RuralCoop March06 PRINT5 - USDA Rural Development · PDF file · 2015-03-18reviewer...

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MissionCritical:

USDA / Rural Development March/April 2006

MissionCritical:Providing high-techsupport for ruralutilities, telecomspage 4

Many years ago, when clearing somecopy for USDA’s co-op magazine, areviewer took offense at the statementthat “co-ops unite producers to promotethe general welfare.” “Sounds like com-munism!” she huffed in a note. GeneIngalsbe, ever calm and level-headed,responded with a copy of the sourcematerial quoted: the preamble to the U.S.Constitution! The reviewer withdrew herobjection.

Mr. Ingalsbe, who devoted his life tohelping farmers and other rural peopleimprove their lot through the develop-ment and improvement of cooperativebusinesses, died March 2 after a longfight with cancer. Because of the work ofMr. Ingalsbe, countless people in theUnited States and around the world todayknow about the cooperative businessstructure: how they operate on the sameprinciples of democracy that this nationwas founded on, and how people can har-ness the power of free enterprise to meet their needs bybuilding businesses they own and control.

Whether writing about how an effective co-op boardshould function or compiling an up-to-date profile of thenation’s agricultural cooperative sector, Mr. Ingalsbe wasoften the central cog and connecting point between USDA’sco-op program and the co-op sector. For many years, heheld the dual position of director of information and educa-tion for USDA’s Agricultural Cooperative Service (now partof USDA Rural Development). Before that, beginning in1971, he was editor of USDA’s News for Farmer Cooperatives,forerunner of Rural Cooperatives. Even after retiring in 1992,he volunteered to work on overseas cooperative developmentand other co-op projects.

Mr. Ingalsbe was writer and editor of numerous coopera-tive education publications still widely used nationally andaround the world. He was committed to articulating the prin-ciples and distinctive features that guide successful coopera-tives and saw communications and education as cornerstonesof effective cooperatives. Without solid communication andeducation programs, he often noted, most cooperatives do

not survive from one generation tothe next.

Mr. Ingalsbe was a graduate ofthe University of Missouri Schoolof Journalism, and started hiscareer working for newspapers inIowa. It was there that he firstencountered the concept of a coop-erative when selling a newspaper adto a local farmers’ elevator co-op.He worked at Farmland Industriesfrom 1957 to 1969 as managingeditor of the co-op’s member news-paper, and then spent several yearsin Cleveland as the editor of anagricultural trade magazine beforeheading on to USDA.

“Gene had a true grasp of coop-erative operations, in part becauseof his previous work experiencewith Farmland, and the ability towrite clearly and concisely aboutthem,” says Patrick Duffey, who

was magazine editor under Ingalsbe. “Through his magazinearticles and other publications, Gene brought insight into theworld of agricultural cooperatives. Throughout the coopera-tive community and within the halls of USDA, he was con-sidered a master of the art of communications,” Duffey adds,recalling Mr. Ingalsbe as “calm and patient — even in adver-sities — and a great teacher.”

Mr. Ingalsbe was presented the H.E. Klinefelter award in1980, the highest honor bestowed by the CooperativeCommunicators Association (CCA), for his achievements anddedication to improving the communications programs of thenation’s cooperatives. He referred to the award as his “doc-torate degree.” He was president of CCA from 1968-69.

Mr. Ingalsbe is survived by his wife, Joan Mae Ingalsbe ofMoyock, N.C., daughters Linda O’Connor and Lisa Klein,sons Terry, Randy and Ted Ingalsbe, as well as his brothersWayne and David Ingalsbe and five grandchildren. He is also,of course, survived by the rich legacy of his writings on coop-eratives, which continue to inform and inspire. ■

— Dan Campbell, editor

2 March/April 2006 / Rural Cooperatives

C O M M E N T A R Y

Gene Ingalsbe: telling the co-op story

Gene Ingalsbe brought insight into the world ofcooperatives through his clear, concise writing.

Rural Cooperatives / March/April 2006 3

Rural COOPERATIVES (1088-8845) is publishedbimonthly by Rural Business–Cooperative Service,U.S. Department of Agriculture, 1400 IndependenceAve. SW, Stop 0705, Washington, DC. 20250-0705.The Secretary of Agriculture has determined thatpublication of this periodical is necessary in thetransaction of public business required by law of the Department. Periodicals postage paid atWashington, DC. and additional mailing offices.Copies may be obtained from the Superintendent ofDocuments, Government Printing Office, Washington,DC, 20402, at $23 per year. Postmaster: send addresschange to: Rural Cooperatives, USDA/RBS, Stop3255, Wash., DC 20250-3255.

Mention in Rural COOPERATIVES of company andbrand names does not signify endorsement overother companies’ products and services.

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

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

Mike Johanns, Secretary of Agriculture

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

Jack Gleason, Acting Administrator, Rural Business-Cooperative Programs

Roberta D. Purcell, Deputy Administrator,USDA Rural Business-Cooperative Programs

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

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

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COOPERATIVESCOOPERATIVESMarch/April 2006 Volume 73 Number 2

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p. 8

p. 12

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F E A T U R E S

4 The EdgeHigh-tech co-op delivers cutting-edge computer services By Dan Campbell

8 Prospering in Rural AmericaRural development issues in spotlight at Outlook ForumBy Dan Campbell

12 Ethanol plant to use new coal technologyBy Stephen Thompson

16 Southern ExposureHazelnut Co-op sourcing product, members in South AmericaBy Catherine Merlo

19 Dollywood EastRoanoke Electric Co-op key partner in N.C. entertainment complexBy Steven Johnson

21 Co-op rendering operation yields biodiesel & moreBy Stephen Thompson

23 Mastering Co-op ManagementCan managers build healthy businesses based on co-op principles & values?By Jane Livingston

D E P A R T M E N T S

2 COMMENTARY15 LEGAL CORNER26 NEWSLINE32 PAGE FROM THE PAST35 INSIDE RURAL DEVELOPMENT

O n t h e C o v e r :

Providing innovative information technology for its member electric and tele-com co-ops is the mission of NISC, formed in 2000 through the merger of twotechnology co-ops. Article on page 4. Photos courtesy NISC

By Dan Campbell, editor

hen a rural utility cooperative selects a com-puter information technology for crucialservices such as customer billing and dataprotection, it may in effect be “betting thefarm.” The goal is to find a competitive

edge, but a wrong choice can have a devastating impact. Formost of the 40 years since its inception, National InformationSolutions Cooperative (NISC) (andits predecessor co-ops) has been mak-ing the choice a pretty safe bet formembers.

The idea behind NISC was origi-nally conceived in the early 1960s bythe Rural ElectrificationAdministration (now the UtilitiesProgram of USDA RuralDevelopment). The goal was to helpsmaller, rural electric distribution co-ops better compete with larger utili-ties by developing jointly ownedinformation technology support cen-ters. Starting with three members in1964, NISC has grown into anorganization with 473 rural utilityand telecom members that provideservice to 7.2 million electric consumers and telecommunica-tions subscribers. The co-op generates $85 million in annualsales, most of it from leasing computer software and supportservices to members.

NISC operates in an industry known for very thin mar-gins, in which efficiency at all operational levels is crucial. Asa mark of its reputation in this regard, NISC also providesservices to a number of Fortune 500 companies, on a non-member basis. This helps generate a revenue stream that sub-sidizes the fees charged to members. The co-op providesbilling and other services for customers such as AT&T, Wal-Mart and GTE, also helping some of them analyze energy-consumption patterns to help with energy conservationefforts.

“There hasn’t been one year in our 40 years that we havefailed to add members and increase revenue,” says Vern

Dosch, the co-op’s president and CEO. “This is a veryvolatile business. Technology, energy and telecommunica-tions have all been in turmoil, particularly during the last 10years. Yet, when you look at the history of this organization,you see very steady, stair-step growth. We are adding 10 to12new members per year and revenue goes up every year. Notone year in the past 40 has our revenue or membershipdeclined.”


The Edge High-tech co-op delivers cutting-edgecomputer services for rural utilities

“There hasn't been one year in our 40 years that we have failed toadd members and increase revenue,” says co-op CEO Vern Dosch(above), framed by strands of fiber-optic cable. Photos courtesyNISC

“Members belong toour co-op becausethey need mission-critical softwareto run their busi-nesses.”

W

NISC membership includes about 44percent of its potential market of 800rural electric cooperatives and 8 percentof the nation’s 1,300 rural telecommu-nications co-ops and privately heldcompanies (the latter are typically fami-ly-owned).

Expanded broadband facilitates merger

REA’s original plan had been to cre-ate six regional information technology

cooperatives to servethe rural utility sector.Computers were justcoming onto the land-scape in the early1960s, and rural elec-tric and telephonebusinesses were stilllargely handlingbilling and accountingby hand. REA leadersmet with statewideutility co-op associa-tions, promoting theidea that these associ-ations were in the

perfect position to serve as businessincubators to foster this type of cooper-ation among co-ops.

It made no sense, REA said, for eachelectric distribution co-op to buy amainframe computer at a cost of morethan $1million, hire their own program-mers and develop their own software(which could not be licensed at thattime). “Even in ‘64, they recognized thatthe technology business was all about

economies of scale,” Dosch says. The North Dakota statewide co-op

association took the lead with the con-cept, and, ultimately, two co-ops sprungout of the original data processing busi-ness venture: the North Central DataCooperative (NCDC) in Mandan,N.D., and the Central Area DataProcessing Cooperative (CADP) in St.Peters, Mo.

“Perhaps the greatest driver behindthe success and growth of NCDC,CADP and NISC during the last fourdecades has been the steadfast relation-ships built with members,” noted JoeHarris, chairman of the NISC board ofdirectors. “The fact that all but two ofthe original 17 member systems are stillwith us today speaks volumes about ourcommitment to people, processes andtechnology.”

For most of their business lives,CADP and NCDC provided very simi-lar services to rural utilities. In 1999,both were looking at the need formulti-million-dollar investments to re-engineer their software products. This


As an intellectual- property company, NISC’s lifeblood islargely the intellect and innovation of its employees. Would-n’t it be much easier to attract these types of highly educat-ed workers in Silicone Valley, Boston or one of the nation’sother computing hotbeds rather than in rural areas likeMandan, N.D., and Lake St. Louis, Mo.?

“Easier to hire them, yes, but not necessarily easier tokeep them on board,” says NISC CEO Vern Dosch. In manyurban environments, it is easier to find workers, but it isusually more challenging to find employees who will makea commitment to not just work for a company, but tobecome an integral part of the business.

“Here, we talk about creating careers, rather than jobs,”Dosch says. “We feel that our rural locations are actuallyone of our competitive advantages.” NISC has an annualstaff turnover rate of just 4-5 percent, and has about 75 staffmembers who have been with the co-op for more than 20years. “Most of our staff come and stay.”

A number of employees are refugees from the big city,who have moved to North Dakota or Missouri to escape thecongestion, pollution, crime, high cost of living and failingschools of many cities. Some are outdoor sports enthusi-

asts and looking for the friendlier, more relaxed pace ofrural life.

“Some of our best employees grew up in the Midwest,have gone to the bright lights of the big city, but are nowraising a family and they want to come back to rural NorthDakota or Missouri, where we don’t have to lock the doorsall the time and where the school systems consistentlyscore higher than national averages.

“I really can’t think of any big disadvantage of having atechnology company in rural North Dakota, other thanmaybe that travel in and out is a little more expensive.Since there are no constraints in our ability to secure Inter-net bandwidth, there is a lot less need for business travelthan there used to be,” he adds.

NISC is hesitant to use “headhunters” to pull workersfrom other technology businesses. “Our goal is to grow ourown. We encourage personal development, technical andinterpersonal skills. When you get an employee with goodaptitude and attitude, we aren’t afraid to put some moneyinto them to develop the skills we need. If we need some-one with a Masters’ degree, the co-op will pay for the edu-cation.” ■

Attracting a skil led rural workforce

NISC’s Mandan, N.D., office (above) is home to about 280 of itsemployees. It also has 250 employees in Lake St. Louis, Mo.

led to merger discussions, and the con-solidation was consummated in 2000.

The development of broadbandInternet service greatly facilitated themerger, making it possible to seamlesslyintegrate the two operations, despitebeing separated by more than 1,000miles.

The co-op now has about 280employees based in Mandan, and 250more at its new Lake St. Louis facility(about 40 miles west of St. Louis). InMay of last year, NISC completed the135,000-square-foot facility, allowing allof its Missouri employees to workunder one roof. The co-op also hasabout 26 “virtual” employees scatteredabout the country. Services includeInternet bill payment and presentation;graphical and mobile mapping systems;activity-costing systems; energy deregu-lated and diversified billing, includingpropane, water, gas, etc., and telecom-munications switch provisioning,among others.

Reinventing the co-op It is usually difficult to quickly put

aside the competitive inclinations ofbusinesses involved in a merger, andthat was the case here. “We had beenfierce competitors, then suddenly oneday we were best friends and cohorts,”recalls Dosch, who had been withNCDC prior to the merger, which hejoined in 1986 as business managerbefore moving up to CEO of NISC 4

years ago. After the merger, the two staffs

immediately began working jointly on amajor development project for a newproduct called iVUE, intended to helpmove the co-op’s software into “adynamic, open systems arena, awayfrom the proprietary servers of thepast,” Dosch says. More than anythingelse, this collaborative project — whichlasted over 2 years — helped to cementthe two organizations into one co-op.

“I can’t say it was easy,” Doschrecalls. “We had to literally reinvent theorganization from the bottom up.”Often in a merger there is a dominantpartner which says: here is how we will

operate, like it or leave. “That was notat all our approach, because this was aconsolidation of equals. Every policyhad to be rewritten; new vice presidentswere selected. We were very similar, yetthere were differences in businessstrategies and cultures.”

It was worth the effort. NISC hasbeen “built to lead” the rural utilityindustry on the technology front,Dosch says. The organization hasmatured since the consolidation, andnow has more employees with “deeperskill sets,” which is creating new oppor-tunities, he adds. “The ability to deliverrobust, scaleable technology that meetsthe needs of a diversified group of utili-ties and telecoms has grown by leapsand bounds just in the last year. Bothoffices today work collaboratively onsoftware development, installation andsupport.”

