al Rur COOPERATIVES Meat’s first five years in the new plant are now referred to as “The Dark...

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lCOOPERATIVESCOOPERATIVESJanuary / February 2015

Page 22

CONFERENCE CO-OPFARMERStacks of Ideas at

By Dan Campbell, editor

In its effort to help increase understandingand use of the cooperative business system,USDA Cooperative Programs distributesmore than 100,000 co-op educationpublications annually. One day we might be

shipping 100 copies of “Co-ops 101” and “How To Start aCo-op” for a university agribusinessclass or for a co-op youth conference;the next order could be for half adozen copies of our five-volume set ofbooks on co-op tax law needed by alaw office representing cooperatives,or it could be 20 copies of our guideon co-op bylaws and extra copies ofRural Cooperatives magazine for thedirectors of a newly formed co-op.

Orders come from around theworld, as was the case a few weeksago when two teachers in East Africarequested co-op publications forclasses they were leading.

USDA has been producing anddistributing co-op education andresearch materials for about 97 yearsin an effort to make more peopleaware of the many ways cooperativescan help them and to help improve the operations of existingco-ops. In addition to hard copies, all of our publications arenow posted on the Web, which has vastly expanded ouroutreach across the nation and all around the globe.

It’s not surprising then that a recent survey by theCooperative Foundation found that USDA is the nation’smajor source for co-op education materials (see page 26).But, it also found that many co-op educators feel that manyof our publications are in need of updating, especially when itcomes to graphic presentation. Survey respondents also saw aneed for simulations and other interactive materials and forgreater use of diversity in examples.

Great minds think alike! We have just completed majoroverhauls on our three most widely circulated co-oppublications and plan to do the same with others. This isespecially important for publications used in schools and foryouth groups, where visual appearance is so important tocapturing and holding their attention.

“Co-ops 101” recently got a complete makeover, withexpanded editorial content and color illustrations on nearlyevery page spread. We’ve just produced a companion volume,called “Co-op Essentials,” which revamps some olderpublications, again with attractive photos throughout. Withinthe next month or so, we will also be offering a revampedversion of “How To Start a Cooperative,” with expandededitorial content and improved graphic presentation.

A recent report about food hubs isanother example of a publicationproduced with an eye to visualpresentation; there will be morepublications dealing with food hubsin the year ahead.

Like many of your co-ops, we areworking with reduced staffing levelsand travel budgets, so the willingnessof co-ops all across the nation toshare their photos for these booklets,and for use in USDA’s “RuralCooperatives” magazine, is makingthis effort possible.

One interesting finding of the Co-op Foundation survey was that co-opeducators see a major need for more“mid-level” education pieces —information that goes beyond co-opbasics, but not written at a research

or academic level. The survey found that there is demand formore information on cooperative legal framework, financialand human resources issues.

Of course, co-op education takes many forms, not only forstudents and co-op novices, but also for the men and womenwho run established co-ops and who need to keep on top onindustry trends, changes in the marketplace, new regulations,etc.

There is no better way to do that than by attending theannual Farmer Cooperatives Conference. This has become a“must see” event for agricultural co-op leaders since it waslaunched in 1998. You can read highlights of the most recentconference beginning on page 22 of this issue.

The conference was established in 1998 by the Universityof Wisconsin Center for Cooperatives. It annually provides aforum for cooperative directors, management and thosedoing business with agricultural cooperatives to learn and

2 January/February 2015 / Rural Cooperatives

Commentary Spreading the word about co-ops

continued on page 36

Features

Rural Cooperatives / January/February 2015 3

Volume 82, Number 1January/February 2015

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

Lisa Mensah, Under Secretary,USDA Rural Development

Dan Campbell, Editor

Stephen A. Thompson, Assistant 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.

04 Forging a Self-help Network Co-op principles help bring local meat to marketBy Kathryn Quanbeck and Lauren Gwin

08 Investing in Knowledge Sunrise Cooperative voplume builds digital resource center for members

14 Farmer Co-op Conference ‘14 Demand for sustainably produced foods among key issues confronting co-op leadersBy Lynn Pitman

19 Proposed changes in USDA’s B&I program could aid indevelopment of new co-ops By Bruce J. Reynolds

22 Survey results shed light on dairy co-op financial performanceBy Carolyn Liebrand

26 Required ReadingStudy sees need for updating co-op education publications, more mid-level materialsBy Margaret M. Bau

28 Resolving Member Conflicts Stakes are raised when an unhappy customer is a member-ownerBy Thomas Gray

Departments02 COMMENTARY

11 CO-OPS & COMMUNITY

12 IN THE SPOTLIGHT

20 LEGAL CORNER

30 UTILITY CO-OP CONNECTION

32 NEWSLINE

p. 4

ON THE COVER: Cheese is aged at an Arla Foodsfacility. The Scandinavian-based dairy foods co-opshared insight into its equity structure, board governanceand approach to sustainability during the most recentFarmer Cooperative Conference in Minneapolis.Conference coverage begins on page 22. Photo courtesyArla Foods

p. 8 p. 22

By Kathryn Quanbeck and Lauren Gwin

Editor’s note: Quanbeck is programmanager and Gwin is director with theNiche Meat Processor Assistance Networkat Oregon State University in Corvallis,Ore.

Farmers, ranchers andothers seeking to buildmarkets for local meatsoften say that limitedprocessing

infrastructure is a significant bottleneckthat restricts the flow of local meat andpoultry to market. This belief usuallyresults in a call for more processingplants to be built.

At the same time, existing small meatprocessors say that they often lack thesteady, consistent business required forprofitability. All too often, newprocessing ventures struggle or fail due

to lack of enough livestock to process. What is to be done to overcome

these issues? The Niche Meat Processor

Assistance Network (NMPAN) hasfound that cooperation across the localmeat supply chain is essential for itssuccess. Farmers, ranchers, processors,distributors and supportingorganizations that adhere to cooperativeprinciples are the most likely to besuccessful.

NMPAN is a national network ofpeople and organizations creating andsupporting appropriate-scale meatprocessing infrastructure for niche-meatmarkets. Its mission is long-termstability and profitability for bothprocessors and the producers whodepend on them to market sustainablyraised meats. NMPAN combines aninformation hub with a multi-facetedcommunity of practice and peer-to-peer

learning (see sidebar for more aboutNMPAN).

What are niche meats? Locallyraised, certified organic, grass-fed, nohormones or antibiotics, certifiedhumane — we use “niche” very broadlyto refer to many types of marketdifferentiation.

While not always organized informal cooperatives (although many are,such as Country Natural Beef, OrganicPrairie and the Island Grown FarmersCooperative, to name just a few), mostof those involved in local meats say thatoperating on cooperative principles isvery important in forging businessrelationships of commitment.

What do we mean when we refer to“relationships of commitment?” Ourrecent research report, Local Meat andPoultry Processing: The Importance ofBusiness Commitments for Long-TermViability (published by USDA’s


Co-op principles help bringlocal meat to market

FORGING A SELF-HELP NETWORK


Economic Research Service), explainswhy a shift from relationships ofconvenience to relationships ofcommitment is essential for the long-term persistence of processors and thelocal meat sector.

For farmers, relationships ofconvenience can be thought of as: “I’llcall you when I have animals toprocess.” For meat processors, theirperspective in such a relationship oftenis: “I’ll process for you if I have anopening.” In a relationship ofcommitment, on the other hand, eachparty promises to deliver for the other,and then consistently follows throughon the promise.

With commitment the dialoguemight look more like: Farmer: “I’llbring five head every week.” Processor:“I’ll process them to your specs, ontime, at high quality.”

Commitment requirescommunication about needs, roles andresponsibilities — an “if you promise todo X, I will promise to do Y” approach.It also necessitates ways to measurewhether promises are met. Our researchstrongly suggests that shifting towardcommitment, away from convenience, isthe key factor in maintaining andexpanding processing for local meats.

We can see relationships ofcommitment in action in processingplants such as Lorentz Meats and withco-ops such as the Island GrownFarmers Co-op.

Lorentz Meats: anchor tenantsallow processors to servesmaller producers

Lorentz Meats is a USDA-inspectedprocessor in Cannon Falls, Minn., thatoffers slaughter, fabrication, packagingand value-added production (portioncutting, sausages and cured meats) on afee-for-service basis for niche meatbrands and independent farmers. Itprocesses beef and bison, currentlyhandling more than 8,000 head peryear.

In 2000, believing that there wasenough local business to justify doing

so, it built a new, USDA-inspectedfacility. Lorentz Meat’s first five years inthe new plant are now referred to as“The Dark Days” by the plant owners.Starting with a $2 million plant,$500,000 in equipment and $100,000operating capital, the business lost morethan $1 million in three years. It was onthe brink of bankruptcy in early 2005.

“We went into this with a ‘build itand they will come’ mentality, and thatwas a terrible idea,” explains MikeLorentz. “You cannot base a facility ofthis size only on what small-scale, directmarketers bring you. You need keycustomers that will be there every weekwith real volume.”

The Lorentzes found their first keycustomer in Organic Prairie, the meatbrand of the Organic Valley/CROPPCooperative. They began by processinga dozen cattle per week for OrganicPrairie, gradually increasing to thecurrent 35-40 per week. Yet, it took theaddition of two other key customers —High Plains Bison and Thousand HillsCattle Co. — and the gradual growth inbusiness with all three of these keycustomers to create a positive cash flowfor Lorentz Meats (achieved in late 2005).

Today, Lorentz Meats knows it willhave livestock to process each weekbecause its three largest meat companycustomers must deliver fresh producton a weekly basis to their retail andwholesale customers. This pressure,Mike Lorentz says, is “better than any

contract,” because “market pressure isstronger than legal pressure.”

For its part, Lorentz Meats not onlydelivers high-quality products, but alsogoes through a number of third-partyaudits annually to meet the needs of keycustomers. Passing audits, maintainingcertifications and meeting retailerspecifications have required investmentsin specialized equipment — including ametal detector and packaging machines— as well as in new expertise.

The three key customers make upabout 65 percent of Lorentz Meats’business volume. About 200 local directmarketers make up about 20 percent ofthe business volume. The other 15

percent comes from a handful ofsmaller brands and co-pack sausagecustomers. Lorentz Meats is committedto working with small-scale localfarmers, yet is very aware that it couldnot offer this level of service andsophistication without having “anchorcustomers” that sell comparatively largevolumes, regionally and nationally.

A cooperative approach toscheduling — ensuring that throughputis consistent and steady — is alsoessential to success. Lorentz Meats andits three key customers are in constantcommunication about scheduling andhave verbal agreements regarding howmany head of livestock each customerwill bring for processing each week.These customers do their best to giveLorentz as much lead time as possible if

“If you have enough capital, you can lose moneyin the first year. We had to break even because

we didn’t have money to lose.”

Processing sausage for a local market.


there will be a change in plans, becausethey understand that if they give uptheir weekly slots, Lorentz can givethem to someone else.

Thursdays are dedicated entirely toprocessing for local direct marketers.Lorentz Meats asks producers for acommitment, but allows themflexibility. Six months out, producersmust choose the month they will bringtheir livestock. One month out, theymust choose the specific week. Evenwith 200 local processing customers,“Local Thursdays” are not always full.Every February or March, at least oneLocal Thursday is skipped.

Island Grown Farmers Co-op:processing facilities needcommitted scheduling

While it is largely known foroperating the first USDA-inspectedmobile slaughter unit (MSU) in thenation, the Island Grown FarmersCooperative (IGFC) has been successfulfor reasons beyond its MSU operation.The other factors include overall farmercommitment to the co-op’s success andits scheduling system, ensuring that: (a)the unit is fully utilized, and (b) farmerscan get the slots they need. Theseaspects of their business are not at alllimited to mobile units.

IGFC’s MSU serves five northwestWashington counties, as well as a small,fixed-location cut and wrap facility inBow, Wash. IGFC is a servicecooperative, providing processing on afee-for-service basis for members.

The co-op handles beef, bison, lamb,goat and hogs. IGFC has 60 members,all located within a 50-mile radius ofthe plant (or a 1–2 hour drive), thelargest area the MSU can serveefficiently. About half of the livestockare raised on the mainland, while theother half are raised on three of the SanJuan Islands, off the northern coast ofWashington.

Most members raise and sell fewerthan 50 head of beef per year, while afew members market 100 to 200 headper year. Most sell through the standard

set of local retail and wholesalechannels (farmers’ markets, restaurants,grocery stores and farm stands).

In 1996, livestock farmers in SanJuan County, Wash., became interestedin local meat marketing but lacked acost-effective way to transport theiranimals to mainland processingfacilities. They considered building asmall slaughter and processing plant on

one of the islands, but at each site theyconsidered, a neighborhood groupimmediately formed in opposition.

They learned about the MSUconcept from Broken Arrow Ranch inTexas and partnered with the LopezCommunity Land Trust (LCLT) tohave an MSU built. The farmersformed the Island Grown Farmer’sCooperative to lease the MSU fromLCLT and operate it for IGFCmembers, who market independently.

The co-op received a USDA grant ofinspection in 2002 and began operatingthe MSU, along with a leased cut-and-wrap facility.

Central to IGFC’s success is that itsmembers have very few other optionsfor inspected slaughter and processing.They all need the system to work andhave been willing to provide financialsupport. The broader community alsoprovided start-up financing andsupport.

Once the MSU was built, the 30original IGFC members each made aninitial equity investment of $600. Sincethen, the MSU has been financed solelyby processing revenues, including a per-head “equity retain,” or surcharge,which can be used for capitalimprovements. Early on, members alsomade loans to IGFC to purchaseequipment and for other needs when

banks — which judged the venturequite risky — only offered financing atvery high interest rates.

This commitment extends to payingthe true cost of services. The feestructure is set to break even orgenerate a small profit, which can bereinvested in the business. Annualrevenues and operational costs arebalanced at about $500,000.

IGFC’s original prices, based onwhat other plants in the region werecharging, were too low. After sixmonths, the co-op was losing moneyand had to raise prices, as has beendone several times since. For example, a10-percent fee increase in 2008 coveredrising fuel costs and health insuranceand raises for employees.

As IGFC farmer Bruce Dunlopexplains, “If you have enough capital,you can lose money in the first year. Wehad to break even because we didn’thave money to lose.”

The Island Grown Farmers’ Cooperative (IGFC) mobile slaughter unit makes a stop at a ranch innorthwest Washington. IGFC is a service cooperative, providing processing on a fee-for-servicebasis for members. Photo courtesy IGFC


Like most processors, IGFC needssteady throughput of livestock to makethe best use of its facilities and skilledemployees. As a local processor thathandles a large number of grass-fedlivestock, it also faces significantseasonal variation in demand forservices.

