHS staff through a leaseagreement.

Edelweiss Graziers Co-op formed Edelweiss Graziers Cooperative has

been formed by a small group


Emily Prichard, LongGrove, Iowa, sips SwissValley Farms chocolatemilk. Photo courtesy SwissValley


Wisconsin dairy farmers to create spe-cialty, grass-based cheese from the milkof their rotationally grazed dairy herds.The Wisconsin Ag Connection reportsthat the co-op aims to combine thecraftsmanship of master cheesemakerBruce Workman at Edelweiss Creameryand the milk of grass-fed cows fromthree Wisconsin dairy farms.

Dairy Business Innovation CenterFounder and Chairman Dan Carter saidthe new grass-based cooperative is anoutstanding example of Wisconsin dairyfarmers continuing to find innovativemethods in responding to industry

demands. “Consumers are seeking moresignature cheeses with bolder flavors,and grass-based cheeses are next on thehorizon to help meet that demand,” hetold the newspaper. The co-op hopedto have cheese ready for sale in July.

Wisconsin’s Black Creek Cheddar goes nationwide

Alto Dairy Cooperative is partneringwith Winona Food Inc. to marketnewly branded Black Creek ClassicCheddar nationwide. The co-op reportsthat this naturally aged, hand-selectedcheese has passed the rigorous stan-

dards imposed by the Wisconsin mastercheesemakers at Alto DairyCooperative. These artisans representgenerations of cheesemakers who have

CCA honors Jordan, Bryantas top communicators

Saluted for her “commitment to success” and as “a mentor and a model of doing things right,” theCooperative Communicators Association (CCA) present-ed Lani Jordan, director of communications for CHSInc., with the H.E. Klinefelter award, itshighest honor, during its annual meetingin Portland, Ore., in June. The award isbestowed to individuals who have madesignificant contributions to the art ofco-op communications.

Jordan “provides the best of the bestin co-op communications,” said awardpresenter Janet Schoniger of CoBank,winner of the award in 2005. “She isdriven by a love for writing and a pas-sion for telling a story.”

Katrice “K.D.” Bryant, from JacksonElectric Cooperative in Georgia, wasthe recipient of the Michael GraznakAward, presented to a young communicator under theage of 36, in recognition of her “sustained excellence,creativity, insight and performance.”

“Katrice brings an enthusiasm and commitment toevery communications task she undertakes,” says RandallPugh, president and CEO of Jackson EMC.

Jordan develops the annual communication strategy forCHS, is chief media spokesperson for the organization, isspeech writer for the board and senior management and isresponsible for the co-op’s annual meeting. She also pro-duces the annual report and handles a wide range of othercommunications responsibilities. She joined the coopera-tive in 1985 after a 10-year career as a journalist.

A three-time CCA Writer of the Year, Jordan is also apast Graznak award winner. She served six years on theCCA board and was president of the organization in2000-01.

Bryant is responsible for development and productionof marketing communications vehicles, including cus-tomer and business-to-business publications, websitecontent, trade show graphics, billboard advertising and

radio and television content for JacksonEMC. She also serves as editor-in-chieffor customer, employee and business-to-business publications and is responsiblefor managing a $1.2 million projectbudget.

Top award winners in CCA’s annualCommunications Competition included: — Publication of the Year: SarahDorman of West Central Cooperative,Iowa, for the co-op’s annual report; — Photographer of the Year: DavidLundquist, CHS Inc./Land O’Lakes, fora portfolio of work; —Writer of the Year: Lani Jordan, CHS

Inc., and Patty Miller, Land O’Lakes (tie);— Special Projects, Best of Class: Sarah Bratnober,Organic Valley Family of Farms, for a co-op calendar.

USDA’s Rural Cooperatives magazine won five awardsin the competition, including: first place for news writing,won by assistant editor Stephen Thompson for his cover-age of the 2005 Farmer Cooperative Conference; thirdplace for best use of photos in a magazine; third place forbest magazine cover; honorable mention for writer of theyear, won by editor Dan Campbell; and honorable men-tion for portrait photography, won by Stephen Thompson.

For a complete list of contest winners and more infor-mation about CCA, visit: www.communicators.coop. ■

Lani Jordan, left, and Katrice Bryant

Black Creek Classic Cheddar.Photo courtesy Alto Dairy

turned the quality milk fromWisconsin’s family dairy farms intodelicious premium cheeses.

