Rur Coop-MarApr04 POSTPRINT CX · country for life in an office cubicle! Farewell, Mr. Duffey Speaking of hard acts to follow, Patrick Duffey recently ended his 47-year career as

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Got milk, will travelGot milk, will travelCass-Clay Creamery sh ips

va lue-added cargo f rom Fargo

2 March/April 2004 / Rural Cooperatives

Sometimes dairy farmers can getaway with skipping a minor chore –like maybe doing some maintenancein the milk barn or changing theirtractor’s oil on schedule. But onething the industry can’t afford to skipis recruiting the next generation ofdairy farmers.

If the sons and daughters of today’sdairy farmers decide they wouldrather work in a bank or a computershop than on the farm, it won’t mat-ter how much we improve herdgenetics and feeding strategies, orhow many innovative new dairy prod-ucts co-ops develop. The industrywill move somewhere else. As youcan read on page 7 of this issue, it’snot that farm kids today are afraid ofhard work; it’s more the unrelentingtime demands of dairy farming — andthe uncertainty of being able to earna decent living from the farm.

Just how incredibly time-demand-ing dairy life can be was hammeredhome for me in Central California inthe mid-1980s. I had gone to LosBanos in western Merced County tointerview a dairy farmer who was tobe honored for a lifetime of volunteerwork with the FFA. The man, then inhis 70s, was born and raised on thefamily farm. After the interview, as Isnapped a few photos, I observed thatit must be nice living only about 70minutes from Monterey, one of themost beautiful places on earth. “Youknow, Dan,” he said matter of factly,“I’ve never been there.” Seems therejust was never time in 70 years.

When I recently related this con-versation to North Dakota dairyfarmer Alan Qual, he didn’t bat aneyelash. “I don’t doubt it at all,” Qualsaid, recalling how growing up on a

family dairy, all of his activitiesrevolved around the unrelentingdemands of milking.

But unlike many, Qual and hisbrothers have children who are intentare carrying on the family dairyingtradition. Part of the secret: makingsure everyone gets every other week-end off. It makes a huge difference, hesays. So while dairy life will never be a40-hour-per week job, there are waysto provide for a good quality of life.

In the next issue of RuralCooperatives, we will continue to focuson this crucial subject when we take alook at a new co-op in Vermont thatwas created, with the help of USDA,to supply temporary laborers for dairyfarmers when they fall ill or want totake some time off. While this is a spe-cialized labor co-op, existing co-opscan, and sometimes do, serve assources of information on how to dealwith labor issues.

One more strategy for dairy par-ents who want to encourage theirchildren to take over the farm: makesure they periodically read the Dilbertcomic strip before giving up thecountry for life in an office cubicle!

Farewell, Mr. DuffeySpeaking of hard acts to follow,

Patrick Duffey recently ended his 47-year career as a journalist and farmeditor, including 35 years spent writ-ing about cooperatives and 23 yearsat USDA. Cooperatives today arebetter informed and stronger thanksto Pat’s efforts.

He began his career at a Waupaca,Wis., weekly newspaper, then movedon to the job of farm editor at theAppleton Post-Crescent, a Wisconsindaily. There he wrote about federal

milk market orders, dairy coopera-tives and all the other agriculturalactivities of the region. After fiveyears, he went to work as publicitydirector for GROWMARK inBloomington, Ill., where he was soonimmersed in the operations of amajor Midwest farm supply co-op.He had his hands full becomingfamiliar with all the FS facilities, newfaces and geography, annual meet-ings, director training and business-update conferences and quickielessons in the nuts and bolts of agri-culture.

He must have been enjoying him-self, because 12 years whizzed bypretty fast.

In the fall of 1980, he moved toUSDA and began editing this maga-zine, then called “FarmerCooperatives.” He spent 12 years asits editor, and another 11 years as thechief technical editor of all USDA co-op information and research reports.Untold thousands of people across theUnited States and internationally havea better understanding of what can beachieved through cooperatives as aresult of Pat’s efforts. For that, we allowe him our thanks.

As I finish this commentary, a boxof recent USDA co-op reports andmagazines has been delivered to myoffice, which Pat has asked that Idrop off at his house on my wayhome tonight. He is going to distrib-ute them at the annual meeting of theVirginia Council of Cooperatives –proving that “retirement” is a relativeterm for those who believe in co-opsas strongly as Pat.