IGFC has addressed these problemswith a scheduling system that takesadvantage of the fact that, as acooperative, it must hold an annualmeeting. At this meeting, the co-op setsthe entire slaughter schedule for thecoming year. Members who attend themeeting get to choose their dates first.Members who don’t attend the meetingmust choose from the remaining dates.

The system necessarily requiresguesswork on the part of farmers.“Sometimes, particularly with hogs,”Dunlop explains, “you’re schedulingslaughter dates for animals that havenot yet been born.”

Beef farmers must estimate whentheir cattle will be fat enough forslaughter. If necessary, the schedule isadjusted about a month before a setdate, working through the scheduler toswap dates with another member.Larger farmers are often able toaccommodate shifts needed by smallerfarmers. This is helpful, allowingproducers some flexibility. “When[smaller farmers] don’t have flexibility,[others] recognize that and… move[their] stuff to the front of the line,”says Dunlop

IGFC also uses financial incentivesto spread the work over the year,offering a 10-percent discount for anyslaughter in the slow period —February through April — and a flat-rate discount to process animals(typically herd culls) that will beprocessed into ground meat or that canbe held past the busy fall period.

“We recognize that it costssomething to do that, and it’s a bit of ahassle. But the discounts work,” Dunlopsays. IGFC also penalizes farmers whoaren’t ready when the MSU shows up attheir farms.

“If we have to turn around and leave,they get billed,” he explains. “We don’tlike assessing penalties, but as soon as aproducer knows that he’s going to getcharged for not having his animalsready, the problem tends to go away.”

At this time, IGFC intends to stay atits current size, both in terms of thenumber of members and the number oflivestock/pounds of meat processedannually. A processing capacity has beenreached that fits the scale of the MSU,the cut-and-wrap operation, the staffand the members’ needs.

Cooperation and commitmentThe relationships in place at both

Lorentz Meats and IGFC representrelationships of commitment: strong,

reliable and consistent businesscommitments between small processorsand livestock producers. Steadythroughput is what supports localprocessing plants and helps them toexpand their services and theirbusinesses.

The two case studies shared here arean excerpt from a longer report, LocalMeat and Poultry Processing: TheImportance of Business Commitments forLong-Term Viability. The report includes12 case studies, including 7 successfulprocessors and 5 public-privatecollaborations that support local meatsprocessing. The case studies and fullreport are all available on the NMPANwebsite: www.nichemeatprocessing.org/research. ■

Operating since 2007, the Niche Meat Processor Assistance Network(NMPAN) is a national network of processors, producers, universities, agenciesand non-government organization (NGOs) working together to build theprocessing infrastructure essential to local and regional niche meat markets.NMPAN’s advisory board is drawn from industry, academia, NGOs andgovernment.

NMPAN, which is housed at Oregon State University within the Center forSmall Farms and Community Food Systems, helps support: • Peer learning and information sharing – for processors, producers and

technical assistance providers – through a dynamic listserv, advisory board,and newsletter;

• Online resources and tools for processors, including business planning andmanagement, dealing with federal and state regulations, food safety issues,and other essential operations (www.nichemeatprocessing.org and NMPANwebinars);

• Applied research to identify systemic challenges and solutions for this sector,most recently: Local Meat and Poultry Processing: The Importance ofBusiness Commitments for Long-Term Viability (published by USDA’s EconomicResearch Service);

• Targeted technical assistance for small plants and their producer-clientsengaged in local and regional markets for sustainable meat and poultry.

To receive the NMPAN monthly newsletter and other e-mails, subscribe viaits listserv. Go to its website — www.nichemeatprocessing.org — and enteryour e-mail address where it says “NMPAN on Google Groups” (on the righthand side of the web page). Then click “subscribe.”

How NMPAN supports local infrastructure


Editor’s note: This article was providedcourtesy Sunrise Cooperative, a full-service,farmer-owned cooperative in northwestOhio. Sunrise serves about 3,100 member-owners. The co-op operates multipleagronomy, grain, energy and feed locationsin Ohio.

Farmer cooperativeleaders know keepingpace with theirmembers is vital tostaying successful in a

competitive environment. Makinginvestments in operations, facilities andpeople is crucial in the quest to remaincompetitive.

But what about the less tangibleservices of a cooperative? Doesinvesting in information and dataservices yield the same results asinvestments in infrastructure? SunriseCooperative of Fremont, Ohio, investedin developing its information servicestwo years ago, and today the co-op isseeing the return.

Filling a service gapIn 2012, Sunrise took a close look at

the competitive landscape in its region,looking for a service gap the co-opcould fill. Farmers’ need for improveddata management services soon becameapparent. There was no lack of availableinformation. Rather, the need was for asystem of organizing and providingrelevant information to farmers in aneasy-to-use way.

Sunrise developed a new approach togathering and disseminating

Investing in KnowledgeSunrise Cooperative builds digital

resource center for members


information to its key customers, whichit calls the Sunrise Knowledge Network(SKN). SKN is an innovative digitalplatform that provides timelyagronomic and marketing informationthrough ipads, smartphones or desktopcomputers. The suite of informationcontains everything from real-timeweather and market news, to weed andpest identification, farm managementtips and advice, and a host of othertopics relevant to producers innorthwest Ohio.

“Traditionally, when we invested tokeep up with our members, we investedin facilities or equipment, looking todeliver speed and efficiency to ourgrowers,” says George Secor, CEO of

Sunrise Cooperative. “While theseinvestments are necessary, wediscovered there was a need forinvestment in education and resourcesas well.”

The Sunrise staff, along with itsmarketing agency — Farmer, Lumpe +McClelland (FLM+) — produced morethan 140 educational videos which ithas posted on the SKN website, all ofwhich are relevant to farmers in itsregion. Members see and hear a localapproach on specific topics, making theinformation relevant to their farms.This approach is especially helpfulwhen developing weed- and disease-management strategies.

“When we identify a new or

emerging plant disease in our area, orwe find that growers are struggling withparticular pests, we can postinformation directly to the SKN to helpour growers address the problem in realtime,” says Bill Bever, Sunrise salesagronomy manager.

“Pinning” feature relays local data

A unique feature allows growers touse the SKN website to gather growingand harvesting information aboutspecific fields. Using test plots andindividual member data, Sunrise drops“pins” on a digital map that ispopulated with current field data.Members simply click on a pin in theirregion to see local activity.

“One of the greatest advantages ofthe SKN is getting our information inthe hands of the people who need it —our members,” Bever adds. We have theinformation, like yield data, pest andweed identification. The challenge isgetting it to our members in a timelyway. The SKN creates a quick andefficient way to disseminate theinformation.”

SKN is used as an incentiveprogram, offered to those memberswho do a substantial portion of theirbusiness with Sunrise. These keymembers are given an ipad andexclusive access to the SKN.

“Offering the SKN to only keycustomers is a bit of a differentapproach for us, but we felt theinvestment in the technology was toogreat to not give it a sense of valueamong the users,” Secor says. “Loyaltyincentives are nothing new in ourbusiness; this is just a different approach— using information.”

It’s an approach that is paying off. Inthe first year offering SKN, the co-ophad 40 members enrolled. By 2013, thenumber had doubled to 80.

“We believe customer loyalty isimportant and something to be

To help meet farmers’ need for improved data management services,Ohio’s Sunrise Cooperative developed the Sunrise Knowledge Network.Facing page: Grower Doug Keegan (left) scouts his corn field with co-op agronomy consultant Joe Steinberger. Above, grower Roger Perkins(left) and agronomy consultant Brian Rhodes discuss strategies forimproving his crop. Photos courtesy Sunrise Cooperative


rewarded,” Secor says. “The SKN givesus a chance to say ‘thank-you’ to ourmost loyal customers, with aninnovative tool they can use to staycurrent in their business.”

Sales and trainingIn addition to the member service

side of the digital platform, a platformhas also been built for co-op employees.The videos serve as training guides forthe agronomy team, as well as offeringongoing information and dialogue forthe sales and marketing team.

“Our employees need to be keptinformed, just like our members,” Secorsays. “Giving the employees access tothe SKN and building an employee sideallows them to stay in step with ourmembers. The employees can also usethe SKN on member farms that may, or

may not, currently be in the program.”Sunrise employees also work with

members to help them use the ipads,showing them how to navigate throughthe SKN and explaining the uniquefeatures of the program.

“We quickly learned that our firstrole in customer service was teachinggrowers to use the ipads,” Bever says.“We met with members at their farmoffices or homes to show them how touse the ipads and how to get the mostfrom the SKN.”

Co-op sales consultants use SKN asa resource when they are out in acustomer’s farm fields. Sales staff canaccess relevant information about thecustomers’ fields and readily accessvariables needed to troubleshootproblems or offer solutions to maximizeproductivity. The SKN also hosts a

library of safety videos offering valuableinformation for farm employees.

“Having real-time information givesour agronomy team valuableinformation to make accuraterecommendations to our members,”Bever says. “In addition to theinformation, if necessary, the agronomyteam member can use a supportingvideo or neighboring plot informationto build on the recommendation — allavailable in one spot through the SKN.”

Going forward, the Sunrise teamplans to continue enhancing the SKNto meet changing customer needs. “Wefeel we have just begun to tap thepotential of the SKN,” Secor says. “Wecontinually look for ways to enhancethe program and use it to help ourmembers be successful and productive.”■

Sunrise Cooperative has produced more than 140 educationalvideos that are posted on its website to benefit members such asRich Smith (left), seen here consulting with the Craig Houin, theco-op’s lead data manager.


Co-ops & CommunityN. Dakota electric co-ops, USDAhelp meet need for daycare center

By Mary Stumpf, Rural DevelopmentAssistantRural Electric and TelecommunicationsDevelopment CenterPhotos by Neal Shipman

Editor’s note: The “Co-ops &Community” page spotlights co-op effortsthat fulfill the mission of commitment tocommunity. If you know of a co-op, a co-opmember or co-op employee whose effortsdeserve to be recognized on this page, pleasecontact: [email protected].

Question: What do youget when you combinea small town with an oilboom and animmediate need for

childcare services? Answer: A mutuallyowned day care center in thecommunity of Watford City, N.D.

Wolf Run Village Inc., a nonprofitcorporation, is located in Watford City,N.D., where it is in the heart of oilcountry. Wolf Run Village was formedin July 2012 by a group of local city,county and school officials as a meansfor providing affordable housing andadditional day care capacity.

The city’s sudden increase inpopulation due to oil activity hascreated a substantial shortage inchildcare services. There were noprivate entrepreneurs stepping up tothe plate. So, to fill this need, Wolf Run

Village established Wolf Pup Daycarecenter, a facility with enough capacityto care for nearly 200 children, ages 6weeks to 12 years old.

As a nonprofit corporation, the goalfor the daycare center (other thanproviding children with a safe learningenvironment) is to keep the care fees aslow as possible while paying a livingwage to workers. Due to the high costof living in this area, the nonprofit willbe actively fundraising in order toprovide need-based scholarships in thefuture to children of lower incomefamilies.

The new construction of this state-of-the-art daycare facility would nothave been possible without a USDARural Economic Development Loansecured by Reservation TelephoneCooperative of Parshall, N.D. daycarefacilities in North Dakota have adifficult time “cash flowing” due to thehigh cost of labor. The zero-interestloan helped achieve a positive projectedcash flow position.

We were saved by the bell on thisone. The news was incredible,” saysKatie Walters, the daycare center’sproject manager. The facility includes acommercial kitchen and a multi-purpose indoor/outdoor play room.The entire upper floor will be dedicatedto preschool classrooms toaccommodate about 80 children.

“It’s almost a job development issue,”

says Walters. “If you don’t havedaycare, you can’t hire the people youwant to hire.”

Even though families of about 1,000children are seeking child care, this newfacility will have a substantial impact inthe community.

The Rural Electric andTelecommunications DevelopmentCenter’s vision is to help foster anindispensable network of membercooperatives that enrich the lives oftheir consumers and the communitiesin which they live. The center is aNorth Dakota cooperative developmentcenter hosted by the rural electric andtelecommunications cooperatives in thestate. The center (commonly referredto as “statewide”) was formed in 1958and works with the state’s network ofelectric cooperatives to provide acomplete package of quality services incommunications, government relations,safety training, professionaldevelopment and economicdevelopment.

Membership in the association isvoluntary. It is offered to any electriccooperative organized for the purposeof operating electrical generating plantsor transmission and distribution systemsin the state of North Dakota. The workfocuses primarily on providing technicalassistance to emerging and expandingrural cooperatives and mutually ownedbusinesses. ■


In the Spot l ight Economist Charles Ling reflects on 40 years of changes in dairy co-op sector

Dr. K. Charles Ling,USDA Cooperative Programs’lead dairy economist, retiredJan. 2 after more than 40 yearsof government service, mostof it spent working with dairycooperatives. He began hiscareer in 1974 as anagricultural economist withthe then Federal Milk MarketOrder No. 2 (New York-NewJersey Milk Marketing Area).Ling joined USDACooperative Programs in1978.

He received a SuperiorService Award fromAgriculture Secretary John R.Block in 1985 and was namedby his peers as the “2009USDA Economist of the Year”in January 2010. Prior to hisretirement, Rural Cooperativesasked Ling to share some ofhis reminiscences andthoughts about four decadesof working with dairy co-ops.

Question: What are some of the mostsatisfying aspects of your careerworking with dairy cooperatives?

Answer: It has been a pleasureworking with dairy farmers, the staffs oftheir cooperative organizations, andcolleagues, both inside and outside ofUSDA. I am also grateful for thelongstanding support of CooperativePrograms Administrator Randall E.Torgerson (now retired).

There has never been a dull momentworking with dairy cooperatives in avery dynamic industry. It gives me asense of accomplishment when they

take my work seriously and find theinformation I provide useful.

My work has taken me to numeroussmall towns and large cities across thecountry to visit cooperatives, farms anddairy plants. It has been a privilege anda wonderful opportunity that has helpedme to appreciate the vastness of thisland and the diversity of the people.

Being recognized for my work is alsosatisfying — such as being called uponto testify at a number of Federal MilkMarket Order hearings over the years.Last year, I was surprised when theOrganization for EconomicCooperation and Development(OECD) invited me to make apresentation on “Farmer Cooperatives

and Value Creation: The Example ofDairy Farmers in the United States.”The presentation was the culminationof my lifetime experience working withdairy cooperatives. (Editor’s note: asummary of the presentation, “EssentialEconomic Roles of Farmer Cooperatives”can be found in Cooperative InformationReport 65, pages 4-8; a Web address isprovided later in this article.)

Q. What are some of the significantchanges in the dairy industry anddairy cooperatives that you have seenduring your career?

A. It is probably not anoverstatement to say that the dairy

Charles Ling


industry has changed beyondrecognition over 40 years. The maindriving force has been technologyadvancements in producing, handling,processing and manufacturing milk andmilk products.