“My dad taught me how to makecheese,” master cheesemaker GreggPalubicki said. Carrying on the familytradition, Palubicki inspects each batchof Black Creek Cheddar to assure itmeets the highest standards.

Alto and Winona were recently hon-ored by the International Dairy FoodsAssociation for creating a new look forBlack Creek Cheddar cheeses. Theunique, wedge shape, black wrapping andattractive label took Black Creek to thetop spot in the Best Package Redesign forCheese category, earning one of IDFA’s2006 Achieving Excellence Awards.

National Beef acquires Brawley Beef National Beef Packing Co. LLC and

its majority owner, U.S. Premium BeefLLC (USPB), have completed acquisi-tion of Brawley, Calif.-based BrawleyBeef LLC. Brawley is contributing itsassets in exchange for an ownershipinterest in U.S. Premium Beef.

For National Beef, the acquisition ofBrawley Beef creates a new relationshipwith its owner/producers in Arizonaand California. Moreover, BrawleyBeef’s location 100 miles east of SanDiego and its extensive retail, food serv-ice and further-processing customersalong the West Coast will enableNational Beef to grow its presence toserve the western United States with

high-quality beef products. As part of the acquisition, National

Beef will own and operate the BrawleyBeef processing facility located inBrawley. This state-of-the-art beef pro-cessing plant, constructed in 2001, hascapacity to process over 400,000 cattleannually.

Kansas City-based National Beef isthe nation’s fourth largest beef processor.Its majority owner, U.S. Premium Beef,makes National Beef the only major beefprocessing company in the United Stateswith a majority of its ownership held bybeef producers. With sales exceeding $4billion annually and a 12 percent marketshare, it is owned by more than 2,000cattle producers from 37 states. ■



power enterprises, cooperatively ownedmanure digesters and biodiesel facili-ties. It has also has provided boardtraining to three ethanol developmentgroups. One project now in operation,Central Bi-Products of Redwood Falls,Minn., is owned by a farmer co-op ofmore than 5,000 Midwestern produc-ers. The project created an initial totalinvestment of $4 million and 10 full-time jobs, as well as $2 million in saleslast year.

Another co-op with a business planCDS helped develop is HarvestLandCo-op in Morgan, Minn., which is apartner in a 5.6-megawatt wind farmthat went online last August. In its firstyear of operation, it will produce morethan 52 megawatts and generate $2.5million in sales under a power-purchaseagreement. Another wind farm is beingdeveloped under a second phase of thisproject. The co-op will again be theprimary owner/operator.

Iowa catalyst for ethanol development

In the heart of the Corn Belt, farm-ers have been looking at ethanol forsome time. The ValueAdded AgricultureProgram of Iowa StateUniversity Extensionhas been a supporter ofthe industry as it has“grown up” in Iowa. Ithas developed tools tohelp farmers, such as aresource manual and afeasibility calculator,which are posted on theAg Marketing ResourceCenter website(www.AgMRC.org). Ithas also conducted half adozen feasibility studiesfor potential new ven-tures in the past fewyears.

More than 250 people attended in-depth training sessions on biodiesel,which the Center co-sponsored thisspring with USDA Rural Development

and other partners. Currently, theCenter is assisting the development offour biodiesel facilities with a combinedproduction topping 175 million gallonsa year.

Will this ethanol boom bring thecattle-feed industry back to the CornBelt? To explore this topic, the Centerpartnered with others to sponsor a con-ference in June titled: “Growing Iowa’sCattle Industry: Ethanol, Opportunitiesand Economic Development.” Interestin the conference drew more than 200participants, including lenders, corngrowers, economic development offi-cials and bankers.

The Rockies rally to renewables The Rocky Mountain Farmers

Union’s (RFMU) CooperativeDevelopment Center, GreenwoodVillage, Colo., knows how importantbiodiesel is to its farmer-members andtheir urban neighbors in Colorado,Wyoming and New Mexico. TheCenter hosted a well-attended regionalseminar this spring focusing on oilseedcrops and producer options, such asgrowing the right oilseed crop for the

region, efficiently processing the seedinto oil and meal co-products, and howto market in ways that will generatemore profits for farmers. It examinedmodels for both large-scale commercial

facilities and for smaller, community-scale projects where co-products areused as inputs for farm operations.