By Dan CampbellEditor

C O M M E N T A R Y

Hard acts to follow

Rural Cooperatives / March/April 2004 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.

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Ann Veneman, Secretary of Agriculture

Gilbert Gonzalez, Acting Under Secretary,USDA Rural Development

John Rosso, Administrator, Rural Business-Cooperative Service

Pandor Hadjy, Acting Deputy Administrator,USDA Rural Business-Cooperative Service

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.

United States Department of Agriculture

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COOPERATIVESCOOPERATIVESMarch/April 2004 Volume 71 Number 2

O n t h e C o v e r :

Fargo-based Cass-Clay Creamery is seeking to expand its marketing area forits fluid milk, ice creams and a variety of processed dairy products. The co-op’s operations include a fleet of 40 trucks. Photo courtesy Cass-Clay Creamery

F E A T U R E S4 Making good things

Cass-Clay Creamery expanding product line and marketing horizonsBy Dan Campbell

10 Making hay, the right wayOregon producers organize to market certified weed-free, premium hayBy Dan Schofer, Dan Sherwin, Penelope Deibel

14 Dairy co-ops continue dominant role in marketing nation’s milkBy Charles Ling

16 Greener pastures for bio-tech co-ops?New, bio-based products may only be scratching the surface of potential By Steve Thompson

20 Missouri-based co-op brewery unveils Pony Express line of beer

21 Exploring a greater role for ag co-ops in sustaining rural livingBy Thomas W. Gray

24 Net income, sales decline for local farm co-opsBy Beverly L. Rotan

26 Weighing inStudy gauges impact of local ag co-ops on rural economiesof Great Plains, eastern CornbeltBy Kevin McNamara, Joan Fulton, Susan Hine

D E P A R T M E N T S2 COMMENTARY9 VALUE ADDED CORNER29 NEWSLINE35 NEW USDA CO-OP PUBLICATIONS

p. 4

p. 10

p. 14

p. 16


Making good th ingsCass-Clay Creamery expands product line;Marketing horizon moves eastward

By Dan Campbell, editor

rowing up on a NorthDakota grain and dairyfarm, Keith Pagel wasnot a big fan of farmercooperatives. He recalls

the many times he would pull into hislocal co-op elevator to have his grainmilled into feed, where – more oftenthan not – none of the co-op staffseemed to care how long he had towait for service, or even if he did busi-ness there or not.

“It seemed like you just had to standthere and wait and wait and wait. If youhad a lot of grinding to do at one co-op,you usually just wound up doing it your-self,” says Pagel, admitting that patiencehas never been one of his strong suites.But lack of patience can sometimes bean asset in the business world.

Today, as the president and generalmanager of Class-Clay Creamery inFargo, N.D., those early experienceshave contributed to Pagel’s passion fordelivering superior service to co-opmembers and customers. “When Icame on board, I struggled with it atfirst — knowing this was a co-op andremembering those early experiences Ihad. So it has always been my goal toprovide excellent service to membersand customers.” For field staff, thatcan mean being on call 24 hours a dayif there’s a milk-quality issue to beresolved on a member’s dairy.

“When something needs to bedone, we won’t tolerate people whostand around and procrastinate, or whoalways pass the job off to someoneelse.” The co-op’s management philos-ophy can be summarized as: “Let’s getit done.”

Cass-Clay, which was founded in1934, stands today as a prime exampleof a traditional co-op that has re-gen-erated itself through a combination ofexcellent management, strong mem-ber-service orientation and aggressiveproduct-development and marketingprograms. A big part of its success isdue to the involvement of a young,savvy board of directors that has astrong working relationship with man-agement. Cass-Clay’s sales in recentyears have totaled just under $100 mil-lion, and patronage payments havebeen as high as 40 percent of recordincome in 2002.

Carving niche markets with “vanity” ice creams, dips

Cass-Clay is one of only a few co-ops in the nation that has been suc-

cessful as a fluid milk bottler and dis-tributer. Class I sales account for about45 percent of its total volume and haveactually been increasing at a time whenmost Class I distributors have seendeclines. The co-op markets a varietyof milks, including chocolate and high-calcium skim milk. In 2002, Cass-Clayintroduced easy-grip, three-quart plas-tic bottles into its beverage productline, which have proven quite popular.

“They are easier for kids to grip andpour milk on their cereal; older peoplefind them easier to use, too,” Pagelsays. And because they turn overquicker than gallons, people enjoy afresher milk product.