Briefly, these are the major industrychanges I have observed:

• The complete transition from milkcans to bulk-milk deliveries, enablinglong-distance hauling, wide-areacoordination of milk movement, andfewer, but larger scale, milk-processingplants.

• A westward shift and expansion ofU.S. milk production. Dairy farms inthe West tend to have very large herds,and it is now the nation’s major milk-production region.

• Revitalization of the dairy industryin the more traditional (Midwest andNortheast) dairy regions as a result ofnew investment in dairy infrastructure(including farms, plants, innovation,technology, and public policy supports,etc.) and new product development.

• Fewer, larger dairy farms thatproduce ever-larger amounts of milk.

• Farm-income support has evolvedfrom government support prices beingthe “market-clearing” prices, to asituation where farmers largely reliedon the market for support, and now to asystem where margin insurance andprotection programs have replaced theprice-support and related programs.

• Market orientation providesincentives to the processors to diversifymilk product mix and gives the industryits vibrancy.

• Shifts in consumer taste andpreference that spur the incipientdevelopment and growth of the organicmilk market and artisan dairy products.

• Growing commercial export salesthat now account for about 15 percentof milk solids produced by farmers.This is a far cry from when exportvolumes were insignificant, mainlyviewed as an outlet for disposal ofsurplus milk.

• Dairy cooperatives now handlemore than 80 percent of the nation’s

milk and have helped to lead industrychanges. Cooperatives have undergonenumerous mergers and consolidationsto rationalize their organizationalstructures and to create highly efficientoperations, as necessitated by changingmarket conditions.

• The nation’s largest dairycooperative has around 10,000 dairy-farmer members operating in all 48contiguous states. It is the world’sleading dairy firm, in terms of milkvolume handled.

Q. In the past several years, you haveproduced a series of reports and articlesfocusing on the nature of thecooperative. What is the essence of thiswork? (Editor’s note: CooperativeInformation Report 65 and ResearchReports 221 and 224 are posted at: http://www.rurdev.usda.gov/BCP_Coop_LibraryOfPubs.htm.)

A. In the past few years, I set out toexplore the possibility of clarifyingsome widely proclaimed cooperativeprinciples and theories that hadconfounded me for quite some time.

This work benefited from the real-lifeperspective that I gained while workingwith dairy cooperatives.

I systematically reviewed economicliterature and traced the evolution ofcooperative theory backward, until I hitupon the first academic paper oncooperatives: “The EconomicPhilosophy of Co-operation,” publishedin the American Economic Review, byEdwin G. Nourse in 1922. Emergingfrom this paper and his later work arethese two key roles cooperatives play inthe marketplace: (1) Cooperatives allowfarmers to create business organizationsof sufficient size to exercisecountervailing power; and (2)Cooperatives are a means for farmers topromote and maintain competition —to serve as the competitive yardstick ofefficient operations.

In his 1942 book, Ivan V. Emelianoffhas this very clear definition of theeconomic structure of cooperativeorganizations: “Cooperativeorganizations represent the aggregatesof economic units.” What naturallyflows from this definition are what areoften called “cooperative principles,”such as: members own, memberscontrol, members use and membersbenefit from the cooperative. It alsofollows that proportionality and serviceat cost are two basic working principlesof cooperatives. Understanding this,other cooperative practices also becomeclear, a prime example being singletaxation on cooperative patronageearnings (or net savings).

As an aggregate of economic units,the cooperative is a unique businessorganization, with its own form ofcorporate governance, equity financingand member-oriented operations.Variations of the cooperative businessmodel constitute a continuum ontowhich each cooperative, and each typeof cooperative, falls. Starting with itsposition in this continuum, acooperative can be further analyzed.

Being an aggregate, the cooperativeis neither vertically nor horizontally

USDA economist Charles Ling tours acooperative milk bottling plant.



By Lynn Pitman, Outreach SpecialistUniversity of Wisconsin Center forCooperatives

Editor’s note: Speaker presentations fromthe 2014 Farmer Co-op Conference, as wellas information about the 2015 conference,are available at: www.uwcc.wisc.edu.

Food and agriculturalissues are connectingproducers andconsumers all across thesupply chain in new,

and sometimes challenging, ways. The17th annual Farmer CooperativesConference, held in Minneapolis inNovember, gave cooperative leaders thechance to identify opportunities at theintersection of sometimes radicallydifferent perspectives on how food andfiber should be produced.

Increasing demand among manyconsumers for food that can be branded

“sustainable,” for example, was aprimary topic addressed from a numberof perspectives during the conference.

The two-day event attracted co-opleaders from across the nation.Presentations on other topics of vitalinterest to cooperatives — includingtransportation, equity- managementpractices and cooperative governance —rounded out the program.

Following are some highlights frompresentations made during the event.

The “radical center”How do you get diverse food and

agriculture groups, with seeminglycompeting interests, to work together?The conference kicked off with apresentation by Deborah Atwood, theexecutive director of the AGree projectat the Meridian Institute inWashington, D.C., which is working toanswer that question.

AGree brings leaders of stakeholdergroups together by first defining theeconomic, environmental, health andsocial goals of both farmers andconsumers. To find the “radical center,”from which a consensus on these issuescan emerge, it’s important to identifypeople who are willing to hear all sidesof an issue and identify opportunitiesand challenges, Atwood said.

AGree is initially focusing oninitiatives relating to immigrationreform, production practices and theenvironment, food and nutrition, andinternational development.

Chuck Connor, president and CEOof the National Council of FarmerCooperatives in Washington, D.C.,took a look at how sustainability issuesare affecting farmer cooperatives. Formany farmers, “sustainability” translatesas “governmental regulations,” henoted. Farmers often perceiveenvironmental-related regulations asbeing impractical and handed down bypeople who don’t understand theeconomics of food production.

The three pillars of sustainability —environmental stewardship, long-termeconomic viability and goodneighbor/community responsibility —are all areas in which farmers and theirco-ops are already active, Conner said.Farmers are quick to adapt newtechnology that can support bothproduction efficiency and sustainablenatural resources management.

Conner noted that markets, notgovernment agencies, are driving thedemand for different food systems.Farmer co-ops must find a way torespond to this market demand on theirown terms, and they have much tocontribute to the conversation onsustainability.

Bill Buckner, president and CEO ofthe Samuel Roberts Noble Foundationin Ardmore, Okl., reminded theconference attendees of the strategicrole that soil health plays insustainability practices. The “GreenRevolution” brought increasedproductivity through plant breedingand soil inputs, but, in the long run,this occurred at the expense of soilhealth, he said. The Soil Renaissanceprogram, a joint project with the FarmFoundation, focuses on soil health asthe cornerstone of land-usemanagement decisions.

Questions about sustainableproduction practices are here to stay,and it is up to the producers to helpdefine these standards, Buckner noted.As soil research continues and soil-testing standards change, cooperativeshave an opportunity to provide trustedagronomy and related services tosupport farming practices that supporthealthy soils.

“You can’t sell what customers won’t buy”Greg Wickham, senior vice presidentfor business development at DairyFarmers of America (DFA), describedhow an industry-wide Sustainability

CONFERENCE CO-OPFARMER

Demand for sustainably

produced foods among

key issues confronting

co-op leaders

Council has responded to sustainabilitydemands by developing a guiding visionfor the dairy food system. Theseprinciples are based on supporting thehealth and well-being of consumers,farmers, communities and theenvironment in an economically viableway.

To put these principles into practice,an industry-wide set of science-basedtools is available to “measure whatmatters.” These tools can help farmersmake decisions about managementpractices and can be used to measurethe resulting improvements insustainable practices across the supplychain. Communicating the results toconsumers and retailers candemonstrate the progress the dairy

industry is making in a transparent andcredible way.

Wickham reiterated that these typesof environmental issues are here to stay,and that the public is increasinglyconcerned about sustainability.

Sourcing “sustainably”When a food company like General

Mills commits to sourcing 100 percentof 10 priority ingredients grown withsustainable production practices by2020, what does that mean? Is this goalachievable, and how does it affectproducers?

Rod Snyder, president of Field toMarket: Alliance for SustainableAgriculture (FTM) in Washington,D.C., described how the alliance

brought together a wide-ranging groupof collaborative stakeholders, includingproducers, agribusinesses, food andretail companies, conservation groupsand universities. Increasing productivityto meet future food and fiber needsmust not be at the expense of theenvironmental, health, and economicand social needs of agriculturalcommunities — and vice versa, henoted.

FTM has been analyzing trends andcollecting field-scale production data todevelop the Fieldprint Calculator, anonline educational tool for cropfarmers. The calculator helps toevaluate farming decisions in areas suchas water, energy and land use by makingcomparisons to past yield data orregional and national averages.

FTM now is widening itsbenchmarking and data collectionefforts. The tools support a continuous-improvement approach for on-farmsustainable practices, rather than settingand following a static standard that maynot be appropriate for local growingconditions. FTM is also helping itsmembers along the supply chainsubstantiate their claims relating tosustainability.

Snyder suggested that sustainabilitymay soon become a market-access issuefor producers, as food companies lookfor partners to meet sustainability goals.Other agribusinesses are beginning towork with consumer productcompanies, posing a competitive risk tofarmer cooperatives that do not meettheir sustainability criteria.

Farmer co-ops are well positioned todevelop long-term relationships withcompanies along the supply chain tomeet the demand for sustainablyproduced product, depending on whatpractices producers adopt. Farmers canstart with those sustainable productionpractices that save money, and thenevaluate what practices make sense atthe next stage.


Participating on a panel talk that addressed “Exploring Non-Qualified and Unallocated Equity”were (from left): Doug Ohlson of Frenchman Valley Cooperative, Art Duerksen of Farmway Co-opInc. and Phil Kenkel of Oklahoma State University. Photo courtesy University of Wisconsin Centerfor Cooperatives

Technology based on “big data”holds the potential for farming moresustainably, efficiently and profitablythrough the maximization of output perunit of input. David Muth, senior vicepresident of analytics at AgSolver Inc.,pointed out that improvements in data,and in control systems and equipment,do not by themselves produce betterdecision-making. He describedAgSolver’s services and products thatuse multi-sourced data to assess thereturn on investment of inputs onfarmland through appropriate nutrientmanagement.

Mike Vande Logt, executive vicepresident and chief operating officer ofWinField, a Land O’Lakes business,emphasized the role “big data” toolsplay in the growing demand for food inthe face of limited resources. Whilegenetics will continue to improve yieldpotential, Vande Logt suggested thatthe potential in a bag of seed is ahead ofthe ability to manage it. Plant breedinghas also increased the drought toleranceof many crops, supporting productionpractices that are based on rainfall.

Winfield offers tools that combinemulti-sourced data and modeling tosupport grower decision-making, fromplanning through harvest. Winfieldworks with local co-ops to buildgrower-owned data silos and to offer amember-owned solution that is locallybranded.

“If you aren’t at the table, you are on the menu”

The National Initiative forSustainable Agriculture (NISA) is afarmer-led, university-based programformed in response to consumer andretailer demand for sustainablyproduced food. Paul Mitchell, professorat the University of Wisconsin-Madison, said farmers bear the social,economic and resource costs ofunsustainable practices. Thus, theyshould be at the table when definingsustainability.

NISA provides farmers with science-based, self-assessment tools to developsustainable practices at the farm level.Using whole-farm data, growers cancreate a grower scorecard that

benchmarks results against those ofother participants. These tools havebeen developed for a number of crops,including soybeans and potatoes, andmay soon be expanded for corn.Grower groups can use the aggregatedresults to communicate with retailersand consumers about their on-farmsustainability practices.

Terry Fleck, of the Center for FoodIntegrity in Gladstone, Mo., took acloser look at consumer trust — howpeople form opinions about where theirfood comes from and what drives theirbuying decisions. His group isinterested in identifying opportunitiesfor delivering information to consumersthat will make them feel morecomfortable making choices in a diversefood system.

Consumer perceptions are powerfuldrivers in today’s global markets, saidconsultant Andrea Bonime-Blanc. Risksto land, assets and sovereign politicalstability are often the basis for a risk-management strategy. However, a moreglobal view — one that includesreputation and integrity — is now

A look at cooperative governance in other countries can providea fresh perspective on perennial co-op issues here in the UnitedStates. As part of the Farmer Cooperative Conference program,Michael Boland, professor at the University of Minnesota, talkedwith Ake Hantoft, chair of Arla Foods in Denmark, about Arla’sapproach to issues such as patron equity structures and boardgovernance.

Arla was created by a merger in 2000 between the largest

Danish dairy cooperative and its Swedish counterpart. Over thepast 50 years, the many small, cooperatively owned dairyproduction facilities in both Denmark and Sweden haveconsolidated. Arla has continued its cross-border merger activityand now has more than 13,500 co-op owners in Denmark,Sweden, Germany and the United Kingdom. It has acquired

businesses, or has joint partnerships, in Canada, the UnitedStates, Finland, China and Russia.

These mergers were part of a strategy to secure the highestvalue for its members’ milk while creating opportunities formembers’ growth. Hantoft stressed that successful mergers mustbe based on fairness to all parties. So, all members receive thesame milk price in the currency of their own nation. However,managing exchange rate fluctuations to achieve this has been a

big challenge. Arla currently uses an approach based onaverages for the last eight quarters.

A 75 percent majority of Arla’s members must vote to approveinternational mergers. Growth is financed by the producers.Equity targets to reach goals are met through membership feesand retained patronage. After these targets have been reached,

How do they do it in Denmark?


Seven countries are now represented on Arla’s board.

necessary, she said. Higher risks to a company’s

reputation result from the far-reachingnature of today’s supply chains, the sizeand reach of global companies, andsocial media’s ability to amplify andspeed communications. A strong code

of conduct, beginning at the top, is thusimperative.

Infrastructure challengesConference speakers tackled another

current issue affecting agriculturalcooperatives: the ability to transport

products and inputson schedule,including howcooperatives areresponding to thisissue.

Patrick Hessini,CHS Inc. vicepresident oftransportation anddistribution,described howinfrastructure is notkeeping up with theshifts in supply-chainlogistics. Severalmajor factors arecausing thesechanges: manufactur-ing’s return to NorthAmerica, under-

investment in infrastructure, laborshortages and a supply chain that isincreasingly truck dependent. Tomanage the supply chain risk, CHS isdeveloping a systems-wide approach,with an emphasis on planning andforecasting, as well as ongoinginvestment in both infrastructure andstaff.

Todd Ludwig, CEO of WFSCooperative, based in Truman, Minn.,described how his local co-op hasresponded to the broader macro-transportation situation. WFS haslocations served by both trucks and rail.This network supports the cooperative’sautomated fuel delivery (AFD) programand the movement of commodities.Peak demand for services has increasedrecently as the window for planning andharvesting has grown smaller whilevolume has grown.