Participants at the RMFU Center’sseminar also examined the opportuni-ties biodiesel development might pres-ent as part of a larger effort to createmore renewable energy businesses inrural communities. For example, theCenter helped develop a feasibilitystudy and business plan with a group of farmers in Freemont County, Wyo.,to use an existing grain elevator. The650,000-bushel facility may be used to store oil seeds for processing intobiodiesel, creating about eight new jobsand adding more than $1 million to thelocal tax base.

Local focus energizes the NorthwestIn the environmentally conscious

south Puget Sound area, demand forbiodiesel is booming. In response, theNorthwest Cooperative Develop-ment Center, Olympia, Wash., is lead-ing the Olympia Biofuels Cooperativethrough feasibility research, capacity-building and education. The Centerplans to use this project as a pilot that

can be replicated to assistother co-ops emergingthroughout the PacificNorthwest. The Centerserves not onlyWashington, Oregon andIdaho, but Alaska andHawaii as well.

The Olympia co-opintends to locally produceand distribute renewablefuels using sustainableproduction methods andinnovative technologies.Originally, the co-op’splan called for using wastevegetable oil from com-mercial and institutionalcooking facilities. But in

an industry as rapidly changing as thisone, other feedstocks are also beingconsidered. USDA is providing part ofthe funding for this cooperative busi-ness development assistance. ■

Renewable energy sparks surge of new co-ops continued from page 19

Western Iowa Energy ‘s new biofuel plant.


for their legal status — and the need forpolicies that recognize those differ-ences. Federal income tax studies dur-ing the Act’s early years were examplesof such education and support.Challenges to practical income tax prac-tices in the late 1970s resulted in dis-cussion between USDA and the U.S.Treasury Department that helped allparties. Antitrust issues were alsoaddressed through USDA-FederalTrade Commission-Department ofJustice joint task forces and inter-per-sonal discussions.

One of the earliest scholarly legaltreatises on cooperative law was theLegal Phases of Farmer Cooperativesthat went through numerous editionsuntil 1974. It was the handbook forcooperatives, lawyers and policy makersduring much of the past 80 years.Extensive studies of incorporationstatutes, securities laws and other mat-ters of legal and policy importance havebeen contributed by USDA under theauspices of the Act.

Changing co-ops, changing partnership

Challenges and resulting opportuni-ties come with change. Few things haveremained unchanged in the past 80years. Some ideas and principles havekept their fundamental importance: thevital role farmer cooperatives play inagriculture and rural economies; theimportance of good directors and man-agers; adequate financing and solidfinancial controls and the requirementthat cooperatives operate as successfulbusinesses. But even these statementsmust be understood and applied in thecontext of many changes.

One constant, however, is clear.Cooperatives continue to make contri-butions as they have for 80 years.Similarly, the contributions of theanalysis and guidance envisioned in theCooperative Marketing Act continue,although these, too, are changing.

During the past 20 years, the pace ofchange has accelerated for cooperatives,especially during the past decade. The

critical question is: Are cooperativescontinuing to make significant contri-butions to agriculture and ruralAmerica? If so, how can it be assuredthat this impact will continue?

As with the long history of coopera-tives and the Cooperative MarketingAct, it is not possible to detail all cur-rent changes and trends. However, afew observations may be informative.

Right sizing — Some cooperativeshave grown much larger in response tomarket and industry changes. This per-mits them to purchase and sell in quan-tity in response to market concentrationand internationalization of markets andindustries. Others have intentionallyremained small to serve a specializedgroup of producers in niche markets. Small size may be dictated by the size ofthe product or the size of the market. Inany case, one response to change isestablishing a size appropriate for a co-op’s purpose.

Integration — Participating in“upstream” and “downstream” marketsis nothing new for cooperatives. It is, infact, one of their hallmarks, althoughintegration varies widely among com-modities. Increased food processing,more complicated market chains fromcommodity to retail, and international-ization of markets have led farmers toobserve that their share of the finalprice received for their commodity —as modified and distributed for final sale— is shrinking. They have formedcooperatives or changed existing coop-eratives to integrate into other seg-ments of the market. The search forways to capture the greatest advantagefor members continues, perhaps at anincreasing rate.

