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USDA / Rural Development May/June 2013

Co-ops share export strategies

The Lure ofDistant Shores

2 May/June 2013 / Rural Cooperatives

By Dallas Tonsager, Former Under SecretaryUSDA Rural Development

grew up in the “co-op culture” of ruralSouth Dakota, relying on co-ops foreverything from farm supplies to electricity.So I’ve always had a healthy respect for howvital co-ops are to rural America. But the past

4 ½ years serving as Under Secretary for USDA RuralDevelopment has given me an even greater appreciation ofhow these user-owned, user-controlled businesses are helpingto build a stronger rural economy.

I have had the good fortune to spend 17 of the past 20years working in the federal government. As I leave thiscurrent assignment, I do so with theknowledge that cooperatives are wellpoised to continue to help driveforward the nation’s rural economy,just as they have been doing for morethan a century.

Our farmer cooperatives are amajor reason that the nation’sagricultural economy is thriving,setting new sales records and helpingto export our farm products aroundthe world (see page 20 for someexamples of the latter). Likewise,electric cooperatives not only keepthe lights on across much of thenation, they are: helping to expandrural broadband service; pursuing newenergy technologies, including wind and solar energy; anddeploying smart-grid technologies.

These are also exciting times for cooperatives because of anew wave of co-op formations across the land. There’s agenuine sense of enthusiasm about doing business “the co-opway” as a new generation of co-ops forms to help meet theburgeoning demand for more local foods, for developingrenewable energy resources, for forging worker co-ops andfilling many other needs.

The common denominator that underlies these new co-ops is the driving spirit to work collectively — arising from asense of community and common cause — to achievesomething in the marketplace as a group that would bedifficult or impossible to achieve as individuals.

Sometimes the enthusiasm that helps launch a co-op candissipate over time as it passes from one generation to thenext. While new co-ops can learn much from older,established co-ops, the latter can also benefit from the senseof excitement and “all for one” that we see among the newcrop of co-ops.

Co-ops have never been afraid of a challenge. Indeed,many, if not most, of our successful co-ops were created inchallenging times. Thousands were formed in the 1930s-1960s, fueled by an absolute need — such as the need for asource of quality farm supplies and electricity at affordableprices, or the need to market and add value to crops in orderto gain clout in the marketplace.

This still holds true today. It was absolute need that drovethe formation of the new-generationco-ops and limited liabilitycorporations of the 1990s and early2000s, which were key to developingthe nation’s biofuels industry. Therewas a critical need for thosebusinesses because market prices forcorn had collapsed and a new sourceof demand was needed. I believebiofuels will continue to play a role inour nation’s move toward greaterenergy independence and thatproducer-ownership of these facilitiesbenefits rural America.

After the surge in new-generationco-ops in the 1990s, interest in themflagged, which is unfortunate. I hope

that more people will take a closer look at the new-generation business model, because it still holds greatpotential to raise capital and develop businesses that benefitproducers and their communities.

I’d also like to see more established farmer and utility co-ops working closer with the nation’s network of cooperativedevelopment centers, which we help fund through the USDARural Cooperative Development Grant program. Theexpertise of co-op leaders can play a big part in helping thesecenters fulfill their mission to support co-op development.

Just being in a co-op, of course, does not mean that youwill be successful. Some co-ops fall victim to not recognizingchanging market circumstances. Co-op boards must hold

I

continued on page 41

Commentary The Co-op Way

Dallas Tonsager, right, tours a truck and auto partsaccessory manufacturing facility that benefitedfrom USDA support.

Features

Rural Cooperatives / May/June 2013 3

Volume 80, Number 3May/June 2013

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

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

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

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

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

Tom Vilsack, Secretary of Agriculture

Doug O’Brien, Acting Under Secretary,USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

Have a cooperative-related question?Call (202) 720-6483, or email:[email protected] This publication was printed with vegetable oil-based ink.

p. 4

04 Start Me Up Study of 14 newly launched co-ops reveals valuable lessonsBy Courtney Berner

08 Building BridgesACDI/VOCA celebrates 50 years of expanding opportunities worldwideBy Anja Tranovich

12 Indivisible Reserves Some see unallocated equity as a way co-ops can help fortify their futureBy Bruce J. Reynolds

16 Birds of a FeatherSquab producers ‘flock together’ to process, market through co-op By Stephen Thompson

18 Equity Elevator & Trading Co. joins century clubBy Carol Stender

20 The Lure of Distant ShoresCo-ops share export strategies during USDA Outlook ForumBy Dan Campbell

29 USDA funds help reopen town’s only groceryBy James Crandall, Elaine Cranford, Amanda Bergstrom

33 Co-op food market planned in South CarolinaBy Mary Ann Cleland, Debbie Turbeville

Departments02 COMMENTARY

30 UTILITY CO-OP CONNECTION

32 CO-OP DEVELOPMENT ACTION

34 NEWSLINE

p. 20

ON THE COVER: U.S. agricultural exports set a new record in 2012,at $143.5 billion. Ag co-ops are among the nation’s leading exporters,including three co-ops that provide insight into their overseasmarketing strategy, beginning on page 20.

p. 16

By Courtney Berner, Outreach SpecialistUniversity of Wisconsin Center for Cooperatives

o date, relatively little research hasbeen published on best practices incooperative business development.Many co-op development bestpractices have emerged from

anecdotes, case studies and personal experience.While these are important and relevant sources ofinformation, a systematic exploration of the successesand failures of cooperative development efforts isneeded.

Building on previous research on cooperativegovernance and management structures, theUniversity of Wisconsin (UW) Center forCooperatives conducted a preliminary studyexamining cooperative start-up success factors. Our


Start Me UpStudy of 14

newly launchedco-ops reveals

valuablelessons

goal was to develop a deeperunderstanding of how to most effectively

support emerging cooperative businesses. Tothat aim, we explored the following broad

questions:• How are groups organizing new cooperatives? • What resources are available to start-up co-ops?Of these, which resources are start-ups using andbenefitting from? Where are there gaps?

• How are start-up cooperatives financed? • What factors during start-up lead to successfulcooperative businesses? To answer these questions, we interviewed

stakeholders from 14 Minnesota and Wisconsincooperatives involved in the food or agriculturesectors that incorporated 5 to 10 years ago. Thestudy sample represented a diverse array ofcooperative ownership types, sectors and sizes. The

T

Graphics by Stephen Thompson

list includes consumer-owned co-ops,worker-owned co-ops, producer-ownedco-ops, multi-stakeholder co-ops andshared-services co-ops owned by otherbusiness entities. Of these, 11 are active,while the remaining three have eitherdissolved or no longer operate as co-ops. Three of the co-ops in the sampleconverted from other business typeswithin the past 5 to 10 years.

Our survey included questionsrelated to key characteristics ofcooperative development projects andtheir primary stakeholders; governanceand management structures; financingmodels; and the impact of cooperativedevelopment resources, such astechnical assistance and financing.

This article provides a summary ofour findings with an emphasis onlessons learned and four general topicareas that span all stages ofdevelopment: capitalization,management, governance and technicalassistance. The full report, whichincludes more detailed sections onorganizing, feasibility analysis andbusiness planning, can be downloadedat: http://www.uwcc.wisc.edu/pdf/Co-op_Business_ Development_in_Wisconsin_and_Minnesota_Final.pdf.

Start-up processOrganizing — The organizing stage

is the first phase in the life of a co-op. Ittypically begins with one or morepeople who recognize a common needand have an idea for addressing it. Thisstage usually lasts 6 to 12 months orlonger and includes the followingactivities: convening a core organizinggroup and developing leadership withinthat group; assessing common interestsand needs; building a shared vision;possibly undertaking an informal,preliminary feasibility assessment;creating a member financing structure;incorporating as a legal entity; andrecruiting members.

The organizing stage can beuniquely challenging in that a unified

vision is not yet established and raisingfunds to pay for early organizing workoften requires creativity and risk-takingon the part of the core group. Threeimportant components of theorganizing phase are: co-op champions,steering committees and projectmanagement.

Feasibility and business planning— Once a steering/organizingcommittee is in place and has theappropriate level of internal readinessor organizational capacity, it moves intothe feasibility and business planningstage. The two core products of thisstage are a feasibility study and abusiness plan. The less tangibleoutcomes of this stage include a moreunified and comprehensiveunderstanding of the business concept

and enhanced commitment and capacityof the organizers.

Half of the co-ops included in thestudy performed some type of feasibilityanalysis. Of the seven groups that didfeasibility studies, four reported that thestudies were useful, two found thestudies somewhat helpful and one co-opdid not find the study helpful at all.

The main complaints regardingfeasibility studies were that the studieswere too optimistic, the projectionswere wrong and outside consultantssometimes did not understand thecommunity well enough. Co-ops startedby people with extensive industryexperience were less likely to do afeasibility study. One group conductedits own feasibility study, while the othersix hired outside consultants tocomplete their studies.

If the results of the feasibility study

are positive and the group decides tomove forward, the next step iscompleting a business plan. Of the 14co-ops interviewed, 11 wrote businessplans, which varied significantly in theirlength and content.

Co-ops with established businesses astheir members were more likely to justput together a set of financialprojections rather than a full-blownbusiness plan. Of the three co-ops thatdid not do plans, two were conversionsthat had written business plans at start-up and the third was essentially a“virtual organization with no assets.”

CapitalizationAll businesses need capital to launch

and run their operations. Cooperativesare no different, but the arsenal of tools

at their disposal differs slightly fromthat of traditional investor-owned firms.Co-op financing tools include memberstock, preferred stock, member loans,grants and loans from banks or otherlenders.

The options available to each co-opare influenced by tax considerations andby the state in which they incorporate.Co-ops meet their start-up capitalneeds using a variety of financingmechanisms, typically a combination ofmember equity and debt from lenders.

Despite the variety of tools at theirdisposal, co-ops still face challengesrelated to capitalization. Co-ops cited alack of sufficient member equity,community fundraising and not beingtaken seriously by banks as some oftheir key capitalization challenges.

Under-capitalization and poorfinancial planning are the most


The ways to start a co-op are as diverse as the sectoritself, so it is best to avoid the one-size-fits-all approach.


commonly cited reasons that newcooperatives fail. Several pieces ofadvice related to finances emerged fromour interviews:

• Financial commitment from membersis critical.

• Never underestimate working capitalneeds.

• Think about the future impact ofdebt. Don’t undercapitalize, but avoidoverburdening the co-op with debt.

• Do not let grants dictate thedevelopment process. Many groupsapply for grants during the organizingstage, which can slow a group down.

• Thoughtfully plan for growth. • Strong financial literacy of the boardand management is key.

• Work with an accountant whounderstands co-ops and can set up asound bookkeeping system.

Management and governanceThe importance of good governance

is felt from the earliest stage ofdevelopment through the entire life ofthe co-op. Establishing goodgovernance early is critical, as it shapesthe cultural norms of the organizationand affects how the steering committeeworks as a team to develop a unifiedvision; establish roles, responsibilitiesand expectations; and to recruit otherco-op members.

Our research did not generate agreat deal of data on management andgovernance, but it did reveal that theline between the board andmanagement is often blurred duringstart-up. From the data we collected,these four strong themes emerged:

(1) A significant amount ofvolunteer labor is responsible fororganizational and managementtasks before the first employee ishired. In nearly every co-op weinterviewed, an all-volunteer steeringcommittee or interim board was drivingthe planning process. Even in caseswhere a project coordinator was hiredduring the development process,volunteers still contributed many hours.

During start-up, the board is oftendirectly involved in co-op operations.As the co-op begins to stabilize, theboard transitions from a working boardto a governing board. This transitioncan take time and education; it can alsosometimes be painful, but theemergence of a healthy relationshipbetween the board and management iscritical.

(2) Hiring good management iscritical to success. Several co-opscited their first hire as either the keyto their success or their biggestregret, including this comment:“We’ve had a manager since 2006 or2007 who has been absolutely terrific.Finding somebody who will do thework and get it done and not try tobring every issue to the board isabsolutely invaluable. That’s thenumber one success piece.”

Another co-op had a less positiveexperience. Both interviewees from thatco-op listed their first general manageras their major regret and admitted itnearly cost them the business.

(3) Management needs cleardirection from the board, especiallyat start-up. While the steeringcommittee and board of directorsprobably spent a great deal of timebuilding and articulating their sharedvision for the co-op, it is unlikely thatmanagement was part of those earlyconversations. As a consequence, it iscritical that directors communicatetheir vision to management and ensurethat there is alignment regarding howto carry out that vision.

(4) Worker cooperativesexperience distinct managementchallenges. Worker cooperatives areoften started with the goal of creatingdemocratic workplaces. There may bestrong resistance to hierarchy from thefounding members. The worker co-opsin our study emphasized that lack ofstructure and policies at start-up causedsignificant management problems lateron in the life of the business.

One co-op described its experience

this way: “As a worker co-op organizedas a collective with really no jobdescriptions…there were no systems ofaccountability, no idea of how tasksshould get done…There are collectivesthat are highly structured. We were notthat…You have to have that solidstructure stuff in the beginning. You doit in the beginning before things getwrapped up in the personalities, beforepeople are used to lack of structure andall the dysfunctional behavior thatcomes with it.”

(5) Plan for ongoing goodgovernance. The business plan shouldinclude a thoughtful section on ongoingmanagement and governance. The sizeand structure of the board are criticalcomponents of establishing an efficientand effective board. The founders mustconsider the size of the futurecooperative, the geographic scope andthe key stakeholders. Small boards canfacilitate good discussion, but somecooperatives benefit from having moremembers participate on the board. Fourof the cooperatives in the study electboard members using a district ordelegate system, which encouragesmember input at a local level andensures representation from diverseregions. The largest board in the studyhas 11 members and the smallest hasthree.

Since most boards experienceturnover, directors must address thetask of building sustainable boardleadership. New board members needto be nominated, mentored andeducated on how to represent membersand monitor the performance of thecooperative. After start-up, continuingeducation of new members is critical tomaintaining members’ clearunderstanding of the co-op’s valueproposition.

Another cooperative in our studystays relevant to members byestablishing member-led committeesand encouraging direct communicationbetween members and the board chair.Annual meetings are another way to getfeedback from members. Of the nine


co-ops that regularly have annualmeetings and reported attendance rates,the average attendance rate was 44percent. Attendance tends to be quitelow at co-ops with consumer co-opmembers (26 percent on average) andquite high at all others (88 percent).

Technical AssistanceNew co-ops generally need two types

of assistance: general support in areassuch as governance, structure, legaldocuments, capitalization and forindustry-specific advice. While only 9of the 14 co-ops reported that theyworked with consultants during start-up, almost every group identified atleast one professional, such as anaccountant or attorney, who assistedthem.

Assistance providers ranged fromprivate consultants and nonprofits toextension agents and local economicdevelopment agencies. Half of the co-ops in the study received assistancefrom other co-ops, and all said that theadvice was useful.

Assistance from peer co-ops wasespecially prevalent in the well-developed and well-networked grocerysector. One grocery co-op reported thatits “most important partnerships werewith CDS Consulting Groupand…through the other co-ops,” whichprovided both financial and operationalsupport. Another co-op credited itsexistence to a peer grocery co-op,saying: “We wouldn’t be here withoutits support.” Peer co-ops are anexcellent source of assistance andinformation to start-ups because theyunderstand the cooperative businessmodel and the specific industry.