Ultimate test In the mid-1960s, the entire thrust of

the business was to automate billingproducts. Large, main-frame computerswere used to calculate, process andprint bills in a central location. But 40years on, NISC is essentially a softwarehouse that develops products it licensesto members.

From a single billing product in theearly 1960s, it today offers a full suite ofmore than 100 software products andservices. These include billing, account-ing, engineering and ancillary products,


“We're not con-strained by a men-tality of: ‘we’ve got to push thissoftware out thedoor, even thoughit's not ready yet’...”

CEO Vern Dosch (back row, third from left) with the co-op’s vice presidents.

such as electronic bill presentment andpayment, interfaces for automatic meterreading, etc.

“We’ve essentially become the out-sourced Information Technology (I.T.)department and help desk for our mem-bers,” Dosch says. “We are able to han-dle as little or as much of their I.T.solutions and services as they require.”

NISC also provides disaster recoveryand business continuance service. Withthe worst hurricane season on recordlast year, this part of the business hasproven to be a lifeline for some mem-bers. Indeed, Hurricane Katrina becamethe ultimate test of NISC’s businesscontinuance capability.

The co-op’s disaster recovery staffcarefully monitored the progress ofKatrina early on, plotting the path ofthe storm and determining which mem-

bers would be in harm’s way. Two orthree days before the storm hit land,NISC was communicating with thosemembers and backing up their data.“This is an easier task today than in therecent past, because hardware is reallyjust a commodity now — you don’thave large centralized service bureausany longer,” Dosch says.

The co-op’s disaster team identified40 members in the path of the hurri-cane, but in the end, just five of themwere severely impacted. NISC’s supportfor those co-ops ranged from going onsite and helping to rebuild their net-works and infrastructure, to backing uptheir data and providing access to it viathe Internet.

With members in 47 states, hurri-canes are far from the only weathercalamity members face; ice storms, tor-

nadoes and floods can all take their toll.Utilities are also now considered

part of the nation’s homeland securitynetwork, and security considerationshave been ramped up considerably sincethe 9-11 terrorist assaults on America.

Co-op advantageThe co-op business structure of

NISC has contributed to his success,Dosch says. As a co-op, the company isbetter poised to pursue long-term goals.

“The Achilles heel of so many tech-nology firms is that they are just look-ing to their stock price and what to tellthe stock analysts this quarter. By con-trast, our board understands the cyclicalnature of this business as it relates todeveloping a new product and investingin it; they understand that revenues will


After the merger of the two co-ops that created NISC in2000, employees were tasked with developing a statementof values that would become the cornerstone of the co-op’sbusiness culture. “This was pre-Enron and World Com,before it was considered cool — or mandated by Sar-banes-Oxley — to have such a document that spells out thebasic premise of the way we do business,” says CEO VernDosch. The unique thing about ours, and why it is so effec-tive, is that it was not developed by the board or vice presi-dents and then forced down on employees. They wrote it.”

A group of employees was secluded for a couple ofdays, and came up with the statement. The vice presidentsmade only a few very minor changes and the board adopt-ed it without change. It now hangs in every office and ispart of the employee orientation and evaluation process.

NISC Statement of Shared Values(Editor’s note: The following is slightly abridged, due tospace limitations.)

“At NISC, we believe in striving for excellence with apassion and determination that is founded on our sharedvalues. These values will inspire us, guide us and determinethe manner in which we will conduct ourselves in carryingout the business of our organization.

• Integrity — We hold ourselves to the highest profes-sional, moral and ethical standards. We are committedto doing the right thing, always.

• Relationships — We believe people are the heart of

our organization. We are committed to building, nurtur-ing and preserving lasting relationships with our mem-ber-owners, customers, partners, our families andfriends, and one another. We are passionate about theservice we provide and demonstrate that by beingresponsive to the needs of our customers and con-stantly striving to exceed their expectations…We sup-port a healthy balance between work and family.

• Innovation — We promote the spirit of creativity andchampion new ideas. We believe a passion for qualityand the desire to constantly improve what we do iscritical to our success…

• Teamwork — We exemplify the cooperative spirit byworking together with respect for one another’s ideasand contributions. We believe in using our individualand collective knowledge and skills to improve ourorganization and agree to show support of all deci-sions once they are made…

• Empowerment — We believe individuals have the pow-er to make a difference. We agree to be accountableand responsible in the decisions we make, use goodjudgment and take pride and ownership in our work.

• Personal Development — We believe the freeexchange of knowledge and information is absolutelynecessary to the success of each individual and theorganization. We agree to work every day to learn newthings and are committed to sharing our ideas withone another… .” ■

Importance of shared values

continued on page 28

By Dan Campbell, editor

[email protected]

Editor’s note: For the complete text and webcasts ofspeeches made at the USDA Outlook Forum, visit:www.usda.gov/oce/forum.

very winter, USDA holds a littleget-together for more than 1,200national and international farmleaders at an event called theAgricultural Outlook Forum.

The two-day forum has grown into a world-class conferenceunder the guidance of USDA’s World Economic OutlookBoard. Attendees get the inside track on what USDA and itsinvited guest speakers see as the shape of things to come onnumerous fronts: crop and livestock markets, trade, technolo-gy, nutrition, food safety and security, farm policy and legisla-tion, among many other topics that determine the state of thenation’s $260 billion agricultural industry.

But this year the program took on a distinctly new twist,with more general rural development issues than ever in thespotlight before a record crowd of more than 1,600.Agriculture Secretary Mike Johanns devoted a much of hiskeynote address to the impact USDA Rural Developmentprograms are having on the rural economy. One of the fiveconference “workshop tracks” was devoted to rural develop-ment, with sessions ranging from the impact of e-commerceon rural communities to finding the next generation of farm-ers and skilled rural workers.

Rural economy evolving Johanns noted that just 160,000 of the nation’s 2 million

farmers, who work 33 percent of our farmland, are responsi-ble for 75 percent of U.S. farm receipts. In 1987, it took295,000 farmers to account for that much of the nation’s cropand livestock production. That means 92 percent of ag pro-ducers, working two-thirds of U.S. farmland, rely heavily onoff-farm income.

“They choose to carry on the great American tradition ofagriculture, but they do not depend on it as the sole source ofincome or, in many cases, even as their primary source ofincome,” Johanns said. “We must provide greater economic

opportunity for peopleto choose a rural qual-ity of life, a lifestylethat upholds the val-ues and principlesupon which this greatnation was truly built.”

This trend is onereason why public tes-timony at the FarmBill listening sessionsaround the nation inrecent months hasbeen so unanimouslysupportive of USDARural Developmentprograms, Johannsnoted. USDA hosted52 listening forums, of which more than 20 were conductedby Johanns himself. The Secretary is well known as anintense listener who takes notes during most meetings. Herecalled some of the key comments he heard regarding RuralDevelopment programs: • In Missouri, a producer told Johanns: “These Rural

Development programs are what is keeping the heart-bloodof the nation's business going and keeping us in a globaleconomy and part of the edge of innovation.”

• In Oklahoma, a man said, “100 rural water districts, smallcommunities and towns [in the state] benefit from yourprograms. We were able to go out and train operators andbookkeepers and all sorts of things to upgrade the livingstandards of our rural population.”


Prosper ing in Rura l Amer icaRural development issues in spotlight at Outlook Forum

E “We must providegreater economicopportunity forpeople to choose arural quality oflife...” — Secretary

Mike Johanns

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• In Nebraska, a female producer said of the Value AddedProducer Grant (VAPG) program: “Those grants have ledto the development of a very successful ethanol plant….Iencourage you to keep that program up and to expand it, ifyou can.”

• A Minnesota resident said: “About three years ago, SleepyEye Medical Center took on a building expansion. We builta new clinic, a new emergency room and a new radiologyaddition. To help make this project a reality we obtained a$4.5 million, low-interest loan from USDA RuralDevelopment. We created new jobs and increased the qual-ity of our health care. We're proud of our facility.”

• In Florida, there was praise for the agency’s hurricane reliefefforts, with one woman saying: “Equally important is theneed to maintain a rental assistance program, which is cur-rently assisting approximately 10,000 hurricane evacuees aswell as tens of thousands of rural citizens on a regular basis.”

Johanns said the USDA Rural Development hurricane-relief team was one of the first on the scene “in the trenches,helping people find shelter.” He noted that RuralDevelopment has invested $239 million in housing, economic

and community development recovery, and rebuilding effortsto “help rural families put their lives back together and theircommunities back together. We helped to place more than10,000 evacuees in 45 states and helped 22,000 families liter-ally pay the mortgage.”

Market-driven strategyThe featured panel discussion during the opening plenary

session was titled: “Rural America’s New EconomicFrontier.” During it, Under Secretary for Rural DevelopmentThomas Dorr said that sustainable market development mustbe market driven, not program dependent. He said he seesUSDA Rural Development’s primary role being that of aninvestment banker and an “enabler” for rural America, ratherthan a central planner or lender of last resort.

What rural America most needs, Dorr stressed, is “viablebusinesses, self-sustaining communities and young familieseager to build a future.” This job, he said, begins with identi-fying opportunities.

Dorr said he sees three primary areas of opportunity forthe future of rural America: • Place (the quality of life factors that make rural living

attractive); • Connectivity (primarily broadband and other technologies

that will enable the nation to shift more jobs from central,urban centers to dispersed, rural locations); and

• Energy (ethanol, biodiesel, wind and other renewable fuelsthat will play an increasing role in helping to wean thenation from imported oil).

The “place” to be“Place,” Dorr said, “is peace and quiet, green fields and

fishable streams. It’s lower taxes and a lower cost of doingbusiness. It’s affordable housing and a big yard for the kids.It’s the pace of life,low crime and goodschools.”

He contrasted therural Iowa landscapewhere he farms andwas raised to the 5years he has spent inWashington, D.C.,now an urban metrop-olis of some 3.5 mil-lion people. “I’ve never seen a real estate ad in D.C., or anyother city, boasting about a bigger mortgage for a smallerhouse, high taxes, noise, crime and a three-hour com-mute...We’re not trying to run folks out of urban areas; butgiven the chance, people will vote with their feet. Our job isto help empower that choice by investing in the infrastruc-ture and business development that makes it possible.”


“In this renewableenergy economy,the question is:Will farmers andrural land-ownersparticipate asvendors, or asowners andinvestors?” — Under Secretary

Thomas Dorr

Much of rural America has long suf-fered from a “brain drain,” in which ithas produced well-educated young peo-ple who, after graduation, migrate togood jobs in cities. “Very few of the col-lege graduates come back,” he noted. Inhis own class, for example, Dorr said hemay well have been the only one (andcertainly one of the very few) whoreturned home to a family farm (inMarcus, Iowa, in his case).

The goal must be “to create commu-nities where our kids have a future;communities where the next genera-tions have more and better choices than

we did. If our kids’ hopes, dreams,ambitions and talents take them aroundthe world, that’s great. We want themto have that opportunity. But theyshouldn’t be forced to leave simplybecause there is nothing at home.”

Getting connected Advances in information technology

— especially in broadband Internet serv-ice — have ignited a communicationsrevolution, Dorr said. This is resulting in“the most radical decentralization ofinformation in human history — and it’shappening at a critical moment in histo-ry. Since the fall of the Berlin Wall, upto 3 billion people have joined the worldmarket system. This represents both anew market and a new source of compe-tition, he said, calling it “the greatestexpansion of economic freedom andopportunity in human history.”

The broadband revolution has inter-sected with this new world marketplace,meaning that “every person is going tobe connected — more-or-less instanta-neously — with everyone else,” Dorrsaid. “Whether we want to or not, wewill be competing with everyone in theworld with similar skill sets and amodem. The upside is that our poten-tial customer base will be just as broad.”

Because data can be so easily sharedacross great distances and there is lessneed for shuffling paper from desk todesk in one office, “administrativestructures, manufacturing, and distribu-

tion networks canbe decentralized.To a degreeunprecedented inhistory, peopleare going to havereal choices aboutwhere to live andhow to work.

“Broadbandmakes rural com-munities morecompetitive thanthey have been ingenerations. Itopens the door toeverything else.”

Energizing the nationRural America may also hold the key

to the nation’s energy future, as biofuelsand other renewable energy sourcessprout into a major new cash crop,Dorr stressed. He noted that PresidentBush devoted a portion of his State ofthe Union Address in January toexpressing his support for funding newresearch on wind, cellulosic ethanol,clean coal and new-generation nuclearpower. “The commitment is there and,frankly, thanks to $60 per-barrel oil, sois the opportunity.”

Dorr cited the following statistics tounderscore how rapidly the renewablefuels industry is developing: • U.S. ethanol production in 2005

exceeded 4 billion gallons. The 7.5billion gallon renewable fuels stan-dard in the Energy Bill will be metwell ahead of schedule.

• Biodiesel usage has soared fromabout 5 million gallons in 2001, to 25million gallons in 2004, to 75 milliongallons last year.

• U.S. wind-power capacity by the endof last year reached 6,740 megawatts.Another 5,000 megawatts are current-ly under construction or in negotia-tion. The Department of Energy esti-mates that wind can generate at least6 percent of U.S. electricity by 2020.

The nation is also investing in otherbiomass technologies, such as directcombustion and methane gas recov-ery, as well as solar, geothermal andhydrogen applications.

• Since 2001, USDA RuralDevelopment has invested almost$290 million in new energy sources,and energy will be a top priority for2007.

“Energy from agriculture, in fact,offers the rural economy its biggest newmarket in history. But it’s not automat-ic. We’re talking about the emergenceof a distributed energy system. That’ssomething different. It’s new. It willtake some creative work to make it hap-pen.

“The key issues will be ownershipand wealth creation — and our goalmust be to bring the benefits of thisextraordinary new opportunity backhome to rural America... Farmers andother rural landowners are on theground floor.”

Farmers need to be energy system owners

As great as it is for farmers to be net-ting an extra 5 to 10 cents per bushel ofcorn from ethanol, Dorr said, “the realreturn is downstream, in the value-added as a premium fuel.” In thisrenewable energy economy, the ulti-mate question is: “Will farmers andrural landowners participate as vendors,or as owners and investors?”

Business and investment models,including new tax and regulatoryregimes, are needed to bring the bene-fits of new energy sources back home torural communities, Dorr said. “Thisdoesn’t require more government


USDA Rural Development's Mike Kossey (left) answers questionsabout USDA's renewable energy and other programs in the OutlookForum exhibit area.

expenditures on subsidies. But it doesrequire a strategy — new investmentmodels and supportive regulatory andtax regimes — that permits distributedenergy opportunities to be capitalized

by the existing wealth already distrib-uted within rural communities.