Adding value to commodities —Farmers are more adept, willing andcommitted to capture more value forthe commodity they produce by coop-eratively adding value. Typically, this isaccomplished by processing the com-modity into a new product in a formcloser to that demanded by the finalconsumer. A higher price can beobtained for the new product. Rather

than simply sell the commodity, farmersare able to add value and capture thatvalue as a return from their cooperative.

This, too, is not a new endeavor forcooperatives generally. Recently, how-ever, many farmers have become moreimaginative and aggressive about addingvalue themselves through a cooperative.Adding value is found throughout thefood industry. The major trend at pres-ent is in the production of renewablefuels. A great number of ethanol pro-duction facilities have been built in thepast few years by farmer organizationsas well as others. This burgeoningindustry has gained national attentionand will continue to do so in the fore-seeable future. One of the major ques-tions is the extent and kind of farmerparticipation in this new industry.

New types of cooperative organiza-tions — Farmers continue to innovatewhen it comes to their cooperatives.One example of this is the formation ofcooperatives that operate with a mix ofprinciples that respond to new marketand industry needs. So-called “new-gen-eration cooperatives” use a combinationof financial requirements, commoditydelivery requirements and deliveryrights based on up-front investment tocoordinate product delivery and efficientplant operation. These organizations areusually found in situations where a con-siderable farmer investment is requiredto build a processing facility to addvalue to commodities. Most of the oper-ating methods are similar to those foundin more traditional cooperatives, but arecombined in a new manner.

Financial innovations — Severalways cooperatives benefit farmers, suchas by processing commodities or marketdevelopment, require substantial capital.In some cases, capital needs may bebeyond the capabilities of farmer mem-bers to make sufficient investments.Some cooperatives have considered theuse of equity investments from thosewho are neither members nor patronsof the cooperative. The motivation ofsuch investors is to obtain a return oninvestment, not a return based on use of

USDA/co-op partnership aids producer quest for market power continued from page 23


the cooperative. The use of this kind ofequity has drawn concern from somewho question whether it will detractfrom cooperatives’ ability to focus onbenefiting their farmer-patrons as theirprimary reason for existing. These andother financial innovations can beexpected as demands for capital facepro-active individuals who want to ownand control a cooperative serving theirspecific needs.

Statutory changes — One of themost interesting and possibly the mostsignificant change regarding coopera-tives has come in the form of new coop-erative incorporation statutes. Thestatutes, presently enacted in a fewstates, reflect one kind of response tothe need for cooperatives to participatein capital-intensive business. These newstatutes generally provide for substantialinvestment in a cooperative by investorswho do not use the cooperative.

In addition, the statutes give such“outside” investors voting power in thecooperative, along with those who usethe cooperative. It is expected that someversion of these statutes will be consid-ered by more states in the next severalyears. Debate continues regarding thewisdom of such laws and the possibleimpact on cooperatives, particularly onownership, control and benefit forfarmer members.

New choices of business forms —Farmers and others who want to collab-orate in business have many choices ofthe business form they wish to use.They no longer need choose onlybetween a traditional corporation and acooperative. Corporations can be modi-fied considerably to achieve selectedbusiness goals.

In addition, the limited liability com-pany (LLC) has become an extremelypopular business form because of itscombination of tax and liability protec-tion attributes. The LLC is also a flexi-ble business model and can be organ-ized to give most of the benefits of acooperative. As a consequence, individ-uals who would have otherwise chosen acooperative or a combination of a coop-erative and non-cooperative firm areincreasingly turning to LLCs. This

concerns those who see this trend as aloss of cooperative businesses, whileothers view the trend as a means tohave the best of two worlds.

Pace of innovation — Cooperativesand similar farmer-owned organizationscontinue to innovate in every aspect ofthe industry. Innovation itself hasbecome something of a “commodity.”As such, it takes on a value.Cooperatives have responded accord-ingly and become much more willing toinnovate to find new and better ways toserve farmer members. This trend willcertainly continue.

From defense to offense — In manycircumstances in the past, cooperativeswere created to alleviate poor marketconditions or challenge the power ofothers in the market. While this cer-tainly was not the case for all coopera-tives, it was a perception that influencedthe way cooperatives were viewed.Cooperatives are quite clearly nowbecoming more positively oriented, cre-ative and proactive as they are used toparticipate in markets.