When asked what type of technicalassistance they could use now, most co-ops either could not come up with ananswer or were already receiving theassistance they needed from consultantsor industry associations. Those that didrespond were most interested in gettinghelp with sales and marketing orinformation specific to their sector.

Lessons learnedDespite the diversity of co-ops

represented in the study, the followinggeneral lessons emerged about thestart-up process:

Lead with a strong valueproposition. Whether it is a high-quality product or exemplary service,the co-op must offer its customersand/or members something special,beyond just being a cooperative. Severalco-ops cited the quality of their productand service as the key to their success.One interviewee emphasized that in thecase of grocery co-ops: “Ultimately,there has to be something beyond thebelief in co-ops that will sustain thesebusinesses…So that value propositionultimately has to be there on somelevel.”

Build alignment around a sharedvision. In addition to defining thevision, it is also critical to clearlyarticulate the vision to members andconfirm that everyone has similarexpectations from the co-op and oneanother. These expectations can bewritten out in a formal memberagreement.

Treat the co-op like the business itis. While co-ops are motivated by theirmembers’ needs rather than pure profit,they are still businesses that require

accountability,formal writtenagreements andsound financialmanagement. One co-op inthe study commented: “We dideverything using our politics andusing our hearts as a decision-makerinstead of looking at numbers. Whenwe were really small it actually workedthat way. But as we grew and theorganization needed to become morestructured and sophisticated, it wasreally hard for us to make that shift.”

Another co-op commented: “Therewas too much trust involved and notenough verbiage in the contract...Wethought we were on the same pagewhen, in reality, they [a major partnerof the new business] were the businesspeople and were looking out for theirown pockets; we were naïve.”

Invite the right people to thetable. A group should carefullyconsider the personalities and skill setsit wants to have on the founding team.One group made a decision early on:“The strategic decision was okay, so areyou going to go with people who aremore mild-mannered and will easily beinfluenced and molded into what youthink they ought to do, or are yougoing to go with people who areaggressive and are going to have theirown ideas? We decided on that secondcategory…And that has worked outwonderfully.”

Another co-op credited its success toa willingness to say that this co-op wasnot for everyone. “If all they werelooking for was the ability to increasepricing position in the marketplace,

Peer co-ops are an excellent source ofassistance to start-ups because theyunderstand the co-op business model andthe specific industry.



By Anja Tranovich, EditorACDI/VOCA

ifty years ago, during anunseasonably warmChicago fall, a group ofU.S. cooperativeleaders met for a lofty

purpose. Spurred by the U.S.government’s call to encourageeconomic development abroad, theseleaders wanted to infuse the nation’snascent foreign assistance program witha co-op approach.

At the gathering, Howard Cowden, afounder of Farmland Industries,reflected on his recent visit to LatinAmerican cooperatives. “Theirdevelopment is about where we weresome 40 years ago,” he said.Cooperatives abroad faced a highpercentage of product spoilage, lack ofcredit and access to inputs, andimproperly maintained records.

To have a greater impact, JerryVoorhis, president of the CooperativeLeague of the U.S.A. (today part of theNational Cooperative BusinessAssociation) proposed forming anorganization that would become astrong force for economic developmentoverseas. “It needs to bring togetherevery single one of the organizations wecan possibly bring together,” he said.

During the summer of 1963, theseco-op leaders launched what wouldbecome ACDI/VOCA. It had 19 co-opmembers and $16,000 of pooled capital.

Spreading American expertise worldwide

Since its founding, ACDI/VOCA hasworked in 145 countries, spreadingAmerican expertise in agriculture,business, financial services andcommunity development around theglobe. It has handled complex projectsthat address the most pressing andintractable development challenges,pioneering comprehensive approachesto help strengthen entire value chains.

In 2003, USAID AdministratorAndrew Natsios called ACDI/VOCAthe “premier agricultural developmentNGO [non-governmental organization]in the world.” In 2012, the organizationbenefited more than 3 million people,creating almost 47,000 jobs andincreasing incomes by tens of millionsof dollars.

Yet, much remains unchanged sinceits founding. Local capacity building isthe cornerstone of the organization’swork. ACDI/VOCA still supportsproducer groups that reflect the meritsof joint ownership, democraticgovernance and economies of scale.

Lasting legacyOne of its early accomplishments

was helping to found the IndianFarmers Fertilizer Cooperative Ltd.(IFFCO). During the early 1960s,famine was predicted in India. New,high-yielding varieties of wheat and ricewere being introduced, but farmersneeded chemical fertilizers to be more

ACDI/VOCA celebrates 50 years of expanding opportunities worldwide

BUILDINGBRIDGES

F

In Iraq (above), ACDI/VOCA implementedUSAID’s Community Action Program (CAP)from 2003 to 2012, promoting participatoryeconomic development. Photos courtesyACDI/VOCA.


productive. IFFCO was conceived to help Indian farmersmeet their urgent need for crop inputs.

In a show of solidarity, U.S. farmer co-ops collected morethan $1 million to supplement U.S. and Indian governmentfunding. The $125 million fertilizer project was completed atcost and on time. Prime Minister Indira Gandhi presided at aceremony at the start-up of one of the new IFFCO plants.Food shortages were averted, and IFFCO entered the annalsof agricultural development history as a triumph of theGreen Revolution. Today, IFFCO continues its success and is

an ACDI/VOCA member.Then-Vice President Hubert Humphrey commented:

“This is a unique and significant act of statesmanship on[U.S. cooperatives’] part. In this effort, farmers are investingin the development of future markets for their products andcontributing to sound international cooperation.”

Development worksACDI/VOCA today continues to help Indian farmers

innovate. Ongoing projects reduce poverty, increasing the

Training in South Sudan helps producers approach theirfarming as a business. Here farmers use a makeshift abacusto calculate income.

ACDI/VOCA developed market linkage opportunities for 3,000farmers in India using its value-chain approach and FreshConnect,a program that disseminates weather and price information.

ACDI/VOCA has been called the world’spremier nonprofit ag development organization.


Clockwise from top: Women farmers in India learn how to test soil. InEcuador, ACDI/VOCA has helped improve the lives of 22,000 families –including this cocoa farmer – and generated more than 18,000

permanent jobs. In South Sudan, ACDI/VOCA helped train governmentExtension agents and farmers and distributed agriculture micro-grantkits to support training and boost production.


incomes of smallholder and marginal farmers by boostingproduction efficiencies.

One recent effort used modern communicationstechnology to deliver local, up-to-date cooperative extensionand market information to rural farmers via text and voicemail. Another effort targeted aid for women farmers, whosaw their incomes increase by more than 30 percent. Theyalso benefited from a 60-percent increase in access to credit.

ACDI/VOCA is currently involved in 75 such economicdevelopment projects around the globe, helping to expandeconomic opportunities.

In the process of creating broad-based economic growth,ACDI/VOCA is also creating demand. This directly helpsU.S. agriculture, which is vitally dependent on overseasmarkets. When people in developing countries increase theirincomes, one of the first things they do is improve anddiversify their diets, and U.S. producers benefit from a risingtide of consumption.

People-to-people assistanceU.S. expert volunteers who conduct hands-on training and

consultation are one of the organization’s hallmarks.ACDI/VOCA has sent over 11,000 volunteers, many fromU.S. co-ops and Farm Credit banks, to 130 countries forshort-term assignments in support of projects. Theirexpertise has ranged from co-op capacity building to strategicplanning, from vegetable production to product packaging,and from rural finance to animal breeding.

ACDI/VOCA is a lead implementer of the U.S. Agencyfor International Development (USAID) Farmer-to-Farmerprogram, which is funded under the Farm Bill. Farmer-to-Farmer volunteers have completed thousands of overseasassignments, teaching their skills to farmers struggling tocreate a better life for their families and communities. TheAmericans also bring back a poignant sense of life overseasthat compels many of them to stay engaged.

Jerry Nolte, who has volunteered for a number of projects,described what his assignments mean to him. “I might begoing to the project to teach, but I’m really learning in theprocess as well.” On one assignment, he helped a loose bandof traditional farmers in Sudan coalesce as a cooperative.

“We spent time talking about the principles and practicesof a cooperative, then we took it from concept to working upa set of rules that they would follow,” Nolte said. Afterundergoing training, more than half of the group doubledtheir returns.

One member of the co-op sent his sister to Juba

University. She was the first family member to acquire highereducation. Another member renovated his crumbling houseand bought two donkeys to establish a water-supply business.

A banking model in Central AsiaAgriculture is a vital sector of the economy in most

developing countries, and a vast majority of the world’s poorare small-scale farmers. To modernize, enlarge theiroperations or make significant improvements in theirlivelihoods, these farmers need access to capital.

This was especially true in Kyrgyzstan in the 1990s, afterSoviet farm supports disappeared and credit was largelyunavailable to farmers and entrepreneurs. In September2000, ACDI/VOCA led the push to establish the Bai-Tushum Financial Foundation to facilitate access to credit inrural areas in the Kyrgyz Republic and provide underservedborrowers — especially small-scale farmers without otherresources — useful financial products and guidance. Theproject was launched with the support of USAID, USDA andCARITAS, a Swiss relief agency.

Since then, Bai-Tushum has served thousands ofborrowers. The initial project officially ended in August2005, by which time Bai-Tushum was operationally andfinancially sustainable. In 2012, it became the firstmicrofinance institution in Central Asia to obtain a fullbanking license from the National Bank of the KyrgyzRepublic. Now it is the seventh largest bank in the KyrgyzRepublic, with more than 30,000 clients and assets of $100million. Its many branch offices offer financial services fromaccredited, experienced bankers.

50 years of spreading co-op skills, values For 50 years, ACDI/VOCA’s vision has been a world in

which people are empowered to succeed in the globaleconomy. Its projects promote economic opportunities forcooperatives, enterprises and communities through theinnovative application of sound business practice.

“We know development works and that all benefit wheneconomic opportunities expand,” says Carl Leonard,ACDI/VOCA’s president and CEO. “We’re grateful for oursupport from U.S. cooperatives and Farm Credit banks andproud that we’ve been able to carry the co-op banneroverseas.”

For more information about ACDI/VOCA, includingopportunities for volunteer overseas assistance assignments,visit: www.acdivoca.org. n

“I might be going to the project to teach,but I’m really learning in the process as well.”


By Bruce J. Reynolds, Ag EconomistUSDA Rural [email protected]

ecent interest in foodcooperatives andworker ownership ofbusinesses hasintroduced organiza-

tional ideas that have not been widelydiscussed in agricultural cooperativeeducation forums and publications(Lund) (NCBA) (Cook). In addition,the 2012 United Nations InternationalYear of Cooperatives generateddiscussion of different financialpractices and principles throughout the

world. One practice in particulardeserves more attention in the United States cooperative community: the useof indivisible reserves (IR).

The International Co-operativeAlliance (ICA) specifies IR as acomponent of its 3rd cooperativeprinciple: “member economicparticipation.” This co-op principleaddresses several financial policies,including allocation of surpluses orresidual earnings. A few alternative usesof surpluses are recommended, such asdistribution of member dividends and“….setting up reserves, part of which, atleast, would be indivisible” (ICA).

Several western European

cooperatives have used IR to sustain theeconomic well-being of both presentand future members. This type ofunallocated equity is not available fordistribution to members, even if acooperative were to be dissolved. Apartfrom IR, European worker cooperativesallocate some of their earnings tomember capital accounts to bedistributed to members for theirretirement.

Indivisible reserves are exempt fromtaxation at varying percents, dependingon the tax laws of different nations. Taxexemption is justified because coopera-tives contribute to stabilization ofpersonal incomes and employment.

R

Indivisible ReservesSome see unallocated equity as a wayco-ops can help fortify their future

The Emilia-Romagna region of northern Italy is home to 15,000 cooperatives that account for about 45 percent of the region’s gross domesticproduct, including hundreds of farmer and worker co-ops. It is the birthplace of Parmesan cheese, production of which is seen here and on

opposite page. Photos by Carlo Guttadauro, Courtesy Parmigiano-Reggiano Cheese Consortium


Three main purposes for IRThere are at least three purposes for

building IR accounts: (1) reduceincentives for demutualization (orchanging the business to a non-cooperative structure); (2) distributefunds for cooperative development inthe event that organizationsdemutualize or close; (3) that providecooperatives with permanent capital tostrengthen their solvency and tostabilize income.

Purposes (1) and (2) benefit futuremembers by helping to secure acontinuing presence of cooperatives.The constraint on current members ofnot having access to IR funds is

balanced by the benefits of purpose (3)in providing capital to build acooperative’s solvency and stability,proponents of this practice say.

When purposes (1) and (3) areaccomplished a cooperative sustainsitself, generating benefits for currentand future members. Activation ofpurpose (2) may provide a source offunding for new cooperative enterprise.

Disincentives fordemutualization

Many cooperatives, especially in theagriculture and insurance sectors, havehigh market values and may becometargets for acquisition. Converting

cooperatives into investor-ownedbusinesses eliminates the uniquebenefits that cooperatives provide(Mooney).

An IR makes a cooperative lessattractive for conversion or sale.Unallocated equity can be distributed tomembers as ownership shares to beoffered in the event a cooperative wereto be demutualized. In contrast, an IR isunavailable as owner equity to sellers ofa business or as a cash reserve to buyers.

Limiting cooperatives as targets foracquisition helps sustain them for futuregenerations. IR may also preventcurrent members from making short-term decisions to sell-out that they maylater regret.

Contributing to cooperative development

An IR from a dissolved or convertedcooperative is a source of funds for newcooperative development in countrieswith laws mandating this procedure,including Spain, Italy and France(Corcoran). The availability of fundsfrom dissolutions is obviously not asteady source of funding cooperativedevelopment. Cooperatives inbankruptcy are likely to have leveragedtheir IR in their efforts to stay solvent,and claims from lenders would likelydiminish their assets.

Demutualization usually involvescooperatives with high enterprise valueso that IR would be available for futurecooperative development. Offsettingthis potential transfer is the disincentivefor members to demutualize when theyhave no access or claim to IR.

Fortunately, funding for cooperativedevelopment is met in several WestEuropean countries by other ongoingprograms. They mandate relativelysmall percentages of annual earnings tobe diverted to national funds or tofederations for cooperativedevelopment. (Giszpenc).

Income stabilizationPurpose (3) of an IR is to provide

some proportion of capital that belongs


to cooperatives and notto members. Whilecooperatives fulfill acommitment to returnprofits to members, as isusually accomplishedwith patronage refunds,ongoing benefits aremore secure when aportion of earnings isdedicated to a reservethat provides some non-revolving capital on thebalance sheet.

Some Europeancountries not only offerworker cooperatives taxexemptions for IR butalso mandate a certainpercent from annualearnings to be credited tothese capital accounts.Members have generally supportedallocation to IR in excess of the amountrequired. In France, a minimum of 15percent is required, yet co-ops thereallocate, on average, from 40 to 45percent to IR (Corcoran).

During the period 1977-2002, theItalian government regarded all workercooperative allocations of net earningsto IR to be tax free. After 2002, the taxfree portion of allocations to IR waslimited to 70 percent of annual profitsby cooperatives with more than 50percent member business, with furtherlimits for cooperatives doing less than50 percent of their business withmembers. Nevertheless, averageallocations to IR have held at 80percent or higher (Navarra) (Giszpenc).

Worker cooperatives account forabout 6 percent of Italy’s totalemployment. A recent study showedthat cooperatives have had far lessemployee layoffs than other forms ofbusiness. Their co-op system involvesmember commitment to accept slightlylower wages in exchange for moresecure employment.