“This will happen when not justfarmers, but also the local dentist andthe school bus driver, the shopkeepers

and school teachers, the mechanics andthe retirees, all have a chance to partici-pate in this extraordinary new opportu-nity to generate wealth in ruralAmerica.” ■


Editor’s note: The following is excerpted from KeithCollins’ address at the 2006 USDA Ag Outlook Forum. Youcan read the full text, or view a webcast of Collins (as wellas other plenary session speakers), on the conferencewebsite: www.usda.gov/oce/forum.

On paper, 2005 should have been a disaster for Americanfarmers and ranchers. Just consider some of these nega-tive factors checked off by USDA Chief Economist KeithCollins during his annual address at the USDA AgriculturalOutlook Forum in Arlington, Va.: • Near-record crops were harvested for the second year in

a row (raising the specter of glutted markets);• Multiple, devastating hurricanes pounded the Gulf Coast

and shut down the central marketing infrastructure of thecountry;

• Energy prices soared, including diesel prices that hit $3per gallon and natural gas that rose to $14 per million btu;

• There was continued loss of Asian beef markets (due toBSE concerns) and concern rose about the emergence ofa possible global avian influenza epidemic.

Anyone who would have seen all that coming wouldhave said the farm economy would be in “deep, deep trou-ble,” Collins noted. Instead, the farm economy seemed torespond with a: “What, me worry?” Domestic demand forfarm products soared, exports set a record high, U.S. farmincome was the second highest ever and farmland valuesand farm wealth reached new all-time highs.

“The reasons for this outcome include strong globaldemand for food, the flexibility of the agricultural system torebound from shocks, a substantial increase in governmentsupport spending and cyclically tight markets for somecommodities, such as meat,” Collins said.

“While demand remains strong, the farm economy willbe challenged by large stocks of crops, built up from theabundant harvests the past two years, livestock expansion,higher interest rates and energy costs, animal diseaseissues and weather. While it is too early to be definitive,these factors suggest that farm income will likely drop in2006 and the farm economy will contract,” Collins said.

“The forecast for farm exports in fiscal 2006 is a record-high $64.5 billion, up $2 billion from 2005’s record. Importsare forecast at $63.5 billion, up $2 billion from USDA’s last

forecast, leaving a forecast surplus of $1 billion for FY 2006.The current period of strong foreign economic growth andcontinued effects of the decline in the value of the dollarfrom several years ago should show up in higher U.S. agri-cultural exports in the future and an improving trade bal-ance. Projected economic growth suggests continuedincreases in agricultural exports and imports, with the agri-cultural trade balance forecast to be positive but less thanin past years.

“Record or near-record production of major crops hasadded to the stock levels built up last year. As a result, U.S.supplies for feed grains, cotton and soybeans are at arecord high this year, although not for wheat. But this pic-ture of the crop sector moving toward the bottom of thecycle is not as transparent as it seems. Four factors sug-gest the prospect for divergent performances among themajor crop markets over the next couple of years: (1) Globalgrain and oilseed markets are moving in different direc-tions; (2) Biofuels may drive faster-than-expected demandgrowth. Indeed, ethanol — rather than China — could wellbe the No. 1 factor driving farm prices higher over the nextfew years; (3) Energy and interest costs are likely to be arising challenge for many producers, and (4) Weather isalready being disruptive for the upcoming crops.

“From indicators such as a return to average nationalfarm income, lower enterprise and regional farm income,lower cash margins, higher net worth and greater utilizationof debt repayment capacity, we can draw several conclu-sions for 2006. There is not an impending financial crisis inU.S. agriculture, yet there will be greater financial stress foran increasing number of crop producers in many regions.That stress will likely show up in tighter credit standardsand delayed loan repayments and loan extensions.

“The coming year will present more of a financial chal-lenge for U.S. agriculture than in recent years. In addition,agriculture will have to contend with questions over theeffect of rising interest rates on the durability of the U.S.economic recovery, the value of the dollar, issues raised bythe federal budget deficit, trade negotiations, bird flu, BSE,oil prices, Middle East issues and terrorism. Producers willlikely need to draw more on their resiliency and managerialcapabilities in 2006 than they did during the past couple ofyears of abnormally high farm income.” ■

Storms, disease and soaring fuel costscouldn’t derail farm economy in ‘05

By Stephen Thompson

Assistant [email protected]

ob Ferguson brandishes a sheet of paper. “Lookat this,” he says. “Our corn basis is 44 cents. Wejust don’t have enough markets for our localproduction.”

Ferguson is a farmer and businessman nearthe small southern Minnesota town of Heron Lake. The cornbasis he is referring to is the difference between the goingprice at the nearest New Vision elevator in Heron Lake andthe top price paid in Chicago. Ferguson’s response to lowprices was to help found Heron Lake BioEnergy LLC — amainly farmer-owned effort to build a new 50-million-gallon-per-year ethanol plant to boost local corn prices and helprevitalize the local community.

It’s a story being repeated across the Midwest as ethanolplant construction continues in high gear. But there is a twisthere: the Heron Lake plant will not burn natural gas, as inthe vast majority of ethanol facilities, but coal.

The cost of energy is critical to the bottom lineof a corn-to-ethanol plant because so much is used.To prepare the corn for fermenting, it is blasted withsteam. Fermenting and distilling require heat.Drying the distillers’ grains — the part of the cornremaining after fermentation — requires even more,as much as 50 percent of the entire fuel budget.

Big savings over gasThe clean-burning coal technology will add to

the price of the plant, but a study in 2004 indicated that itwould cost 70 percent less for energy than using natural gas.Since then, coal prices have risen; however, gas prices haverisen even more steeply, seemingly vindicating the decision togo with coal (see sidebar). “Coal is still an extreme bargain,”says Ferguson.

An LLC business structure was chosen because it was feltthat it offered more financing alternatives than a pure coop-erative. Heron Lake LLC financing is grounded soundly inthe community, with the majority of its financing comingfrom farmers; much of the rest comes from local residents.


B

Ethanol p lant to usenew coa l technology

Adam Schumacher, an investor in the ethanolproject, runs a nursery operation just outsidethe town of Heron Lake. USDA photos by StephenThompson

“We have a sizeable investment fromthe four counties surrounding us,” saysFerguson, who is president of the com-pany. Moreover, Minnesota law requiresthat all investors in the LLC musteither be state residents or owners ofproperty in the state. The Minnesota

LLC allowed local businessmen — whowould not have been able to invest in atraditional co-op — to buy in.

The venture began in 2001, when agroup of local farmers, led by Ferguson,formed the board of directors, eachcontributing $10,000. The first concern

was providing necessary infrastructure,especially a reliable water supply.

“You can get held hostage pretty fastif you don’t do your homework,” saysAdam Schumacher, one of the boardmembers of Minnesota Soy ProcessorsMNSP), another LLC. A well wasdrilled, and it promised sufficient waternot only to feed the plant, but also tosupply a biodiesel plant located about11 miles south, operated by MSNP.

In a three-way agreement, the townof Heron Lake agreed to take over thewell and finance it with a 15-year bond,which was to be paid off through feesfrom the plant and from a pipeline sup-plying the biodiesel operation. MayorJohn Hay sees the agreement as vital tothe interests of the town as a whole:“We want business here that can attractjobs,” he says. “This will double our taxbase to $50 million and give us addi-tional revenues to improve our school.”

Option to staySchumacher participated in the ven-

ture because he wants local children tobe able to stay in the community instead


Bob Ferguson, president of Heron Lake BioEnergy LLC, divides his time between farming andworking on economic development through his involvement in local county government.

The use of coal in the Heron Lake BioEnergy plantdepends on a new technology known as “fluidized bed”combustion. A fluidized bed boiler works by blowing high-pressure air through a bed of solid fuel grains.

The resulting turbulence suspends the fuel in the air,mixing both together thoroughly and allowing more com-plete combustion than other methods. This reduces oreliminates carbon monoxide and hydrocarbon emissions.At the same time, combustion temperatures can be regu-lated, keeping them below the level at which oxides ofnitrogen form, thus eliminating an important cause of acidrain and “smog.”

Limestone powder, which absorbs sulfur in the coal, canbe injected into the process, eliminating sulfur dioxide,another troublesome precursor of acid rain. Those featuresmake expensive scrubbers and other equipment to cleanthe exhaust from the boiler unnecessary.

Biomass applications The advantages of fluidized bed combustion don’t stop

there, however. The design lends itself well to biomassfuels, such as straw, sawdust, corn stover, etc. In fact, any

solid fuel that can be ground up and blown into the boilercan be used. If future regulations require the use of renew-able fuels, the plant will be able to handle them withoutcostly modifications.

Heron Lake BioEnergy President Bob Ferguson thinksthat, with no relief for high gas prices in sight, othersources of fuel will become available. “There’s a lot ofgrowth, a lot of new technology in development,” he says.

One option originally considered was the use of dis-tillers’ grains as fuel for the plant. “It wasn’t feasible to usedistillers’ grains as fuel when natural gas cost $3.50 for athousand BTUs,” says Ferguson. But as gas prices rose, sodid the utility of distillers’ grains as animal feed.

While prices for distillers’ grains are still lower thanthose of raw corn, it actually makes better feed becausethe starch has been removed by the fermenting and distil-lation process, leaving more valuable fats and proteins. Atfirst, dried distillers’ grains (DDG) were used mainly as cat-tle feed; but DDG is now being used to feed hogs and poul-try as well, with some being exported overseas. The grow-ing value of DDG as feed has killed any interest in it as fuel.■

Technology reduces oxide emissions

of moving away in search of jobs. “If every farmer can get anickel more a bushel, it might allow him to fit one of his kidsinto the operation,” he says. “A lot of people who have movedaway would like to come back if they could.”

Schumacher’s farm doesn’t stand to benefit directly fromhigher corn prices: it’s primarily a nursery operation, with mostof its revenue coming from sale of trees and shrubbery for useas windbreaks, riparian buffers and other conservation uses.

Paul Pohlman, a corn and soybean farmer, echoesSchumacher’s hopes. His roots in the area are deep: hisgrandfather settled here in the 1800s, and he grew up on thefarm he now runs. He invested in the nearby biodiesel plant,which has yet to turn a profit, and sees higher grain prices asonly part of the benefits of a successful ethanol plant: “It’s achance to improve the job situation here — give young peo-ple more opportunities.”

The equity drive began in July 2004, and lasted until thefollowing January. To encourage locals to participate, farmers

and non-farmers were allowed to purchase shares with a min-imum investment of only $20,000. The response was strong,say members, because local people share their vision of theplant as a way to encourage overall prosperity and preservetheir community. The local Heron Lake State Bank helpedout by making loans for the purchase of equity shares. Whenthe drive was over, 1,069 investors had bought shares.

For its electrical power, the choice was between a localcooperative, Federated Rural Electric, and an investor-ownedcompany. Though they were “neck and neck” in prices andbenefits, the board chose to go with the co-op.

“They’re our neighbors,” says Ferguson. “People who careabout what we’re trying to do for our community.” The co-op not only bought stock in the venture, it has applied for aUSDA Rural Development low-interest loan totaling$740,000 for the project. “I can say nothing but good aboutFederated,” Ferguson says.

Environmental delays Construction of the plant was planned to begin in March

2005. However, the necessary permits from the MinnesotaPollution Control Agency were held up for several monthsbecause of objections by environmentalists over the use ofcoal for fuel. “They were afraid that coal use would mush-room if the plant got built,” says Pohlman.

He and the other board members see this as a case ofbeing unable to see the forest for the trees: the plant will notonly be clean-burning, its effect will be to lessen greenhousegas emissions by reducing overall the use of fossil fuels.


Paul Pohlman and friend. Pohlman invested in the ethanol plant becausehe wants to improve opportunities for local young people.


By Donald A. Frederick

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

n Arizona State Court ofAppeals decision in acomplex litigationbrought by former mem-bers against a milk mar-

keting cooperative discusses two issuesof interest to cooperative leaders. Oneconcerns whether “dumping” membermilk during a contract dispute withbuyers meets the legal definition of“marketing” that milk. The otherinvolves whether certain relationshipsbetween a cooperative and a non-coop-erative broker amount to an illegalagreement to restrain trade. UnitedDairymen of Arizona v. Schugg, 1 CA-CV 04-0611 (Ariz. Ct. App., Div. 1,filed Feb. 9, 2006).

Case factsUnited Dairymen of Arizona (UDA)

is a milk marketing cooperative withroughly 90 members whose averageherd size is 1,200 cows. UDA marketsabout 90 percent of the milk producedin Arizona.

Michael and Debra Schugg wereproducer members of UDA and signeda contract giving UDA the exclusiveright to market their milk. That con-tract provided that UDA would “use itsbest efforts to market the member’smilk in such manner as the associationshall deem to be to the best advantageof the member and all other membersof the association....” (court’s emphasis)

In an effort to enhance revenues,UDA entered into agreements withmilk marketing cooperatives in otherstates not to sell milk to fluid milk bot-tlers until they agreed to pay a substan-tial premium above the federally estab-lished minimum price. When twomajor buyers of UDA milk refused topay the requested premiums, UDA wasunable to sell millions of pounds ofGrade A milk produced by its mem-bers. As a result, the Schuggs wereforced to “dump” a substantial quantityof their milk.

UDA treated the milk dumped by itsmembers as if it had been sold whencomputing its payments to members.To make these payments, UDA incur-red substantial debt. To minimize thatdebt and allocate its costs among allmembers on a patronage basis, UDAimposed an assessment on its members’milk production. The amount assessedagainst the Schuggs’ milk productionwas in excess of $232,000.

The Schuggs took certain actionswhich they claimed freed them fromtheir contract to market through UDAand began selling their milk to anothercooperative. UDA responded by suingthe Schuggs for alleged breach of thatcontract. The Schuggs filed two coun-terclaims regarding UDA’s strategies formarketing their milk, which are thefocus of this article.

Is “dumping” a form of “marketing?”

First, the Schuggs alleged that UDAbreached its contractual obligation tomarket its members’ milk when it effec-tively forced members to dump theirmilk, rather than deliver it to UDA’s

primary customers. They claimed theirdamages from this action included theamount of the assessment and otherfinancial losses.