Co-ops are taking active roles inadding value to commodities, in devel-oping new markets and brands to posi-tion themselves for profitable opera-tions and in moving toward respondingto markets rather than attempting tosell commodities already produced.With this comes new needs for capital,for expertise and for appropriate busi-ness forms.

Future of partnershipIt is quite clear that cooperatives will

change in the future in ways not nowanticipated. It is also clear that thosewho would have in the past adopted atraditional form of cooperative struc-ture will choose to form and design abusiness that suits their needs but mayhave only some cooperative characteris-tics. This leads to two important ques-tions about the USDA-cooperativepartnership as envisioned in theCooperative Marketing Act.

Will farmers and others have a needfor the “analysis and guidance” identi-fied in the five functions described inthe Act? On the other hand, will

USDA be able to respond to changingneeds and trends with services that con-tinue to prove the value of the Act?

A positive answer can be made toboth questions. Those who form anduse cooperatives or other collaborativebusiness forms will need analysis andguidance in added measure simplybecause these are new, untested waters.What works and what doesn’t work?What are the pitfalls as well as thepotentials for innovations in structure,operations and objectives? What arebest practices leading to likelihood ofsuccess? These are the types of ques-tions that need answers — answers thatmust be studied and lessons learned dis-seminated to those to whom the benefitis greatest. The more cooperativeschange and respond, the greater is thevalue of information.

Cooperative analysis and guidance atUSDA is continually changing to meetnew demands and opportunities. Morefocus in needed on the broader issues ofrural economic development and therole of cooperatives in such develop-ment, objective investigations of theimpacts of new financing and businessforms and in-depth analysis of farmers’roles in new industries, such as ethanol.

More assistance is needed for thoseconsidering various methods of collabo-rative action, as is application of evolv-ing business practices for farmer organ-izations. These are just a few examplesof continued response to new needs.The addition of the Value-AddedProducer Grant program to providedirect financial assistance to those whouse innovation will add value to com-modities is another example of recentchanges to the USDA-cooperative part-nership.

Review of the 80 years of contribu-tions by cooperatives and by theCooperative Marketing Act, furtherreview of recent dramatic changes incooperatives and the anticipation ofcontinued innovation and change innearly every aspect of cooperative andfarmer-owned business all suggest aclear need for a continuation of the“partnership” established by theCooperative Marketing Act of 1926. ■

50 Years Ago…From the July and August, 1956 issues of News for FarmerCooperatives

Making merchandise move “To do a better job of merchandising for farmers, co-ops

must know something about people and their reactions. Abusiness should carry articles people need and then handlethese articles in a way to please the users,” explains F. ByronB. Cory, president of Henry County Supply Co-op Companyin Mt. Pleasant, Iowa. Many of the basic principles of goodmerchandising that businesses have found essential also applyto cooperatives. Some important principles include where abuilding is located, the type of building, modern fixtures,delivery equipment, trademarks and general business set-up,such as hiring staff with good personalities. People are morelikely to come back for more if a store is clean and unclut-tered and products are displayed attractively.

Fish fare fine on rice farms The Arkansas Fish Farmers Cooperative of Lonoke, Ark.,

began in January of 1956 to raise fish in the same fields asrice. By rotating fish with rice, members of the co-op aremaking more money and improving the land. Some goodresults that have been reported include: (1) the organizationgave publicity to fish farming and created new interest in itand respect for it; (2) fish buyers increased the price they paidfor fish; (3) inquiries were received from canning plants; (4)inquiries were received from governmental agencies for gamefish for use in stocking streams; (5) since the organization ofthe cooperative, commercial fishermen have reduced theirusual charge of 50 percent of the fish harvested to 25 percent;and (6) this cooperative is representing and defending theinterests of fish farmers.

Co-ops process and market cottonseed Cottonseed, processed and marketed by cooperative mills,

has found its way into several diverse products, such as foodshortening, cattle feed, mops, surgical dressings, paints, meatcasings, soap, printing inks, twine and explosives. Fourteenco-op cottonseed oil mills process about 10 percent of thecottonseed crushed, bringing members an average of $21.66 aton more than other cotton growers received over a seven-year period. The primary functions of a co-op cottonseed oil


P A G E F R O M T H E P A S T

From the archives of Rural Cooperativesand its predecessor magazines

mill are to crush seed for its members, market the products,and return net sales proceeds on a patronage basis. In addi-tion to crushing seed, some mills perform additional services,such as feed mixing, handling bagging and ties, and cottonplanting seed. Almost all cottonseed processed in co-op millscomes from grower members and member gins.