WFS is adding to its truck fleet eachyear, instead of buying a company orcommitting to a one-time large increasein fleet size. It is also developing non-harvest/non-planting hauling businessopportunities. Ludwig noted that in the

patronage is no longer retained. Retained patronage is returnedwithin three years of retirement, with the co-op treating thecommitment like a pension obligation.

All members of the cooperative receive one vote that isexercised at the local district council level. Councils elect a 165-member board of representatives (BOR) which makes incomedistribution decisions and appoints the 10-person board ofdirectors. This board monitors the cooperative’s activities andmanagement. Seats on these boards are determined by capitalshares.

With seven countries now represented on the board, Hantoftdescribed the importance the cooperative places on facilitatinggood communication. English is now the language used at boardmeetings, but board members can also speak their ownlanguage. Translation services during meetings and of

documents continues to be an important component of boardinteractions.

Both employee and gender representation on the board arerequired in Denmark and Sweden. Employee representativeswho are loyal to farmer-owned Arla, as well as to their unions,provide a bridge between the two organizations. To boost thenumber of women directors, Arla offers board-training programsto encourage women candidates to run for election.

Arlagarden, Arla’s sustainability program, was initially resistedby producers, but sustainable farming methods have now beenwidely adopted on member farms. Hantoft mentioned that thereis always room for improvement in this area, and that using anapproach of continuous improvement can be an effectivealternative to policy-driven requirements. ■


Workers keep an eye on the processing line at an Arla Foodsdairy plant. The co-op has grown from its base in Denmarkand Sweden to include facilities throughout Europe, NorthAmerica and China. Photo courtesy Arla Foods


past, barge transportation has provideda “relief valve” for co-ops facing railcongestion. But the barge network isnow at capacity, and costs are rising.

Dan Mack, vice president oftransportation and terminal operationsat CHS, provided insight into thecurrent rail transportation bottlenecks.He described the increase in demandfor rail service, which is driving newcapital investment to address thecapacity deficit in tracks, trains andcrews. Expansion is disruptive while itoccurs, and it will take some time forthe overall situation to improve.

Service is improving as projects inthe northern tier and farther west nearcompletion, Mack said. But newinvestment in projects between Fargoand Chicago will affect Minnesota,Iowa and Wisconsin, in particular, andservice volatility will remain a problemfor some time. Federal and state activityin the legislative, industry andregulatory arenas, as well as with theCanadian government, can help toaddress a coordinated response to thesituation.

“Not so much what you earn, but what you keep”

The conference also focused oncurrent co-op governance and equityissues. Phil Kenkel, professor atOklahoma State University, discussedhow cooperatives might approach thechoice between qualified andnonqualified allocated equity.

Unallocated equity as a percent oftotal cooperative equity has increasedover the past five years. Historically,profit has been apportioned betweenunallocated equity and qualifiedallocations. Since the patron pays thetax on the entire qualified allocation,including the retained portion, there ispressure to redeem that retained equity.

If the allocation is nonqualified, thepatron pays taxes only on the portionthat is distributed. The co-op pays the

tax on that portion that is retained. Using nonqualified allocated equity

to meet longer term equity needs mightbe a useful alternative. This removessome of the pressure on the co-op toredeem that equity in the shorter terms,and can be used to reestablish a balancebetween unallocated reserves andretained equity allocated to patrons.

Kenkel described a research projectthat analyzed allocation type and thebest interest of the member over time,using an internal rate of return basedon historical and case study data. Thedifference between patron and co-optax rates drives the results, even withthe current Section 199 tax deduction.Whether these strategies can help toremove incentives to demutualize acooperative with large ratios ofunallocated equity is an open question.

Art Duerkson, CEO of FarmwayCo-op in Beloit, Kan., described howthe co-op’s equity managementprogram was changed to includenonqualified allocations. The shift tononqualified was driven by a board ofdirectors’ decision in 2011. An analysisshowed that the unallocated ratio wassignificantly increasing, and the bylawsdid not adequately address equitydistribution in the case of dissolution ofthe business.

To correct this imbalance, moreearnings were designated asnonqualified allocations and retainedwithout increasing patron tax liability.Member education efforts that includedcash flow examples were effective, andthe new program has been wellreceived. The changes have alsoprovided greater flexibility in balancesheet management.

Another equity strategy that includednonqualified allocations was describedby Doug Ohlson, general manager ofFrenchman Valley Cooperative,Imperial, Neb. The co-op’s recentefforts to build assets and infrastructureresulted in an equity structure that was

more than 50 percent unallocated. Thisraised questions about co-op ownershipand what kind of buyout offers mightlead to demutualization.

The tax liability with qualifiedallocations is a hard sell to youngerproducers, and often appears to be adisincentive to them. So, FrenchmanValley shifted to using nonqualifiedallocations for retained earnings anddesignating 10-20 percent of retainedearnings as unallocated, to serve as abuffer against losses. Again,communication with members wasessential to making this transition.

Agricultural outlookMary Bohman, administrator at

USDA’s Economic Research Service(ERS), described how ERS interactswith its many stakeholders so that itproduces the research and analysis thatis relevant to them. She provided anoverview of current trends inagriculture and noted that globallydriven price volatility is expected tocontinue — along with the likely longerterm need for risk managementservices.

The majority of U.S. agriculturalproduction comes from a small percentof larger family farms, she said, andERS expects to see continued farmconsolidation and an increase in farmsize. The food and farming sector willcontinue to change in response toconsumer demands for convenience andhealthy foods, the expansion of marketopportunities in developing countries,and new technologies.

Next year’s Farmer CooperativesConference will again be held inMinneapolis, Nov. 5-6. The annualprogram is presented by the Universityof Wisconsin Center for Cooperatives.Inquiries about the program should beaddressed to Anne Reynolds at:[email protected]. ■

By Bruce J. Reynolds, EconomistCooperative ProgramsUSDA Rural Development

On Oct. 15, 2014, USDA’s Rural Business-Cooperative Service published acomprehensive proposal for revising andupdating the Business & Industry LoanProgram (B&I). The last such revision was

done in 1996, so the current proposal is long overdue.Lending practices and the rural economy experiencecontinuous change, and the rural business sector faces manychallenges that are more salient today than in 1996.

Shortly after the proposed B&I revisions were publishedin the Federal Register, the National Cooperative BusinessAssociation (NCBA) suggested a webinar be held to discusssections of the proposals that specifically apply tocooperatives. On Oct. 23, a webinar was held at USDA withpresentations from the RBCS staff and Alan Knapp fromNCBA. The webinar drew 30 participants.

The largest part of the proposed B&I revision involvesimprovements to servicing and securing this loan guaranteeprogram, but a new section to the rules contains threeapplications for cooperatives. First, cooperatives can use thefarmer stock purchase program to finance new projects withstock offerings members can purchase with loans backed by aB&I guarantee.

When the farmer stock program was first initiated in1987, it was restricted to new, start-up cooperatives. Yet, inlooking back at the history of farmer cooperatives, most werestarted with relatively modest operations and graduallydeveloped large-scale capital projects. The initial farmerstock program was ambitious but difficult to collateralizeamong numerous farmers who had no experience workingtogether in the same cooperative.

Many cooperatives have the challenge of financing newprojects that may only serve a subset of their membership. Inthose cases, they will issue stock to those members who wantto benefit from a new project. Some of those members,particularly younger farmers, may want to borrow from abank with loan guarantees to help finance such stockpurchases.

Second, a provision for cooperative equity securityguarantees, which was authorized in the 2008 Farm Bill, isgiven proposed regulatory guidance. Such securities carry nogovernance or control rights. They might be purchased by

both members or by non-members in a community who areinterested in financially supporting a cooperative and earninga modest return.

This type of stock is frequently referred to as “preferred.”The 2008 Farm Bill provided that a cooperative can issuesuch stock that would be eligible for purchase with a loanbacked by a B&I guarantee. It also provided for a fund thatprimarily invests in cooperatives, to be an eligible loanguarantee borrower for purchases of preferred stock.

A third special provision for cooperatives would supportsuccession of ownership to the employees of a business whenthe owners are looking ahead to retirement. A business couldbe re-organized as a worker cooperative or it could establishan Employee Stock Ownership Plan (ESOP) that would havethe requirement of fully transferring 100 percent of itsownership within a set period of years, yet to be determinedin the final rule.

The potential for financing worker ownership in stages isthe most significant change being proposed for the new B&Iregulations, as indicated by the public response to publication

of the program proposals. Out of 236 public responses on theFederal Register web page, Regulations.gov, 183 weredirected to cooperative applications, and all enthusiasticallysupported this provision.

Of the many changes that have occurred in the U.S.economy since the B&I program was last revised, none aremore salient in rural America than the plans of baby-boomerbusiness owners to retire and the desire of employees tooperate their workplaces as democracies. The opportunity tofinance a gradual succession of ownership to employees willnot only save businesses, and hence jobs, but will also create anew working environment where more individuals can sharein ownership and business decision-making. ■

Proposed changes in USDA’s B&I programcould aid in development of new co-ops

Of the many changes that have occurred in the U.S. economysince the B&I program was last revised, none are more salient

in rural America than the plans of baby-boomer businessowners to retire and the desire of employees to operate their

workplaces as democracies.



By John C. Monica, Jr.

Editor’s note: Monica is a partner at Porter Wright Morris &Arthur LLP in Washington, D.C., where he is part of the firm’sagricultural antitrust practice group. The firm has representedfarmers and cooperatives in agricultural antitrust mattersnationwide, including in the potato and eggs cases referenced in thisarticle.

The Capper-Volstead Act is a powerful 1922law that allows farmers and their cooperativesto act together for “collectively processing,preparing for market, handling, andmarketing in interstate and foreign

commerce.” “Marketing” includes price-setting and otherconduct that would otherwise violate antitrust laws, if not forCapper-Volstead.

Large lawsuits have been filed that challenge the Capper-Volstead Act (Act) status of cooperatives of mushroom,potato, egg and milk producers. These lawsuits claim thatcertain cooperatives do not qualify under the Act and/or thattheir activities are not protected. Understanding the basics ofthese lawsuits can help avoid potential liability.

‘Producer’ membership requirementTo take advantage of the Capper-Volstead Act, a

cooperative’s members must be “persons engaged in theproduction of agricultural products.” Cooperatives with non-producer members are ineligible for Capper-Volsteadprotection. This “producer” membership requirement hasbeen targeted in lawsuits when a cooperative strives to makesure that all of its members are actual producers but fails toachieve perfection.

One U.S. Supreme Court case indicates that “it is notenough that a typical member qualify, or even that most of[the] members qualify.” Plaintiffs argue that this languagemeans every cooperative member must be a “producer” at allpertinent times. Some plaintiffs scour cooperative recordsgoing back many years — sometimes more than a decade —to determine whether any non-producers have ever beenlisted as members, even for only a brief period. Should theyfind such an inadvertent error, they argue that thecooperative’s Capper-Volstead Act protection is forfeited.

The mushroom case in Pennsylvania provides an exampleof this approach. The court found a cooperative lost itsCapper-Volstead status because a farmer mistakenly allowed

the wrong corporate entity to sign its cooperativemembership agreement and it was not an actual producer.The court also found that the cooperative acted with twomembers’ affiliates that were not themselves producers. Thecourt rejected the arguments that (1) the various entities wereso interrelated that they should be considered one economicunit and not separate entities, and (2) the members’ goodfaith belief and reliance on advice of counsel that thecooperative was properly structured preserved thecooperative’s Capper-Volstead status.

Should it survive any potential appeal, the foreseeableimpact of the mushroom case would be immense. In thecourt’s view, even minor membership record-keeping errorscould disqualify a cooperative from being a proper Capper-Volstead entity, thereby subjecting it and its members toliability that could bankrupt the co-op. Given thisuncertainty, cooperatives should have a rigorous process inplace to thoroughly vet their members’ producer status.

Vertically integrated producersA related membership-qualification issue is whether

vertically integrated farmers — those conducting activitiesbeyond simply owning and raising animals or crops — areconsidered true “producers” under the Act. This issue hasbeen raised in numerous recent agricultural antitrust cases.The Idaho potato case provides a good example of theopposing views on this topic.

The potato plaintiffs claimed that any type of verticalintegration destroys a producer’s eligibility, because it is nolonger a true “pure” farmer. The producers countered thateven fully integrated farmers do not destroy eligibility, aslong as they all legitimately own and raise crops.

Legal CornerProtecting cooperatives from antitrust liability

Farmer cooperatives should be cognizant of recent lawsuits challengingthe Capper-Volstead Act status of some potato (seen during harvest,above), mushroom, egg and milk co-ops.


The court rejected both arguments,and in a non-binding “advisoryopinion,” it adopted an amorphousmiddle ground requiring a “factually-intense inquiry” into the economics andhistory of the industry, functions of thecooperatives in questions, and degree offarmer integration — all with an eyetowards determining whetherrecognizing the exemption in eachparticular instance is “consistent withthe legislative intent to create anenvironment in which farmers cancompete on a level playing field.”Under this standard, there is no brightline as to how far a cooperative membermay deviate from simply owning andraising animals or crops and still beconsidered a “producer” under the Act.

If ultimately adopted, this test wouldrequire extensive factual investigation,as well as testimony from multipleexperts — a very expensive proposition.Additionally, such a “factually-intenseinquiry” may not be subject toresolution short of a full-blown trial.Finally, it is likely that most of today’sfarmers are vertically integrated tosome extent. Should the trial court’s“advisory-opinion” become law, it maycause many farmers to reconsiderjoining certain cooperatives in the firstplace.

Benefit of ‘members’ requirement

Another fundamental Capper-Volstead requirement is that thecooperative must be “operated for themutual benefit of the membersthereof.” The Southeastern MilkAntitrust Litigation in Tennesseeaddressed this issue. Some of theplaintiffs in that case were farmers suingtheir cooperative for purportedly usingits milk-bottling subsidiary to slash theprices the farmers received for theirmilk. The cooperative also allegedlyattempted to force producers to sell tobottlers it controlled at reduced pricesthrough mandatory membership in thecooperative or its subsidiaries.

Plaintiffs claimed that this benefited

the cooperative financially, but reducedthe prices farmers received for theirmilk, creating a conflict of interest. Theplaintiffs further argued that becausethe bottling operation required anongoing supply of low-cost milk frommembers, the cooperative had allegedlyput its own interests first and was nolonger truly operating “for the mutualbenefit of its members.”

Given the complex structure andnature of the activities in question, theissue would have been hotly contestedat trial, had the case not been settled. Asimilar “benefit of members” issue willbe decided in the National MilkProducers Federation herd-retirementlitigation pending in California, whereit will be litigated in full.

While most cooperatives operate forthe general benefit of their members,they should closely examine their ownbusiness activities to determine whetherthey are vulnerable to the contentionthat they are not fully operating for thebenefit of their members.