The court described the argument ofthe Schuggs as equating “market” withan obligation to “sell” member milk tothe cooperative’s customers. The courtrejected this assertion.

The court said that: “UDA’s contrac-tual duty to ‘market’ milk reasonablyincludes taking actions to protect itslong-term ability to sell at prices bene-ficial to its members. UDA attemptedto obtain long-term contracts and pre-miums from its primary customers bylimiting the supply of milk from itsmembers and from members of othercooperatives. In doing so, it was exercis-ing its authority to ‘market’ in a mannerit deemed to be to the best advantage ofits members.”

So, this case reaffirms the legality ofan important strategy for cooperativemarketing associations, limiting thesupply of product their members deliverto the market and working with othercooperatives to limit supply on a broad-er scale. But it is important to remem-ber that the same protection does notapply to agreements with non-produc-ers to limit supply.

Antitrust issuesThe Schuggs also alleged that UDA’s

“dumping” policy was part of an illegalanti-competitive scheme to limit milksupply, in violation of federal and stateantitrust laws. While UDA prevailed onthis point as well, it is important tounderstand why it prevailed.

The court notes that while the


L E G A L C O R N E R

What i t means to “market” mi lk

A


By Catherine Merlo

Merlo is a freelance writer with extensive experience working withcooperatives.

or 22 years, Hazelnut Growers ofOregon has marketed what it calls “thecrunchy brown nut with the sophisti-cated taste” for the state’s hazelnut pro-

ducers, many of whom farm in the state’s fertileWillamette Valley.

But the nationality of the co-op’s membershiphas just taken a quantum leap south.

This year, Hazelnut Growers of Oregon accept-ed its first foreign member, a hazelnut farmer inthe South American country of Chile. And itexpects more Chilean hazelnut growers to join the

Oregon-based co-op in the near future.“It’s a great opportunity for us,” says Troy

Johnson, vice president for Hazelnut Growers ofOregon (HGO). “We have only one member sofar, but there is much interest there.”

HGO is just one of a growing number of U.S.agricultural co-ops that have encountered the hardreality of a global market. To succeed in today’s24/7 marketplace, America’s grower-owned busi-nesses must contend with increased foreign compe-tition. They must satisfy the rise in consumerdemand for more and better products. And theymust protect their brands with a steady supply.That means finding a way to overcome productionshortfalls that stem from adverse weather, alter-nate-bearing crops or shrinking acreage.

Southern ExposureHazelnut Growers of Oregon sourcing product & new members in South America

F


Oregon is home to about 28,000 acres of hazelnut orchards, such as this. But acreagehas been declining due to disease, so Hazelnut Growers of Oregon is expanding to Chile.Photo by, and courtesy of, Carl Johnson. To see more of this Alaska-based photographer's work,visit: www.carljohnsonphoto.com.

Opening new doors The venture into Chile offers a way

for HGO to meet those demands.Sourcing some of its product in Chileopens new doors to help the co-opmeet rising demand amid tighteninghazelnut supply.

“Things are changingand the world is becom-ing smaller,” Johnsonsays. “To be successful,you’ve got to find thestrategic alliances, ormake the strategic deci-sions, to be successful inthe long term. You needthe best, most efficientsupply and you have tobe very good at allaspects of your business.”

One benefit to theOregon co-op is thatChile’s production comeslater in the season, inApril, avoiding the glut sometimes seenwhen the North American hazelnutharvest comes off in September.

The co-op’s venture south also reapsbenefits for Chilean hazelnut producers.For them, being part of an establishedco-op is a big draw. “One of the basicreasons for joining a co-op is that itprovides a home to bring your produc-

tion to every single year for marketing,”Johnson says. “That’s a very importantselling point that some people overlook.It’s the biggest reason Chilean growerswant to be part of our co-op.”

Further, Johnson adds, “Chile seesthe U.S. as a fantastic consumer of

Chilean products, butthey also see theAmerican business modelas very successful.”

Goin’ southA lengthy sliver of a

country that’s 20 times aslong as it is wide, theRepublic of Chilestretches 2,700 milesalong the southwesterncoast of South America.Home to a stable democ-racy with a population of16 million, Chile isfamous for the snow-capped Andes mountainsthat tower along the

country’s eastern border. But the country is also the home of a

long, fertile basin west of the mountainrange. Called the Central Valley, itstretches south from Santiago toOsorno and enjoys a Mediterranean-like climate.

There, in its opposite seasonal cycle,Chile harvests a variety of fruits, vegeta-

bles and grains some six months afterthe Northern Hemisphere does. Andthe production quality is generallygood. California-based SunsweetGrowers has begun sourcing fruit there(see sidebar). Well-known citrus co-opSunkist Growers has sourced fruit inChile in the past, although it doesn’t atpresent.

“Everybody is looking to build themost efficient supply chain,” says TerryBarr, chief economist with the NationalCouncil of Farmer Cooperatives. “Theconsumer has spoken, and retailers wantaccess to a product year-round. U.S. co-ops are having to access products off-season, particularly if they have a brandand want to keep its established posi-tion in the market.”

Chile’s hazelnut industry is young; itneeds another seven years before itstrees reach full nut-bearing maturity.But that’s a short wait for the long-termviability of Hazelnut Growers ofOregon.

Up north The largest U.S.

handler of hazelnuts,HGO accounted forabout one-third of thenation’s 27,000-tonproduction last year.Virtually all U.S.hazelnuts are grown inOregon, which is saidto grow the tastiestvarieties of the brownnugget.

Grower-ownedsince 1984, the co-opgenerates about $25million a year in sales.It’s the nation’s onlyhazelnut co-op andcounts 140 members.

It also receives part of its hazelnut sup-ply from about 60 non-members whodeliver on a contract basis through anindependent company. HGO operates aplant in Cornelius for processing, pack-ing and distributing its hazelnuts.

The co-op owns two labels. OregonOrchard represents its in-shell brand,


Jamie Perry, left, is the first Chilean member of HazelnutGrowers of Oregon (HGO). With him is orchard manager/agronomist Paz Alejandra Lopez (center) and another grower.Photos courtesy HGO

Electrostatic sprayers are used to apply crop protectants to hazelnut orchards.



With two consecutive crop disasters since 2004,Sunsweet Growers Inc. has decided it won’t sit back andwatch its line of branded products shrivel on the store shelffor want of supply.

The grower-owned co-op, based in Yuba City, Calif., hasjust completed construction of a fruit-drying facility on landit purchased last year in Santa Cruz, Chile. The plant willprocess Chilean-grown prunes and market them for the co-op’s non-branded business. The 400-member co-op willpreserve its California fruit for the Sunsweet brand.

“Chile is a way for us to help avert disaster,” says DaneLance, Sunsweet’s vice president of globalsales and marketing.

The co-op believes that by building itsown drying facility, Sunsweet can ensurethat the Chilean dried fruit meets the com-pany’s quality standards.

“While our international facilities aremanaged with the help of experienced joint-venture partners, they benefit fromSunsweet’s proprietary systems and ourteam’s quality control standards,” SunsweetPresident Arthur Driscoll II said last Novem-ber when the co-op began construction ofthe South American facility. “Our globalcustomers expect quality products that canonly be achieved by using Sunsweet’s pro-prietary drying processing and pitting methods.”

Furthermore, Sunsweet’s presence in Chile, the world’sNo. 2 prune producer, opens the door for it to participate inand influence local markets, co-op officials say. “We seeChile as a market for our brand,” says Gary Thiara, a Cali-fornia prune grower and Sunsweet’s board chairman.

Worldwide sales strategySunsweet is the nation’s leading marketer of dried plums

as well as specialty dried fruit products and juices. The co-op markets prunes and raisins in 60 countries, generatingabout $250 million a year in sales. During its 88 years, it’sbuilt a brand that’s recognized by 85 percent of Americanhouseholds. But adverse bouts with Mother Nature since2004 have sharply limited California’s inventory of prunes, ordried plums, as they’re also called.

Unprecedented back-to-back disasters have poundedgrowers and packers in the Golden State, which produces98 percent of the nation’s prunes and 70 percent of theworld’s supply. The California crop typically yields about160,000 tons of the dried fruit. But unfavorable weather con-ditions in 2004 led to the worst prune crop in the state’s his-tory. Production dropped to just below 48,000 tons.

Sunsweet’s members, who normally account for half ofthe state’s output, delivered their smallest crop since 1918.Then, in 2005, another unfriendly spring followed by intensesummer heat wrought another short crop.

The result? Increased expenses and reduced revenuesfor farmers and packers — and a record low supply ofprunes to market into distribution channels.

“Some grocery shelves are bare of prune products, pro-duction lines are not utilized full time, many of our experi-enced teams must suffer through weeks of little or no work,and some consumers are looking to other products to fill

their dried-fruit appetite and healthneeds,” Sunsweet noted in its 2005 annualreport.

Short supply threatens retail accounts

The prospect of losing key retailaccounts because of supply shortagessent shivers through Sunsweet. “With abrand, you pay a huge penalty if yourproduct goes out of stock,” says Lance.“There’s a big cost to bring it back on tothe shelf.”

Thus, California’s consecutive crop dis-asters paved the way for Sunsweet’s forayinto Chile. Sourcing all of its prunes in Cal-

ifornia appears “increasingly risky,” Sunsweet has said.If California had seen its normal production, says Lance,

it would be harder to explain why the co-op would need tosource dried plums from Chile. “But it’s been easy forgrowers to understand that this is an attempt to protecttheir business,” he says.

The co-op expects only modest volume out of its Chileanoperations — 2,000 tons of dried plums at most, compared tothe 75,000 tons Sunsweet sold in 2003, the last “normal” year.

It’s too early to forecast the 2006 California dried plumcrop, which will be harvested in September. But the co-op’smove into Chile offers much-needed protection forSunsweet.

“It’s not our intention to abandon California as the pri-mary source for the crop,” Thiara says. “But we definitelyneed to supplement that position with production from oth-er countries.”

Already, Sunsweet sources dried fruits from the Philip-pines and Turkey, Thiara says. The co-op also works withpartners in the United Kingdom, Germany, China and thePhilippines to pack dried tree fruits for the Sunsweet brand.

—Catherine Merlo ■

Sunsweet puts down roots in Chile

By Steven Johnson

Editor’s note: This article is reprinted courtesy of “Electric Co-opToday,” published by the National Rural Electric CooperativeAssociation. Some information also supplied by Angela Perez ofRoanoke Electric.

hen it comes to rolling out the red carpet,Roanoke Electric Co-op is going to have alarger one than most. That’s because the co-op is a key component in construction of a$129 million project to lure celebrities, dig-

nitaries and thousands of tourists to Roanoke Rapids, N.C.,located in the northeastern part of the state near the Virginiaborder.

Randy Parton, brother of music and movie star DollyParton, is spearheading construction of the CarolinaCrossroads Music and Entertainment District on about 800

acres served by Rich-Square-basedRoanoke Electric Co-op.

Upon completion, the endeav-or should rival music-orientedattractions and theme parkssuch as Dollywood, DollyParton’s Tennessee resort,and Branson, Mo., and givean economic lift to an areabest known for tobacco andtextiles.

“It’s the biggest thingwe’ve ever had here,”

said Curtis Wynn,executive vice

president andchief executive

officer of

Roanoke Electric. “It’s going to be a huge opportunity forour system to grow.”

A study by a research center at the University of NorthCarolina estimated the entertainment district will generate12,000 jobs, add $500 million to the regional economy andboost incomes by $204.7 million in the next 5 years.

Initial construction began in November, when workersbroke ground on the 35,000-square-foot, 1,500-seat RandyParton Theater, with an eye toward a spring 2007 opening.The Nov. 11 kickoff, which included Dolly Parton and a hostof country music stars, brought an estimated 10,000 onlook-ers to the site.

“The economic impact of this project is staggering, andwill be felt for generations to come,” said Jack Runion, chair-man of North Carolina’s Northeast Partnership Inc., thegroup that was instrumental in attracting Parton to the area.“This is an amazing venture that’s getting strong supportfrom all sides. We’re proud to have played a part in putting itall together.”

Developer George Ragsdale, who is working with Parton,predicted the venture “will turn this area into the foremostentertainment destination on the eastern corridor.”

Wynn said the co-op will provide electricity to the enter-tainment district, and also has assumed a key role as a liaisonbetween contractors and the project.

“They want to involve as many local parties with construc-tion as possible,” he said. “Our role is to interface with con-


Dol lywood EastRoanoke Electric Co-op key partnerin new, N.C. entertainment complex

The site plan for the Carolina Crossroads Music & EntertainmentDistrict

“Honey, it takes a lot of money to look this cheap!” Dolly Parton jokedduring a ceremony in Roanoke Rapids, N.C., where her brother, RandyParton, is developing a $129 million entertainment complex. Photo byAngela Perez, courtesy Roanoke Electric Co-op.

W

tractors and developers that come in aswork proceeds.”

That responsibility is likely toinclude co-op-led training classes andinformation distribution about particu-lar aspects of the development, he said.

Roanoke Electric’s infrastructureshould be adequate to power the firstphase of the entertainment district, butconstruction of an additional substationis likely as the project grows, Wynn said.

Randy Parton’s team selected the siteafter working with North Carolina’sNortheast Partnership, a 16-countyeconomic development organization.“Our territory is transforming from arural agricultural area to more of a serv-ice and tourism environment, so this fitsright in with that,” Wynn said.

Other businesses are likely to locatenear the district, with plans on board forsome hotels and restaurants to accom-modate the tourist load, Wynn said.

“We’re positioning ourselves to workboth on the electricity and economicdevelopment sides,” he said. “This willbe very significant for us.”

Lori Medlin, executive director of

the Halifax County Tourism Develop-ment Authority, said the developmentshould boost the growing tourismindustry. “Roanoke Rapids and HalifaxCounty are halfway between New Yorkand Florida and we want this to be adestination, a reason for people tospend several days enjoying themselveswith a focus on music and family enter-tainment.”

An additional study by EconomicResearch Associates of New York andWashington, D.C., verified that theentertainment district should attract thelevel of visitors required to make thearea a major travel destination for theregion and the state.