30 Years Ago…From the July and August, 1976 issues of Farmer Cooperatives

Cooperative Marketing Act 50th Anniversary On July 2, 1976, the Cooperative Marketing Act celebrated

its 50th anniversary. When the Act was approved in 1926,“helping farmers to help themselves” became national policy.The Act enlarged, strengthened and made permanent theDepartment of Agriculture’s formal assistance to cooperativesthat had begun shortly after passage of the Capper-VolsteadAct in 1922. The Farmer Cooperative Service marked the50th anniversary with a special birthday observance on thepatio of USDA’s administration building June 30. Specialguests included representatives of national cooperative organ-izations, congressmen and cooperative leaders and officials ofUSDA, including Secretary of Agriculture Earl L. Butz.

Texas cooperative making denim Since at least 1953, the Southwest cooperative cotton

industry has been trying to develop a marketing system thatwould reward producers and distribute their product as eco-nomically as possible. To do so, the American CottonGrowers (ACG) is constructing a $30 million denim manufac-turing facility in Littlefield, Texas. The plant is using theopen-end spinning concept in the annual production of 20million yards of finished, heavyweight, indigo-dyed denim.Begun a year ago, the denim plant is on schedule and isexpected to be in full operation by December. Although ACGbegan construction of its denim plant in 1975, the enterprise

July 1956 issue

started in 1973. Since then, the organization has completedthree ginning seasons and remains confident about itsadvanced concept of off-farm services — transportation ofcotton from field to gin, centralized ginning, compressingand pool marketing.

Russian farm specialists visit Mid-America “A team of Russian agricultural specialists visited Mid-

America Dairymen’s headquarters in Springfield, Mo., thisspring to study research and accounting facilities and to dis-cuss milk marketing. In summing up their experiences ontheir tour of this country, V. N. Pustozerov, spokesman forthe five-man team, said, “We have studied your experience inproductivity, and have corrected our previous conclusionsabout the U.S. It is better to see it [American agriculture]once than to hear about it 100 times.” Pustozerov is deputyminister of agriculture in Russia. Others in the team includedA. Goriashin, head of Leningrad Oblast Administration ofAgriculture and E. G. Knoplev, assistant agriculture coun-selor of Russia’s embassy in the United States.”

10 Years Ago…From the July/August, 1996 issue of Rural Cooperatives

Memory quilt honors Land O’Lakes 75th Anniversary “A 90- by 110-inch memory quilt that features the coop-

erative’s family history in fabric has been created by mem-bers, employees and their families to honor the 75thanniversary of Land O’Lakes Inc. (LOL), at Minneapolis.Rita Page Reuss, LOL’s vice president for public affairs, saidthe quilt was “a natural fit with our rural heritage, commit-ment to people and dedication to quality and craftsman-ship.” About 350 members of the LOL family submittedindividual 10- by 10-inch quilt squares depicting someaspect of LOL’s history, heritage and values. The projecttook one year to complete, including the call for entries,judging, quilting layout and assembly. Those squares notchosen for the quilt will be made into charity quilts.”

Minority producer co-ops face marketing and financing challenges

Only a handful of minority-owned farm and handicraftcooperatives are presently included in USDA’s cooperativedatabase. This is in part a reflection of the small number ofminority-owned farms in the United States. In 1919, therewere 1 million black farmers in the United States, but thatnumber today has declined to less than 20,000. Results fromUSDA’s latest minority co-op survey point to the difficultiesfacing minority cooperatives. The relative lack of numbersand seemingly low success rate for those minority co-ops thatare formed underscore the need for both a stronger nationaleffort at cooperative education and technical assistance out-reach to the nation’s minority farm and handicraft producers.It is possible that a more energetic cooperative developmenteffort could help preserve or expand the presence of minori-ties in an ownership role in our nation’s agricultural system.