Despite its success in fluid milk, theco-op has been very active in expand-ing its line of other dairy products.

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These include cottage cheeses, chipdips, yogurt, butter and sour cream.Cass-Clay markets about two-thirds ofits output under the Cass-Clay brand,but it also makes dairy products for theprivate label market.

There’s been a major push in recentyears to expand the market for the co-op’s premium ice creams. Two years ago,it was named the official dairy of theMinnesota Vikings, and it now marketsfour ice cream flavors with the Vikinglogo, including Viking TouchdownToffee and First Down Fudge.

Cass-Clay also packages a numberof other ice creams and chip dips that

are aimed at alumni and backers of theregion’s universities. Hence, rolling outof the Cass-Clay plant in Fargo youwill find products such as NorthDakota State University Bison Crunchor University of Dickinson Buster BlueHawk ice creams. There’s also NorthDakota University Fighting SiouxChampion Chip ice cream andUniversity of Minnesota GoldenGopher ice cream, among others.

Alan Qual, who served three years asboard chairman and farms near Lisbon,N.D., says the niche marketing of pre-mium ice cream and dips has proven tobe a successful strategy. “We’re focus-

ing on creating new products in areaswhere we have experience, such as theproduction of premium ice creams,”says Qual, who – along with the fami-lies of his two brothers — operates a525-cow dairy and farms about 5,000acres of grain crops.

Diversification pays dividends Having a diversified product line is a

major key to success for the co-op,Pagel says. “When the Class III marketskyrocketed (late last summer), cheeseprices went from $1.15 to $1.60, hesays. “We have the ability to then focusmore on those products. Diversification


means we can move products into thehighest value markets.”

“Many of the large-scale processorsare focused on making large volumesof specific products, but we’re smallenough that we can cater to the specialneeds of many niche markets,” Qualadds. “We’ve made great ice cream formany years, but now we’ve improved itand expanded our flavor offerings. Andwe’ve got good people working to getthese products sold in more markets.”

Greg Hansen, vice president formarketing, oversees a staff of 11 salesreps stationed throughout the co-op’sfour-state trade territory. This includesall of North and South Dakota, easternMontana and western and northernMinnesota. In the last several years,Cass-Clay has also begun to push intothe Minneapolis-St. Paul metro area.

The ice cream business has beengrowing at such a clip that, two yearsago, the co-op invested $2.5 millionfor a new freeze tunnel and tripled thesize of its cooler room at Fargo.Before the new tunnel was built, ittook 24 to 36 hours to freeze icecream. “Now we can do it in an hourand produce a better quality icecream,” Pagel says as he watches car-tons of ice cream scoot by on the man-ufacturing line.

Young board bullish on plant investments, promotion

Not too many years ago, the aver-age age of a director on Cass-Clay’snine-member board of directors wasclose to 60 — which is fairly typical forthe industry. But then there was a rash

of retirements, and a number of brightyoung candidates stepped forward. Asa result, the average age for directors isnow about 40.

“These are businessmen – not justfarmers who milk cows,” Pagel notes.“It’s been a huge change. They arevery supportive, but also very demand-ing — they wantgood answers andsolid plans.”

“With a youngerboard, there seemsto be a tendency towant to invest morein the plants, withan eye toward long-term profitability,”says David Glawe, anine-year boardveteran with a dairyfarm near DetroitLakes, Minn.

In addition tothe new ice creamfreeze tunnel andcooler, the co-oprecently invested $2.4 million in high-speed bottling lines and material han-dling equipment for Fargo. Nor has theboard and management turned its backon the co-op’s other two plants. A newcooler and load-out dock has beeninstalled in Mandan, N.D., where theco-op bottles gallons, half gallons andinstitutional-size containers of milk.New boilers have been installed in Cass-Clay’s cheese plant in Holven, S.D.,where it manufactures specialty cheeses— including Romano and Parmesan —for the food ingredients industry.

In total, Cass Clay has investedmore than $5 million in plant improve-ments in just a little more than twoyears. And it plans to continue to investabout $1 million per year to keep theplants well equipped and efficient.

“The board reviews these types ofexpenditures very carefully – after all,

we’re there to look after the members’equity,” Qual says.

Adds Glawe: “We want to see real-istic projections of what the returnswill be on an investment before weapprove it.”