“Where today passers-by see greenfields and pine trees, I see the beginningof a great transformation of our com-munity,” said Roanoke Rapids MayorDrewery Beale, a key player in formu-lating the plan that attracted the project.“I see economic opportunity and excite-ment like we’ve never seen before. Thisis a new beginning for us.”

The process leading to selection ofRoanoke Rapids for The Randy Parton

Theater took place during severalmonths. “We drove a lot of miles, visit-ed many beautiful communities, andmet a lot of great people in NorthCarolina’s Northeast Region,” RandyParton said. “The pull of the RoanokeRapids area, with its strong leadership,friendly and warm community andInterstate 95 travelers made for the per-fect combination for this project.”

The Nov. 11 groundbreaking tookplace less than 5 months after RandyParton inked a deal with the City ofRoanoke Rapids, Roanoke RapidsEntertainment One and Blanchard &Calhoun Commercial to locate his the-ater in Roanoke Rapids.

Randy Parton has performed withcountry music greats including TanyaTucker, Lorrie Morgan, Ronnie Milsap,Merle Haggard and George Jones. His“big break” came when Jean Shepard,the grand lady of the Grand Ole Opry,asked him to join her band. A successfulsinger, songwriter and musician, hebegan writing and performing shows atDollywood. ■


Curtis Wynn, CEO of Roanoke Electric Cooperative, wasrecently honored with an Innovation Award at a Glaxo-SmithKline (GSK) Supplier Diversity Awards Luncheon inPhiladelphia. Wynn was recognized for leading GSK’sefforts to help themselves and other corporations and gov-ernment agencies seeking to grant contracts to small,minority and women-owned businesses.

This “linking” project, known as the Triangle Area BuyerSupplier Network, which is located in the Durham andResearch Triangle areas, gives GSK easy access to diversesuppliers who are seeking an opportunity to bid on andcompete for construction-related contracts. As a developerand proponent of the Network, Wynn has had the opportu-nity to work with some of the most progressive-thinking,supplier diversity professionals in the business. “Given theright opportunities, these smaller companies bring uniquevalues and skills to the table,” he said.

Typically, the businesses that Wynn is trying to help land

contracts go unnoticed in themarket. “They often aren’tafforded the chance to letthese large corporationsknow that they have valuableservices to offer. That’s whereour Network comes in.”

The Network, using Roanoke’s procurement softwareprogram, provides a gateway through which qualified,diverse suppliers can easily gain access to construction-related contract opportunities designated specifically forthem to bid on.

“It’s a win-win situation,” said Wynn. “The big companyor agency gets a larger, more diverse pool of contractors(which ultimately provides them with lower costs) and thesmaller diverse suppliers get a chance to grow their busi-nesses through increased opportunities from companiesthat are traditionally beyond their reach.” ■

Curtis Wynn, right,receives his InnovationAward.

Roanoke Electric Co-op CEO Wynn honoredfor work with small & minority contractors

By Stephen A.Thompson

Assistant Editor [email protected]

edwood Falls, Minn., ishome to a co-op biodieselplant with a difference.Most other biodieseloperations use soybeans

or rapeseed as feedstocks. NorthlandChoice biodiesel, however, is madefrom a variety of agriculturalfeedstocks, including animal fat.It’s manufactured not as a primaryproduct, but as one tool amongmany to extract the maximumvalue from the products ofAmerica’s only cooperative-ownedrendering operation.

Northland Choice biodiesel isproduced and distributed byFarmers Union Industries LLC, acorporation wholly owned bycooperatives: Farmers UnionMarketing & ProcessingAssociation (FUMPA) andFarmers Union Enterprises, madeup of the state Farmers Unions ofMontana, North and SouthDakota, Minnesota andWisconsin. FUMPA was foundedin St. Paul, Minn., by the NorthDakota Farmers Union in 1929.

Its original purpose was to providelivestock farmers with marketing cloutin dealing with large meatpacking firms.In 1947, it moved into rendering — theprocessing of animals that have died orare unfit for slaughter for food. Thisendeavor proved so successful that theco-op eventually got out of livestockmarketing altogether.

The LLC was founded in July 1,

2005, and currently has two renderingcomplexes that operate as Central BiProducts: one in Redwood Falls andanother in Long Prairie, Minn. Bothrendering complexes provide full serv-ice rendering, with the majority of theraw material supply coming from beefand poultry slaughter plants.

In 1988, Farmers Union purchased amink-food processing facility in St.Cloud, Minn., and in 1989, it launched

the Northland Choice brand of pet-food ingredients. Northland Choicesells to most major manufacturers ofwell-known pet-food brands.

Aggressive innovationThe Farmers Union family pursues

product innovation aggressively, saysChuck Neece, the co-op’s director ofresearch and development. A recentaddition is a patented pet litter product

called Swheat Scoop, made from wheatby-products. It was acquired in 2002with the purchase of privately held PetCare Systems Inc.

Production of the pet litter is consis-tent with Farmers Union Industriespolicy of diversifying risk while findingways to add value to agricultural prod-ucts. “Our goal is to support agriculturein total,” says Neece.

In line with that approach, anotherFarmers Union Industries busi-ness in Redwood Falls isRedwood Metal Works, whichmanufactures truck trailers,including those used by render-ing operations. Another division,Midwest Grease, collects andrecycles used restaurant fats.

In addition to providing anoth-er tool to help manage risk,biodiesel production promised agood return on investment. Thisis especially true due toNorthland Choice havingacquired a patent for the use ofglycerin as a feed ingredient.Glycerin is a major byproduct ofthe process that turns natural fatsand oils into biodiesel fuel.

Although a large facility wasoriginally considered, the co-op

board decided that a conventional, 30-million-gallon-per-year plant was toorisky, especially since there seemed littleprospect at the time of federal supportfor biodiesel prices. The co-op decidedthat the best approach would be a rela-tively small facility producing 3 milliongallons annually, financed with cash-on-hand.

The initial decision to go ahead withthe project was made in March 2004.


Co-op render ing operat ion y ie lds b iod iese l & more

R

Chuck Neece, director of research and development forFarmers Union Marketing and Processing Association, withpromotional materials for Northland Choice biodiesel fuel.USDA photos by Stephen Thompson


Finances got a boost in November ofthat year, when the cooperative receiveda $500,000 Value Added ProducerGrant (VAPG) from USDA RuralDevelopment for development of farm-based renewable energy sources. ByDecember, the facility was producingbiodiesel fuel — the first biodiesel plantin the state.

Small, transportable unitNorthland Choice’s biodiesel facility

differs with most other biodiesel plantsthat produce the fuel from vegetablesources in more than just its choice offeedstock. Most soybean and other veg-etable-feedstock operations are invari-ably dedicated, stand-alone operations.

Farmer’s Union biodiesel produc-tion, however, is carried out in a smallportion of the large, modern renderingplant in Redwood Falls. The processingmachinery occupies a space perhapstwice as big as a semi-trailer. It was

delivered skid-mountedas a unit by truck. Ifplans change, the entireprocessing unit can beremoved and transportedto another site relativelyeasily.

Neece is proud of thefact that the FarmersUnion biodiesel opera-tion was the first inMinnesota, and says thatits success gave othercooperatives the confi-dence to go ahead withtheir own plans forbiodiesel. FUMPA wasan active supporter forthe recently promulgated Minnesotarequirement that all diesel fuel sold inthe state contain at least 2 percentbiodiesel.

Northland Choice’s pioneering efforthas encouraged other biodiesel produc-

ers to consider the use of animal fats.Neece says the brand could incorporatevegetable oils as well if demand out-strips supply. “This new technologyhelps both animal and soybean farm-ers,” he says, “and that’s what we’reabout.” ■

The biodiesel plant occupies a small part of the renderingfacility outside Redwood Falls.

Land O’Lakes Inc. had net earnings of$128.9 million for 2005, up sharplyfrom $21.4 million for 2004. Co-opofficials said earnings were bolstered bya $69.7-million after-tax gain from thesale of its 38-percent interest in CFIndustries (a domestic fertilizer manu-facturing venture). The 2005 sales of$7.6 billion were down 1 percent from2004’s $7.7 billion.

Overall, the company reported strongand improved performance in its feed,seed and agronomy businesses, as well assolid performance in its Dairy Foodsvalue-added product categories. Thispositive performance was partially offsetby losses in its Layers business andDairy Foods manufacturing operations.

The company also reported signifi-cant progress on key strategic initiativesof paying down debt and building bal-ance-sheet strength, portfolio manage-ment and building its branded business-

es. LO’L reduced total debt byabout $350 million in 2005 and endedthe year with a significantly improved,long-term debt-to-capital ratio of 41.3percent, compared to 51.9 percent atthe end of 2004. It had strong liquidity,with $521 million in cash-on-hand andunused borrowing authority. In the sec-ond half of the year, Moody’s andStandard and Poor’s each upgraded theco-op’s financial ratings, with bothagencies indicating their ratings carrieda positive outlook.

LO’L sold its swine productionassets and its 38-percent ownership inCF Industries Inc., generating $385million in cash from asset dispositionsin 2005.

Among other 2005 highlights:• In dairy foods, the launching of Land

O’ Lakes Light Butter with CanolaOil and the introduction of a newFlavorProtect wrapper for the compa-

ny’s flagship Land O’ Lakes butter;• In feed, the launch of such diverse

new products as Cornerstone full-growth milk replacer; RangeLand all-weather beef mineral and UltiumCompetition Horse Formula.

• In seed, the rollout of RoundupReady(R) Alfalfa, developed in 10-year collaboration with Monsanto.In other LO’L news, the co-op

announced plans to close itsGreenwood, Wis., cheese manufactur-ing facility. The decision came afterconsiderable study of market trends andplant capabilities, said Executive VicePresident Alan Pierson. “There isdeclining milk production in the upperMidwest. Given these market condi-tions, it is not feasible to competitivelyoperate our Greenwood facility.” Theclosing will affect approximately 30employees. ■

LO’L sa les h i t $7.6 b i l l ion ;co-op earns $128 mi l l ion

By Jane Livingston

Editor’s note: Livingston is a freelancewriter based in Maine who specializes in co-op issues. Contact her at: [email protected].

s senior project managerfor the 100-year-oldScottish AgriculturalOrganization Society, BobYuill works with 80 mem-

ber cooperatives that have combinedannual sales of $2.8 billion, accountingfor well more than half of Scotland’sannual $4 billion in total ag sales. His

job is to ensure that the Society meetsits purpose: “To strengthen the prof-itability, competitiveness and sustain-ability of Scotland’s farming, food andrelated rural industries and communi-ties through the development of coop-eration and joint activity.”

It’s a challenging, complex job, soYuill was eager to learn more when hefirst heard of the Master of Manage-ment — Cooperatives and CreditUnions (MMCCU) degree program.

“I knew I didn’t want the standardprogram based on profit maximization,”Yuill says. “Even most of the co-op edu-cation courses I’d discovered seemed tobe the basic MBA with a co-op moduleattached at the end. That doesn’t work.You’re not using the fundamentals ofcooperation as the groundwork forbuilding the business. If you start withthe premise of maximizing return oncapital, you will always get to the wrongconclusion.”

Yuhill’s boss had already signed the

Society up as a member of theCooperative Management EducationCooperative (CMEC), which producesthe MMCCU accredited degree pro-gram (the only one of its kind in theEnglish language). Tom Webb managesthe program from its home base at St.Mary’s University in Halifax, NovaScotia.

International scopeCMEC has more than 55 members

that represent every sector of coopera-tive enterprise. They are located inCanada, the United States, the UnitedKingdom, Ireland, Finland andOceania. Included are such well-knownnames as Co-op Atlantic, Co-operators


Master ing Co-op ManagementCan managers really build healthy businesses based on co-op principles and values? How is success measured?

A

The headquarters building of the MondragonCooperative (MCC) in Spain, another area theclass tours due to the large concentration ofco-ops there. Photo courtesy MCC

The scenic EmiliaRomagna region of Italy isone of the "co-op epicen-ters" the managementclass tours. Photo by,and courtesy of, JerryPeek. To see more ofPeek's work, visit:www.photomondiale.com.

Insurance, Credit Union Central ofCanada, and the gigantic Co-operativeGroup in the U.K.

Credit Union National Association,the National Co-op Bank and theNational Cooperative BusinessAssociation in the United States aremembers, as are the Co-operativeFederations of New South Wales andVictoria (Australia) and the NewZealand Co-operatives Association.

Faculty and students enrolled in theMMCCU program are scattered wide-ly, too. After an initial, week-long ori-entation at St. Mary’s in Halifax, theytelecommunicate with one anotherfrom home and at work. They also goon at least one study tour together, toco-op ‘epicenters’ such as Mondragon,Spain, or Emilia Romagna, Italy. Thecomplete course is rigorous. It requires144 weeks of classes, assignments and amajor project linked to the sponsoringemployer co-op/organization.

“We operate the program on twopremises: One, that bankrupt co-opsdon’t meet their members’ needs; and,two, that if there isn’t any differencebetween your co-op and a regular busi-

ness, no one really needs you,” Webbsays. “It’s the combination of these twothat drives the course.

“We keep asking the question overand over: ‘This is how it’s done in aregular business. How is it done in aco-op or credit union? How would youdesign a store differently? How wouldyou treat your workers differently?How would you do the accounting or

the marketing differently?’ “I dislike it when I hear people say,

‘Co-ops aren’t about making money’,”he continues. “It’s dishonest. Otherwise,they’re bankrupt. The real difference isabout the purpose of the business andwho gets to decide how the surplus isused for the good of members and thecommunity. The problem is, we eitherthink about it from a consumer’s pointof view — ‘I want to pay the lowestcost’ — or from the producer’s: ‘I wantto get the highest price.’ This doesn’treflect the cooperative concept of inter-dependence.”

Unique curriculumAs the MMCCU curriculum was

being designed, an accountant for Co-op Atlantic asked Webb what they weregoing to do about teaching accounting.Webb said, “Accounting is accounting.”

“So you’ve written us off as beancounters, eh?” the accountant replied.“Well, your program won’t achievewhat you want it to.”

Webb explained what he meant thisway: “You’re the manager of a co-opand I’m the chairman of the board. You

have four goals, but I measureyou only on one, not the otherthree. You’ll do your best onthose others, but you’re reallygoing to focus on the one. Soin three years, how will youknow how successful you’vebeen on your other threegoals?”