Navajo co-op weaves self-reliance “The Ramah Navajo Weavers Association is a grassroots

cooperative group made up of more than 40 traditionalweavers who live on the Ramah Navajo Reservation in thepinion-pine country of west-central New Mexico. Foundedby 17 women in 1984, the association is working towards twobroad goals: (1) to increase family self-reliance by usingindigenous resources (land and water) and native skills (tradi-tional Navajo weaving, sheepraising, land use and manage-ment); and (2) to strengthenimportant and distinctive land-based traditions, values andspirituality for future genera-tions of Ramah Navajos. Theassociation has a holistic phi-losophy and is working in fourareas: weaving improvement,sheep and wool improvement;land restoration and protec-tion; and cultural and educa-tion development.” ■


July 1976 issue

July–August 1996 issue

By Jack Gleason,

Acting Administrator

USDA Rural Development Business-Cooperative Programs

SDA Rural Developmentoffices across the nationare working with cooper-atives, individuals, part-nerships and corporations

to help promote the development of thenation’s rapidly emerging bio-fuel econ-omy. This is without doubt the mostexciting and promising economic devel-opment for rural America since thearrival of electricity on the farm.

We are also working with non-profit organizations to promoterenewable energy, a prime exam-ple being Winrock International.Winrock works with people in theUnited States and around theworld to increase economic opportuni-ty, sustain natural resources and protectthe environment. It matches innovativeapproaches in agriculture, naturalresources management, clean energyand leadership development with theunique needs of its partners.

Its U.S. programs bring globalexpertise home to benefit Arkansas, theMid-South and the United States.

In 2004, through a grant fromUSDA Rural Development under ourRural Business Opportunities Grantprogram, Winrock conducted a feasibil-ity study for establishing biodiesel pro-duction in Arkansas. Since the studywas completed, one biodiesel produc-tion facility has been constructed and isoperational. A second facility is under

construction and plans are under way tobuild more.

In cooperation with the ArkansasEnergy Office and the University ofArkansas at Monticello, Winrock is cur-rently helping the Potlatch Corporationevaluate the technical viability and eco-nomic feasibility of a commercial-scalebiorefinery, to be located in theMississippi Delta, using cellulosic bio-mass materials.

Winrock recently hosted a tour offacilities in Eastern Arkansas for staffmembers from USDA Rural Develop-ment’s state office for Arkansas and

myself that was very enlightening. Thetour included a presentation from theEastman Chemical facility in Batesvilleand site visits to England Dryer, a soy-bean oil extrusion facility; Patriot Fuels,a small biorefinery in Stuttgart; and thePotlatch pulp mill in Cypress Bend.These value-added activities have beenmade possible in part by strategicinvestments from USDA RuralDevelopment.

Opportunity to prosperThe emerging bioenergy industry

offers a unique opportunity forArkansas. The potential for large-scaleproduction of biofuels and bioenergyfrom cellulosic residues and dedicatedenergy crops is enormous, particularly

in the Delta region. Achieving thispotential would enhance the sustain-ability of the state’s agricultural sector,create thousands of new processing jobsand result in numerous environmentalbenefits while helping to reduce ournation’s reliance on imported energy.

Arkansas’ potential for producingbiofuels and bioenergy from cellulosicmaterials is substantial. In addition toforestry and agricultural residues,Arkansas has the potential to redirectmore than 2 million acres of farmlandinto production of dedicated energycrops, making Arkansas a world leader

in renewable energy.Dedicated energy crops have

the potential to transform the Deltaregion. Farm profits could be higherthan from traditional crops andlong-term biomass supply contractscould reduce market risks for local

farmers. Renewable energy productionfrom dedicated cellulosic biomass hasnumerous environmental benefits. Forevery pound of carbon dioxide generatedduring production and consumption ofbiofuels or bioenergy products, an equalamount is removed from the atmosphereduring the plant’s growth cycle.

Equally important, production ofperennial cellulosic energy crops woulduse topsoil-conserving, no-till agricul-tural practices.

Winrock’s goals are to facilitate pri-vate sector production of and publicsector support for bioenergy and tohelp Arkansas become a world leader inbioenergy production. USDA RuralDevelopment is proud to provide itssupport for this effort. ■


USDA work ing wi th nonprof i tto boost b ioenergy in Arkansas

I N S I D E R U R A L D E V E L O P M E N T

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