Adjusting to changing wholesale dairy market

Some changes at the plants arebeing made in response to changes inthe wholesale food industry. In thepast, most products where shipped outof Cass-Clay on tandem or single-axletrucks. But increasingly, larger foodretailers dispatch huge semi trucks thatload at the co-op’s docks and deliver togrocery stores.

“We do a lot more dock loadingnow because of the demand for largevolume shipments,” says Qual. “Thesetruck drivers are working under con-tract, and they are in a hurry to get inand out. I don’t blame them. Theymake money by being on the road, notstanding in a line waiting to load.” SoCass-Clay is striving to speed the rateat which they can load.

A sampling of the Cass-Clay line of dairy products. The co-op also produces for the private-label market. Photo courtesy Cass-Clay Creamery

Keith Pagel, president and general manager of Cass-ClayCreamery, says the co-op has been increasing its fluid milk sales.Here he checks as half-gallon cartons are filled at the co-op’sFargo plant. Preceding pages: the co-op’s Fargo plant at sunrise. USDA photos by Dan Campbell


Qual joined the board about fiveyears ago, “because I wanted to givesomething back to the co-op, and Ifelt that I could contribute to it. IfCass-Clay isn’t successful, neither are

we.” He spent three years as boardchairman, then rotated off, in accor-dance with the bylaw that limits direc-tors to three consecutive years in anyoffice, after which they must sit out at

least one year. “That way, everybodygets experience,” he notes.

Glawe says it is the board’s job to“ask hard questions and closely moni-tor the co-op operations. We’re not

Alan Qual doesn’t have to look very far to see signs of theway dairy farming is evolving in the Upper Midwest. He grewup on the family farm, which his father started after WorldWar II near Lisbon, N.D. To save money on hauling their milk,the Quals were one of 28 dairy farms in the Lisbon area thatformed their own milk hauling co-op to deliver to Cass-Clay inFargo (about 75 miles away). Today, the hauling co-op is stillgoing, but it’s now down to two members.

What happened? A couple of those farm-ers moved their operations to other states. Acouple of others switched to another co-op,Qual recalls. But most of the rest have eitherquit farming or they switched away fromdairy to grain-only or grain and beef farming.

In the cases where the dairies closed shopor switched away from dairy farming, it is usu-ally because the children lacked interest incoming back to run the dairy. They saw thelifestyle as too demanding, Qual says. Add tothat they often saw the need to greatly expandthe size of the farm to keep it competitive inthe years ahead, and many said “no thanks” todairy life.

It says volumes about just how time-demanding dairy life is when you considerthat beef cattle and grain crop production —not exactly the best career for a slacker – are viewed as farless demanding than dairying. Hence the decision of manyone-time dairy operators to switch to crops and beef.

Lack of new producers entering the business is a “hugeconcern,” says Keith Pagel, president and general manger ofCass-Clay Creamery in Fargo. “When we did a survey eightyears ago, the average age of a producer was 57, and it’sgetting older,” Pagel notes. “Kids very often look at dairyingand see their parents working seven days a week, 15 hours aday and no vacations. It’s a lot of struggle. Then they seetheir friends working in downtown Fargo, 40 hours a weekand earning more. Some young people do still like dairy life,but very often they feel they can’t get to the size needed tofinancially have a good quality life.”

But there are ways to structure a dairy so that you don’thave to be chained to the farm. The Quals have done it by cre-ating a farm where three brothers (Alan, Danny and Rodney)and their families all live and work, as well as several employ-

ees. They expanded from about 200 cows in the 1970s to 525today. But Qual says he still doesn’t consider himself or hisbrothers really big dairy farmers. You have to divide that 525by three families, he says, which comes out to about 175cows per family.

The Quals have structured their duties so that they getevery other weekend off – a real luxury compared to the

round-the-clock duty many dairy farmers livewith. When he was growing up on the thenmuch smaller dairy farm, Alan says he couldnever go anywhere unless he could be backby 4 p.m. to milk.

“We’re large enough that we haveemployees, so we can get away at times,”Alan says. “And that is crucial to makingthis life attractive enough to get kids whowant to come back and farm.” His eldestson, John, has been back on the farm forthree years now following school, andplans to buy into the incorporated familybusiness as a stockholder in just a fewmonths. Some of this brothers’ childrenalso appear quite interested in being dairyfarmers. “We haven’t pushed them to comeback – just made it available to them if theirinterest was here.”

There are also some new dairy farmers moving into thearea, including some “transplanted” from Europe.