The trouble, says Webb, isthat co-ops can’t measure theirsuccess with the accountingtools that exist today. “The jobof an accountant is to showhow to use our resources toachieve our goals. But we don’tdo it. We don’t account for ourother bottom lines. Where arethe tools that let a co-op knowif we’ve balanced our multiplebottom lines?”

Its challenges such as thesethat the first class of MMCCUstudents has been grapplingwith for two years.

Yuill is in the home stretch.


Mikel Lezamiz (far left), program director of the Mondragon Cooperative Corporation's ManagementEducation Center, outside the center's facility in Otalora, Spain. With him are MMCCU Program Coordi-nator Tom Webb (third from left) and class members and faculty. Photo courtesy Tom Webb

“Most of the co-opeducation courses I’ddiscovered seemed tobe the basic MBAwith a co-op moduleattached at the end.That doesn’t work.”

— Bob Yuill

He’ll complete the courses this springand earn his Master’s degree nextspring. How have he and the ScottishAgricultural Organisation Society bene-fited from his participation? He listsseveral concepts that he’s introduced tohis member-owners, which have helpedthem improve the Society’s operation.

“The organization’s awareness ofthese areas of opportunity has grownsignificantly,” he explains. “But evenmore fundamental is that we never real-ly had the confidence to base what wedo on co-op principles. This coursegave us the confidence to say, ‘This canbe done.’ Now, we recognize that weare in a unique place in the market.We’re much more focused on what weare.”

Internal marketing Yuill refers to this as “internal mar-

keting,” where the employees andmembers of the organization internalizethe co-op principles and core values.This in turn enables everyone to be partof ‘marketing our cooperative advan-tage’ (or MOCA, a key concept of theMMCCU program, and one which

Webb helped develop).“As a result,” Yuill emphasizes, “our

effectiveness and influence as an organi-zation is growing, on the basis of peo-ple’s trust in what we say. Our relation-ships with our members, clients, andother stakeholders are much clearer.And because we have greater clarity inour approach, the solution that’s con-veyed by cooperation is more readilyunderstandable.”

When he talks to someone in gov-ernment now, that straightforwardnessenables Yuill to sell the co-op solutionmore easily, whether he’s addressing acivil servant, a minister or a member ofparliament.

“They’re more supportive,” he says.“The agricultural strategy developed 5years ago didn’t refer to co-ops, exceptin broadest terms. The new one, to bepublished this spring, we are sure, willbe much more focused on the coopera-tive solution.”

Building strong leadershipSteve Lepp is general manager of the

Pioneer Gas Co-op in Alberta.Incorporated in 1970, the co-op’s 350

members are mostly farm fam-ilies who use the gas for heat,water pumping and otherneeds within the area’s diversi-fied agriculture sector. He saysthe fact that most of theMMCCU program is pursuedfrom the students’ home com-munities hasn’t led to feelingsof isolation.

“After we get face-to-face atorientation for a week, wepretty much know everybody,”he says. “It’s interesting that,although we’re nothing at allalike and come from differenttypes and sizes of co-ops,many of our problems andissues are identical.”

Lepp enrolled in the pro-gram because he knows his co-op will need good leadershipin the years ahead. He doesn’tmince words about it: “We areone of 60 similar co-ops in theprovince. By now, everyone in

Alberta who wants gas has it. We’veachieved that goal; our growth is done.

“So how does the co-op keep going,without growth? That’s a managementchallenge, and that’s where this coursehas come in handy. It’s shown us someoptions we have in working coopera-tively with others…Re-engaging ourmembers is a huge part of what we needto do, not just give good service for afair price.” For example, the co-op isnow looking at several alternative ener-gy technologies.

Lepp says he’s been able to apply“pretty much everything they’ve thrownat me” in the Master’s program. Onechange he made was to open the doormore widely to employee innovation.During a study tour to Mondragon, hewas impressed by their commitment toinnovation.

“If an employee comes up with anidea, they’ll haul you right into theprocess,” he says. “Now, we explain tomembers all the ways the money theyinvest is reinvested in the employeesand the community. We also emphasizethat because they are owners of the sys-


David Cudmore (right), CEO of Canada's Scotia Gold co-op, explains the workings of storage facilitiesthat permit apples to be stored for up to 10 months. The co-op, which came close to failing before right-ing itself, provided valuable lessons for visiting candidates in the co-op management class. Photo cour-tesy Tom Webb



N E W S L I N E

Send items to: [email protected]

FCS report seesexpanding ruralopportunities

While the number of farmers andcommunities that rely on agriculturefor their economic well-being havedeclined, the future of U.S. agricul-ture remains bright. Future possibili-ties are expanding, not contracting,according to Farm CreditHORIZONS, a comprehensive,nationwide-research study released bythe Farm Credit System, the nation’sproducer-owned farm lending net-work. Facing a rapidly changing glob-al marketplace and structural change,American farmers, ranchers and ruralentrepreneurs need reliable access toa broad range of financial services andexpertise in order to capitalize onemerging growth opportunities, thereport finds.

“Today’s rural entrepreneurs,including farmers and ranchers, areon the leading edge of a global agri-cultural economy,” says WayneLambertson, a Maryland farmer whoserves as chairman of the FarmCredit Council board of directors.“As this research makes clear, rapid

change requiresgreater flexibility onthe part of the insti-tutions that U.S.agriculture andrural America relyon. Yesterday’s waysof doing businesssimply will not workto ensure the con-tinued success of

agriculture and America’s rural com-munities.”

The report describes the need forpolicy solutions that will help farm-ers, rural businesses and rural com-munities succeed in the emergingmarketplace. The HORIZONSproject has helped identify howincremental changes to theFarm Credit System can pro-vide agriculture and ruralAmerica greater access to addi-tional capital that can be usedto expand agriculture’s contri-bution to rural prosperity.

The HORIZONS reportcontains the following key find-ings: • Farmers are diversifying their

business interests both withinand outside agriculture. The over-whelming majority, but especiallysmall-sized operations, rely on off-farm employment to stay in agricul-ture.

• Farmers depend on a wide range ofbusinesses that may or may not beowned by farmers, and they may ormay not be located in a rural com-munity; but all are essential to theeconomic viability and quality oflife for farmers.

• It is becoming increasingly difficultto define a “rural” community sole-ly by population or traditional qual-ities.

• Regional collaboration, public-pri-vate partnerships and coalitions ofinvestors are key to the future ofmany rural communities. To createjobs, attract new business and fosteran environment for future econom-ic development, agriculture andrural America will need to find newways to reinvest farm real estateequity.

• As innovative business owners,today’s rural entrepreneurs, includ-ing farmers, ranchers and produc-

ers, will continue to need access tocapital, essential infrastructure andbusiness support services for thatentrepreneurial engine to continueto spur rural economic growth. Copies of the HORIZONS final

report may be downloaded from:http://www.fchorizons.com. Torequest a printed copy, contact theFarm Credit Council by mail: 50 FSt., N.W. Washington, D.C. 20001.■

Hank Soule (above), general manager of the Portland (Maine)Fish Exchange, has developed a $3 million plan to improvethe efficiency of the operation, where about 150 fishing ves-sels unload. Photos courtesy FCC

Bill Miller plans to build rental housing forteachers in Tahoka, Texas. He and Soule(above) are profiled in FCC’s “Horizon” report.

MD/VA Milk Producersbuy Giant Foods milk plant

Maryland & Virginia Milk ProducersCooperative, Reston, Va., has agreed topurchase Giant Food’s dairy processingplant in Landover, Md., effective March25, 2006. In addition to the plant and11 acres, Maryland & Virginia secured along-term supply agreement to provideGiant Food stores with fresh milk.When the deal is finalized, Maryland &Virginia’s combined fluid milk process-ing business will have more than$270 million in total sales andnearly 800 employees.

Currently, the Giant Landoverplant processes about 21 millionpounds of milk per month, catersto 191 grocery stores and employs97 people. Maryland & Virginia,which had 2004 revenues of $821million, has been the sole raw milksupplier there for more than 30years, so few operational changesare expected.

“Maryland & Virginia has avested interest in making sure con-sumers have a fresh, local milk sup-ply; the Giant Landover operation

is a perfect complement to our existingfluid processing business and our localmembers supplying the milk,” said JayBryant, the cooperative’s general man-ager, “ adding that the co-op has servedthe D.C. metropolitan area with milkand dairy products since 1920.

“The co-op has been in the fluidmilk business for decades and is com-mitted to the plant and the dairy farm-ers,” said Bill Holmes, executive vicepresident of Giant Food. “Giant con-

sumers will continue to enjoy the samefresh quality milk that they have cometo expect when shopping at Giant.”

The plant will be operated as MarvaMaid of Landover, the name of thecooperative’s private milk brand, whichis already available in northernVirginia. The plant will continue toproduce Giant’s private-label milk,according to the cooperative’s new sup-ply agreement with Giant Food.Owned and operated by 1,500 dairy

farm families fromPennsylvania to Georgia,Maryland & Virginia is a milkmarketing and processingcooperative providing con-sumers throughout the Mid-Atlantic and SoutheasternUnited States with fresh milkand dairy products. The co-opalso owns and operates twofluid processing plants, MarvaMaid in Newport News, Va.,and Maola Milk and Ice CreamCo. in New Bern, N.C., a man-ufacturing plant in Laurel, Md.,and an equipment warehousebusiness in Frederick, Md.


The Maryland & Virginia Milk Producers co-op is buyingthe Giant grocery chain's milk plant in Landover, Md.

Capper-Volstead Act allows farmers andcooperatives to engage in collective dis-cussion and make agreements thatimpact price, the law does not protectsuch agreements with other parties.The Schuggs argued that UDA enteredinto an illegal agreement with a non-cooperative milk broker as part of itsscheme to limit supply.

The Schuggs based their claim onthe testimony of a witness who woreseveral hats. She was co-owner of themilk broker, the manager of aCalifornia dairy cooperative and adirector representing the Californiacooperative on the board of a regionalmilk marketing association that agreedto participate with UDA in the milk-withholding effort.

The court notes that at the time itwas developing the withholding strate-gy, UDA applied for membership in the

regional association. The witness testi-fied that during the meeting of theregional association board to considerits application, UDA asked for assur-ances that milk being marketed by thebroker for independent Arizona pro-ducers wouldn’t be sold to Arizona bot-tlers. The witness testified that UDAwas assured the milk would be marketedthrough the California cooperative andnot be sold to Arizona bottlers.

While the Schuggs argued that thisevidence suggested UDA entered intoan improper agreement with the bro-ker, the court disagreed. The courtpoints out that the broker was not amember of the regional association andthe testimony merely indicates that thebroker sold to another cooperative,which could legally be a party to anti-competitive marketing agreements withUDA. The court held that this is insuf-

ficient evidence from which a reason-able person could find UDA violatedthe antitrust laws. Technically, theappellate court upheld the trial court’sruling that the Schuggs’ argument wastoo weak to even send it to the jury fordeliberation.

So, on the antitrust issues, the courtdetermined neither UDA’s inquiry as tohow the broker intended to marketindependent producer milk, nor thesales agreement between the broker andanother cooperative that was legallyengaging in joint supply managementwith UDA, constitutes an illegal agree-ment to restrain trade between UDAand the broker. If the court had foundan agreement between UDA and thenon-cooperative broker illegallyrestrained trade, the court probablywould have held that the agreement wasnot protected by Capper-Volstead. ■

Legal Corner continued from page 15

Stacyville Cooperative Creamerymerges with Foremost Farms USA

Cooperative Creamery in Stacyville,Iowa, merged with Foremost FarmsUSA on Jan. 1. Stacyville’s membersapproved the merger on Dec. 12,whereby Foremost Farms will assumethe equity investments of all Stacyvillemembers. Stacyville Cooperative, inMitchell County in north-central Iowa,formed in 1916 and has 66 memberswhose farms border the western edge ofthe Foremost Farms membership area.

“Our members’ equity in StacyvilleCo-op Creamery will be matched dollarfor dollar by Foremost Farms,”Stacyville Manager Randy Stephensonsaid. “Foremost Farms is one of themost financially stable cooperatives in

the U.S. dairy industry,with a diversified productbase and comprehensivemember services. We areproud to be joining forceswith a cooperative that isfiscally responsible andrecognizes our members’investment.” Foremost FarmsChairman Ed Brooks,Reedsburg, Wis., said,“We welcome the oppor-tunity to grow our milk-shed in Iowa, and lookforward to working withthe new membership.” ForemostFarms, headquartered in Baraboo, Wis.,recently marked its 10th anniversary. It

operates 20 manufacturing facilities andone milk transfer station for its 3,600dairy farmer-members. Its brands


be small as you ramp up, and that it willbe a couple of years into deployment ofthe product before you see the benefit.

“We’re not constrained by a mental-ity of ‘we’ve got to push this softwareout the door, even though it’s not readyyet, because we’ve got to meet a rev-enue target.’ We can take a long-termview. Members belong to our co-opbecause they need mission-critical soft-ware to run their businesses. They arenot all that concerned about the returnon their equity level in NISC and whatrate of return they will get on the equi-ty.”

NISC directors understand this busi-ness cycle because most of them havebeen through it a couple of times.They’ve also seen the “melt down” ofmany competitors in past 10 years,Dosch says. “NISC kept clicking along,growing and adding new products whileso many others were falling.”

Since members are more concernedwith service than double-digit returnson equity, the co-op’s margins are mod-est in most years, typically $1.5 millionto $2.5 million. Margins are allocatedback to member-owners on a proratedbasis, with 21 percent paid in cash.

The co-op board has 14 members,elected by regions. Each region nomi-nates and elects its own director.

Economy of scaleAnother key co-op advantage is the

economy of scale derived from utilitieswith similar needs joining forces. Forexample, the billing products NISCdeveloped cost $13 million. It wouldhave been cost-prohibitive for most ofits individual members to shoulder thatcost alone. But spreading the cost outamong hundreds of members makes itvery affordable.

Co-ops have traditionally alsoenjoyed a greater degree of customerloyalty, because the members have avested interest in the business and havea say in its governance through theelection of directors and participationon advisory committees.

“The loyalty factor is still there, butless so today than 20 years ago, whencustomers could recall when and why thecooperative was formed. It was a hugefactor then. Today, with the next genera-tion, they don’t have the historical back-ground of the organization.”