The author of that study, CeciliaNavarra, concludes: “Moreover, theshare of reserves a firm allocates to IR

is negatively related with the averagewage it pays and positively related withvalue added per worker. IR can thus beinterpreted as a common pool whereprofits are cumulated in good times andthat allows to smooth wages over time.”Since IR provides a basis for securingcredit, these cooperatives areincentivized to maintain the value ofsuch accounts.

Italy is currently in an economicrecession, with much of its citizenryopposed to austerity measures.Navarra’s research describes howmembers of worker cooperatives haveused IR to self-manage austerity foraccomplishing more secureemployment. As workers retire withtheir capital accounts, IR stays with thecooperative to support solvency andemployment for new members.

Permanent capitalU.S. farmer cooperatives have

traditionally distributed earnings withqualified patronage refunds, used inpart as member equity investment. Thissource of equity has an expiration datein the sense that it must eventually bepaid back to members, so that it is notregarded as permanent capital.

Permanent capital is owned by the

cooperative, usually asunallocated equity. It hasbecome an importantform of capital, aspointed out by Cook andChaddad: “A continuingchallenge for cooperativemanagement is that ofreplacing capital that isrevolved or redeemed tomembers… This has ledto a trend of increasingthe percentage of non-allocated equity… Theunallocated equity can bethought of as permanentrisk capital.” Definitionsof “permanent capital”vary, but the term is usedhere to mean equitycapital that is notassigned for redemption

to members. Permanent capital is also

accumulated in U.S. agriculturalcooperatives by means of directinvestment by members in transferrablestock shares or in offerings of preferredstock to members and to the public. Asin the United States, Western Europeanagricultural cooperatives distributeearnings as allocated member equity butthey have generally accumulated higherpercentages of unallocated, permanentcapital than have their U.S.counterparts. This has been due todifferences in government agriculturalpolicies and more extensive use byEuropean agricultural cooperatives ofmajority ownership in publically listedcompanies (Cook).

In regard to decisions aboutdistribution of earnings to eithermember or to unallocated equity, theshare of the latter has increased for U.S.agricultural cooperatives. From 1954 to1976, average unallocated reservesincreased from 12 to 15 percent of totalequity (Griffin).

The graph on page 15 of theunallocated share of equity for 2003 to2011 for U.S. farmer co-ops shows anincreasing median percentage, rising

Running a forge press at Zappettificio Muzzi, a worker-owned agriculturalimplement manufacturing cooperative in Imola, Italy. Worker co-ops account for6 percent of jobs in Italy. Courtesy of the Ohio Employee Ownership Center

from 30 percent to more than 40percent. The median, rather than theaverage, measure is used because manycooperatives either allocate all earningsto cash dividends and to member equityor have assigned operating losses tounallocated equity. For example, 97 outof 1,209 cooperatives that reportedtheir equity holdings in 2011 had zerounallocated equity.

IR may not be an attractive type ofunallocated equity for U.S. farmercooperatives unless it comes with taxexemption status. U.S. cooperatives paytaxes on unallocated retained savings. Inaddition, if unallocated equity were tobe distributed to the membership, allsuch distributions would be taxable tothe member.

Even with a tax exemption, IR might

be deemed less attractive thanunallocated equity, since the latter canbe distributed to members, usually inthe event of either a dissolution or saleof a cooperative. However, these twotypes of permanent risk capital are notmutually exclusive and could coexist ona cooperative’s balance sheet. Revisionsin states’ incorporation statutes forcooperatives would be needed toaddress these policy changes.

Cooperative longevityAll businesses, whether a cooperative

or otherwise, are subject to adversechanges in the market or faultydecisions and planning that can lead totheir closure. Some businesses have alife-cycle, such as small, family-ownedenterprises that are unattractive to anew generation of owners. In contrast,cooperatives have a large base of ownersin their members. When new membersreplace those who retire, there areusually sufficient incentives for acooperative to stay in operation for thefuture.

Some successful cooperatives becometargets for acquisitions. An agriculturalcooperative may inadvertently increasemember incentives for an investor-owned conversion by having built-up

reserves of permanent capitalin the form of unallocatedequity. However, somefinancial experts point outthat members regard theircooperatives as integral tothe success of their farmbusinesses and wouldtherefore not be motivatedto sell out from having un-allocated equity (Dahlgren).

Yet, IR would offer thesame strengthening ofcapital structure as providedby unallocated equity butwith lower taxes and anexplicit deterrent todemutualization. Some ofthe value of manycooperatives is often basedon contributions fromprevious generations of

members. Although a new generation offarmers can start a new cooperative inthe wake of a demutualization, it maytake decades to redevelop the samebusiness and service capabilities.

Intergenerational cooperationAgricultural cooperatives in the

United States and Western Europe haveadhered more closely to individualownership principles than have worker

cooperatives, while also makingextensive use of non-member capital.Nevertheless, establishing permanentcapital has been important for bothtypes of cooperatives.

Whether or not IR can offeradvantages for agricultural cooperativesis worth consideration, and, at the veryleast, the purposes of this financialprinciple can be appreciated.

Given the unique role ofcooperatives in benefiting members —including greater assurance of marketaccess or employment — IR can helpprovide perpetuity for these benefits.Indivisible reserves reflect a principle ofextending the benefits of cooperativesto multiple generations of members. n

References• Cook, Michael L., and Fabio R. Chaddad(2006) Capital Acquisition in North American andEuropean Cooperatives. Filene Research Institute.

• Corcoran, Hazel, and David Wilson (2010) TheWorker Co-operative Movements in Italy,Mondragon and France. Canadian WorkerCooperative Federation.

• Dahlgren, Joel L. (2007) “A Question of ValueProposition and Capital Structure,” TheCooperative Accountant.

• Giszpenc, Noemi (2007) Italian CooperativeFinance: A deeper look for working today(unpublished presentation). OwnershipAssociates, Inc.

• Griffin, Nelda, Roger Wissman, William J.Monroe, Francis P. Yager, and Elmer Purdue(1980) The Changing Financial Structure ofFarmer Cooperatives. USDA/ESCS/ FCRR 17.

• International Cooperative Alliance (1995)http://ica.coop/en/what-co-op/co-operative-identity-values-principles

• Lund, Margaret (2011) Solidarity as a BusinessModel: A Multi-Stakeholder Cooperatives Manual.Ohio Employee Ownership Center.

• Mooney, Patrick and Thomas W. Gray (2002)Cooperative Conversion and Restructuring inTheory and Practice. USDA/RD/RBS, RR 185.

• Navarra, Cecilia (2009) Collective accumulation ofcapital in Italian worker cooperatives: an empiricalinvestigation on employment stability and incomesmoothing (Conference on Growth andDevelopment Patterns: the Role of Institutionsin a Comparative Perspective, Perugia, Italy)-http://www.academia.edu/777440/Collective_accumulation_of_capital_in_Italian_worker_cooperatives_an_empirical_investigation_on_employment_stability_and_income_smoothing

• NCBA-National Cooperative BusinessAssociation (2005) “Capital withoutCompromise: Innovative Financing Strategiesfor Cooperatives,” conference, Chicago, IL,September 14, 2005.


2003 2005 2007 2009 2011

50%

40%

30%

20%

10%

0%

uMedian percent of unallocated to total equity

Source: USDA/RD/Cooperative Programs, STSS annualsurveys.

Unallocated share of total equity:

U.S. farmer cooperatives

u

uu

uuuuu

u


By Stephen Thompson, Assistant Editor

ost Americans havenever eaten pigeon, butone cooperative inNorthern Californiahas found a profitable

niche supplying squab — the meat ofyoung pigeons that have not yet flown— to restaurants, ethnic markets andindividuals. The biggest problem SquabProducers of California faces today isfilling all its orders.

Squab Producers, headquartered inModesto, Calif., has about 70 members,each with an average of 1,000producing pairs of birds. “For most ofthem, it’s not their primary income. Butthey like the farm lifestyle,” says DaltonRasmussen, the co-op’s president. “It’s

more supplemental [income]; most ofthem have other jobs.”

One mated pair of birds can producean average of 15 to 17 squabs per year.The cooperative provides marketingand processing services to its membersas well as technical support, a qualityassurance program and purchasing ofsome supplies.

Squab has been considered a delicacyfor centuries — not only in Europe, butalso in North Africa and China. Squabmeat is dark, tender and flavorful and isserved at many up-scale restaurants inthe United States. Currently, the co-opsells the birds for $3.90 per pound, 30cents of which the co-op retains.

“We sell to markets in New York andSan Francisco, as well as export toCanada. We get quite a few Internet

orders as well,” Rasmussen says.

Co-op operates processing plant

The cooperative has its ownprocessing plant that also offersprocessing services to other poultryproducers in the area. “Our niche is thesquabs,” says Rasmussen, “but becauseour processing plant is very up to date— and we have bills to pay for newequipment — it just makes sense to docustom processing for other companies.We sell some Cornish game hens andalso do a lot of custom processing forchickens and other species. So we’reable to capitalize on our investment atthe processing plant. It also helps outour employees. We can do our squabprocessing fairly quickly, so it helps to

Squab producers ‘flock together’to process, market through co-op

Birds of a Feather

M


keep our employees occupied and keepsturnover down.”

Raising pigeons requires differentskills and infrastructure than othertypes of poultry. Pigeons form couplesthat mate for life and cooperate inraising the young, requiring pigeonhouses with covered nests for eachcouple. Squab producers use pigeonsspecially bred for meat production. Aswith other types of livestock, the qualityof breeding stock is crucial to success,so the cooperative requires thatmembers use approved stock.

“There’s a lot more to it than raisinga chicken or turkey,” says Tim Beck, aco-op member with more than 3,600pairs. “You’re not just growing thesquab, you’re raising breeding stock.You can’t just throw down a bunch ofchicks on the ground.”

The cooperative provides technicalassistance, including a staff veterinarian.It conducts a quality-assurance trainingcourse that covers rodent control,handling techniques, animal-welfarerequirements and disease preventionand control. Attendance by producers isrequired at least every two years.

Members are also required toconform to the co-op’s quality-assurance program, says Rasmussen, toensure that antibiotics are not being fedto their flocks. “It’s more of a foodsafety and animal-welfare issue,” henotes. They also must agree to aproduce-sale agreement specifying thattheir birds will be sold through the co-op.

“Most of them are really happyabout that,” says Rasmussen, “becausethey don’t want to market the birdsthemselves, which would be very hardfor individual farmers. So this is a way it[farming] can fit into their lifestyles,especially if they have other jobs.”

Membership costs $200, refundableupon leaving the co-op. “It’s mostly tomake sure they’re serious aboutjoining,” says Rasmussen. “The boardnormally likes to have people who arealready producing, but we know that’shard for people starting out. So people

can join before they have birds — butthey have to have a plan in place andhave to be approved by the board ofdirectors. If they have good contacts, ifthey know members that they’re goingto buy their breeders from, and getadvice, it’s not hard to get in.”

Co-op seeks more productionThe co-op also helps members by

purchasing certain bulk items, such asgrit and sanitation supplies. Membersare asked not to sell breeding stockoutside the co-op without boardapproval.

Growers are paid $3.60 per pound,with 30 cents retained for a revolvingcapital fund.

The co-op makes deliveries aroundthe San Francisco Bay Area three orfour times each week. Rasmussen saysthe co-op’s biggest market is restaurantsand meat markets in San Francisco’sChinatown.

“Some of our biggest sales are duringChinese New Year,” he says. Thecooperative has a marketing agreementwith a distributor that sells to New Yorkand Hawaii, and it also sells some birdsthrough its Web page. In addition tosquabs, the co-op fills out its line withCornish hens and poussin — a specialtychicken that is sold when it is about aweek younger than Cornish hens. Bothare grown by some of its members.

Tim Beck started raising squabs inhigh school. “My dad and uncle got mestarted. They were raising pheasantsand game birds,” he says. The co-opoffered lower processing fees formembers, “So my dad and uncle got mycousin and me started with the squabs.That got them into the co-op with theirgame birds. They bought the birds forus and it was like, ‘Here, learn someresponsibility,’” he chuckles. That wasin 1987.

Today, Beck is a full-time farmer,growing walnuts and almonds as well asraising squabs. “We’ve done prettygood with squabs,” he says. “It’s not asprofitable as it used to be, with [high]feed prices now, but it’s still good

money.” He estimates that a quarter toa third of his total farming revenuecomes from squabs. “They have amarket for every bird I produce,” hesays.

Rasmussen and Beck agree on theneed to expand production. “This is avery strong market,” says Rasmussen.“Our biggest problem for the past fewyears has been that we don’t haveenough supply. My goal is to effectivelymarket the birds and get better prices,but it’s hard to market something whenyou don’t have the supply. In the winter,when our production is down a bit, wehave a lot of customers we have to limitthe orders on.”

Beck says that the processing plantcan handle about four times as manybirds as members can supply. Customprocessing for non-members helps takeup the slack and keep the employeesworking. Unfortunately, says Beck,competition from other poultryprocessors has begun to make it difficultto keep the plant running full-time.“Two of our biggest customers that weprocessed chickens for have gonebankrupt and stuck us for big bills,” hesays. Only some of the resulting debthas been recovered in the bankruptcyliquidations.

“I’m expanding [production] becauseI’m good at it and I make money,” saysBeck. However, he cautions potentialsquab growers: “Make sure you reallywant to do it by contacting someonewho’s been doing it for a while. I’veseen a lot of guys who hear about it andthey think ‘oh, that’s easy money.’ Andthey jump right into it without anycoaching. It’s a disaster, because theyhaven’t got the proper training. Theyfind out it’s more work than theythought it was, and that there’s a lotmore to it than raising a chicken orturkey.”

Keeping pace with regulationsKeeping state and local regulators

happy is becoming more of challengefor the co-op and its members. The co-



Equity Elevator & Trading Co.

joins century club

he Equity Elevator & Trading Co. in Woodlake, Minn., hasreached a milestone, thanks to the support of its loyal members.The elevator, celebrating 100 years of business, was recently

inducted into the Minnesota Grain and Feed Association’s Century Club.Reaching the anniversary says a lot about the cooperative’s members, sayselevator general manager Rod Winter.“They have been very supportive of the business,” Winter says. “They are

the key to the success of the elevator.”While some elevators have multiple locations, Equity has one location in

Wood Lake.There have been other elevators in the southwest Minnesota community. As

settlers homesteaded in Wood Lake Township, they plowed the prairie soiland planted small grains. When a new rail line was built from Hopkins toWatertown, S.D., a flurry of business started in the town — including thePacific Elevator Company, which established a grain buying station. The first grain delivery arrived in 1884. Soon a second and third elevator

were built to handle the grain.

Editor’s note: This article is reprinted courtesy the Rochester (Minnesota) Post Bulletin.By Carol Stender

T

Co-op part of “Elevator Row” Equity Elevator & Trading Co. was

formed on July 3, 1912, but didn’treceive its charter until Sept. 12. Itstarted operations in existing elevatorswith 64 charter members.

Wood Lake had five elevators by1919 in what became known as“elevators row.” There was the AllasElevator, The Great Western Grain Co.Elevator, Pacific Elevator Co., and twoelevators operated for Equity. Businesswas good and Equity added a feed millin 1925.