Pagel notes that to attract more, the area has to do a bet-ter PR job of advertising the assets of the region and its quali-ty of life. “There is a general misconception about the harsh-ness of our climate and available leisure activity here.” Pagelsays there’s a great quality of life to be had around Fargo.

“A lot of people feel North Dakota is in the middle ofnowhere and that there’s nothing to do here. There’s lots to do– lots of places you can go in an hour. And our outdoors activ-ity can’t be beat: fishing, hunting, camping, boating, crosscountry skiing, snowmobiling, ice fishing – you name it. Andwe’ve got good schools.”

Interviews with some dairy farmers who moved their oper-ations to other states indicate some wish they hadn’t left, hesays. ■

— By Dan Campbell

Cass-Clay board member AlanQual goes over records withhis son, John, who has decid-ed to make the family dairyhis career. Photo by Tom Kludt,courtesy Cass-Clay Creamery

Attracting the Upper Midwest’s next generation of dairy farmers

In the Detroit Lakes area of Minnesota, dairy producerDave Glawe says securing farm labor is a major challengefor dairy farmers. Glawe has to compete for labor with bothmanufacturing and tourism.

“A kid can go to work in a manufacturing plant for $9 perhour plus benefits,” says Glawe, who currently runs thefarm with his brother and one employee. “We did haveanother worker, but when milk prices dipped, it was hard tojustify keeping him on. So you just do more yourself.”

“Every farmer I talk to, labor is their biggest challengeright now,” says Lisbon, N.D., dairy farmer Alan Qual. NorthDakota is one of the most sparsely populated areas of thenation.

“I have two openings right now, and have advertised fortwo weeks. But I only got one applicant, and he decided topass. We’re willing to train someone, but they will have torelocate.” Like Glawe, Qual says he has to contend with

competition from manufacturing, most notably a plant thatbuilds Bobcat loaders. “If I had to pay my labor what theypay, I might as well close the doors right now; it wouldn’tpencil out even if we were milking 2,000 cows. Even withan operation of our size, the margins are very thin whenmilk prices dip as low as they have.”

Milk prices have been on a roller coaster the past lastcouple of years, ranging from a low of about $10 to a high of$16 per hundredweight. The price dips have hastened thenumber of producers leaving the business.

“When prices drop to $10, you better not have any debt,because that’s about the break-even point for most farmersaround here,” Glawe says. “This is a real serious challengefor the nation: to find ways to make small farms moreviable. If we keep losing farmers at this rate, we’re going tokeep losing rural towns.”

Loss of farms sends ripples throughout rural America,he notes. To cite one of the more dramatic and obviousexamples, Glawe notes one need look no further than thelocal farm implement trade. These days, when one goes toreplace a tractor or harvester, the equipment dealers areno longer interested in taking old gear in trade. “There justisn’t a secondary market for used equipment any morearound here — the smaller operations are no longeraround.”

Despite such challenges and the fact that productiontrends show the dairy industry is still moving ever west-ward, dairy farmers in the Fargo area say they can competewith anyone. Qual notes that the corn supply is a majoradvantage for the Upper Midwest. “We have abundantcorn and lower land values. They (the West Coast) have anadvantage with alfalfa, because they get more cuttings in aseason than us. They also seem to have a more readysource of labor.” ■


afraid to try new things to improvereturns for our fellow producers,which means taking some risk.”

Glawe has been a strong advocatefor expanding the co-op’s marketingterritory and of more aggressiveadvertising and promotional efforts.The co-op now spends about $1 mil-lion annually to advertise, and hasbeen tailoring its ads to play up thefact that Cass-Clay is farmer-owned.

Marketing studies showed thatCass-Clay didn’t have a strong identitywith consumers, most of whom did not

realize the business was farmer-owned.So TV commercials have been filmedon members’ farms, and print and bill-board advertising also stresses thefarmer-owned nature of the business.

The co-op’s own fleet of 40 deliverytrucks has been re-designed to convey amore attractive, quality look, Pagel says.A city bus in Fargo has even been deco-rated to resemble a carton of Cass-Claymilk. “It’s been a total face lift for theco-op, and the public and the membersreally seem to like it,” Pagel says.

Cass-Clay, which was founded in

1934, got its name from what were ini-tially the two main counties of its pro-duction area: Cass County, N.D., andClay County, Minn. When Pageljoined the co-op in 1985, at first asquality control manager, Cass-Clayhad about 1,400 members in threestates: North and South Dakota andMinnesota. Due to ongoing farm con-solidation, the co-op now has 400members in the same three states buthandles even more milk: about 420million pounds annually.