The biggest disadvantages of a co-op, from a management viewpoint, isthe need to serve many masters, sinceevery customer is also an owner. “Weare not just a vendor to these utility sys-tems; they all own a piece of us andthus have a louder voice than theywould in a non co-op.

Technology concernsStaying ahead of the technology

curve is, of course, an ongoing task. Tohelp NISC do so, it relies heavily on itsInnovations Group — a panel of tech-savvy employees tasked with trackingemerging technologies and how the co-op can use them.

A big concern recently involves theBlackberry patent-infringement lawsuitand the impact its precedent could set forintellectual property rights throughoutthe industry. For the first time, NISC isnow taking out patents on certain aspectsof new products.

“We’re having to become more defen-sive,” says Dosch. “You have to beware of‘patent trolls’ — patent owners whooften don’t produce a product, but arejust out to generate funds from a patentthat they have no intention of ever usingthemselves.”

It’s rather like walking through afield of landmines, he continues. “Mybiggest concern is that this type ofactivity can hinder innovation.Software companies are now scared todeath to put tens of millions of dollarsinto product R&D, then find a patenttroll somewhere has a patent for thatprocess and can throw up roadblocks.” ■

The Edge continued from page 7

Gene Nyhre (left), chairman of Stacyville Co-op, exchangescongratulations with Mike O’Brien, director of procurementfor Foremost Farms, following the merger vote. Photo cour-tesy Foremost.

include GG Golden Guernsey Dairyand Morning Glory.

Johanns featured speaker at Co-op Summit in D.C.

Agriculture Secretary Mike Johannswill be the featured speaker at theNational Co-op Summit, an unprece-dented gathering of up to 400 coopera-tive business leaders May 3 inWashington, D.C. USDA has vastinfluence over cooperatives of all types,including utility, housing and farmer

co-ops. USDA Rural Development isthe only federal agency with a coopera-tive services office, which provides co-op research, education (including RuralCooperatives magazine), technical assis-tance, statistics and development.Johanns will be the Summit’s lunchspeaker.

Earlier in the day, former Congress-man Glenn English, now chief execu-tive of the National Rural ElectricCooperative Association, will providethe keynote address. Other confirmed

speakers include Pauline Green, formerEuropean Parliament member and cur-rent head of Co-operatives UK, andStephanie McHenry, board chair of theNational Cooperative Bank.

Breakout sessions will cover thehottest co-op issues, including: market-ing, ethics and governance, finance andequity, co-op conversions, domestic andinternational co-op development, cross-sector issue alliances, and co-op solu-tions for disaster recovery. The Summitwill conclude with a panel of co-op sen-


which is sold globally. Westnut is theco-op’s industrial brand, sold to cus-tomers such as Kraft, Godiva, Planters,Diamond, Emerald Nut and Sara Lee.The co-op typically exports about 60percent of its hazelnut supply, althoughthis year it’s the domestic market that’sbuying 60 percent of the co-op’s crop.

HGO has witnessed a 20-yeardecline in hazelnut acreage. Some lossmay be due to urban sprawl, but moststems from a tree-killing disease calledEastern Filbert Blight. The disease hasbeen slowly diminishing Oregon’shazelnut production, especially in theWillamette Valley. So far, Johnson says,Eastern Filbert Blight has taken outabout 1,000 acres of hazelnut trees,leaving 28,400 acres in Oregon.

Meeting rising demandAt the same time, worldwide hazelnut

demand is rising. As a result, prices arereflecting the tight global supply and theincreased demand for hazelnuts, used incandies and other confectionaries. Forthe 2005-06 season, U.S. hazelnut grow-ers are receiving their highest pricesever: $1.15 a pound. That’s a sharpincrease from 2004’s 70-cent per-poundprice, or the average of 37.5 cents perpound received from 1984-2004.

“The need to supply our customershas grown significantly,” Johnson says.“We want to continue to serve our mar-kets, so we’ve been looking for [hazel-nut] sources outside the U.S.”

HGO has considered several options

to meet customer demand, includingthe possibility of buying hazelnuts fromTurkey, the world’s largest hazelnutproducer, and from Spain. But Turkeyhas had two consecutive years of poorproduction, further limiting the world’shazelnut supply.

Moreover, the Oregon co-op doesn’tbelieve it can gain much added produc-tion by increasing its U.S. membership,even though its prices have averaged 18percent above the hazelnut cash pricesince its 1984 inception. “In the U.S.,only a certain percentage of peoplewant to be co-op members,” saysJohnson. “While our membership inOregon remains open, we see a realadvantage to balancing our supply withour existing plant capacity by sourcingproduct from members in Chile.”

After being contacted by a Chileanhazelnut farmer at a conference inSpain last fall, Hazelnut Growers ofOregon discovered a receptive mentali-ty toward co-ops in the South Americancountry.

“They’re good farmers, but not nec-essarily good marketers,” Johnson says.“So, if they can be part of a companywith greater expertise that can providelong-term profitability, they’re open toit.”

60,000-ton potential In April, members of the board and

management of the cooperative are slat-ed to travel to Chile to meet with grow-ers and tour the production area. The

co-op hopes to sign up more membersat that time.

Because the Chilean hazelnut indus-try is still young, “we don’t anticipatetoo much production this year,”Johnson says. “I’d be surprised if theyproduced 20 tons.”

But the co-op does foresee promis-ing prospects. Its grower contacts inChile believe the industry can reach60,000 tons of hazelnut production inthe next 20 years. Already, HazelnutGrowers of Oregon has set up aChilean entity in Santiago with its firstChilean member as its agent. Thatshould foster closer ties as well as morelocal control, Johnson says.

“Initially, their production will beshipped to us,” says Johnson. “Butwhat’s best is to have a processing plantclose to production. I think eventuallythere will be.”

In the meantime, plenty of ques-tions remain: Will Hazelnut Growershave a separate pricing pool for itsChilean membership? If the co-opshould decide to build a plant in Chile,how would it be financed? If Chileanmembers’ production gets big enough,will they earn a seat on the board ofdirectors?

The co-op is still exploring theseissues. “We have to look long-term atwhat’s best for the co-op as a whole,”Johnson says. “But we believe there area lot of blue skies ahead for the hazel-nut industry.” ■

Southern Exposure continued from page 17

ior leaders discussing the top challengesand opportunities facing the community.

“The Summit will bring togetherrepresentatives of every type of co-opfrom across the nation,” says PaulHazen, president of the NationalCooperative Business Association(NCBA), which is organizing theSummit with help from the nation’sleading cooperatives and their tradeassociations. The event will also markNCBA’s 90th anniversary. “Attendeeswill come away with the sense that theyare part of something much bigger thantheir co-op or even their sector. TheSummit also will help them be moresuccessful and reveal how co-ops canimprove their communities.”

The Summit will take place in theRonald Reagan Building andInternational Trade Center in down-town Washington.

The May 3 date dovetails with otherco-op events in Washington, includingthe Cooperative Hall of Fame Banquetand Induction Ceremony and key meet-ings for electric, housing and studentco-ops and credit unions. NCBA’s annu-al meeting will follow the Summit byone day.

For additional information or to reg-ister on-line, visit: www.ncba.coop.Media interested in attending shouldcontact Art Jaeger at 202-383-5462 [email protected].

Iowa turkey co-op to market for Norbest, Moroni co-ops

Sales and marketing operations forNebraska’s only turkey processingplant and its widely known Norbestlabel will move from Utah to Iowa,effective May 1. The Omaha World-Herald reported that the NebraskaTurkey Growers Cooperative and itssister cooperative, Moroni Feed Co. incentral Utah, are merging sales effortswith processed meat, poultry and cheesemanufacturer West Liberty (Iowa)Foods LLC. Iowa Turkey GrowersCooperative is majority owner of WestLiberty Foods. Norbest products willcontinue to be processed by the plant inGibbon, Neb., which employs 250 peo-ple, and by two plants in Utah that

employ a total of about 800 people.About 22 people selling and market-

ing Norbest products out of Midvale,Utah, will be laid off or offered newpositions in Iowa, Paul Reed, directorof marketing for the Norbest label, toldthe World-Herald. The Norbest labelwas created by the NorthwesternTurkey Growers Association, foundedin 1930 in Utah. Members of that first

cooperative have changed over theyears, and the organization has evolvedinto Norbest Inc. Marketing, based inUtah for 75 years.

Norbest products are sold across theUnited States as well as in Mexico andthe Caribbean, Middle East and thePacific Rim.

Norbest and West Liberty will bene-fit from the coming change, Reed said.West Liberty gains the national Norbestbrand familiar to grocery shoppers andNorbest gets an expanded ability toproduce sliced luncheon meats andother products, he said.

Dairy Development Grant awarded to Accelerated Genetics

Accelerated Genetics, Baraboo, Wis.,has been awarded a Dairy DevelopmentGrant by the state of Wisconsin todevelop a handheld computer softwareprogram for reproductive managementon dairy farms, otherwise known as theAccelerated Synchronization Assistance

Program (ASAP). Funds are being pro-vided under Wisconsin’s Local DairyDevelopment Pilot Grant program,which helps small dairy producers andcooperatives develop new strategies,products or ideas.

Accelerated Genetics says it demon-strated that ASAP technology can dra-matically improve reproduction per-formance and quality of life for Wis-consin dairy producers, and that the co-op has the technology, network andhuman resources to succeed with theproject. The co-op says ASAP will fill atremendous need for simplified repro-ductive management by providing aneasy-to-use, versatile record-keepingsystem. ASAP is already assisting pro-ducers in breeding their cows on timeand increasing pregnancy rates.

Co-op members already using theASAP systems praise it for helpingthem maintain better records for shots,breeding and herd health checks.Portability means they can carry it everywhere and synchronize heifers.The grant was awarded for develop-ment of ASAP within the state ofWisconsin. Accelerated Genetics hasalready made a major investment in theprogram from software design, person-nel, employee and customer training,ASAP kit hardware and in advertising.Accelerated Genetics is a globalprovider of bovine genetics andresearch, reproductive services andsolution-based animal health products.

CoBank earnings, patronage up in ‘05CoBank reported 2005 year-end

earnings of $298 million, an increasefrom $275 million in 2004. This repre-sents an 8-percent increase that wasdriven largely by a lower provision forcredit losses, reflecting improved creditquality and a lower level of losses ondebt prepayments, which more thanoffset a decline in net interest income.

“CoBank has once again closed theyear with higher earnings than everbefore,” says Douglas D. Sims, CEO ofCoBank. “We also increased our capital,maintained strong credit quality, con-tinued to improve the effectiveness ofcore business processes and expanded


Accelerated Genetics is developing soft-ware for dairy breeding records that canbe accessed on handheld computers.


our relationship with other Farm CreditSystem institutions.”

For 2005, CoBank will pay a patron-age distribution of $168 million to itscustomer-owners, of which $116 mil-lion will be in cash and the remainderin stock. Patronage represents a 15.8percent return on average invested capi-tal for customer-owners. “Our successis built on their (customer) success, andwe share our financial success with ourcustomer-owners through patronage,”Sims said. For the past 5 years, CoBankcustomer-owners received an average of$151 million per year in cash as a resultof their investment in the bank.

CoBank’s capital remained stable at$2.9 billion, and assets increased to $33.8billion from $30.9. Total loans and leasesoutstanding to U.S. and internationalcustomers increased to $26.3 billion,from $24 billion at the end of 2004. Thisgrowth was primarily due to increases inagribusiness loan volume, lending toFarm Credit associations and loans torural energy customers.

Countrymark secures financingfor clean-diesel fuel complex

Indianapolis-based CountrymarkCooperative, Indiana’s largest supplierof biodiesel fuel, has secured a $50-mil-lion line of credit to complete construc-tion of a $45-million, clean-diesel fuelcomplex. Countrymark will also usesome of the financing to upgrade exist-ing facilities. The financing wasarranged through Chicago-basedLaSalle Bank NA. Countrymark sup-plies roughly 85 percent of the state’sbiodiesel, most of which is used foragricultural applications. Countrymarkhopes more municipal and school bussystems start using the technology.

“We see tremendous air quality bene-fits,” says CEO Charlie Smith. “If youthink about the average school kid wait-ing in line, breathing diesel air emission,and then think about inhaling biodieselair, there is a significant difference.”

Barth to lead Dakota PrideLeland “Judge” Barth, a former mar-

keting specialist with the North DakotaWheat Commission and the state

Agriculture Department, has been hiredas the first executive director of theDakota Pride Cooperative. DakotaPride was formed in 1998 by NorthDakota Farmers Union members. Itmarkets specialty crops grown by co-opmembers based on buyer specifications.Barth will oversee day-to-day opera-tions and market development, and alsowill work with producers. “This willtake us to the next level in connectinggrowers to end users,” said co-opPresident Richard Schlosser.

DFA expands stake in Keller’s Creamery

Dairy Farmers of America Inc.(DFA) has acquired all of the ownershipinterests in Keller’s Creamery LP, thenation’s second largest manufacturer ofbutter for retail, food service and indus-trial uses. Keller’s was formed in 2000as a joint venture between DFA andFrank Otis and Glenn Millar, the for-mer management team of SodiaalNorth America Corporation. DFA nowbecomes the majority owner of thepartnership in the butter business andwill oversee the management of Keller’swarehouse and office operations inHarleysville, Pa., and the butter pro-cessing plant in Winnsboro, Texas.

Keller’s Creamery has been produc-ing dairy products for more than a cen-tury. In 2003, the Texas plant churned

cream into more than 100 millionpounds of dairy products, includingpremium and bulk butter, butter oil,nonfat dry milk powder and other dairyingredients. Mark Korsmeyer, presidentof DFA’s American Dairy Brands (ADB)division, will manage Keller’s market-ing, sales and manufacturing functions.

USDA awards $21 million for energy projects

Agriculture Secretary Mike Johannshas awarded 14 grants and one loan

guarantee totaling more than $21.6 mil-lion to increase energy production orimprove electrical service and energyefficiency in communities in five states.“Increasing domestic energy production,including the development of farm-based energy sources, helps to strength-en the economy of rural America andreduces our dependence on importedoil,” Johanns said while in Ames, Iowa.“These funds will also help to promoteenergy efficiency by improving ourexisting electrical infrastructure.”