The next decade wasn’t stellar. A lackof rainfall, the Great Depression andbankruptcy were hard on theenterprises. Equity Elevator voted in1932 to discontinue its dividends onflour, feed and coal and to sell on asmaller margin of profit. Corncobswere selling for almost as much as thecorn. The cobs garnered $3 per load.Farmers received 18 cents a bushel forcorn and paid $10 per ton for soft coal.

Because of the decrease in grain

receipts, both the Great Western andWood Lake elevators closed. Event-ually, Equity Elevator & Trading Co.stood alone.

In its first quarter century ofbusiness, the elevator paid dividends ofmore than $300,000 to members. Evenin 1934, at the close of the businessyear, the elevator showed dividends of$5,955.22. Not bad, considering thepoor corps and low grain prices.

It thrived after going through theDepression. By 1950, the elevatorconstructed a 120,000- bushel-capacityconcrete elevator that reached 138 feetin height. At the time, it was the talleststructure in Yellow Medicine County.

The elevator continued to build tomeet patrons’ needs. In 1959, theelevator received approval to build six,15,000-bushel steel grain bins for morestorage. It purchased the land it wasbuilt on from the Chicago and NorthWestern Railroad.

A grain dryer was constructed and afertilizer plant was built. Annexes for

more grain storage, a shop and newoffice were completed.

More than a place to market grain

As Melanie Gatchell gathered theelevator’s history, updated for thecentennial by Anne Anderson, theynoted that the elevator is more than aplace where farmers buy and sell grain.“It is a beacon that alerts others to thepresence of a town from miles away,”they wrote. “It dominates not only thelandscape of rural towns, but also thesocial life of those who live and workthere.”

The elevator is a place to get thegrain prices, find out the weatherforecast, buy some dog food, read theauction bills, drink coffee, eat peanuts,gossip and tell jokes.

“Elevators are a part of life in ruralMinnesota," they continued. "The logofor Equity Elevator is two handsshaking. Those hands don’t justrepresent deals being made, theyrepresent the elevator and thecommunity working together tostrengthen the community from whichthey live and work — a pact, if you will,a promise for a better tomorrow.”

Today, Equity Elevator & TradingCo. has 718 shareholders and handlescorn, beans and wheat; grain drying;feed grinding and mixing; seed; fertil-izer; ag chemicals and custom spraying. n


Opposite page: Marking their co-op’s centennial year, employees of Equity Elevator & Trading Co.form the number “100.” The co-op, which has 718 members, still operates a single facility (inWoodlake, Minn.) where it handles corn, soybeans and wheat. Photos courtesy Equity Elevator &Trading Co.

By Dan Campbell, [email protected]

t’s not just the expectedgrowth in worldpopulation during thenext 20 years, it’s therising wave of middle

class consumers in many developingcountries that has U.S. agriculturalexporters excited about the potential forsubstantial increases in overseas sales.China, in particular, has a rapidlyexpanding middle class with disposableincome to spend on imported foods and isthus a major focal point for interest among

U.S. food companies. These demographic trends are hardly

going unnoticed by U.S. agriculturalcooperatives. Many farmer-owned co-opsare already among the export leaders fortheir industries and are now looking tohone their global marketing strategies tocapitalize further on opportunities inmarkets that once held little promise.Three such cooperatives were in thespotlight at USDA’s annual AgriculturalOutlook Forum in Washington, D.C., inFebruary: CHS Inc., Blue DiamondGrowers and Accelerated Genetics. Theyeach provided an overview of their exportmarketing strategies and what their

success overseas means for theirmembers at home.

Session moderator Doug O’Brien, thenthe deputy under secretary for USDARural Development (which includesCooperative Programs), said the subject ofthe co-op panel talk was fitting for aconference with “Managing Risk in the21st Century” as its theme.

“After all, two of the most successfulstrategies farmers have used to managerisk include, first of all, banding togetherin cooperatives to reach the scale andsophistication to be able to compete in thedomestic market and, more and more, tocompete in export markets,” O’Brien said.

I


The Lure of Distant ShoresCo-ops share export strategies during USDA Outlook Forum

“The second way is to manage risk bydiversifying; exporting is a way ofdiversifying your markets.”

U.S. agricultural exports are a brightsector of the nation’s economy, generatingan estimated record value of $143.5 billionin 2012, O’Brien said, noting that thissurpassed the previous record of $137.4billion, set in 2011. Further, more than 1million American jobs are reliant uponagricultural exports, including those infood processing, packing andtransportation, as well as on-farm jobsand related support industries.

Farmer- and rancher-owned co-ops area major part of the U.S. farm economy,

setting a sales record of $213 billion in2011 and bettering the previous mark, setin 2008, by $10 billion. So there is a greatpotential to grow co-op presence inexport markets.

“When producer-owned cooperativesthrive, it’s good news for rural America,”O’Brien said, “and not just for the farmersand ranchers who own the co-op.”Because the profits of a co-op flow backto farmers and ranchers, rather than todistant investors, they help boost the ruraleconomy, he observed.

The co-op representatives said being acooperative holds some advantages inoverseas markets. One reason is that, as

producer-owned businesses, buyers knowthey are dependable suppliers becausethey have an assured supply from theirmembers. Further, overseas customersmay be other co-ops, as in the case ofAccelerated Genetics, which prefer doingbusiness with other farmer-ownedbusinesses.

Following are highlights from thepresentations made by three farmer co-ops that have found success on distantshores.


Asia's demand for grain and other productscontinues to grow and U.S. cooperatives areanswering the call. CHS Inc. — a partner in theTEMCO export terminal joint venture thatincludes this Tacoma, Wash., facility — meetsthat demand by moving its members' grain fromthe nation's heartland to Pacific Northwestports and more than 65 countries worldwide.Photo courtesy CHS Inc.


espite being the world’smost populous nation,China was a rather lonelyplace in 1975 for analmond sales rep. That’swhen Blue Diamond

Growers’ made its initial, exploratorymarketing trips to China, which, at that time,had almost no tradition of consumingalmonds. It also had a state-controlledeconomy that held tight reins on importsallowed into the country. So it was not themost promising export market for theSacramento, Calif.-based co-op, which hasmore than 3,000 members (more than half ofall U.S. almond growers).

In the 1970s, almond exports began toexceed domestic sales, with Europe beingby far the leading destination. But BlueDiamond was also beginning to havesuccess in Japan and India at that time.China was obviously another huge potentialAsian market that was then on the cusp ofan astounding industrial revolution which

would transform it into the world’s secondlargest economy by 2010. While there wasno way of knowing in 1975 just how much,and how fast, the Chinese economy wouldgrow, Blue Diamond nonetheless felt it wasnot a matter of “if,” but rather “when” Chinawould become a major market.

Patience can be a virtue for exporters

What followed those early sales trips toChina in the 1970s were “many years of legwork and investment, without much to showfor it,” recalled Bill Morecraft, generalmanager of Blue Diamond’s GlobalIngredients Division. “Ironically, the toeholdthat got us established in China was gainedthrough our Oregon Hazelnut Division.”Customers who had been purchasing in-shell hazelnuts from the co-op for manyyears eventually became its first majorcustomers for almonds.

In the past dozen years, China hasemerged as the No. 1 export nation for

California almonds, Morecraft said. In justthe past five years, China has gone frombuying 25 million pounds of almondsannually to nearly 250 million pounds, worthabout $750 million.

These consumption gains have beenlargely driven by the rapid growth of themiddle class in China, which Morecraft saidhas increased from 120 million people in2006 to 239 million in 2011.

Japan and India are also strong marketsin Asia for U.S. almonds. As was the case inChina, almonds were a new food in Japanwhen Blue Diamond first began marketingthere in the 1960s. A chocolate-coveredalmond introduced by a major Japaneseconfectionary company in 1970 proved to bea huge hit, and that in turn sparked interestin almonds.

By contrast, India had been consumingalmonds for many centuries, where traditionhas it that almonds benefit mental capacity.But India had a much smaller middle classthan Japan, so that market has grown more

Long-range work in China pays off for almond co-op

D

Construction work for a new subway system (rear) doesn’t stop the flow of shoppers in the central business district in Changsha, China. Asia hasnow nearly equaled Europe as the major export market for U.S. almonds (see chart, opposite page).


slowly, although it too is now expanding at afaster rate.

The Middle East has been a long-standing almond export market (and is thecradle of almond cultivation) that continuesto show strong growth. Turkey, in particular,has a growing appetite for Californiaalmonds, both for its own consumption andfor re-export to other Middle Eastern andNorth African nations, Morecraft said.

Rapid growth boosts economy, creates jobs

The growth trend for almonds has beenso steep in Asia that today it imports onlyslightly less than Europe, which in 1990imported three times more almonds thanAsia. In just the past five years, the overallexport value of California almonds has risenfrom $1.9 billion to an estimated $5 billion forthe 2012 crop (which is still being marketedat this point). “That’s a growth rate of morethan 100 percent,” Morecraft stressed.

Meeting this phenomenal growth inglobal demand has, of course, required acorresponding growth in almond production.The U.S. almond industry (almost entirelybased in California) was producing just 5million pounds per year in 1910, when 200almond growers joined forces to form BlueDiamond Growers (originally as theCalifornia Almond Growers Exchange). Ittook another 70 years for production toreach 400 million pounds, and then onlyanother 30 years for production to soar to1.6 billion pounds.

Today, the U.S. accounts for about 88percent of the world’s almond supply. Spainand Australia rank second and third,respectively. The crop is now planted on800,000 acres, primarily in Central California,from around Bakersfield in the south to

Chico in the north. Per-acre yields continueto rise sharply as growers improve orchardmanagement and planting strategies.

Evidence of what this export successmeans back home can be seen outsideTurlock, Calif., where Blue Diamond thisspring will be opening its third processingplant. Overall, the almond industry supports50,000 jobs. Most of the dollars paid togrowers flow back into their communities tohelp support local economies.

Tips for exportersMorecraft stressed a number of factors

for would-be exporters to consider,including:• Growing an export market requires a long-

term perspective and a reliable supply. The“phenomenal production growth” inCalifornia is ultimately what made theexport gains possible. Morecraft praisedthe Almond Board of California for doing “atremendous job of partnering withgrowers” and expanding domesticadvertising efforts to include international,generic advertising.

• Long-term investment is needed. Morecraftnoted that in China, it took 30 years – from1975 until 2005 – to see meaningful results.

• Understand and respect different culturesand know how various “food cultures” willincorporate your product into their diets.

• An ag exporter must “be in the market”with a physical presence and be on call 24hours a day. With modern communicationstechnologies, it may be tempting to feelyou can market overseas from your desk inthe United States, “but the reality is thatthere is no substitute for being in themarket, face to face with customers,”Morecraft stressed.

• The economy of a nation must be capable

of buying your exports. The market inJapan was developed 40 years earlier thanin China, but both markets were built onthe same foundation: the development of apurchasing class with disposable income.Japan’s middle class emerged muchearlier than China’s and was already welldeveloped in the 1960s when marketingefforts began there.

• Know and use available resources. “USDAhas been a fabulous resource; we makeuse of USDA’s Foreign Agricultural Service(FAS) when overseas,” Morecraft said. Hecited USDA’s Market Access Program(www.fas.usda.gov/mos/programs/map.asp) for providing crucial help in developingoverseas markets. The California AlmondMarketing Order, under which growersassess themselves about $60 millionannually to promote their industry, has alsoprovided key help.

“If you are new to exporting, FAS is agreat resource to help in getting your feetwet in a country,” he said. Visiting FASoffices can be helpful even just to establishkey contacts overseas should unexpectedissues arise. “The USTR (U.S. TradeRepresentative) office can also be veryhelpful when more complicated issues arise,such as helping to remove the tariff andnon-tariff trade barriers that can pop up inevery region of the world.”• Last, but not least: have a great product.

“We are fortunate to have a healthy, wholefood that people are becoming more awareof. Blue Diamond and the rest of theCalifornia almond industry have beengrowing together for over 100 years. Wehave a fabulous export success story andwe appreciate the support we get fromUSDA.” n

Korea is the destination for these Blue Diamond almonds.

California Almond Exports, 1980-2011

USAEuropeAsiaMiddle East

1980 1990 2000 2005 2011

600,000

500,000

400,000

300,000

200,000

100,000


Global expansion reinforces CHS as a market leader

ust 10 years ago, CHSInc. was a U.S.-onlybased business. Then,in 2003, the nation’slargest cooperative

opened its first foreign office, in SaoPaulo, Brazil, staffed by 15 employees.That was the start of something big.

Today, this St. Paul, Minn.-basedgrain, foods and energy/supply co-ophas offices in 24 nations staffed by about1,000 employees and does business in 65countries. It not only sells U.S.agricultural products around the globe,it also does foreign sourcing of bothcrops — to supplement the productionof its own members — and farm inputs,primarily fertilizer. This is helping CHSreinforce its status as a reliable, year-round supplier to its customers, saidRick Dusek, CHS vice president, NorthAmerica Grain.

“The goal of our foreign operations isto add value to our producer-ownedsystem here in the U.S.,” Dusek said.CHS is owned by local and regionalfarmer co-ops and also has directfarmer and rancher members.

Its global expansion is far fromcomplete. Today, CHS is investing in anew port facility in Brazil, is exploringpotential infrastructure investments inkey demand regions and it recentlyopened an office in Winnipeg, Canada,where the co-op is looking for newbusiness opportunities in the wake ofthe Canadian Wheat Board losing itsstatus as sole marketer of Canadianwheat.

CHS is also expanding its exportfacilities in the United States, includingits ports in the Pacific Northwest. Asone of the nation’s five largest grainmarketers, CHS handles about 2 billionbushels of grains and oilseeds annually,a growing amount of which is destinedfor export.

Breakup of Soviet Union: a game-changing event

While the pace of its global businesshas increased dramatically in the past

J

CHS opened its first international office in SaoPaulo, Brazil, in 2003. Today, the cooperative hasoperations in about two dozen countries,including Vittoria, Brazil (seen here), and twoothers in South America from which it exportsgrain and imports fertilizer. Photo by DavidLundquist, courtesy CHS Inc.

decade, CHS and its predecessor co-ops(the largest of which were Cenex andHarvest States Cooperatives, which mergedin 1998) have long been involved inexporting. In the Pacific Northwest, it beganexporting grain to Asia in the 1930s. It builtits own export facility in Superior, Wis., inthe 1940s and was a supplier for the U.S.“Mercy Wheat Program” that helped Europerecover after World War II. In the 1960s, itbuilt an export terminal in Kalama, Wash.,and in the 1970s was a major supplier to theSoviet bloc nations.

Dusek said a game-changing event forgrain marketers wasthe replacement ofgovernment-basedbuying entities withlarge, private buyingcompanies in theformer republics ofthe Soviet Union andsome other nations.While there havebeen significantimprovements ingrain transportationand storage systemsaround the worldsince then, none ofthese systems cancompare to that ofthe United States, Dusek said. “The U.S.system is phenomenal — it is stillunmatched in the world.”

A key market driver in export markets isworld population growth. “Even though therate of growth is slowing, middle classes aregrowing significantly in many markets,”Dusek said, citing projections showing thatfrom 2012 to 2020 the number of people inthe world classified as middle class willgrow from 1.8 billion to 3 billion. By 2030, thenumber is expected to grow to 5 billion.

“Our core business will remain in theU.S., but our strategy is to enhance our grainexport infrastructure,” Dusek said. The co-op divides its markets into four basicregions: North America (for origination andsales); South America (primarily for grainorigination); the Black Sea/MiddleEast/North Africa (for origination and sales)and Asia/Pacific (sales). The co-op’smarketing strategy dictates “having bootson the ground” in all of these regions.