Pre-production supply management

Perhaps the biggest question raisedin recent lawsuits is whether pre-production supply-managementactivities — such as jointly agreeing notto plant crops or to raise fewer animals— is a protected “marketing” activityunder the Capper-Volstead Act. Theresurgence of this issue is surprising,since prior courts have already foundthat protected “marketing” under theAct includes direct price setting and theactual destruction of products toremove them from the marketplace. If afarmer can legally destroy products,why cannot it simply decline to producethem in the first place?

However, in its “advisory opinion,”the Idaho potato court found that theCapper-Volstead Act does not protectsuch pre-production supplymanagement activities. The court notedthat no prior courts had explicitlyapproved pre-production supply-management activities, that the Act

itself does not expressly endorse them,and that a 1977 Federal TradeCommission statement indicated thatthese activities were not protected.

Additionally, the court noted thatfarmers had an incentive to increaseproduction if prices rise due to acooperative’s activities, but that thisincentive is missing if pre-productionsupply-management activities arepermitted and future production is ineffect “shut off.” Accordingly, the courtconcluded that pre-production supply-management activities are not protectedunder the Act.

Whether the potato court willultimately adhere to the distinctionbetween post-production and pre-production supply-managementactivities remains to be seen. A similarargument is being made by plaintiffs inthe Pennsylvania eggs cases, in which acooperative’s employee allegedly madewhat plaintiffs argue were voluntarypre-production supply-managementrecommendations in the cooperative’snewsletter. Additionally, the issue is thecenterpiece of California litigationinvolving the National Milk ProducersFederation’s herd retirement program.

Clearly, the issue greatly interestsplaintiffs’ attorneys. Cooperativesconsidering engaging in pre-productionsupply-management efforts shouldclosely watch these cases and planaccordingly. Caution may be warranteduntil the matter is decided by federalappellate courts.

ConclusionWhile the Capper-Volstead Act is

the lifeblood of antitrust protection foragricultural cooperatives, recent legaldevelopments present a difficult needleto thread. The parameters of a nearly100-year-old law should be well settled,but that is rarely the case where largeclass action lawsuits are involved.Cooperatives and their members shouldkeep apprised of ongoing trends in thearea and take preventive steps to avoidpotential liability. ■


Carolyn Liebrand, Ag EconomistUSDA Cooperative Programse-mail: [email protected]

Editor’s note: This article is based on thedairy portion of USDA’s annual survey ofagricultural cooperatives. More of thefinancial results can be found in USDAResearch Report 233, “Financial Profile ofDairy Cooperatives, 2012,” available at:www.rurdev.usda.gov/supportdocuments/RR233.pdf. For a hard copy, call 202-690-1414, or e-mail: [email protected] marketing information and some broadfinancial figures were presented in theMarch/April 2014 issue of USDA’s RuralCooperatives magazine (“Dairy co-ops’milk volume up, but market share downslightly”).

USDA’s annual surveyof U.S. farmer co-opsreveals a wealth of datathat can be used as ayardstick for

cooperatives to compare their financialratios and overall performance toaverages for their sector. The full 2013statistics report (and those for earlieryears) is posted on the USDA RuralDevelopment website at: http://www.rurdev.usda.gov/BCP_Coop_Data_DairyFinancial.html.

The following article focuses ondairy co-op data derived from USDA’s2012 survey. It presents findings thatdairy cooperatives can use to compareto their own financial records from2012 to determine how their perfor-mance stacks up to the aggregate data.

OverviewDairy cooperatives surveyed by

USDA devoted, on average, $10.90 intotal assets per hundredweight (cwt) ofmember milk. These co-ops averaged$8.12 per cwt in liabilities, whilemember equity was $2.78 per cwt in2012. Total revenue reported for 2012was $30.56 per cwt of total milkhandled, with net margins of 19 centsper cwt.

Dairy cooperatives are surveyed by

USDA Cooperative Programs every fiveyears. This latest survey collectedinformation for cooperatives’ fiscalyears ending in calendar 2012. The 89cooperatives that provided detailedfinancial data represent more than two-thirds of the cooperatives that handledmilk from cows in the United States.These 89 dairy cooperatives handled 80percent of the total milk volumehandled by U.S. cooperatives. Further,these cooperatives employed anestimated 93 percent of the total assetsof all dairy cooperatives during 2012.

AssetsCurrent assets of $6.74 per cwt of

member milk made up 62 percent oftotal assets of these dairy co-ops in

2012 (table 1). A unique characteristicof a dairy cooperative’s balance sheet isthe components of its current assets andcurrent liabilities. Dairy cooperativestypically pay members for their milktwice a month. A large proportion ofthe current assets and current liabilitiesare related to such periodic cashpayments to members.

Dairy cooperatives employed $4.16per cwt in fixed assets (includinginvestments in other cooperatives of 74cents per cwt) in 2012. Fixed assets andinvestments represented 38.1 percent oftotal assets.

On the other side of the balancesheet, two-thirds (66 percent) of totalliabilities were current liabilities, or$5.38 per cwt. Long-term liabilities

Survey results shed light on dairyco-op financial performance


were $2.74 per cwt in 2012.

EquityMember equity was 26 percent of

total assets, or 67 percent of the valueof fixed assets and investments. Memberequity at 102 percent of long-termliabilities was enough to cover long-term debts.

Allocated equity comprised the bulkof member equity value — 84 percent of total equity — whileretained earnings/unallocated equityrepresented just 8 percent in 2012.

Preferred stock amounted to 7percent of total equity, while non-controlling minority interests andcommon stock represented a slightamount of the total value of members’equity in the cooperative. Commonstock was issued by 39 percent of theprofiled dairy cooperatives. Typically, itcarries only a token value and is issuedto signify membership. As a result, itcomprised a negligible amount of co-opequity.

Operating statement Milk and dairy product sales, which

averaged $23.69 per cwt of total milkhandled by the 89 co-ops, were thelargest single sales and other incomeitem, accounting for 78 percent of totalrevenue in 2012 (table 2). Other salesand income averaged $6.68 per cwt.

Expenses averaged $30.38 per cwt,leaving net margins before taxes of 19cents per cwt. The profiled dairycooperatives’ net margins before taxrepresented 0.6 percent of total revenuein 2012. These net margins represent a2-percent return on assets and an 8-percent return on equity.

In addition to marketing their ownmembers’ milk, some cooperatives mayalso handle milk received from non-member producers, other cooperativesand/or other firms. This milk equaledabout 20 percent of the total milkvolume handled by the 89 dairycooperatives in 2012.

The volume of milk going through acooperative’s operations has an impact

on efficiency and per-unit costs, so theoperating statement items are expressedon a “per-cwt of total milk handled”basis. This is in contrast to the balancesheet, which is based only on membermilk (excluding non-member milkhandled).

Different approaches tomarketing member milk

Dairy cooperatives face marketingsituations unique to their location,membership and the co-op’s philosophyor organizational culture. As such,structural and operational differencesbetween dairy cooperatives arise as theyposition themselves to best market theirmembers’ milk.

The alternative methodscooperatives use to market milk requiredifferent levels of capital and yielddiffering returns.

Diversified dairy co-opsDiversified cooperatives sell a

portion of their members’ milk as bulkraw milk but also own and operateplants to make a variety of commodityand/or differentiated products (such asbutter, dried dairy products, cheese,packaged fluid milk, sour cream, dips,yogurt, cottage cheese and ice cream).These cooperatives represented 28percent of the profiled cooperatives (bynumber), but they accounted for 97percent of the assets and 91 percent ofmilk and dairy product sales.

Thus, the financial statements for allprofiled cooperatives are heavilyinfluenced by the performance ofdiversified cooperatives.

The diversified cooperativesemployed the highest level of assets percwt of member milk in 2012: $12.15.Current assets accounted for 62 percentof total assets — a higher proportionthan for the other types of cooperatives.Total liabilities were also higher for thisgroup: $9.08 per cwt in 2012. Long-term liabilities represented 34 percentof total liabilities, the highest levelamong the different operational typesof dairy co-ops. Furthermore, long-

term liabilities were nearly equal to theequity members held in their diversifiedcooperatives. In contrast, the othertypes of profiled cooperatives had muchmore equity relative to their long-termliabilities.

Milk and dairy product sales fordiversified dairy cooperatives were$24.06 per cwt of milk handled in 2012.Farm supply and other sales made up23 percent of total revenue fordiversified cooperatives. That’s wellabove the less-than 5 percent ofrevenue that farm supplies and othersales represented for the other types ofdairy co-ops.

Net margins before taxes fordiversified cooperatives averaged 20cents per cwt and 1 percent of totalsales in 2012. The net margins-to-totalassets ratio was 2 percent in 2012, whilenet margins-to-members’ equity was 8percent.

Bargaining-only dairy co-opsBargaining-only cooperatives operate

at the first-handler level, assistingmembers in the marketplace bynegotiating prices, facilitatingarrangements between milk buyer andseller, ensuring accurate milk weightsand tests, etc. They differ markedlyfrom diversified cooperatives in thatthey do not own or operate plants tofurther process member milk.

These cooperatives represented 67percent of the profiled cooperatives, butaccounted for 9 percent of their milkand dairy product sales and just 3percent of total assets.

Bargaining-only cooperatives hadfewer assets than the other types ofcooperatives. Their assets equaled just$2.31 per cwt of milk handled in 2012.A majority of their assets were currentassets.

Likewise, bargaining-onlycooperatives also had the lowest totalliabilities and member equity – $1.49and 82 cents per cwt of member milk,respectively. Long-term liabilities of 43cents per cwt equaled 29 percent oftotal liabilities.

At the same time, bargaining-onlycooperatives generated the lowest milkand dairy product sales among thedifferent operating types: $20.42 percwt of total milk handled. Net marginsbefore taxes of 7 cents per cwt werewell below those of the diversifiedcooperatives.

Net margins before taxes were lessthan 1 percent of total sales, lower thanthe diversified dairy cooperatives.However, their net margins-to-equityratio of 9 percent was above the averagefor all profiled dairy cooperatives.Likewise, return to assets (3 percent)was higher than for the other types ofcooperatives.

Niche-marketing dairy co-opsNiche-marketing cooperatives use

most, or all, of their members’ milk tomake specialty dairy products, such asartisan or branded cheese, and/or theymarket organic or specialty products onthe basis of how the milk was produced.Only 33 percent of niche-marketing co-ops provided complete financial data for2012. So, niche-marketing cooperativeswere a small segment — just 5 percent— of the dairy cooperatives examinedin this study. Their member milk, assetsand dairy product sales were each lessthan 1 percent of all profiled dairycooperatives.

The reporting niche-marketingcooperatives had assets of $8.04 per cwtof member milk — about $4 per cwtless than for diversified cooperatives.Fixed assets and investments made up amajority of their assets (51 percent).Niche-marketing cooperatives had totalliabilities of $6.29 per cwt and memberequity of $1.75 per cwt in 2012.Member equity amounted to 43 percentof fixed assets and investments — thelowest level among the differentoperating types.

Niche-marketing cooperativesgenerated the largest milk and dairyproduct sales on a per-cwt basis: $32.29.That’s $8.23 more per cwt than thediversified cooperatives and $11.87more than bargaining-only

cooperatives. However, they had verylittle other sales income, whichnarrowed the gap to $1.10 per cwtwhen comparing their total sales tothose of diversified cooperatives.

Performance by size of cooperative

The financial performance of dairycooperatives was also calculatedaccording to the annual volume of milkhandled:

• Small — less than 50 million pounds;• Medium — 50 million to 1 billionpounds;• Large — more than 1 billion pounds.

Total assets ranged from $4.07 percwt of member milk for the medium-size cooperatives to $11.52 for large co-ops, with small cooperatives having$8.20 per cwt in total assets in 2012.The small cooperatives’ investments inother cooperatives represented a muchgreater percentage of total assets (23percent) than for the larger size groups(9 percent for medium and 7 percentfor large cooperatives). Conversely,fixed assets (other than investments inother cooperatives) were a largerproportion of total assets as group sizeincreased (12 percent for small, 25 formedium and 32 percent for largecooperatives).

Total liabilities ranged from $2.63per cwt for medium-sized cooperativesto $8.63 per cwt for the largecooperatives in 2012. Member equitywas smallest for medium-sizedcooperatives ($1.44 per cwt), while thesmall cooperatives had the mostmember equity ($4.06 per cwt).

Milk and dairy product sales per cwtonly varied by $3.13 among the sizegroups in 2012. Large cooperatives hadthe highest milk and dairy product salesper cwt, $23.75. Small cooperativesranked lowest, $20.62.

The range for total sales was muchwider, ranging from $24.64 per cwt forthe medium co-ops to $37.93 per cwtfor the small co-ops. Most of the

difference can be attributed to supplyand other sales that made up 44 percentof total revenues for the smallcooperatives, $16.74 on a per cwt ofmilk basis.

Net margins for the smallcooperatives were $1.67 per cwt, farmore than for the medium and largecooperatives (19 cents and 18 cents percwt, respectively). Consequently netmargins before taxes were less than 1percent of total sales for the large- andmedium-sized cooperatives, but were 4percent for small cooperatives.

Finally, the small cooperativesshowed the highest net margins-to-equity ratio, at 41 percent, and netmargins-to-total assets, at 20 percent.Large cooperatives had the lowestreturn on equity, at 8 percent, and tototal assets, at 2 percent.

Sales of supplies and otheritems made a difference

While a majority of the profiledcooperatives did not report any sales offarm supplies or other items, 8 percentof the cooperatives had more than halfof their total sales and income fromsupplies. For these few cooperatives, theprovision of farm supplies to memberswas a principal focus of cooperativeoperations and amounted to $72.93 percwt of milk handled. A majority of thesecooperatives were small, bargaining-only cooperatives. (“Bargaining-only”here refers only to a co-op’s milk-marketing operations, not theiroperations for the sale of farm supplies.)

Accordingly, substantial supplyoperations affect the structure of thecooperatives’ financial statements. Forthese co-ops, milk and dairy productsales made up just 29 percent of theirtotal revenue of $103.44 per cwt. Incontrast, for the rest of the profiled co-ops, supply and other sales came to just41 cents per cwt of milk handled, 2percent of total revenue.

Cooperatives with a majority of totalrevenue from supplies and other salesreported net margins before taxes of




Table 2—Operating statement items per hundred weight of milk handled, profiled dairy cooperatives, by type and by size, 2012

Milk and dairy product sales 23.69 20.42 32.29 24.06 20.62 23.11 23.75Supply and other sales 6.68 1.08 .12 7.33 16.74 1.40 7.02Service receipts and other income .19 .06 .27 .20 .32 .08 .19Patronage refunds received .00 .04 .00 .00 .25 .05 .00

Total revenue 30.56 21.61 32.69 31.59 37.93 24.64 30.96

Costs of goods sold 28.48 20.92 30.54 29.34 33.81 23.34 28.83Expenses 1.71 .61 2.08 1.84 2.46 1.18 1.75Non-operating income .19 .01 .07 .21 .00 (.07) .21

Costs and expenses 30.38 21.54 32.69 31.39 36.26 24.45 30.78

Net margins before tax .19 .07 .00 .20 1.67 .19 .18

Total milk volume handled (million pounds) 160,005 16,483 261 143,261 531 10,701 148,722

Note: Totals may not add due to rounding.