In Clinton, Iowa, a USDA RuralDevelopment Renewable EnergySystems loan guarantee of $3.22 millionwill be used to partially fund construc-tion and operation of a biodiesel pro-duction plant with a yearly capacity of10 million gallons (see page 35). Theplant will use over 7 million bushels ofMidwestern-grown soybeans per year.It is the first production facility to belocated in a new, 233-acre industrialpark in Clinton.

Pioneer Electric Cooperative inGreenville, Ala., will receive $855,000under the High Energy Cost Grant pro-gram to install energy-efficient heatingsystems and appliances and to weather-ize the homes of low-income customers,cutting energy costs by as much as 40percent. The Alaska Village ElectricCooperative will receive a grant of $1.15million to construct a wind turbine inthe fishing community of Hooper Bay,reducing the demand for diesel fuel forelectrical generation by 24 percent.

The Sacred Power Corporation willreceive $1.9 million to provide hybridsolar power stations to individual homeson the Navajo Reservation in theCameron, Ariz., area that have no elec-trical service and currently use gasolinegenerators. Other grant awards will beused for hydro project repairs and elec-trical service improvements. The grantsare awarded under a USDA RuralDevelopment program intended toupgrade service and reduce energy costs in communities where the cost of power is at least 275 percent of thenational average. A complete list of the grant recipients is available at:http://www.rurdev.usda.gov. ■

50 Years Ago…From the April 1956 issue of News for FarmerCooperatives

Florida Citrus Co-ops Look to Exports“A group of Florida citrus men (mostly co-op

representatives) recently made a 10-day tour ofEuropean markets. This trip was unusual for severalreasons. It was made in the midst of the busy citrusseason, not during the usual summer holiday. Thisafforded an opportunity to witness the sale of com-peting fruits in the markets of Europe. Furthermore, this trip represented a new approach to expanding markets via anindustry committee — a cooperative approach.” Participantsincluded representatives from Florida Citrus Mutual,Waverly Growers Cooperative and Seald-Sweet, among others.

Challenge to Marketing CooperativesCan marketing cooperatives keep pace with the rapid rate

of changes occurring in the business world? Yes, says JosephKnapp, administrator of the Farmer Cooperative Service.“But they cannot afford to allow themselves the luxury ofcomplacency.” He examines the question against a backdropof a nation “enjoying unparalleled prosperity” while farmers“struggle with a cost-price squeeze.” Knapp says marketingco-ops must be able to affirmatively respond to four ques-tions: Can they reduce farmers marketing costs? Can theyhelp farmers find and develop markets? Can they help farm-ers improve their bargaining power? Can they help farmersincrease their shrinking returns?

Should Co-ops Rotate Directors?“Periodic rotation of directors can inject new enthusiasm,

new ideas and new perspectives on old problems. Some pro-ponents of rotation advocate specific bylaws stipulating that adirector may not succeed himself for more than a specifiednumber of terms in office. But others feel that arbitrary ter-mination of board membership may cost the cooperativedearly. It is one thing to be able to eliminate unwanted direc-tors, but quite another to force a good man out of office.Automatic rotation runs this risk.

30 Years Ago…From the April 1976 issue of Farmer Cooperatives

High Milk Costs? Try Doing it Yourself!Alan V. Lambert, communications director for the

National Milk Producers Federation, takes over the GuestEditor’s Corner column to argue that milk is still a bargainfor consumers. “In the Washington, D.C. area, the farmer iscurrently getting 47 cents per half gallon of raw milk,” henotes. If it were feasible for consumers to buy directly from afarm, they would have to drive about 50 miles, then wouldneed a home pasteurizer and would likely have to forgohomogenization, etc. Ultimately, such a do-it-yourselfapproach would wind up costing the consumer about $5.47per half gallon and a lot of time and convenience, he calcu-lates. “So the next time you buy a half gallon of milk for 82cents, think about the services the dairy co-op and milkprocessor have provided for your convenience.”

Securities Situation Concerns Farmer Co-opsA lengthy article notes that ag co-ops that issue “invest-

ment paper” have generally been considered exempt fromregistration under the Securities Act of 1933, and under the“blue sky” laws of states in which they operate. “But recentdevelopments have raised some doubt as to whether all paperissued by ag co-ops is, in fact, entirely exempt from the 1933act or the blue sky laws. The whole area of paper issued bycooperatives has come under closer scrutiny during the pastfew years.” The article goes on to examine the issue in detail,


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

From the archives of Rural Cooperativesand its predecessor magazines

April 1956 issue.

including what is involved in registering with the SEC andstate securities commissions. It says the process is long andexpensive, and that most co-ops that have done so have theluxury of an in-house attorney on staff.

Farm Credit System Loans Top $30 BillionFarm Credit System loans to farmers and farmer coopera-

tives in 1975 soared 10 percent from the year before, to arecord $30.2 billion. Despite the 10-percent increase in loans,farm borrowing slackened in 1975 compared with the pace inrecent years. Loans increased 16.5 percent in 1974 and 40percent in 1973. FCA Governor W.M. Harding attributedthe moderating loan demand primarily to farmers’ use offunds accumulated in the good years of 1973 and 1974.

10 Years Ago…From the Jan./Feb. and March/April 1996 issues ofRural Cooperatives

Co-op Share of Farm Marketings Hits 14-Year HighU.S. farmer co-ops had sales of $65.5 billion — accounting

for 31 percent of the nation’s crop,livestock and milk sales — in 1994.

That was up from 29 percent in 1993 and matches theprevious record set in 1975 and last matched in 1980.U.S. co-ops also sold $20.8 billion worth of majorfarm production supplies, accounting for 29 percentof the nation’s total, up from 28 percent in 1993.

Business Is Cooking for Plains Co-op Oil MillIts cotton seed volume has outpaced processing

capacity in recent years, so Plains Cooperative OilMill — which processes cooking oil from cotton seed— has been forced to sell whole seed to other proces-sors. The co-op’s board has thus made a decision toexpand its own operations. “However, we couldn’texpand on this location,” says PCOM ManagerWayne Martin, so it is scheduled to break ground inthe spring on a major new expansion about 2 milesfrom its existing plant in Lubbock, Texas. The new

oil mill will boost the co-op’s maximum annual productionfrom 500,000 tons of seed to 675,000 tons — double itscapacity of 15 years earlier.

Biotechnology and implications for ag co-ops“As of December 1995, 12 genetically engineered crops

have been approved for commercial sale. Perhaps the mostimportant impact plant biotechnologies will have on coopera-tives is to increase the amount of vertically integrated con-tacting,” says the first of a series of three articles on the topic.“Under vertical contracts, the processor owns the product inproduction, while the contractee generally furnishes the laborand facilities for production. Private companies that own abiotechnology can control how and to whom they contracttheir product. Thus, cooperatives may face new obstacles ingaining access to intellectual property rights for biotechnolo-gy. Co-ops and other “outsiders” may have to resort to newforms of vertical coordination to secure biotechnologies fortheir members.■


April 1976 issue.

March/April 1996 issue.


tem, they have a role to play in how theco-op is run. They can come to meet-ings, speak their minds and run fordirector if they want to.”

Co-op management style varies greatly

Co-op Atlantic has 129 membercooperatives across Atlantic Canada andthe Magdalen Islands. It is one of thelargest integrated wholesale agri-foodoperations in the region, and also hassignificant holdings in real estate, hous-ing and petroleum. In 2004, thesediverse businesses served more than200,000 families, employed more than5,000 Canadians and had consolidatedsales of $517 million.

When Robert Lemoine came to Co-op Atlantic to head the Food Division 3years ago, he had some idea of what hewas getting himself into. Even so, he wasnot prepared for the differences betweencooperative management and his previ-ous management positions.

“I came in with my eyes open,” hesays. “But actually living in a coopera-tive culture has shown me a lot morethan I anticipated. And since beinghere, I quite like what I see. In the cor-porate world, there’s a lot of backroompolitics and old boy clubs, and I don’tget that sense here. Here, there’s moreof a need to have a discussion. It may

take longer, but when you work itthrough, you come out with a betterproduct.”

Enrolling in the MMCCU programwas, for Lemoine, “a good way for meto get up to speed quickly, which wasimportant at my entry level. I wanted tomake sure I would be able to contributeto the co-op’s growth.”

He was impressed right away by thefact that the MMCCU students andfaculty were committed to rigorousbusiness practices. Lemoine had animage of cooperative members as abunch of soft-hearted, but impractical,idealists. Instead, he found a lot of prac-tical knowledge pertaining to issues hecares about: employee and member loy-alty to the co-op and the co-op’s com-mitment to the bottom line and the co-op values that support that.

New territoryLemoine appreciated the business

courses, but says, “I’ve been reading bal-ance sheets for quite awhile. But whenwe got into social audits and socialaccounting — that’s new territory.”

As the learning accumulates, it allstarts to come together: the history,the philosophy, the accounting. “Thecloser we get to the end of thecourse,” he remarks, “the more inter-esting it becomes and the more usable

it is for me.”Webb sums up his view of the

future of the cooperative business sec-tor: “There is no perfect cooperative.But we need to ask: what are the new,innovative thoughts that are even moreconsistent with our values? Where areself-help, openness and solidarity inthe way we treat our workers? If wehad workers and consumers sitting atthe same table with the problems onthe table rather than under it, wouldthat help?

“Some version of the stakeholdermodel is the solution — that’s the realcutting edge.”

Webb talks about a board of direc-tors composed of workers, consumersand producers where “every topic is dis-cussed, where there is a basis of trustand no conflict of interest becauseeveryone there represents the co-op.The power of the cooperative businessalternative,” Webb concludes, “is that itcan nurture what is best in people andenable us to meet our needs in ways inwhich everyone wins: consumers, work-ers, producer and, ultimately, familiesand communities.”

The deadline to apply for next cyclein the MMCCU program is May 31,2006. Call (902) 496-8170 or (902) 863-0678 or visit www.smu.ca/mmccu. ■

The board hired lawyers, who helpedkeep the resulting delay to a manage-able length. Pohlman gives credit toFerguson for handling the situation:“Bob knows where he wants to go andhow to get there.”

Further unexpected delays werecaused by issues with the design of therailroad facility serving the plant. Theoriginal plan called for a straight sidingnext to the main rail line, providingspace for 75-car trains taking on ethanoland DDG. However, the siding wouldhave blocked an important road, so the

board opted to redesign the track layout. A new plan called for a loop track.

This required the acquisition of 121additional acres next to the site, andmoving the plant slightly from its origi-nally planned position. The new layoutis more efficient, offering room for upto 180 railroad cars, and allowing sepa-rate tracks for ethanol tankers andDDG hoppers. The new design allowsfor adding track capacity in the future.

Together, the delays pushed back theconstruction date nine months, toNovember. Completion is now sched-

uled for April 2007. Despite the hitch,Mayor Hay remains confident in thepotential boost to the area. “A lawyer,who is an investor, told us: ‘Take a pic-ture of your main street today, and oneanother 4 years from now. You’ll see thedifference.’”

Ferguson also looks forward to bet-ter times. “If we cause a narrowing ofthe basis, the difference will go intoJohn Q. Farmer’s pocket, whether he’s amember or not,” he says. “If it goesdown 20 cents, that means $2 billionfor the local economy.” ■

Ethanol plant using new coal technology continued from page 14

Mastering Co-op Management continued from page 25

By Jack Gleason, Administrator

Business and CooperativeProgramsUSDA Rural Development

uaranteeing can be a littledangerous. Sometimes itworks out, like JoeNamath in Super BowlIII, but, unfortunately,

many other times it doesn’t. USDARural Development has a number ofloan guarantee programs that arealmost as successful as Broadway Joe’sfamous Super Bowl pledge.

Loan guarantees provide lenders, likebanks and credit unions, a guaranteethat they will receive a certain percent-age of principal lost on a failed loan.This guarantee can be the security abank needs to fund an application froma rural business or co-op. The vastmajority of these projects are successfuland USDA rarely has to pay out theguarantee. But, without the guarantee,many rural development projects wouldnot have access to the resources theyneed to move forward.

Loan guarantees are very successfuland a large part of the $63 billion thatUSDA Rural Development has investedin the rural economy since 2001.

One of the newer loan guaranteeprograms available through RuralDevelopment is the Renewable Energyand Energy Efficiency loan program.These loans are designed to encourageagricultural producers and small ruralbusinesses to create renewable andenergy efficient systems.

Clinton County Bio Energy LLC,

located in Eastern Iowa nearthe Mississippi River, is anexample of one rural businessthat has benefited from thisloan guarantee program. Itreceived a $3.22 million loanguarantee to partially fundconstruction and operation ofa biodiesel plant with a yearlycapacity of 10 million gallons.

The Clinton Countybiodiesel facility is still underconstruction and is expectedto be up and running by thisMay. When completed, theplant will use more than 7million bushels of soybeanseach year and provide the Clinton areawith at least nine new jobs.Clinton County Bio Energy is made upof a relatively small group of investors,so the opportunity provided by theUSDA loan guarantee was critical,according to Daniel Holesinger, thefacility’s project manager. BecauseUSDA is sharing the risk, the bank iswilling to offer a loan.

Clinton County Bio Energy alsoreceived a $500,000 grant last yearthrough the Renewable Energy andEnergy Efficiency program. USDASecretary Mike Johanns recentlyannounced that $176.5 million in loanguarantees and almost $11.4 million ingrants is available through this programto help agricultural producers and ruralsmall businesses purchase renewableenergy systems and make energy effi-ciency improvements.

In addition to biodiesel facilities likeClinton County Bio Energy, eligible

projects include installing wind tur-bines, high-efficiency grain dryers, ormaking energy efficiency changes, likeimproving insulation or installing auto-matic lights.

The deadline to apply for grantsthrough this program is May 12, 2006,but guaranteed loans will be awarded ona continuous basis.

USDA Rural Development is a ven-ture capital source for rural Americaand has $17 billion to invest in the ruraleconomy this year. So, if you are inter-ested in learning more about the Re-newable Energy and Energy Efficiencyprogram or our other guaranteed loanprograms let us know. You can learnmore on our website:www.rurdev.usda.gov. Or, you can callus at (202) 720-4323 to be connected tothe USDA Rural Development office inyour state.

We look forward to working withyou to guarantee a successful future forrural America. ■


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

G

Guarantee ing the fu tu re o fru ra l communi t ies

Fuel tanks are installed at the new Clinton County BioEnergy plant, which should be operational in May 2006.


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