Grain exports to double by 2050Growth in global population and income

levels is expected to fuel a doubling of grainexports by 2050, Dusek said. The growing

middle classes will continue to demand“more meat and more protein,” which, inturn, will mean more feed grain going tolivestock producers.

Projections show China’s middle classwill likely grow to 700 million by 2020, orabout double the size of the current U.S.population, he said, calling the growth rate“staggering.” “Someone is going to have toproduce the protein to meet that soaringdemand,” he said, noting that CHS plans toplay a major role.

The trend “has huge ramifications forcompanies like ours,” Dusek said. “As a U.S.

farmer-owned company, what does it meanfor export competition and our position inthe global marketplace? How will we needto grow to participate in this market?” Theseare the key questions the co-op isconsidering as it develops future marketingstrategy.

Of course, international competitors arealso looking at these numbers andresponding to them. “There is a tremendousamount of money being invested ininfrastructure, not only in the U.S., butaround the world,” Dusek said.

Private equity is pouring into the grainmarkets, he continued. “Just 10 or 15 yearsago, it was almost unheard of to see privateequity being invested in the ag sector. Sothe competition has changed tremendously.”The global commodity boom is increasingsupply-chain value, he said, which is “whyothers are expanding, and why we areexpanding.”

The amount of resources and workingcapital needed to compete in this markethas increased sharply, he said. “It takes atremendous more amount of money toparticipate than it did even 5 or 10 yearsago.” That demand for more capital is a big

factor driving consolidation in the grainindustry, with regional companies seen asprime takeover targets, Dusek noted.

Benefits of a “bigger global footprint”

Buying foreign grain and oilseeds to sellto its customers might seem contradictory,since these grains compete with the outputof CHS’ own members, Dusek said. “But tostay relevant for customers and becompetitive in global markets — and toprovide the most value to our producers —we feel this is absolutely necessary; our

whole system isbehind it,” he said,because it enablestheir co-op to be aplayer in worldmarkets.

“What does thatbigger globalfootprint bring us?The biggest thing ismarket knowledgeand pricediscovery,” Duseksaid. For example,the soybean exportmarket today isdominated by threesuppliers: the

United States, Brazil and Argentina. “If we are a U.S.-only company supplying

China, we are only seeing about one-third ofthe picture. Customers over there demand afull scope of the market picture each andevery day.” They want to know global cropprices, vessel freight rates and where thereare quality concerns, he continued. “If wewere a U.S.-only company, we would onlysee part of the picture, so having a globalfootprint adds security for CHS customers.”

In Asia alone during the past decade,CHS has opened marketing offices in HongKong and Shanghai in China, as well as inSeoul, South Korea. It has established anAsia-Pacific headquarters office inSingapore and is exploring new storage anddistribution opportunities throughout Asia.

Outside investors are often attracted byshort-term returns rather than the long-termhealth of the industry, he noted. CHS’ risk-management philosophy is to helpcustomers make informed decisions. Thesecustomers appreciate that CHS is “not inthis game for one or two trades; we are in itfor the long term. We’ve been in it for 80-plus years and plan to be in it for 80-plusmore years.” n


Photo by David Lundquist, courtesy CHS Inc.


enetics is thefoundationfor building astrongerdairy or beefherd, and

many producers around theworld are looking to the UnitedStates for breeding productsand technology to improve theirproductivity. This hastranslated into growing globalsales for companies such asAccelerated Genetics, aBaraboo, Wis.-based livestockbreeding cooperative.

The U.S. cattle geneticsindustry has seen its exportsales grow five-fold in the past30 years, topping $142 million in2012. That’s up from just $20million in 1984, said JoelGroskreutz, president and CEOof Accelerated Genetics. Hiscooperative has successfullycultivated foreign business forits products and services,which in 2012 accounted for 48percent of its business, up from39 percent in 2000.

Much of its foreign salesare carried out through WorldWide Sires Ltd., a joint ventureit owns with another U.S.livestock breeding cooperative,Select Sires. Since these twoproducer-owned co-ops

World demand for U.S. cattle genetics fuels export growth

G

Top — Co-op representativesmeet Asian cattle producersduring a recent tour of cattleoperations in Asia. Photoscourtesy Accelerated Genetics.

Lower — Man-O-Man 2-ETN,one the co-op’s top bulls,embodies the genetic traitsdesired by livestock breedersaround the world. Photo by CybilFisher


purchased Visalia, Calif.-basedWorld Wide Sires in 2001, itssales have tripled, Groskreutzsaid. “This is an example of howtwo co-ops, which arecompetitors in the domesticmarketplace, can cooperate topursue international markets,”he said. “It’s been veryprofitable for both co-ops.”

Created through mergers

Accelerated Genetics’ roots

go back to 1941, when itspredecessor co-ops werefounded. In 1947, the VernonCounty Breeders andTrempealeau County BreedersCooperative merged to createTri-State Breeders Cooperative.The name of the co-op waschanged to AcceleratedGenetics in 1994 to “dispel themyth that we were a small,regional company,” Groskreutzsaid.

Today, the business remainsa farmer owned and controlledco-op that does business in all50 states and in 96 countries. Ithas 234 employees, 126 dealersand 156 independent salesrepresentatives. AcceleratedGenetics’ production facility islocated near Westby, Wis.,about 90 miles west of itsadministration headquarters in

Baraboo. In the United States,Canada and Latin America, itdoes business under theAccelerated Genetics banner,while sales in all other nationsare done through World WideSires.

Genetic Visions Inc., a whollyowned subsidiary ofAccelerated Genetics, iscelebrating its 25th anniversarywith a sales increase of 40percent, fueled by increasingforeign demand, Groskreutzsaid. It is one of only threetesting labs in the nationcertified to perform genometyping on bull semen, he noted.It also conducts many othertypes of genetic testing forcustomers. The co-op mostrecently expanded with thepurchase of Nebraska BullService in McCook, Neb.

USDA program key to export strategy

The Emerging MarketsProgram (EMP), administered byUSDA’s Foreign AgriculturalService, has been a key factor inthe co-op’s development ofoverseas sales, Groskreutz said.The co-op uses the program toconduct market assessments,for technical assistance and todeal with trade barriers.

While most EMP awards goto trade associations, private

firms can also apply for them iftheir efforts appear likely tobenefit the overall industry,Groskreutz said. Among thenations where the EMP hashelped the co-op are Pakistan,India, China, Albania, Armeniaand Bangladesh, he said.(Editor’s note: for moreinformation about USDA’s EMPprogram, visit:http://www.fas.usda.gov/mos/em-markets/em-markets.asp.)

In 2011, World Wide Siresand Accelerated Geneticsopened the Global TrainingCenter in Prosser, Wash. Thiscenter offers intensivemanagement and reproductivetraining for dairy managers andartificial insemination (AI)technicians from around theglobe. The curriculum includeshands-on and classroom

instruction, conducted by topindustry experts.

Because semen is classifiedthe same as a live animal whenexported, it is subject to thesame regulations as a live bullor cow, even though many of thediseases being screened for arenot a risk with frozen semen,Groskreutz said. U.S. industrystandards are regulated by theCertified Semen Services (CSS)group, which oversees semenhandling and processing, semenstraw labeling and bull healthand sanitation.

CSS has had a memorandumof understanding with USDA thatallows it to stand in place ofthem when inspecting bull studsfor export. While many foreignnations accept CSS standards,many others have additionalrequirements. Recently, thememorandum of understandinghas been “re-interpreted” insome markets, hindering saleswhile the industry strives toresolve the issues raised,Groskreutz said.

Future focusThe co-op’s focus for the

future is to continueparticipating in the EmergingMarket Program and utilize theWorld Wide Sires’ GlobalTraining Center as an avenue forgreater education of dairymanagers and A.I. techniciansaround the globe.

It will also conduct marketresearch to help determine whatinvestments are necessary forenhanced product growth in keymarkets. These investments mayinclude additional personnel toassist in sales and training,increasing the number ofdistributors and/or dealers, andinvesting in livestock facilities.

The co-op will also work withthe National Association ofAnimal Breeders and the federalgovernment to attempt tominimize trade barriers andlimitations for exporting U.S.genetics. n

Top — Bull semen is stored in "straws" and frozen in tanks of liquid nitrogen.Bottom — Accelerated Genetics' breeding facility near Westby, Wis.

he Foreign AgriculturalService (FAS) is USDA’slead agency foraddressing thechallenges and op-

portunities of the rapidly changing globalmarketplace. The agency works to open,expand and maintain access to foreignmarkets, where 95 percent of the world’sconsumers live.

FAS offers several internationalmarket development programs that havehelped co-ops, small businesses andother agricultural stakeholders takeadvantage of market opportunitiesthrough the years. Knowing and usingthese available resources is essential forU.S. agricultural exporters tosuccessfully sell their products overseas.• The Market Access Program (MAP) is

the agency’s largest marketdevelopment program. Through MAP,USDA partners with U.S. producers,exporters, small businesses, stateregional trade groups and nonprofittrade organizations to finance overseasmarketing and promotional activities.Participants have used the program tohelp attend trade shows, fund marketresearch and consumer promotions,and provide technical assistance andeducational seminars.

MAP is a cost-share program thatuses funds from USDA’s CommodityCredit Corporation (CCC). The funds areused for generic marketing andpromotion activities and for promotion ofbranded products by small businessesand cooperatives. MAP funds areawarded to applicants that demonstrateeffective performance based on a clear,long-term strategic plan. • The Foreign Market Development

(FMD) Program, also known as theCooperator Program, aids in the

creation, expansion and maintenance oflong-term export markets for U.S.agricultural products. Under theprogram, USDA partners withagricultural producers and processors,who are represented by nonprofitcommodity or trade associations to pooltheir technical and financial resourcesto conduct overseas marketdevelopment activities. Promotionalactivities focus on generic U.S.commodities, rather than brand-nameproducts, and are targeted toward long-term development.

In 2010, an independent reportconcluded that from 2002 to 2009, forevery additional $1 expended bygovernment and industry on MAP andFMD activities, U.S. food and agriculturalexports increased by $35. Additionally,the report showed that in 2009, U.S.agricultural exports were $6.1 billionhigher than they would have beenwithout the increased investment inmarket development.

With the growing number of middleclass consumers in many developingcountries, U.S. agricultural exportersshould also be aware of:• The Emerging Market Program (EMP),

which is designed to improve marketaccess and develop or promote U.S.agricultural products to low- andmiddle-income emerging marketsthrough technical assistance activities.The program also covers activities thathelp reduce potential trade barriers inemerging markets. Projects under EMPthat endorse or promote brandedproducts are not eligible.

• The Quality Samples Program(QSP) helps U.S. agricultural tradeorganizations provide small samples oftheir products to potential importers inemerging markets. Participants export

samples of their commodity or productand then provide the importer thetechnical assistance necessary to usethe sample properly. When a project isfinished, USDA reimburses theparticipants for the costs of procuringand transporting the samples. Thetechnical assistance component is arequirement of the QSP but is notreimbursable.

• The Technical Assistance for SpecialtyCrops (TASC) Program provides fundingto U.S. organizations for projects thataddress sanitary, phytosanitary andtechnical barriers that prohibit orthreaten the export of U.S. specialtycrops. Using TASC, USDA hassuccessfully helped U.S. exportersregain market access for millions ofdollars of products, from almonds tozucchini. Examples of project activitiesinclude seminars and workshops, studytours, field surveys and pest anddisease research.

All FAS market development programapplications undergo a competitivereview process. Applicants submitproposals to the agency through theUnified Export Strategy (UES) process,which allows applicants to requestfunding for several programs using asingle proposal.

FAS market development programshelp stimulate interest and demand forthe U.S. brand of agriculture. Agriculturalexports boost rural economies, supportabout 1 million American jobs and play akey role in helping achieve thePresident’s National Export Initiative goalof doubling all U.S. exports by 2015.

For more information on USDA/FASmarket development programs, visit:www.fas.usda. gov. n


USDA programs help ag exporters

T

Photo courtesy CHS Inc.


By Anne Mayberry,Rural Utilities ServiceUSDA Rural Development

ike most rural electriccooperative utilitiesnationwide, HoosierEnergy Cooperative inBloomington, Ind., is

an expert at serving parts of the country“where all the population is not.” Thatdefinition of “rural” comes courtesy ofTom Van Paris, vice president ofmember services and communicationsat Hoosier, while speaking on a paneltalk, “Energizing Rural Economies,”held in February as part of USDA’sannual Agricultural Outlook Forum.

Moderated by John Padalino, actingadministrator of USDA’s Rural UtilitiesService (RUS), the panel also includedMartin Lowery, executive vicepresident, external affairs, for theNational Rural Electric CooperativeAssociation, and Nivin Elgohary,assistant administrator of RUS ElectricPrograms.

The rural electric cooperative utilityserves two masters, Van Paris said. “We

offer our consumers tools to bettermanage their electric bills in an era ofrising rates, and we work to help deferthe need for new capacity, which can becostly.” Hoosier’s solution has been todevelop and expand energy-efficiencyprograms, including the distribution ofmore than 1,400 carbon fluorescentlighting fixtures to replace incandescentbulbs.

Hoosier Electric is also striving tohelp co-op members increase theefficiencies of their heating, ventilationand air conditioning (HVAC) systems,using strategies to offset incrementalcost differences. Last year, thecooperative increased incentives forcommercial and industrial customers toreduce demand during Hoosier’s peak-load cycles.

Program gaining 800 homes annually

“On average, we’ve been expandingthese services to cover about 800 homesper year,” Van Paris said. “To help withloan control, we have about 13,000 end-use devices under our control. Ourcustomers are receptive to incentives to

change out their HVAC systems andmove to more efficient models.”

The program also includes efforts toconvince consumers to recycle oldappliances. “One-third of ourconsumers have two or morerefrigerators running in their homes,and 8 percent have four or more,” hesaid. “So we have a bounty program forold equipment.”

NRECA’s Lowery noted thatHoosier’s efforts to boost energy-efficiency could be a model program forco-ops nationwide, and he discussed thepossibilities of implementing similarprograms across the entire rural electriccooperative network. “One-half of thetotal electric distribution lines (thosedelivering power to consumers)nationwide are co-op owned,” Lowerysaid. “Combined with renewed effortstoward modernization, resiliency andcyber security, co-ops have specialduties to develop programs tomodernize equipment and increaseefficiencies.”

Lowery noted that stronger ruraleconomies build economies globally.“The co-op business model is the

Uti l i ty Co-op Connect ionEnergy-efficiency programs yield dividends for co-ops and members

Co-op members enjoy energy-efficiency benefits through a home weatherization program carried out through Hoosier Energy and its member cooperatives.

L


strongest worldwide for rural areas,especially those focused ondevelopment efforts.” Lowery said.“Understanding how energy-efficiencyprograms can support the economylong term is important.”

Lowery explained that two keyfactors — the role of electric utilitygenerators and the reduction in peak-demand load — play key roles in energyconservation. Energy-efficiencyprograms are a win-win both for co-ops

and their consumer-owners. “Smartenergy” technologies and load controltogether can be used to reduce peakdemand.

Boosting sales and servicesEnergy-efficiency programs can also

increase sales and services, producingdirect job benefits in rural communities.Retrofits, including caulking andinsulation, and sales of state-of-the-artheat pumps create work for localcontractors. Cooperatives work toprovide training and certificationprograms so that rural residents areequipped to do the work to meetprogram standards that measure andverify results.