All BargainingOnly

NicheMarketing

Diversified Small(less than50 million

pounds)

Medium(50 millionto 1 billion

pounds)

Large(over

1 billionpounds)

Type of cooperative Size of cooperative

Dollars per hundredweight of member milk

Item

Table 1—Balance sheet items per cwt of member milk, profiled dairy cooperatives by type and by size, 2012

Current assets $6.74 1.24 3.94 7.55 5.29 2.70 7.11Property, Plant & Equipment and other assets 3.42 .80 3.59 3.80 1.01 1.02 3.64Investments in other cooperatives 0.74 .27 .51 .81 1.89 .35 .77

Total assets 10.90 2.31 8.04 12.15 8.20 4.07 11.52

Current liabilities 5.38 1.06 5.22 6.01 3.65 2.35 5.66Long-term liabilities 2.74 .43 1.07 3.07 .49 .28 2.97

Total liabilities 8.12 1.49 6.29 9.08 4.14 2.63 8.63

Equity 2.78 .82 1.75 3.07 4.06 1.44 2.89

Total liabilities and equity 10.90 2.31 8.04 12.15 8.20 4.07 11.52

Member milk (million pounds) 127,942 16,232 261 111,449 531 10,481 116,929

Number of cooperatives 89 60 4 25 27 40 22

Note: Totals may not add due to rounding.

All BargainingOnly

NicheMarketing

Diversified Small(less than50 million

pounds)

Medium(50 millionto 1 billion

pounds)

Large(over

1 billionpounds)

Type of cooperative Size of cooperative

Dollars per hundredweight of member milk

Item


Required Reading

By Margaret M. Bau,Co-op Development SpecialistUSDA Rural Development

To support thecontinued formationand growth ofcooperatives — and topromote greater co-op

literacy — many existing co-opeducation publications need to beupdated, and more “mid-level” co-opeducation materials should bedeveloped, according to the results of arecent study sponsored by TheCooperative Foundation.

The study, which focused on co-opeducation materials available in theUnited States, involved compiling aninventory and analyzing existingmaterials, followed by interviews with13 cooperative educators to “drill moredeeply into themes that surfaced duringthe survey research.” Another 368cooperative educators were polled on anumber of questions, resulting in 102responses.

“Enthusiasm for the cooperativeform of business seems to haveincreased in recent years among non-traditional communities,” says LeslieMead, president of The CooperativeFoundation. Growth in grassrootscooperative organizations has seen acorresponding rise in the number ofrequests for grants to create neweducational materials, she adds.

USDA remains primary source The survey found that “the co-op

education training materials mostwidely used are those of the USDA,”which is “the one area in the U.S.

federal government that has dedicatedresources to support cooperativeeducation.” Many of the USDA co-oppublications, however, need to beupdated, according to survey results.

“The USDA materials are a hugeresource and need to be selectivelyupdated,” said one survey respondent.Another noted that while the content ofmany USDA co-op publications is stillusable, they are “extremely dated intheir appearance.” Another noted thatsome USDA publications had not beenupdated in more than a decade.

Some of USDA’s most popularpublications have been updated recently(see sidebar, page 27). As they arerevised, “USDA is committed tomaking its cooperative publicationsmore ‘generic,’ so that they will havemore value for non-agriculturalaudiences,” the report notes.

Some of the other most widely usedco-op education materials included theNorthcountry CooperativeFoundation’s “toolbox” and the Co-opoly game, developed by Toolbox forEducation and Social Action.

Survey respondents overall felt thatexisting documents and websitesprovide good basic level co-opinformation. On the other end of theeducation spectrum, respondents feltthat academic-level information,typically written by researchers andpublished in peer-reviewed journals, isalso widely available. But the lattermaterials are primarily targeted forprofessional and academic specialists.

“Practical, mid-level” material needed

Where there is a general void, a

number of survey respondents stressed,is in the availability of mid-leveleducational materials that providepractical information for those seekingto start or improve their cooperatives.Specific suggestions include developingmore human resource materials focusedon cooperatives, including leadershipchallenges and conflict managementissues facing co-ops.

A need was also seen for moreinformation on finance options for co-ops, including materials that focus onvarious financial structures, guides tohelp in financial decision-making (formembers and boards), and informationabout internal capital accounts forworker co-ops.

Others saw a need for moreinformation on co-op law, includingstate-specific guides and resources forincorporation options. Others perceiveda need for detailed examinations of theadvantages and disadvantages of thelimited liability company (LLC)structure, low-profit LLCs (alsoreferred to as “L3C” businesses), andnonprofit vs. profit status for co-ops.

Survey respondents also saw a needfor operations and governanceresources specific to co-ops. Forexample, they would like informationon governance alternatives to RobertsRules of Order, which is commonlyused within agriculture co-ops, and tothe Carver model of policy governanceused among consumer food co-ops.

Others saw a need for: • Current case studies on worker co-ops;• A look at hybrid-business

organizational options for co-ops;• An up-to-date college textbook on

cooperatives;

Study sees need for updating co-opeducation publications, more mid-level materials


• More materials about multi-stakeholder co-ops and housing co-ops;

• More materials specifically aimed atyouth;

• More Spanish language materials;• More videos and computer-based

interactive materials; • A compendium of state incorporation

laws for cooperatives.

Presentation is important The presentation of educational

materials is considered to be important.

Materials should use simple vocabularyand less “text-heavy” layouts. Contentshould be boiled down into manageableunits — but without oversimplifying theinformation. This would allow materialto be more easily translated into otherlanguages and modified for use amongunder-served groups.

Such content could also be moreeasily adapted for use on websites, couldbe used in educational games (such asCo-opoly) or incorporated into groupexercises and interactive co-op

simulation activities. Those interviewedrecommended using participatory andinteractive methods of presentation.

Study participants suggested thatthose with experience in co-opdevelopment should be involved increating new educational materials.Those authors must have demonstratedskills in curriculum development andpopular education techniques.

Of vital concern is the availability ofmaterial. While all USDA cooperativepublications — both in hard copy andon the Internet — are available free ofcharge, those interviewed encouragedthe Foundation to fund organizationswilling to share materials for free or atnominal cost (rather than seeingmaterials become proprietaryinformation).

The report includes an annotatedbibliography and a full listing ofrecommended resources. Study findingswere discussed during a nationalwebinar on Nov. 10. A summary andthe entire study are available on TheCooperative Foundation website at:http://thecooperativefoundation.org/.

The report was written by EklouAmendah and Christina Clamp of theCenter for Cooperatives andCommunity Economic Development atSouthern New Hampshire University.In addition to the CooperativeFoundation, funding was also providedby the CHS Foundation. TheCooperative Foundation will considerthe study results when awarding futuregrants.

Since 1945, The CooperativeFoundation has supported cooperativedevelopment, research and education.Through the awarding of relativelysmall grants (ranging from $100 to$10,000) the Foundation invests inorganizations at key moments to fostercooperative growth and innovation.The Federation of SouthernCooperatives, the North AmericanStudents of Cooperation and the U.S.Federation of Workers Cooperativeseach received Foundation grants duringtheir formative years. ■

USDA is engaged in updating some of its most popular co-op educationpublications, with improved graphic presentation and expanded editorial content.

The latest publication to get a “complete overhaul” is Co-op Essentials: WhatThey Are and the Role of Members, Directors, Managers and Employees. Forordering purposes, it is Cooperative Information Report (or CIR) 11, the same

number as the publication it replaces (which alsocarried a similar title, minus the “CooperativeEssentials” part).

“We scaled it down to handbook size, and thelook and feel are patterned on our Co-ops 101: AnIntroduction to Cooperatives (CIR 55) booklet, withthe idea that these two publications can be used intandem,” says author James Wadsworth of USDA’sCooperative Programs staff. “Like Co-ops 101, thenew CIR 11 is heavily illustrated and we’ve made itsomewhat less agriculture-specific to make it easierfor other types of co-ops to use in their educationefforts. After all, the same principles that make for asuccessful farmer co-op are just as applicable tomost other types of co-ops.”

Both of these booklets are ideal for use in classrooms, at co-op organizationalmeetings and even for long-time co-op members and directors who could benefitfrom a “refresher course” as to why the co-op business model remains vital todayfor so many people.

One thing different about the new CIR 11 is that it no longer includes pages withinstructional slides for classroom use. However, those slides are still available andthey, too, have been updated. They can be downloaded from USDA’s website:http://www.rurdev.usda.gov/supportdocuments/BCP_CIR11slides.pptx.

Another of USDA’s most widely requested co-op publications, How To Start aCooperative (CIR 7), has also been given an all new look, with updated editorialcontent. It will be available from USDA in January. Hard copies of thesepublications can be requested by e-mailing: [email protected]. All USDA co-op publications are also posted to the Web at: www.rurdev.usda.gov/BCP_Coop_LibraryOfPubs.htm. ■

“Co-op Essentials” available from USDA


By Thomas Gray, Ph.D.Rural SociologistUSDA Rural DevelopmentCooperative Programs

Editor’s note: The author welcomesfeedback on this article at: [email protected].

A phone call handledpoorly on a hectic dayat the co-op, or even aninvoice mistake on agood day, may have the

same kind of impact on an unhappycustomer, potentially turning him orher into an irate customer. Resolvingsuch conflicts amicably is crucial to abusiness, especially if the customer isalso an owner of the business, as in thecase of a cooperative.

Employees in cooperatives needskills to properly handle membercomplaints, as will inevitably be facedby all businesses. Member satisfactionand loyalty will often depend on howwell complaints are handled. Hopefully,

they can be used not as indictments ofthe organization, but rather as feedbackopportunities to improve cooperativeperformance.

To respond to member complaints, itis essential for co-op staff to becomeintimately familiar with all products,services and programs of thecooperative, as well as those of itscompetitors. “Knowing your product”and the marketplace is a good base onwhich co-op staff can build confidence.But it may not be enough.

Complaints can be divided into twobasic aspects: facts and the associatedfrustrations. Frustrations can skew amessage disproportionately, obscuringthe original problem and leaving theemployee with little but difficultfeelings to respond to.

Consider this message: “Everythingis backed up on my farm — I need thispart right away. And it’s supposed torain tomorrow.” Mounting frustrationscan change this message to: “How comeI have to wait around here all daywhenever I come in. You spend too

much time goofing off, drinking coffeeand not enough time serving members.”Dealing with too many complaints suchas this can cause a conscientious, hard-working employee to lose heart and de-velop a genuine dislike for his or herjob.

A much harassed employee, on a“bad” day, might respond in kind: “Ifyou think all we do is sit around anddrink coffee, you’re wrong.” Employeesare at a loss to know what to do in thesesituations because the customer maynot be communicating real needs. Sucha situation is even more troublesome ifthe member is also a board member.

Possible loss of businessThe threat of lost business is real,

and patron complaints to the manageror a board member could even lead toemployee removal. In such cases, boththe employee and member suffer; thecooperative may be the biggest loser.

Members have various reasons forsending strong negative messages,including their desire for full and

Resolving Member ConflictsStakes are raised when an unhappycustomer is a member-owner


undivided attention, to gainunderstanding of their situation, or justto express the frustration of thesituation.

Co-op staff should keep theseguidelines in mind when dealing withan unhappy member:

• Aversive feelings are transitory;they’re like waves, and they tend tosubside if complainants feel like theyare at least being heard in a serious way.

• Complaints, when not heard, canfrequently be exaggerated. Problems,when put in perspective, may turn outto be much less serious than they seemat first. Realizing this can help anemployee respond to the situationbetter.

• Never minimize a patron-member’sproblem. It’s important for him or herto “tell it like it is” and be given time tofinish expressing concerns about thepoor service or product he or shereceived.

• Respond quickly. Delay can fan theflames when service is needed.

• The first response should be toremain quiet and let the patron-member talk. Listening permits you togive the customer your full attention.Both the employee and customer get tounwind.

• Try to avoid distractions whiledealing with the unhappy member. Thecustomer wants your full attention. Ifpossible, give it. Tapping fingers,fumbling with papers or trying to carryon another conversation at the sametime will convey the oppositeimpression. Taking notes on themember’s statements may help.

• Do not interrupt the customer. Lethim or her talk and fully express thecomplaint.

• Resist the tendency to offer arebuttal. Argumentative postures mayonly aggravate the situation.

• Look for a point of agreement.The employee may be able to applytechnical expertise at this point andresolve the problem. But it is quitepossible that the member’s message isstill vague and charged.

‘Active listening’If you try the above approaches, and

are still receiving intense, aversivereactions from the member, try “activelistening.” This technique involvesrepeating the member-patron’scomplaint as accurately as possible.Here is an example:

Patron: “How come I have to waitaround all day every time I come inhere? You spend too much time goofingoff, drinking coffee, and not enoughtime serving your members.”

Employee: “Sounds like you’re prettyfed up with us and all the waitingyou’ve had to do today.”

Patron:“You bet I am. Everything isbacked up on my farm. I need this partright away — and it’s supposed to raintomorrow!”

Employee: “Sorry there was a delay.OK, so this is an extreme rush. I’ll takecare of it now — what’s the number ofthe part you need? When will you behome so we can make delivery?”

If an employee can’t resolve theissue, facilitate in moving it “up theline” to a supervisor or the manager.

Diffusing a tense exchangeThe type of exchange outlined above

has many advantages for the co-op.You’ve acknowledged that there is areason the patron is upset and havedemonstrated attentiveness andunderstanding of the problem.Feedback you provided sendsresponsibility for the negative messageback to the patron, who must thendecide if the response is satisfactory ornot.

The employee is not forced to takewhat could be a demoralizing position,as in: “Yes, you are right, I have beengoofing off today.” Or to strike anargumentative position: “That’s nottrue, we’ve all been working non-stoptoday.” There is subtleacknowledgement of the affect beingfelt by the patron. This often can bequite powerful and disarming.

More suggestions:• If “active listening” isn’t possible,

for whatever reason, sometimes the lesssaid the better until the customer isreally ready to hear the answer.

• If the cooperative has erred, admitit with an apology and promise betterservice in the future.

• Thank the member. It is his or hercooperative. Other members may havesimilar complaints. A resolvedcomplaint helps to improve cooperativeperformance.

It is important to try to resolveproblems when they occur. A membermay carry and accumulate ill will forlong periods of time and eventuallydrop out, pulling out other members.Knowing techniques for dealing withthese problems develops a sense ofcontrol and competency to help mem-bers articulate more fundamental needs.