USDA’s Rural Utilities Serviceexpects to release a new rule this yearthat allows co-ops to make loans toexpand these energy-efficiencyprograms. RUS’ Elgohary said thatsuch standards will help quantify gains

and add to the economic model, leadingto a better understanding of howenergy-efficiency programs perform.Studies have found that well-designedenergy-efficiency programs have thepotential to yield a tremendous amountof energy savings while greatlydiminishing greenhouse gases.

The rule will help leverage andexpand energy-efficiency programs toinclude a re-lending program that willenable rural utilities and cooperatives to

lend to businesses or homeowners.Eligible projects include consumerenergy-efficiency efforts; modificationsthat reduce electricity consumption;increased efficiency of electricgeneration, transmission and distri-bution; and the use of renewable fuels.

Utilities participating in the programwould submit an energy-efficiency workplan and seek reimbursement for costs.The proposed rule also establishesrequirements to allow borrowers to re-lend funds for energy-efficiency efforts.

Funding for home energy audits USDA could fund a variety of

energy-efficiency improvements thatmeet criteria established by the newrule. For example, projects to conducthome energy audits and financeimprovements necessary to reduceelectricity use would be eligible forfinancing, as would demand-sidemanagement projects designed to more

efficiently control electricity use duringpeak-demand periods.

In Hoosier’s case, each dollarinvested has shown a $3 return, VanParis said, pointing to the value ofaudits and screening programs.Measurement and verification arecrucial to the program’s success. InIndiana, blow-in insulation is one of theenergy-efficiency winners for ruralhomes, he added.

Hoosier’s energy-efficiency programis part of a comprehensive portfolio ofoptions to better manage power use.Called “demand-side management,” theeffort is composed of energy- efficiencyprograms (such as weatherization),conversion to compact fluorescentlighting, HVAC upgrade incentives,load control and appliance recycling, aswell as other home andcommercial/industrial efficiencyprograms. The co-op’s cumulativeenergy savings have reached more than110,000 megawatt-hours and helped toincrease satisfaction of its consumer-members.

Higher consumer satisfaction ratingsmay be the result of people in a ruralelectric cooperative’s service territorybenefiting from energy-efficiencyprograms, noted RUS’ Padalino. “Asanyone who runs an electric cooperativewill tell you, the least expensive kilowattis the one you don’t have to produce,especially during peak periods, whenextreme heat or cold put stress on thesystem. We are getting much better atreducing consumption.

“Our 650 [utility co-op] borrowersare entering into contracts withcustomers, blowing insulation intoolder, drafty homes and helpingcustomers and member-owners caulk,weather strip and replace older,inefficient appliances with new ones,”Padalino added.

Once the rule becomes final, it isexpected to help make energy-efficiencyprograms more affordable throughincreased availability of financing and,in turn, may help boost ruraleconomies. n

“The least expensive kilowatt is the one you don’t have to produce, especially during peak-demand periods,” John Padalino, administrator of USDA’s Rural Utilities Service, says during apanel discussion held during USDA’s annual Ag Outlook Forum. Seated, from left, are: MartinLowery, Tom Van Paris and Nivin Elgohary.

By James Crandall, Elaine Cranford,Amanda Bergstrom

Editor’s note: Crandall and Cranfordare co-op business development specialistswith the Nebraska CooperativeDevelopment Center (NCDC); Bergstromis a graduate assistant at NCDC.

he loss of a grocerystore in a ruralcommunity can be adevastating blow,especially when it is the

only, or at least major, source of localgroceries. Not only do people then haveto travel farther and expend more timeand money to get their groceries, but itcan also make it difficult on communitypride and make it harder to attract newresidents and businesses.

When the only grocery store inElwood, Neb., closed in January of2012, community leaders quicklyresponded, organizing a communitymeeting to consider opening acooperatively owned grocery store. JimCrandall of the University of Nebraska-Lincoln Cooperative DevelopmentCenter (NCDC), which receivesfunding under the Rural CooperativeDevelopment Grant programadministered by USDA RuralDevelopment, was the primary speakerat this first meeting. He explained theconcept of community ownershipthrough a cooperative.

The meeting attracted more than100 people, almost all of whom felt thata grocery store was vital to the future oftheir community. Prior to, and

following, the initial meeting,community leaders developed anddistributed a survey to gauge interest inopening a co-op grocery store.

Survey shows broad support for co-op

The community response showedwidespread support for the concept of agrocery co-op. A committed, hard-working steering committee was formedto begin the process of studying thefeasibility of a grocery store and thecooperative business model and creatingpro-forma financials.

The 10-member steering committeeformed subcommittees that focused onfacilities, business and finance issuesand incorporation options, with NCDCproviding guides and outlines for eachsubgroup. Expert advice was soughtfrom a local attorney, insurance agents,former store owners, neighboring storesand managers of grain co-ops in nearbytowns (one grain co-op also owned agrocery store).

Ideas were also sought fromcooperative accountants, area economicdevelopers and grocery suppliers. Afinancial plan was developed forremodeling the store, and progress andinformation was shared at two morecommunity-wide meetings. Allindications still showed continuedsupport for opening the new grocerystore.

The steering committee received asmall grant from the NCDC to helpwith organizational costs, such asattorney fees, brochure printings andmailings. The committee met weekly or

biweekly as a group, withsubcommittees meeting at additionaltimes to move the process forwardquickly.

Membership drive launchedThe cooperative was incorporated in

May 2012 as the Elwood HometownCooperative Market. The steeringcommittee, now a board of directors,conducted a membership drive tocapitalize the new business allowingthem to purchase and remodel theformer store, hire a manager andpurchase the inventory.

More than 140 people have boughtownership shares in the cooperative,and new members are still being addedto the ownership base. Co-op members,board members and other volunteerswere involved in the remodeling of thestore, installing coolers, freezers andshelving.

Board members, co-op members andvolunteers scanned inventory andstocked all the shelves in preparationfor opening. The market has beenadvertising locally and through socialmedia.

The Elwood HometownCooperative Market celebrated itsofficial “soft” opening on Feb. 3, with apreview of the new store for co-opmembers and donors. The store openedfor business to the general public thenext day. The market was slated to holda grand opening on May 25, includinga ribbon cutting and additionalactivities. n

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USDA funds help reopen town’s only grocery



Editor’s note: This article isprovided courtesy the CooperativeDevelopment Institute.

armers andconsumers areusing worker,consumer, shared-services and

marketing cooperatives to turnfarm-to-fork trends intobusinesses based on localcommunity connections. The fivefarmers who own the DiggersMirth Collective, a workercooperative, grow 50 differentkinds of herbs and vegetables forlocal stores, restaurants andconsumers in Burlington, Vt.

One of their neighbors, the IntervaleCommunity Farm Cooperative, isorganized as a consumer co-op thathires farmers to grow produce for 500families in the Burlington area. Bothco-ops farm on leased land owned bythe nonprofit Intervale Center. Both aremembers of an equipment and facilitiessharing co-op that helps increaseproductivity while keeping capital costsin check.

In New Hampshire, eightindependent farms in as many townscoordinate production, cropping plansand harvests into a multi-farmcommunity supported agriculture co-opwhich gives more than 300 consumersin the Concord, N.H., area access tofresh produce through three seasons.Fishermen and consumers along theNew Hampshire seacoast are adaptingthe model to a multi-stakeholdercommunity supported fisheries co-op.

These co-ops are part of a series ofcase studies the Cooperative

Development Institute (CDI) is puttingtogether. The case studies, along withworkshops, will be used to launch alocal food systems initiative built onconsumer, farmer, fishermen and multi-stakeholder cooperatives. These co-opsinclude shared land, facilities,equipment, labor and other resources,while also adhering to co-op values andproviding livable wages and affordablefood.

To support these efforts, CDI isorganizing technical assistance andreferral partnerships with farmpreservation organizations, such as theEquity Trust in Massachusetts, Land forGood in New Hampshire, and theMaine Farmland Trust, which areleading efforts to transform howfarmland is transferred, owned andused. Financing partners for the effort

include CoBank, Farm Credit, theCooperative Fund of NewEngland and the U.S. Departmentof Agriculture. These partnershipsensure that potential cooperatorsare fully supported.

Lynda Brushett, CDI’s foodsystem specialist, notes that theinitiative came about in responseto an upsurge in the number ofrequests for assistance inorganizing cooperatively operatedfarms. “These folks want tochange the region’s food system toone rooted in values, built oncommunity involvement andstructured to last — and thatmeans cooperatives.”

More than 70 new and establishedfarmers shared experiences andexplored options for collaboration atthe “Stronger Together: CooperativeFarms” workshop in February 2013, atHarvest New England, an annualmarketing conference and trade showfor farmers hosted by state departmentsof agriculture in the region.

Cooperative Development Instituteis a member of CooperationWorks!, anational organization of cooperativedevelopment centers and practitionersthat span the breadth of the UnitedStates. Using innovative strategies andproven business practices,CooperationWorks! centers provideexpertise across all aspects of co-openterprise development, includingfeasibility analysis, business plandevelopment, business launch and on-going training for operational success.

For more information, visit:www.cooperationworks.coop or e-mail:Sarah Pike at [email protected]. n

Co-op Development Act ionStronger Together: Cooperative Farms

Community supported agriculture (CSA)members pick herbs at the IntervaleCommunity Farm in Burlington, Vt. Photocourtesy Intervale Community FarmCooperative

F

By Mary Ann Cleland and Debbie Turbeville

Editor’s note: Cleland is marketingdirector for Hub City Cooperative;Turbeville is an agricultural marketingspecialist with USDA Rural Developmentin South Carolina.

new community-ownedand community-governed food co-op isbeing planned inSpartanburg, S.C., that

will promote local products by focusingon natural and regionally sourced foodsoffered in a warm, friendly environ-ment. Hub City Cooperative will beone of the first retail-consumer foodco-ops in the state. The Hub Citygrocery store, with 5,000 square feet ofretail space, is projected to open in2014. Co-op leaders say the store isexpected to make about $2 million insales its first year.

Hub City Cooperative will provide awide selection of fresh, healthy foodproducts in an area currently designatedas a “food desert.” Co-op leaders saythe community-owned market willprovide 30 permanent jobs and supportother local jobs through a “rippleeffect.” They say the co-op will providea sales outlet for local growers and

agricultural producers and help educatethe community about the criticalimportance of building a local foodsystem and promote healthy diet andnutrition.

To house the new facility, the co-op’sstart-up board has acquired a vacantbuilding in Spartanburg, which was thesite of an open house last October.During the open house, the co-opannounced the hiring of a localarchitectural firm to lead therenovations, made possible by a $10,000matching grant from the Food Co-opInitiative (FCI). FCI is a nonprofitcooperative development center thatprovides training and resources to newretail food co-ops across the UnitedStates.

With USDA support, FCI offers“seed grants” to rural communities tohelp kick-start their organizing efforts.Stuart Reid, FCI executive director,attended the open house as part ofNational Co-op Month celebrations.Also attending was Jesse Risher, actingassistant state director and CommunityFacilities Program director for USDARural Development in South Carolina,and Martin Eubanks, deputy director ofthe South Carolina Department ofAgriculture, among a number of otherofficials.

During the open house, the Edward

Via College of Osteopathic Medicine,located in Spartanburg, announced a$10,500 sponsorship that is providingthe funds to retain a nationallyrecognized store planner to oversee thedesign of the grocery store’s interior.Eubanks said he hopes the co-op willserve as a model for others in the state. The co-op was first proposed in 2009and has been raising money andrecruiting member-owners since 2010.Currently, more than 940 members ofthe small community have shown theirsupport by purchasing ownerships.USDA Rural Development has offeredtechnical assistance during the co-opdevelopment process.

An all-volunteer team has done the“heavy lifting” for development of theco-op, attending national cooperativegrocery conferences, visiting other foodco-ops, securing the store site andrecruiting member-owners andsponsors. The cooperative is working toraise its membership to 2,000 localresidents before the store opens. Hub City Co-op plans to raise 66percent of the needed equity frommember-owners, with the storeexpected to be profitable in its fifth yearof operation. Further information isavailable at its web site: www.hubcitycoop.org. n


Co-op food market planned in South Carolina

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Co-op developments, coast to coast

Traceability wins Top Innovatorhonor for PCCA division

American Denimatrix, the textile andapparel division of Lubbock, Texas-based Plains Cotton CooperativeAssociation (PCCA), has been named a2013 Top Innovator for its traceabilityprogram by Apparel Magazine in its Mayissue. American Denimatrix is among40 top apparel companies recognizedfor “demonstrating exceptionalitythrough an information technology-related implementation, product launch,or other outstanding business strategy.”

The cooperative’s traceabilityprogram allows consumers to tracetheir denim jeans back to the farms thatproduced the cotton used to make thefabric. A hang-tag containing a quickresponse (QR) code on the jeans can bescanned with a smart phone, whichtakes the consumer to a website thatfeatures profiles of some of the farmsand farm families. The profiles cancontain general location, photographs,history, and environmental stewardshipinformation about the farmingoperations. A major retail chain in 2012used the traceability feature with one ofits proprietary line of jeansmanufactured by American Denimatrix.

MMPA pays $1.8 million cash patronage

Michigan Milk ProducersAssociation, Novi, Mich., recently paid$1.8 million in cash patronage refundsto its dairy farmer members. This cashallocation represents 25 percent of the$6.3 million net earnings generated bythe cooperative in fiscal year 2012. Thecash patronage returned includes 100percent of the co-op’s farm supplyearnings and 25 percent of milk

marketing earnings. All members who marketed milk

through MMPA in fiscal 2012 receiveda portion of the $1.8 million. Includingother cash payments, members havereceived more than $7.1 million in thepast 10 months.

During 2012, MMPA membersearned $27.2 million in total premiums.These premiums are a combination ofquality, volume, over-order premiumsand a “13th” milk check and serve as areflection of MMPA’s financial strength.

“The return of cash patronagerefunds, premiums and allocatedequities continues to occur as a result ofsuccessful operating results of MMPA,”says Clay Galarneau, MMPA generalmanager. “The high quality of our milk

supply and continuing growth of ourmilk production is an attractivecombination that has helped strengthenour financial position.”

MMPA is owned by about 2,000dairy farmers in Michigan, Indiana,Ohio and Wisconsin.

Wickstrom to succeed Roche at Minn-Dak

Kurt Wickstrom has been hired tosucceed Dave Roche as president andCEO of Minn-Dak FarmersCooperative, a sugarbeet growers’ co-op based in Wahpeton, N.D. In anotice posted on Minn-Dak’s website inApril, Board Chairman Brent Davidsonsays Wickstrom will join the co-op inJuly and assume CEO duties from

With a smart phone, consumers can learn about the farms where the cotton was produced fortheir jeans. They just scan the quick response (QR) code on the back of the tag, which comesattached to denim apparel produced by American Denimatrix, a subsidiary of Plains CottonCooperative Association.


Roche upon his retirement this Aug. 31. Wickstrom is currently president of

Betaseed Inc., a hybrid sugarbeetbreeding business in Shakopee, Minn.Davidson recently became chairmanfollowing the retirement from theboard of Doug Etten, of Foxhome,Minn., who had served the maximum15 years on the board, including fiveyears as president.

Consumer co-op leader SallyJewell new Interior Secretary

Sally Jewell has left her job aspresident and CEO of the REI sportinggoods consumer cooperative to becomethe 51st secretary of the U.S.Department of the Interior. Jewellguided REI for the past eight years asCEO and spent five years prior to thatas chief operating officer.