Once the “storm has passed,” anemployee can bring technicalknowledge and experience to theproblem and issues can be discussedlogically and clearly.

Dealing with member complaints isnot easy, particularly for those at thereceiving end of a blistering attack.Early life-learning may predisposemany to adopt defensive, if notaggressive, postures. For help in thisarea, consult various “LeadershipEffectiveness Training” programsavailable on the Internet for a completeintroduction to “active listening.”

“Active listening” literature has oftenfocused on employer-employee orstudent-teacher relationships. Thesediffer, in some respects, from memberand employee relationships. In acooperative, a customer is a memberand owner — and may even be a boardmember. However, this multi-functionalposition of the member makes handlingthese difficult exchanges even morecritical.

If “people make the difference,” asmany cooperative member programsbelieve, then preparing employees forthese difficult situations cannot beignored. It may be a key element in aco-op’s ultimate success. ■


Uti l i ty Co-op Connect ionUtility co-ops helping members cut billswith new USDA energy efficiency loans

By Anne Mayberry, Rural Utilities ServiceUSDA Rural Development [email protected]

Rural electriccooperatives nationwidehave for many yearsused energy efficiencyprograms to better

manage energy systems and contributeto economic development in theircommunities. Now, with approval ofloans from the U.S. Department ofAgriculture’s Rural Utilities Service(RUS), part of USDA RuralDevelopment, two rural electriccooperatives are taking their energyefficiency programs to the next level.Agriculture Secretary Tom Vilsackannounced the awarding of energyefficiency loans to Roanoke ElectricCooperative in North Carolina(Roanoke), and North Arkansas Electric(North Arkansas). “This is a historicnew bond in the partnership betweenUSDA and our rural electriccooperatives,” Vilsack said.

Nearly every rural electriccooperative utility nationwide has someform of energy efficiency program aspart of its strategy to manage powercosts, meet consumer demand andincrease environmental regulatorycompliance. Expanding those programscould reduce the need to purchase orgenerate energy, reduce emissions fromgeneration of electricity and helpstrengthen rural economies throughincreased funding for energy efficiencyand conservation projects. In addition,energy efficiency and conservationprograms meet one of the corecooperative principles: “concern forcommunity.”

Co-ops can help residential members

The RUS Energy Efficiency andConservation Loan Program for thefirst time allows rural electric utilities toborrow funds to help their business andresidential consumers finance projectsto reduce energy use.

“USDA’s Energy Efficiency andConservation Loan Program is a newtool for rural electric utilities to use tomanage electric demand, address avariety of challenges and providebenefits to consumers and theircommunities,” noted former USDADeputy Under Secretary for RuralDevelopment Doug O’Brien. “Thoserural electric cooperative utilities thatimplement or expand energy efficiencyprograms see benefits of funding homeand business improvements for theirconsumers, while working to better

manage today’s challenges.”USDA’s Acting Administrator of

RUS, Jasper Schneider, recognized theCEOs of the Roanoke and NorthArkansas co-ops at the National RuralElectric Cooperative Association’sDecember board meeting. “We want tothank you for all you do for ruralAmerica,” Schneider said, noting thatthe partnership between RUS and co-ops is approaching the 80th anniversary.

Upgrade to SaveThe Roanoke co-op is using its $6

million loan to launch “Upgrade toSave,” a voluntary program that willallow their customers to invest inenergy efficiency improvements withoutincurring a new debt. “With thisfinancing, we will be able to makeinvestments that cut waste, reducecosts, support our local economy, and

Awards were presented to the nation’s first two rural utility co-ops to enroll in a new USDAenergy conservation loan program during the National Rural Electric Cooperative Association’s(NRECA) December board meeting. From left are: Jo Ann Emerson, CEO of NRECA; Mel Coleman,CEO of North Arkansas Electric Cooperative; Jasper Schneider, acting administrator of USDA’sRural Utilities Service; Curtis Wynn, CEO of Roanoke Electric Cooperative; and Curtis Nolan,president of NRECA.


improve the quality and comfort of thehomes and businesses we serve,”explained Roanoke’s CEO, CurtisWynn.

Under Roanoke’s program,participants agree to a tariff on theirbills that shares the savings with theutility, ensuring savings for customersand full cost recovery for Roanoke.Improvements funded under theprogram include HVAC (heating,ventilation and cooling) systems,appliance replacements and buildingenvelope improvements for an averageof 200 residential energy efficiencyupgrades per year over four years.Schneider noted that while energyefficiency and conservation is the focusof both North Arkansas’ and Roanoke’sprograms, the design of each programdiffers, allowing rural electric utilities toimplement features to best meetmember needs and state regulations.

Roanoke’s program is modeled afterone developed by the Energy EfficiencyInstitute of Vermont. Used by co-ops inseveral other states, the averageinvestment per home is $7,000, with anaverage annual energy savings of 25percent.

Wynn noted that the program allowscost-effective energy improvements tobe made, regardless of income, creditscore, or whether recipients rent or owntheir property. “This is an importantbreakthrough for our members,” Wynnsaid, noting that many who wantedenergy efficiency upgrades were noteligible for loans.

Schneider echoed Wynn’s point, andsaid a recent USDA study noted thecontinued decline of the ruralpopulation, coupled with laggingemployment growth in most rural areas.“Rural electric cooperatives historicallyhave been recognized as leaders in theircommunities,” Schneider said. Besidesthe benefits for rural utilities and theirconsumers, the energy efficiencyprogram can also address some of theeconomic challenges rural communitiesface. Today’s new technologies can helprural consumers live comfortably while

still enjoying affordable electric power.

Arkansas co-op loans $12 million

Like many co-ops, North ArkansasElectric has extensive experience inenergy efficiency programs, havingloaned nearly $12 million for energyefficiency upgrades for members. NorthArkansas will use its loan of $4.6million to expand its energy efficiencyprogram and reduce energy costs forconsumers by providing funding forgeothermal and air source installations,energy efficiency lightning, andweatherization measures, includingEnergy Star® windows and doors,insulation, efficient water heaters, androofing.

North Arkansas CEO Mel Colemantold his fellow board members that likemost rural electric cooperatives, theywork hard to keep their members’electricity bills affordable, while stillmaintaining a good quality of life. “Thisis part of who we are and what we do.Offering energy efficiency funding isamong the things that sets us apartfrom other utilities.”

Wynn agreed, adding, “Theexperience we have working with RUSmeans that we can do more on theother side of the meter to help ourmembers.” One advantage of RUS’energy efficiency and conservationloans is that they offer rural electricutilities a way to develop consumerprograms and offer options to helpimplement strategies to ensure co-opconsumers have access to cost-effectiveenergy systems. As the market changes,utilities with the ability to fund energyefficiency systems are likely to maintaina market advantage.

Current studies show that manybusiness and residential consumers donot purchase energy efficiency productsor renewable energy systems becausethey lack access to capital or financing.RUS’ loan program helps reducebarriers to investment in energyefficiency. As many rural electriccooperative utility industry leaders have

noted, reducing electric use can deferconstruction of new electric generatingfacilities. The least expensive kilowatt isthe one you don’t have to produce.

RUS’ new effort to encourageenergy efficiency funding is among themore recent activities signifying a shiftin energy financing. The electricindustry’s move away from thetraditional electric utility businessmodel, based on increasing capacity tomeet growing demand, to a goal ofmore effectively managing demand, isthe result of a variety of factors.

Co-ops adjust to changing consumer needs

Because the historically increasingdemand for electricity has leveled off,or even decreased, in many parts of thenation, utilities are looking for ways tomore closely align with changingconsumer requirements. USDA’s newloan program helps support thePresident’s Climate Action Plan andrepresents a significant addition to theway USDA funds energy projects.

Infusing millions of dollars into ruralcommunities to help rural business andresidential consumers reduce energybills by financing buildingimprovements and renewable energysystems will help rural economies whilealso building a cleaner, more sustainabledomestic energy sector for futuregenerations. State and federal regulatorsview energy efficiency as one more wayto reduce emissions.

In addition, as a result of bothmarket and regulatory changes, utilitieswant to diversify portfolios, which canhelp manage risk. Because the RUSenergy efficiency program financesactivities that offset the traditionalbusiness model of increasing electricitycapacity, it can be used as a tool tobetter manage risk.

“Making loans to our borrowers sothat they can fund energy efficiency andconservation is a significant shift inRUS electric system financing,”Schneider noted. “This funding is a way



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

Co-op developments, coast to coast

Large crop adds to urgency of Grain Bin Safety Week

Extremely high crop yields,combined with below normaltemperatures and a wet harvest, meansthat farmers, grain elevators and othergrain handlers have been dealing withhigh-moisture corn and soybeans.Experts project these conditions couldcreate the deadliest year for grainengulfment accidents since 2010. In2010, 59 entrapments were recorded,resulting in 26 deaths — the highestnumber on record.

“Every year, we see people needlesslyinjured and tragically killed in grain binaccidents that could have beenavoided,” says Doug Becker, director ofNationwide Agribusiness RiskManagement Services. “In light of thisyear’s sobering projection, it’s moreimportant than ever for farm families,rural communities and industry leadersto come together to help prevent thesetragic accidents from occurring.”

The central theme of Grain BinSafety Week 2015 (being observed Feb.22-28) is the critical need for firstresponders to acquire the specializedrescue training and equipment neededto rescue someone entrapped in grain.The chances of surviving a grain binengulfment are greatly increased if arescue tube is available to firedepartments nearby. Unfortunately,many fire departments lack theequipment and specialized rescuetraining needed for a successful rescue.

In conjunction with Grain Bin SafetyWeek, Nationwide has partnered withthe National Education Center forAgricultural Safety (NECAS), GrainSystems Inc. (GSI) and KC Supply Co.to award fire departments with grain

A record 26 U.S. workers were killed in grain entrapment accidents during 2010. To help reducethe deadly toll, rescue crews around the country need to be properly equipped and trainedthrough safety drills, such as this. Employees also need to be trained to avoid getting into high-risk situations.


bin rescue tubes and specialized trainingto help save lives when farmers andother workers become entrapped ingrain bins. Nominations may besubmitted from Jan. 1 – May 31 2015.For more information, visit:www.grainbinsafetyweek.com.

There will be a different topic orcomponent each of the seven days ofGrain Bin Safety Week, with articleswritten by agribusiness risk-management professionals and otherexperts.

Along with its partners — FarmSafety for Just Kids and NECAS —Nationwide will host #AgChat onTwitter 7-9 p.m. Central Time on Feb.24. This moderated, onlineconversation will look at grain binsafety from different angles. Anyonewith a Twitter account can participate.Go to tweetchat.com and enter #agchatto start.

During the week, Nationwide willalso host free, live webinars on grainbin safety that are open to everyone.Taught by subject-matter experts andindustry professionals, these webinarswill provide farmers and commercialgrain handlers with valuable insight intograin management, personal protectiveequipment, bin entry, rescue equipmentand more.

Half of dairy farms enroll in margin protection program

The U.S. Department of Agriculturehas announced that more than half ofU.S. dairy operations have enrolled inthe new Margin Protection Program(MPP) for dairy in 2015. “This is anencouraging start to this crucial newsafety net program for our industry,”says Jim Mulhern, president and CEOof the National Milk ProducersFederation (NMPF).

More than 23,000 dairy operationssigned up for the program during thethree-month window that ran untilDec. 19, 2014. “The margin protectionprogram is a welcome improvement tofederal dairy policy and comes at animportant time to help farmers dealwith what will be a more challengingeconomic outlook in 2015,” Mulhern

adds. “The MPP is now the only widelyavailable tool to help farmers protectagainst both lower milk prices andhigher feed costs. It represents a newparadigm in shared responsibilitybetween farmers and the government tocover the cost of that insurance.”

Anecdotal reports indicate that thesign-up extensions granted afterThanksgiving, coupled with a sharpdownturn in milk price forecasts for2015, encouraged additionalparticipation prior to the Dec. 19cutoff. The next MPP sign-up periodwill begin in six months, during anopen season enrollment window forMPP coverage in calendar year 2016.That enrollment period will run fromJuly 1 until Sept. 30.

NMPF’s www.futurefordairy.comwebsite helps educate farmers about theprogram, and NMPF worked withUSDA and a group of universityagricultural economists during 2014 toexplain the benefits of the MarginProtection Program.

In other NMPF news, theorganization recently joined theAmerican Humane Association (AHA),the country’s oldest humane animaltreatment organization, a top chef andothers involved in food production in adiscussion about the commitment thatfarmers are making to proper animalcare. The event was a Capitol Hillbriefing themed “The Humane Table,Celebrating the American Heartland”organized by AHA.

According to AHA President andCEO Robin Ganzert, the briefing wasmeant to “celebrate and give thanks tothose working to build a better worldfor people and animals” and toencourage support for humane farmingpractices.

‘Co-ops in Your Community’teaching modules

The Council on Food, Agriculturaland Resource Economics (C-FARE) hasreleased “Cooperatives in YourCommunity,” a set of teaching modulesfor high school students that explain theeconomics of cooperatives. Theteaching modules are hosted on the

Council for Economic Education’s(CEE) website: www.econedlink.org.C-FARE received technical supportfrom CEE, a world leader in economicand financial education for K-12students. CEE is a supporting partnerand provided technical assistance viapeer review. The CHS Foundation, acharitable organization that supportsgiving on behalf of CHS Inc., thenation’s leading cooperative, providedsupport essential for project success.

The teaching modules coverconsumer and agricultural cooperatives.Teachers who tested the modules intheir classrooms said that althoughstudents may study cooperatives as partof their study of types of businessorganization, the cooperatives moduleadds depth to their understanding.

Both teaching modules are designedto require no more than 180 minutes ofclass time. Each can be adapted to theneeds of the instructor.

“Smart Agriculture”Ag Outlook Forum theme

U.S. Agriculture Secretary TomVilsack and European Commissioner ofAgriculture and Rural DevelopmentPhil Hogan will engage in a far-rangingroundtable discussion on agricultureduring USDA’s annual AgricultureOutlook Forum, Feb. 19-20 at theCrystal City Gateway Marriott inArlington, Va. Other featured speakersinclude Richard N. Haass, president ofthe Council on Foreign Relations, whowill address: “Food, Foreign Policy andInternational Order.” USDA ChiefEconomist Robert Johansson willdeliver the 2015 outlook for agricultureand foreign trade.

The theme of the forum is “SmartAgriculture in the 21st Century.” Theplenary panel will participate in adiscussion on “Innovation,Biotechnology and Big Data.”Moderated by Secretary Vilsack, thepanel includes: Cory J. Reed, seniorvice president of Intelligent SolutionsGroup, John Deere Co; Robert T.Fraley, executive vice president andchief technology officer, Monsanto;Mary Kay Thatcher, senior director for


congressional relations, American FarmBureau Federation; and Robert Sutor,vice president for mobile solutions andmathematical sciences at IBM Corp.