She began her service to the co-op asa member of its board before movinginto management. During her tenure asCEO, REI grew to nearly $2 billion inannual sales. In addition to helping leadits business success, Jewell also helpedREI heighten the company’scommitment to environmental

stewardship, volunteerism and engagingmore people, especially youth, in theoutdoors.

“Speaking on behalf of REI’s boardand staff, we thank Sally for her 17years of service to the co-op and wishher all the best with her new adventure

in the ‘other Washington,’” says BrianUnmacht, REI’s Interim CEO. “Thanksto her outstanding leadership, REI is instrong shape and well positioned for thefuture. As she did at REI, Sally Jewellwill lead the Interior Department withintegrity, balance and wisdom.”

Founded in 1938 by a group ofPacific Northwest mountaineersseeking quality equipment, REI iscommitted to promoting environmentalstewardship and increasing access tooutdoor recreation throughvolunteerism, gear donations andfinancial contributions.

USDA, dairy producers workingto reduce greenhouse gas

Agriculture Secretary Tom Vilsack inApril renewed a historic agreement withU.S. dairy producers to accelerate theadoption of innovative waste-to-energyprojects and energy efficiencyimprovements on U.S. dairy farms,both of which help producers diversifyrevenues and reduce utility expenses ontheir operations. The pact extends amemorandum of understanding (MOU)signed in Copenhagen, Denmark, in

2009. “Through this

renewed commitment,USDA and theInnovation Center forU.S. Dairy will continueresearch that helps dairyfarmers improve thesustainability of theiroperations,” Vilsacksaid. “This vital researchalso will support thedairy industry as itworks to reach its long-term goal of reducinggreenhouse gas

emissions by 25 percent by 2020.” Vilsack signed the agreement at the

White House, where he was joined byrepresentatives of the InnovationCenter for U.S. Dairy and DairyManagement, including Thomas P.Gallagher, CEO of the center. Oneobjective of the MOU is to increase theconstruction of anaerobic digesters andexplore innovative ways to use products

previously considered waste streamsfrom dairy production, processing andhandling.

USDA support for agricultural andwaste-to-energy research has played akey role in the agreement’s success todate. Since signing the MOU, USDAhas made nearly 180 awards that helpedfinance the development, construction,and biogas production of anaerobicdigester systems through RuralDevelopment programs, such as theRural Energy for America Program(REAP), Bioenergy Program forAdvanced Biofuels, Business andIndustry Guaranteed Loan Program,and Value-Added Producer Grants,among others. These systems capturemethane and produce renewable energyfor on-farm use and sale onto theelectric grid. During this period, USDAalso awarded about 140 REAP loansand grants to help dairy farmersdevelop other types of renewableenergy and energy efficiency systems.

Wisconsin food hub co-op organizes

The Wisconsin Food HubCooperative has officially beenorganized, with members gathering inWaunakee in April to elect officers,meet new General Manager LynnOlson and kick off their programs,according to the Wisconsin State Farmer.The co-op is launching with 12 farmer-members but plans to expand to 15 to20 farms by the end of this year. Itsleaders hope this co-op food hubbusiness model will expand to otherparts of the state if it proves successful.

The goal is to provide small andmedium-sized producers access tolarger markets.

Several large food buyers were at theorganizational meeting, the WisconsinState Farmer reported, demonstratingtheir interest in buying local produce.The co-op will limit up-front risks forits farmers by providing sales,marketing and logistic services forcommodity-type produce — such aspotatoes and sweet corn — as well asspecialty produce, meats, cheese andvalue-added products, Olson said.

Co-op leader Sally Jewell is the new U.S.Secretary of the Interior. Photo courtesy REI


Wisconsin Farmers Union (WFU) isa key partner in the development of theFood Hub Cooperative. Tom Quinn,executive director of WFU, said theproject really fits with several missionsof Farmers Union, includingcooperative development and helpingfarmers market their products at a fairprice.

AMPI reports$1.7 billion in salesAssociated Milk Producers Inc.

(AMPI) had sales of $1.7 billion andearnings of $9.3 million in 2012, it wasannounced during the co-op’s annualmeeting in Bloomington, Minn., inMarch. About 350 delegates and guestsattended the annual meeting of the co-op, which is owned by 2,900 UpperMidwest dairy farmers.

Cheese production, which represents57 percent of total sales, grew by morethan 11 million pounds compared to2011. Butter production continued togrow steadily, increasing by 5 millionpounds. Consumer-packaged cheeseand butter represented nearly half ofthe cooperative’s sales.

“Our cheese-packaging plant inPortage, Wis., and the New Ulm,Minn., butter plant were majorcontributors to the cooperative’s bottomline,” said AMPI President and CEOEd Welch. “In the last five years, ourconsumer-packaged cheese and butter

sales have grown exponentially,” headded, indicating that orders fromfood-service customers fueled much ofthe growth.

AMPI Board Chairman SteveSchlangen discussed the cooperative’sstrategies for long-term performance.“As a dairy farmer-owned cooperative,AMPI is uniquely positioned to marketour locally produced dairy products tofood service, retail and food ingredientcustomers across the nation,” Schlangensaid.

Strengthening AMPI’smanufacturing portfolio — with arenewed focus on cheese, butter andpowdered dairy products — led to thesale of two businesses in 2012. “Sellingthe Cass-Clay plant and brand in Fargo,N.D., and our cheese sauce andpudding business in Dawson, Minn.,

was a bold step,” Schlangensaid. “However, these twobusinesses accounted foronly 5 percent of AMPI’stotal annual revenue.”

FARM programparticipation at 70percent

The dairy industry’sanimal care program hasachieved an importantmilestone, with 70 percentof the nation’s milkproduction nowparticipating in the

program. With the recent addition ofseveral major cooperatives in theNational Dairy FARM Program(Farmers Assuring ResponsibleManagement), more than two-thirds ofthe nation’s cows will be covered by theindustry’s animal well-being effort,according to the National MilkProducers Federation (NMPF).

NMPF startedthe FARM programthree years ago toprovide a consistent,national, verifiablemeans of showing

consumers and the food value chainhow dairy products are produced.“Consumers and customers don’t expect

perfection, but they do expect us tocollectively demonstrate our industry’sresponsible practices and ourcommitment to quality animal care,”says Jerry Kozak, president and CEO ofNMPF.

Even with the increased participationin the FARM program, “We need morefarms, more cooperatives and morecompanies to commit themselves to thisprogram,” Kozak says. “Theexpectations are out there. Thequestions are being asked. We have toprovide clear answers.”

The FARM program’s guidelines,contained in the National Dairy FARMAnimal Care Manual, are in the finalstages of an extensive review andrevision process. They will be revisedslightly to reflect the latest knowledgeand best practices about proper dairyanimal care. Revisions to the animalobservation component also relied onanalysis of over 360,000 animalobservations collected through on-farmevaluations for the FARM program overthe last three years.

If the NMPF board approves therevisions in June, the newly revisedmanual will be available on the FARMwebsite: www.nationaldairyfarm.com.

Ric Sundal named COO of Moark

Moark LLC, the egg subsidiary ofLand O’ Lakes, has named Ric Sundalas chief operating officer, succeedingCraig Willardson, who retired April 1.“Ric has a strong background for thisrole with more than 25 years ofmanagement experience across the foodand agriculture industry, including workin the egg business,” says Dan Knutson,chairman of the Moark board ofmanagers.

Prior to his new role, Sundal wassenior director of Purina AnimalNutrition’s specialty businesses andinternational. He was previouslydirector of Purina’s national accounts,and director of corporate internal audit,finance strategy and businessdevelopment for Land O’Lakes Inc.Prior to joining Land O’Lakes, Sundalwas COO of Ergotron and chief

Slicing cheese at an AMPI plant.


Editor’s note: This article provided courtesy theNational Cooperative Business Association.

uring the past 14 years, WAGES(Women’s Action to Gain EconomicSecurity) has successfully incubatedfive cooperative businesses that arenow fully self-sustaining. Each co-op

provides eco-friendly housecleaning services in theSan Francisco Bay area. These worker-owned co-opsnow generate more than $3 million in sales and sustainmore than 100 jobs — 90 percent of which are held byco-op members.

Worker-owners in these co-ops receive benefits —including medical leave, time off and disability. Theirindividual incomes have grown by up to 158 percent,and median household incomes have increased by 70to 86 percent. The average member tenure in a WAGESco-op ranges from 4.2 to 6 years.

As a result of launching these five businesses,WAGES has gathered a series of best practices andlessons learned in worker-owned cooperativedevelopment. For the past 10 years, WAGES has alsoprovided technical assistance to other co-opdevelopers.

In a webinar hosted by the National CooperativeBusiness Association (NCBA) in January, titled “TheRole of Nonprofits in Developing WorkerCooperatives,” WAGES staff shared their story withother nonprofits that are considering adding co-opdevelopment to their portfolio of services.

Alex Armenta (associate director), FernandoBernasconi (co-op general manager and WAGESbusiness advisor) and Elena Fairley (communicationsand development associate) spoke candidly about theups and downs of the WAGES journey. They describedhow the organization progressed from a nonprofitservice provider deeply rooted in its community to asuccessful co-op developer with the necessarybusiness acumen to incubate and launch successful,self-sustaining cooperative enterprises.

Throughout, WAGES has remained focused onserving one specific community: low-income Latinas inthe San Francisco Bay area. The vast majority of thosethey serve are women immigrants from Mexico and

Central America. More than 90 percent are mothers,and many support family members outside theirimmediate household. Few have more than a highschool education, and almost all of these women speakonly Spanish.

WAGES believes the cooperative business modelhas a very special contribution to make in serving theneeds and aspirations of women in this community.With carefully timed and orchestrated support fromWAGES, Latinas who have dreamed of opening abusiness are empowered to become worker-owners ofa self-sustaining cooperative enterprise.

WAGES uses an incubation approach — providingheavy subsidies, training and technical assistance tocooperatives during their early, formative years. Butthe goal from the outset is to help each new co-opevolve to a point where it can operate as anindependent business and “fly the nest,” no longerrelying on WAGES' financial or technical support.

A cooperative graduates from incubation to maturityunder the WAGES model when:

• The co-op can cover all costs on its own withoutsubsidies from WAGES;

• The co-op develops and maintains a reserve worthapproximately three months of operating expenses;

• Members have developed skills to manage thebusiness with only light managerial support fromWAGES staff.

WAGES provides proven programs in small businessdevelopment that have been customized for co-ops aswell as intensive, culturally appropriate training foreach worker-owner. It also shares business servicesand network support across all the co-ops that WAGEShas created.

WAGES staff added a cautionary note for othernonprofits considering a similar move into cooperativedevelopment: be sure you have clearly defined yourresource and expertise requirements for each stage ofthe cooperative development process, from incubationto launch. Perhaps most importantly, make sure youhave a solid understanding of where the capital willcome from to support each stage in the growth of thecooperative business. n

WAGES launches successful worker co-ops

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financial officer and managing partnerof Best Brands. He has a Bachelor’sdegree in accounting and economicsfrom the University of Minnesota.

Sunkist turns 120 with strong fiscal showing

Sunkist Growers, Sherman Oaks,Calif., marked its 120th year with athird consecutive year in which revenuetopped $1 billion while payments tomembers also made solid gains. At itsannual meeting in February, SunkistPresident and CEO Russell Hanlinannounced payments to members of$840 million, up from $803 million in2011.

Among the highlights of 2012 wereSunkist’s formation of a joint venture toimprove the co-op’s juice business.“Developing the joint venture withjuice processor Ventura Coastal hasresulted in better pricing and createdefficiencies,” Hanlin said.

Another important stride forward forSunkist was the launch of an annualdividend program for its growers.“Positive results and cost reductionsacross the business have positionedSunkist to launch an annual dividendprogram for growers,” Hanlin said. Thefirst distribution was made to growersin March.

Looking forward, the companyremains focused on broadening theSunkist portfolio of consumerproducts. “Sunkist’s customer-focusedapproach guides everything we do,”said Mark Gillette, re-elected chairmanof Sunkist’s board and president ofSunkist-affiliated Gillette Citrus Inc.“Our growers, including myself, areexpanding production of newer varietiesconsumers favor because we know itwill continue to improve our salessuccess for years to come.”

Innovations in packaging and retaildisplay support have also beencustomer-driven. Sunkist's full range ofcartons, bags, display masters, bins andreusable plastic containers (RPCs) havebeen designed with customers’ needs inmind.

“Sunkist, at its core, is a cooperativeof family farms,” said Kevin Fiori, vice

president of sales and marketing. “Ourculture is one of family andcollaboration with growers and mostdefinitely customers to drive the desiredresults for all.”

Foremost Farms consolidatescheese operations

In a move to consolidate cheesemanufacturing capacity and capitalizeon recent investments in its processingnetwork, Foremost Farms USA hasannounced that it is moving cheeseproduction from two plants located inwestern Wisconsin to its plants inAppleton, Richland Center, Milan andMarshfield, all in Wisconsin.

The cooperative’s Alma Center,Wis., plant will close permanently onJune 30, 2013; its Waumandee, Wis.,cheddar cheese plant will be idledindefinitely.

“In recent years, our members haveinvested over $50 million in our plantsystem to increase cheese productioncapacity, maximize throughput andenhance processing capabilities,” DaveFuhrmann, president of ForemostFarms USA, said in a press release.

“These investments have grown ourprocessing capacity here in Wisconsinas our members’ milk volume hasgrown.

“Last year our members marketed arecord 6 billion pounds of milk. Eventhough we are reducing our plant andemployee numbers, we are notdownsizing the volume of cheeseproduced by Foremost Farms orreducing our ability to handle ourmembers’ milk. Rather, we plan tofurther expand Foremost Farms’ cheeseproduction from last year’s record of525 million pounds to an even greaterlevel.”

The Alma Center plant producesmozzarella cheese for food-servicemarkets. The closing will result in theloss of 52 jobs. About 50 employees willbe indefinitely laid off at theWaumandee plant, which producesAmerican-style cheese (primarilycheddar).

“Our employees are very dedicatedand experienced, and we are working toease the transition as much as possibleby offering severance packages to theindividuals who are permanently losingtheir jobs,” said Fuhrmann. Theimpacted employees can apply foropenings at other Foremost Farmsfacilities. Milk from Foremost Farms’member-farms will be directed to otherdairy plants owned by the cooperative.There will be no changes in terms ofmilk pick-up, sampling, testing or fieldservice.

Record year for WestbyCooperative Creamery

Westby Cooperative Creamery,Westby, Wis., reported more than $50million in total revenue in 2012, a newrecord. Addressing more than 100member-owners, employees and guestsat the co-op’s 109th annual meeting inJanuary, General Manager PeteKondrup reported that the co-op had$30 million in manufactured dairy foodsales and nearly $20 million in fluidmilk sales.

A record of just under 25 millionpounds of dairy foods weremanufactured, including cottage


Sunkist enjoyed its third consecutive year inwhich sales topped $1 billion.

cheeses, sour creams, dairy dips,yogurts, butter, cheese curds, softcheeses and hard cheeses. Member-owners supplied nearly 125 millionpounds of conventional and certified-organic fluid milk to their creamery,also a record.

All milk supplied by members isgrowth-hormone-free and comes freshfrom local family dairy farms.Membership numbers also hit a newrecord of just over 160 local familydairy farms, up about 10 percent.