The Forum's dinner speaker will beAmbassador Darci Vetter, chiefagricultural negotiator for the Office ofthe United States Trade Representative.Speaking at the 25 breakout sessionsand five topical luncheons will be morethan 100 distinguished experts.

Breakout session topics on theagenda include: Perspectives on Globaland U.S. Trade; Big Data's Impact onU.S. Agriculture; Commodity Situationand Outlooks; Food Price and FarmIncome Outlooks; Moving Feed, Foodand Fuel to Market; Opportunities inthe Bio-Economy; AntimicrobialResistance; and Bee/Pollinator IssuesFacing Agriculture, among manyothers. Registration is available at:www.usda.gov/oce/forum.

Georgia co-ops backing utility-scale solar system

Flint Energies, Cobb EMC andSawnee EMC will purchase the entirepower output of a 131-megawatt (MW)photovoltaic (PV) solar project to beconstructed outside of Butler, Ga. Theelectric membership cooperatives inkedthe deal with Southern Companysubsidiary Southern Power.

The solar facility will be located on a911-acre site in Taylor County. It willconsist of about 1.6 million thin-filmPV modules mounted on single-axistracking tables. This will be equal to1.42 square miles of land area coveredby PV cells, or the same as 826 footballfields.

Southern Power selected First Solarto be the engineering, procurement andconstruction contractor for the facility.Construction of the plant is scheduledto begin this September and is expectedto achieve commercial operation in thefourth quarter of 2016.

“The Taylor County solar project,which will be among the largest single-site projects east of the MississippiRiver, will be an important contributorto meeting future power needs of thecooperative,” says Flint Energies CEO

Bob Ray. “Better yet, the project is thefourth renewable generation facilitylocated in the Flint service area that willdirectly contribute to meeting Flintmember power demand.”

The electricity generated by thefacility will be sold under 25-yearpurchase power agreements to theparticipating electric cooperatives. Itwill be built in the Flint Energiesservice territory in Taylor County justoff Highway 96. Because all of thestate’s electric utilities co-own theIntegrated Transmission System (ITS),

interconnections to the larger electricpower grid are relatively simple.

Output of the power sale will beallocated as 101 megawatts to CobbEMC, 15 megawatts to Sawnee EMCand 15 megawatts to Flint Energies.

Trupointe, Cargill form Indiana ag joint venture

Trupointe Cooperative Inc. andCargill Inc. have signed a letter ofintent to create a joint venture withtheir facilities in Milford, Bremen andLa Paz, Indiana. Upon completing duediligence and signing a final agreement,the two companies will combineTrupointe’s crop inputs assets inMilford with Cargill’s grain elevators inBremen and La Paz. The joint venture

— to be named TruHorizons — is alsoplanned to include building a $30million grain elevator in Milford, to becompleted for the 2016 harvest. Trupointe, an agricultural cooperativebased in Piqua, Ohio, with 4,100members, serves western Ohio andeastern Indiana. This summer the co-opopened its Milford Agronomy Hub,which offers crop nutrients, cropprotection products, seed and traits,crop scouting, precision agriculture,application services and more. Theaddition of the grain facility onsite has

been part of design plans sinceTrupointe acquired the site.

MVC patronage benefitsmembers, communities

Farmers, ranchers and member-owners across north-central Montanawill share in an estimated $3.3 millioncash patronage distribution fromMountain View Co-op (MVC), anagronomy, grain, energy, feed and retailcooperative.

“The ability of our members, whoare also our customers, to directly sharein the financial success of MVC is adistinct advantage of being part of acooperative business,” says Art Schmidt,the co-op’s general manager. “And thisis cash that is returned to local

This Flint Energies solar panel array will be dwarfed by a new, 131-megawatt solar power projectbeing constructed outside Butler, Ga. It will cover an area the size of 826 football fields. Thepower will be shared by three co-ops: Cobb EMC, Sawnee EMC and Flint Energies EMC.


communities, enabling farmers,ranchers and members to invest in theirown futures.”

The 2014 cash returned to membersis based on MVC’s net income andregional patronage from CHS Inc. andLand O’ Lakes. “Patronage is based onbusiness done with MVC by individualfarmers, ranchers and members duringfiscal 2014,” says Del Styren, boardpresident of MVC and farmer fromBrady, Mont. In addition to a cashpayment, members will also receive anequity allocation, bringing the totalpatronage earned by the co-op’s 4,500members to an estimated $8.4 million.

CHS has second best year for revenue, income

CHS reported net income of $1.1billion and revenue of $42.7 billion forfiscal 2014, each representing thesecond best performance in companyhistory. The cooperative also returned arecord $637.2 million to its owners incash and preferred stock. CHS willdistribute an estimated $518 million incash in fiscal 2015, consisting ofpatronage, equity redemptions andpreferred stock dividends.

“The unprecedented success thiscompany has achieved in recent yearshas delivered tremendous value for you— in dependable input supplies, marketopportunity, economic returns andinvestments in your future,” CarlCasale, CHS president and chiefexecutive officer, told farmer-owners,cooperative leaders and othersattending its 2014 annual meeting inDecember. “We must constantlyrecharge our momentum, finding newways to increase our speed andadjusting our trajectory to stay ahead ofcompetitive forces.”

Casale addressed nearly 2,500member-owners and others attendingthe meeting in Minneapolis. CHSleaders outlined how the co-op willachieve its three main objectives:investing in the future, delivering directeconomic value to owners andremaining financially strong for itsowners.

Among those also attending the

meeting were 155 farmers and ranchersfrom across the U.S. who took part inthe CHS New Leaders Forum, aprogram that builds next generationleaders for agriculture and ruralAmerica.

CHS business highlights for the yearinclude:

• Plans were announced inSeptember to construct a $3 billionfertilizer manufacturing plant atSpiritwood, N.D.

• About $406 million in projectswere initiated at the Laurel, Mont.,refinery to boost efficiency and increasediesel production.

• Some $1.4 billion in preferredstock was issued on the NASDAQexchange during the past 18 months;

• Terral River Service was acquired,securing storage and ensuring fertilizersupply in the Mississippi Delta regionthrough eight Mississippi Riverterminals.

• An ethanol plant at Rochelle, Ill.,with 133 million gallons of annualproduction, was purchased, addingvalue for corn producers and accessingstrong markets for ethanol and itscoproduct, dried distiller’s grain.

• A $30 million productionexpansion, along with equipment andfood-quality process upgrades, wascompleted at the co-op’s Creston, Iowa,

soybean processing facility. • The co-op became an owner of a

grain export terminal being built atNecochea, Argentina, providing accessto growing Asia-Pacific markets.

• Four new propane terminals wereopened, and other significantinvestments were made to ensure securesupply amid the loss of a major regionaldistribution pipeline.

• Investments were made in thefuture of agriculture, cooperatives andrural communities with $10.5 million incontributions from CHS CorporateCitizenship and the CHS Foundation.

NCB backing elder care facility development

The National PACE Association(NPA) and National Cooperative Bank(NCB) have announced a lendingprogram to help finance a nationwideexpansion of Programs of All-InclusiveCare for the Elderly (PACE). Over thepast 12 months, NPA has worked withNCB to develop a PACE lendingprogram to address the lending gapsNPA members face as they work toimplement new or expand existingPACE programs.

“PACE is a model of care that hasalways faced hurdles in accessingsufficient and affordable financing,” saysNPA President and CEO Shawn

Among highlights for CHS last year was a$30-million plant expansion and equipmentupgrades at the co-op’s Creston, Iowa,soybean-processing facility. Photo by DavidLundquist, Courtesy CHS


Bloom. “Because PACE is not easilyunderstood, attracting adequatefinancing can be a challenge. For thisreason, we were delighted to work withNCB to explore a PACE lendingprogram.”

The NCB program will provideworking capital and real estate lendingto qualified PACE expansions and start-ups. PACE providers will work with adedicated NCB team that understandsthe PACE model and the Medicare andMedicaid structures that support it.

“NCB has a history of supportingthe development of affordable seniorhousing and aging services, includingPACE,” according to Chuck Snyder,CEO of NCB. “We expect that thisnew avenue of financing will provideeven more opportunities for PACE

development and expansion in thefuture.”

For questions regarding the NCBPACE program, contact RobertJenkens, director of social impactinitiatives at NCB, 202-552-9632 or:[email protected].

San Diego to host Small Farm Conference

The 2015 California Small FarmConference will be held March 7-10 atthe San Diego Marriott Mission Valley.The event is the state’s premiergathering for small farmers andranchers. The goal is to promote thesuccess and viability of small andfamily-owned farming operations andfarmers markets through short courses,tours and workshops. The conference

attracts about 500 attendees.The program will follow a number

of different tracks, including:Production Track (classes cover topicssuch as design and management of dripirrigation systems, soil health, etc.);Farmers Market Managers’ Track(topics include enhancing marketintegrity, new legislation, etc.);Marketing Track (topic includeMarketing 101 for Farmers, roundtablediscussions, etc.); Farm ManagementTrack (topics include small farmsurvival, organic farming, etc.);Emerging Issues Track (topics includefood safety issues, urban ag, etc.).

For registration and otherinformation, visit: www.californiafarmconference.com. ■

RUS electric borrowers can addresswith changing market conditions, suchas uncertain growth in the demand forelectricity.”

Energy efficiency programs are alsoincreasingly used as mechanisms tocomply with shifting policies, such asthose geared toward reducing emissionsor distributed generation, which allowcustomers to offset energy use throughthe installation of onsite renewablesystems. “New technologies, marketconditions, customer preferences andthe regulatory landscape aretransforming electric utilities. Rural

electric cooperatives thrived because ofconsumer demands that began over 80years ago. The fact that the co-operative business model for deliveringelectricity to rural areas is still strongtoday is a testimony to co-ops’ ability toadapt to a changing environment,”Schneider said.

“Access to low-cost capital is acornerstone of electric utilities’ abilityto grow and compete,” Schneider says.“Because the RUS energy efficiencyprogram conserves capital, facilitatesflexibility and offers new ways toprovide valuable services to theirconsumers, it can offer rural electriccooperative utilities a competitive edgein reducing costs while providingbenefits for their rural consumers.” ■

Utility Co-op Connectioncontinued from page 31

Replacement of older HVAC equipment withmodern, energy-efficient units can result insubstantial long-term savings for consumers.

exchange ideas about policy, researchand legal issues currently affecting theag cooperatives. Conferencepresentations typically cover topics oncooperative governance, capitalization,

finance and equity managementpractices, business structure andstrategic alliances, global and domesticagricultural trends, and enhancingmember value.

Another “don’t miss” educationalopportunity for ag leaders, and foranyone else with an interest inagriculture and rural affairs, is USDA’s

own “Agricultural Outlook Forum,”coming up Feb. 19–20. See the backcover of this issue for moreinformation.

The better informed our co-opleaders are, and the more the publicunderstands this highly adaptablebusiness model, the more our nationwill benefit. ■

Commentarycontinued from page 2

$1.89 per cwt of milk handled, whilethose with a minor proportion of totalrevenue from supply and other itemshad just two cents per cwt in netmargins.

The operations that facilitate farmsupply and other non-dairy sales likelyrequire a unique set of additional assetsto support the activities, differing fromthose employed to market members’milk. Total assets per cwt employed bycooperatives with substantial supplyoperations were more than seven timeshigher than for those co-ops with farmsupply sales that account for a minorportion of total sales.

Likewise, those with limited supplyand other sales had the lowest equity

investment per cwt, $2.02, compared to$9.50 per cwt for those with a majorityof total revenue from supply and othersales. Co-ops with limited supply saleshad just 52 cents per cwt invested inother cooperatives. In contrast,investments in other cooperatives forcooperatives with substantial supplysales averaged $2.71 per cwt.

Varied performancesFinally, there were also differences in

the financial statements betweencooperatives with the same operationalfocus, but which handled differentamounts of milk. Some key observations from the surveyinclude:

• Large, diversified cooperativesutilized the most assets per cwt ofmembers’ milk.

• Large, bargaining-onlycooperatives utilized the least assets percwt and had negative net marginsbefore taxes, on average.

• Small, bargaining-onlycooperatives had supply and other salesalmost equal to milk and dairy productsales and the largest net margins beforetaxes per cwt of milk handled.

• About 25 percent of the profiledcooperatives had negative net marginsbefore income tax. A somewhat smallerproportion of diversified cooperativeshad negative returns relative to theother types.

• Substantial supply operationsaffected the structure of about 8 percentof the dairy cooperatives’ financialstatements. ■


integrated with its members. It is athird mode of organizing coordination.Therefore, an economic analysis of acooperative requires analytical modelsthat go beyond neoclassical economicthinking.

Oliver E. Williamson’s recent workon the theory of the firm as agovernance structure that economizeson the transaction cost of contractualarrangement with market participants isvery useful. It can help us analyze thenature of the cooperative and to assessthe relationships of the cooperative withits members and with its various otherstakeholders.

Q. What is your outlook on the futureof the cooperative movement?

A. Cooperatives will continue to be auseful business model for the economicactivities that are suitable to beingorganized and operated on acooperative basis. For example,agricultural marketing cooperatives

(such as dairy cooperatives) have a verylong and successful history. They willcertainly continue to flourish, so willvarious other types of cooperatives,both existing ones and those formed inthe future.

However, I do not think it isappropriate to equate such cooperativebusiness development with a“cooperative movement,” because theterm tends to conjure the image that itis some kind of social-economicmovement.

For one thing, a social-economicmovement feeds on persistentpolarizing social-economic conditionsamong large groups of people. I am notsure that such conditions will exist andpersist, if we trust that the marketeconomy of our mature democracy iscapable of rectifying its intermittentdeficiencies.

Secondly, a movement must have anideology to underpin it. While ideologystokes rigidity, a successful cooperativebusiness, like any other business, thrives

on pragmatism. Mixing ideology withbusiness operation is bound to beproblematic.

Thirdly, a movement waxes andwanes — it tends not to be long lasting.It may start, grow, have some successesor failures, and then subside, declineand fizzle. On the other hand, acooperative, being a business firm, is agoing concern that will last as long asmembers see a benefit to cooperating— and as long as the market allows itto.

Finally, successful development of acooperative business must be carefullyplanned and executed. Its deliberativepace lacks the temperament that isnecessary to sustain a movement.

Q. Plans for your retirement?

A. I will have more time to spendwith my family and hug mygrandchildren. Weekend hiking andjogging on park trails will now becomemy daily routine. There is a long list ofbooks to read and places to visit. I mayalso try to write my life story for theposterity, and learn the art of preparingJapanese cuisine. ■

In the spotlight: Dr. K. Charles LIngcontinued from page 13

Survey results shed light on dairy co-op finacial performancecontinued from page 24

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