The co-op also increased itsworkforce during fiscal 2012, in partdue to the opening of a newdistribution center and general offices,including 6,000 square feet of office

space and 10,000 square feet ofrefrigerated warehouse space. Thewarehouse includes “five-high racking”for up to 1,000 pallets of manufactureddairy food products.

“Our new distribution center isproviding the efficiencies in betterserving our customers of Westby-brand

retail products, private-labelmanufactured products and food serviceand food ingredient products,”Kondrup said. “This was an investmentin the present and long-term growth ofour business.”

VAPG grants support localproducers, bio-based initiatives

Agriculture Secretary Tom Vilsackhas announced the selection of 110Value-Added Producer Grants (VAPG)to agricultural cooperatives, producersand rural businesses that will helpcreate jobs and develop new products.The grants help agricultural producersincrease their income by expandingmarketing opportunities, creating new

products or developingnew uses for existingproducts. “This support will

benefit rural businessesand the communitieswhere the recipients arelocated,” Vilsack said onMay 1. “These awardsalso will advance USDA’sgoals to develop a bio-based economy andsupport local andregional food systems.” The awards include 11

projects involving bio-based products, some ofwhich will convert cornstover into anhydrousammonia. Others willconvert miscanthus grassfiber, wood and goatmanure into biochar andenhanced compost; stillother projects will

convert sorghum into electricity andfertilizer.

Wisconsin Food Hub Cooperative inMadison, Wis., (see related news item,page 35) will use a $150,000 workingcapital award to assist in the startup of aregional fresh produce food hub andpackinghouse that was created toenhance access to wholesale markets forthe local farm economy and createprivate-sectors jobs. The food hub willaggregate local produce sold under the

Wisconsin Farmed brand. A number of Native American

applicants will also receive support fortheir projects. For example, the UteMountain Ute Tribe Farm & RanchEnterprise of Colorado will receivemore than $92,000 to bring a cornmealproduct to market. This grant will helpthe tribe market and distribute theIndian cornmeal products and securecustomers. This year marks the firsttime that tribal entities have receivedfunding through the VAPG program.

Glenmary Gardens in Bristol, Va.,will use a $213,000 grant to expand theprocessing and marketing of locallygrown fruits and vegetables into jellies,ice cream, and flavored syrups.Glenmary Gardens is a family-ownedoperation providing freshly grownberries, fruits and vegetables to theVirginia and Tennessee Tri-City area.

Value-Added Producer Grants are animportant element of USDA’s KnowYour Farmer, Know Your Foodinitiative, which coordinates USDA’swork to support local and regional foodsystems. Previous VAPG awardssupporting local and regional projectsare mapped on the Know Your Farmer,Know Your Food compass, http://www.usda.gov/maps/maps/kyfcompassmap.htm.

Since the start of the Obamaadministration, the VAPG program hashelped more than 600 agricultural co-ops, producers and rural businesses. Formore information about VAPG andother USDA Rural Developmentprograms, visit: www.rurdev.usda.gov.

NCBA program to helpcredit unions protect members

The National Cooperative BusinessAssociation (NCBA) has a communitydevelopment initiative that is launchingwith a program to certify credit unionstaff as financial counselors, ready toprotect their most vulnerable membersfrom predatory lenders. TheCommunity Development CertifiedFinancial Counseling (CDCFC)program trains credit union staff toidentify financial distress and workdirectly with members to prevent


A record of just under 25 million pounds ofdairy foods was manufactured last year byWestby Cooperative Creamery.

financial catastrophe. CU StrategicPlanning created the CDCFC training,and NCBA is the certifying body forthe program.

“Working people have been having adifficult time in this economy,” saysNCBA President and CEO Mike Beall.“All cooperatives — especially creditunions — have a role to play inimproving the lives of their members.Having a concern for the community isone of the core principles ofcooperatives.”

The community developmentinitiative complements existingprograms by providing practical tools,training and capacity building that aidcooperatives in becoming more capableof participating and succeeding incommunity development work.

Pelican State Credit Union, BatonRouge, La., has recognized the value ofthe CDCFC program as a way to assistits 33,530 members. CEO Jeff Conradnoticed that over the past five years, thecredit scores of Pelican’s members haddropped, sometimes leaving themineligible for loans for which theyformerly qualified. Conrad certified allof his staff through the CDCFCprogram so that every staff member isempowered to help members buildwealth and improve their financialstatus.

CoBank appoints new executives

CoBank CEO Bob Engel hasannounced the appointments of MaryMcBride as bank president and ThomasHalverson as chief banking officer,effective July 1.

“Over the past few years, CoBankhas become a larger and more complexbusiness, particularly in the wake of ourrecent merger with U.S. AgBank,”Engel said. “Given the increasedbreadth and scope of our operations, Iam delighted to be announcing thesenew appointments, which will enhancethe overall capacity of our executiveteam.”

McBride will report to Engel andhave responsibility for all of the bank’slending units, as well as its credit,

banking services and corporatecommunications functions. McBride hasbeen with CoBank since 1993 and hasserved in a variety of executive positionsduring her 20-year tenure.

Halverson comes to CoBank aftermore than 15 years at Goldman Sachs.He will report to McBride and haveresponsibility for the bank’s portfolio ofloans to customers in all 50 states,including corporate and regionalagribusinesses, Farm Creditassociations, rural electric cooperatives,rural water and wastewater companies,and rural communications serviceproviders. He will also oversee thebank’s agricultural export financedivision.

Farmer Co-op Conference Nov. 7-8

Co-op leaders are urged to marktheir calendars now to attend the 16thannual Farmer CooperativeConference, Nov. 7-8 in Minneapolis.Presented by the University ofWisconsin Center for Cooperatives, theconference is a unique opportunity toexplore current issues that will shapethe future for farmer-ownedcooperatives.

Early confirmed speakers include:Liam Herlihy, board chair of GlanbiaCo-operative Society, Ireland; CarlCasales, CEO of CHS Inc.; JeffStroburg, president and CEO of WestCentral; and Molly Jahn, professor ofhorticulture, University of Wisconsin-Madison.

For more information, contact: AnneReynolds at: [email protected].

USDA program promotes job creation

Agriculture Secretary Tom Vilsackannounced in April that applications arebeing accepted from qualified,nonprofit and public organizations(intermediaries) to provide loans tosupport rural businesses and communitydevelopment groups. Funding, which isintended to spark business expansionand create jobs, will be made availablethrough USDA’s IntermediaryRelending Program (IRP).

“This program is a part of theObama Administration’s ongoing effortto leverage private investments withpublic funds to create jobs and expandeconomic opportunity for ruralentrepreneurs,” Vilsack said.“Intermediaries serve as a criticalcomponent to boosting localeconomies.”

The Intermediary RelendingProgram is USDA Rural Development’sprimary program for capitalizingrevolving loan funds. USDA lendsmoney to economic developmentintermediaries (nonprofits and publicbodies) which, in turn, re-lend thefunds as commercial loans to ruralbusinesses (ultimate recipients) thatmight not otherwise be able to obtainsuch financing. The repayment of theultimate recipients’ loans allows theintermediary to continue to make moreloans to new recipients, supportingsustainable economic development.

The program has created or saved anestimated 20,000 jobs since 2009. Formore information about the IRP, visit:www.rurdev.usda.gov.

Land O’Lakes’ Krikiva retiring;Veazy, McBeth appointed

Land O’Lakes GovernmentRelations Director Steve Kirkava isretiring after 36-years working incommunications and government andmember relations with the St. Paul,Minn.-based cooperative. AutumnVeazey has been named as the newdirector of government relations. Veazey had been counsel for U.S.Senator Thad Cochran of Mississippi.She will be based in Washington, D.C.,and will be responsible for leading thecompanywide government relationsstrategy and identifying issues thataffect the cooperative’s members and itsbusinesses.

The co-op also announced thatDaryn McBeth has joined the co-op asdirector of state affairs and industryrelations. McBeth had been president atthe Minnesota Agri-Growth Council.Based in Minnesota, McBeth will beresponsible for developing the LandO’Lakes strategy for state-level


government relations.

United Cooperatives sales hit $643 million

United Cooperative, Beaver Dam,Wis., had 2012 sales of $643 million,up $119 million from 2011. The corecooperative business generated $25.8million in profits, up $5.8 million from2011, President and CEO DavidCramer reported in April during theco-op’s annual meeting in Juneau, Wis.

“Our investments in ethanol did notperform as well as 2011, but stillcontributed $1.8 million in profits toour net income,” Cramer said. “Inaddition, patronage from our regionalcooperatives equaled almost $6 million.Adding everything, United Cooperativehad a total net income after taxes ofalmost $35 million.” That matches theco-op’s record year in 2011.

United Cooperative is returningalmost $20 million in total patronageto members, with $8 million being paidin cash and the balance in equitycredits. n


Cooperative Hall of Fame inductees for 2013 were feted during a banquet at theNational Press Club in Washington, D.C., in May. Left to right are: Joy Cousminer, whohelped fill a void for banking services in New York City’s South Bronx by foundingBethex Federal Credit Union, of which she is now CEO; Steven Dawson, a leader inthe worker co-op movement who helped found ICA Group and Cooperative HomeCare Associates; Rebecca Dunn, a leader in co-op finance who oversaw a co-opdevelopment fund in New England that has grown from $130,000 to $15 million; LelandRuth, longtime leader of the Agricultural Council of California who helped found theCalifornia Center for Cooperative Development and the California Association forCooperatives. Photo courtesy Cooperative Development Fund

management accountable for results,and not let sentiment interfere withbusiness judgment. If the demographicsof a co-op’s territory are changing, yetit chooses to serve only its traditionalclients, it runs the risk of failing. Co-opmanagers and directors need to beconstantly “looking around the corner”to develop new products and services.

USDA’s Value-Added ProducerGrant (VAPG) program has benefitedmany cooperatives, and many moreshould be using it. By helping to fundfeasibility studies and develop businessplans, it can help start new businessesor expand the product offerings ofexisting co-ops and other ruralbusinesses. (For information on allUSDA Rural Development programs,visit: www.rurdev.usda.gov).

One of most important things we inthe co-op community must do is tocontinue to “evolve” the co-op systemby stressing the core foundationprinciples adhered to by generations ofco-ops. Many co-op associations teachco-op principles, but we need to growthat effort to ensure that all co-opofficers and employees have a soundgrasp of co-op fundamentals and whatmakes a co-op different from othertypes of business.

I believe the co-op business modelcan address practically any need.Success will ultimately depend on thesoundness of the business plan and thelevel of dedication of the members. Ifpeople have a collective need for aservice or product, they should considera co-op.

I would be remiss if I didn’t saysomething about our USDA RuralDevelopment staff, which has beenreduced in size by about 18 percent in

recent years, but which continues toprovide an amazing amount of servicesand resources to rural people andbusiness. This includes the additional$21 billion Rural Development madeavailable through the Recovery Act,which has benefited virtually every ruralAmerican in some way. I am deeplyappreciative for the support I havereceived both among our incrediblycommitted staff and the clients we serve.

Finally, I salute all of you in thecooperative sector who do so much tokeep us fed, clothed and the power on,and for caring not just about yourmembers, but your communities. To allthe people who sit on co-op boards andcommittees, to all the employees whokeep the gears turning, and to all themembers who support their co-ops —thank you. You prove each and everyday that the co-op way is the Americanway. It has been my good fortune andprivilege to serve you. n

Commentarycontinued from page 2


then this probably wasn’t a good fit. Itwas about building the community thatwas working together for everyone’ssuccess.”

There is no such thing as toomuch education. When organizing aco-op, especially when members mayhave little knowledge of co-ops or theindustry, organizers and prospectivemembers need as much education aspossible on how cooperatives areorganized, financed and operated. Thislesson extends beyond start-up. Boardmembers should continue to developtheir skills and expertise and membersneed to be reminded of the value oftheir co-op.

Don’t rush the process. Manygroups feel pressured to open their co-op as quickly as possible. Some of thesepressures are internal, fear of burnoutor loss of momentum. Others areexternal, such as the start of thegrowing season or a rapidlyapproaching grant deadline. Groupsshould resist these pressures and makesure that clear goals, agreements andexpectations are in place before movingforward.

Allow different roles for different

people and personalities along thedevelopment path. The personalityand talents of visionaries often differfrom those of project planners andimplementers. Successful start-upsrecognize these differences and utilizedifferent skill sets at the appropriatestages.

Tap into assistance. From privateconsultants and industry associations topublic universities and peer co-ops,there is an abundance of assistanceavailable to start-ups. Many of the co-ops in this study partially credited theirsuccess to help from outside advisorsand other cooperatives.

Every co-op is different. Therecommended planning approachdiffers depending on the industry,timing and individuals involved. Theways to start a co-op are as diverse asthe sector itself, so it is best to avoid theone-size-fits-all approach. For example,in co-op conversions, the planningprocess tends to be an ongoing dialoguefocused on the cooperative structureand conversion process, rather thanmaking a business case for the concept.But in the case of consumer-owned co-ops, the planning process includes astrong grassroots organizing componentin order to attract and mobilize newmembers.

Have fun! Starting a co-op can take

time and require a lot of effort. It isimportant to build non-work activitiesand relationship building into theprocess. One grocery co-op’s steeringcommittee turned its weekly meetingsinto potluck meals. These sharedworking meals strengthened theircommunity and kept committeemembers engaged for the long haul.Groups are sure to make mistakes alongthe way; the key is to learn from them,move on and stay flexible.

ConclusionsThis research was based on a small

sample of food- and agriculture-relatedco-ops in the Upper Midwest. Therewere several inherent challenges inconducting this study.

The two main challenges were thediversity of the co-ops included in thestudy and the lack of an existing set ofquantitative data on cooperative start-ups. This made it difficult tobenchmark our sample or to draw anymajor conclusions from the data.

While certain challenges arecommon to all co-ops, many of theissues are specific to the sector, thecommunity or the size of the venture.We hope this initial study will start abroader conversation about cooperativestart-up success factors and bestpractices in cooperative development. n

op was originally located in the BayArea city of Hayward, but the high costof doing business there caused it to pullup stakes in the 1980s and relocate toModesto, about an hour’s drive to theeast. Today, new sewage requirementsin Modesto are forcing the co-op topurchase equipment for the processingplant to ensure that its effluent has theproper pH level.

But it’s local building codes that arecausing the most problems for Beck. In

the past, putting up a pigeon coop, evenfor a large number of birds, wasn’t toobig of an undertaking. Basic woodenframework, roof and chicken-wire sideswould do the trick in CentralCalifornia’s warm, dry climate. But newcodes impose higher costs, Beck says.“On the last structures I built, I had tomeet the same codes as if I werebuilding a house.” That meant hiringan engineer and producing blueprints.

Building codes also required heavierroofs and stronger foundations. “Thecement requirements meant I had tomeet [conditions for] 120-mph wind-shear, even though we don’t havehurricanes here.”

Despite these higher costs for doingbusiness, Beck continues to beoptimistic about the business andrecommends it to people who arewilling to do the work and learn theropes. “The market’s good,” he says.“We’ve been able to raise prices, butnot enough to keep up with expenses. Itused to be for every three bucks I spent,I’d clear $2. Now it’s $1. So ourexpenses have just about doubled.” Buthe still thinks the profits are well worththe effort.

“Mostly I enjoy it” he says. “I’vebeen doing it a long time and I love it.”n

Birds of a feathercontinued from page 17

Start me upcontinued from page 7

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