Dave Glawe unloads corn last fall on his dairy and grainfarm near Detroit Lakes, Minn., where farmers are finding itincreasingly difficult to find labor. USDA photo by Dan Campbell

continued on page 34

Finding labor can be a struggle


Biod iese l p ro jec t lookspromis ing fo r Iowa co-op

By Jeff Jobe, Co-op SpecialistUSDA Rural Development, Iowa

ooperatives every-where are looking fornew opportunities toadd value and expandmarkets for their

members. Farmers Co-op Elevator Co.(FCEC) at Ruthven, Iowa, is accom-plishing this by processing its mem-bers’ soybeans into an array of soy oiland meal products and biodiesel fuel.

FCEC, founded in 1902, is a full-service cooperative providing grainhandling and marketing, agronomyservices and feed and petroleum prod-ucts to 1,176 members in northwestIowa. Annual sales for the cooperativehave exceeded $50 million.

In 1999, the cooperative manage-ment and board of directors created anew company called Soy Solutions toexplore and expand marketing oppor-tunities for the 3.5 million bushels ofsoybeans produced by co-op mem-bers. After exhaustively analyzing thesoy-processing industry, Soy Solutionscreated Iowa Lakes Processing (ILP)to use the Insta-Pro extruder andexpeller’s process to transform locallygrown soybeans into soybean mealand oil.

ILP produces a high-quality, naturalsoybean meal that can be used in avariety of products for human con-sumption and livestock feed. This was

a natural fit forthe co-op’s feeddivision, as itallowed FCEC to source a high-quality proteinthrough its ownoperations. Thesame process alsoyields soybean oil,which ILP hasinitially been sell-ing on the openmarket.

Soy Solutionslooked at the opportunities availablefor further processing and enhancingthe value of the soy oil. With the assis-tance of Cenex Harvest States, IowaSoybean Promotion Board, NationalBiodiesel Board and Iowa StateUniversity’s Institute for PhysicalResearch and Technologies, SoySolutions created Power PlusTechnologies to develop and operate asoy methyl ester manufacturing plant.

Soy methyl ester is commonlyknown as biodiesel, an alternative fuelthat can be used as a blend in petroleumdiesel. Its physical and chemical proper-ties (as it relates to operation of dieselengines) are similar to petroleum-baseddiesel fuel. More than 10 years of test-ing and 60 million road miles haveproven that biodiesel is comparable toconventional diesel in performance, fuelefficiency, power and torque.

Fuel distributors across the UnitedStates are beginning to offer biodieselin blends of 2 percent (B2), 5 percent(B5) or 20 percent (B20) soyoil mixedwith conventional diesel fuel. Dieselengines can run on 100 percentbiodiesel with little or no modification.

“If all Iowa farmers used a B2biodiesel blend, they would use the oilfrom 3 million bushels of soybeans,and if all on-road trucks used B2biodiesel, they would use the oil from473 million bushels of soybeans,” saysKaren Andersen-Schank of the IowaSoybean Promotion Board. “That’sbasically Iowa’s entire crop.”

In developing these opportunities,Farmers Cooperative ElevatorCompany has made a sizable invest-ment in this project. There was over-whelming support in Iowa for the pro-

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Farmers Co-op Elevator Co. in Ruthven, Iowa, has created a new sub-sidiary to process soybeans into meal and oil. USDA Photo by Jeff Jobe


By Dan Schofer, Co-op Development Specialist, USDA Rural Development e-mail: [email protected]

Dan Sherwin, Weed/Vegetation Manager, Deschutes County, Oregon

Penelope Diebel, Associate Professor, Oregon State University

rower cooperatives and quasi-cooperative producer associationshave a long tradition of using group action to establish orimprove quality standards and to promote product uniformityfor their crops and livestock. These efforts have often been keyto creating new domestic and international markets. Such

endeavors often include working closely with state and federal governmentagencies.

A recent example of this can be seen in northeast Oregon, where haygrowers formed the Wallowa County Hay Growers Association in 2003 totap into an expanding market for weed-free and premium forage products.In addition to improving market opportunities for its members, the hayassociation may also yield environmental benefits by helping to reduce thespread of noxious weeds on public and private lands.

Steering committee assesses opportunity The organizing process began in February 2002, when a steering com-

mittee of five local growers began assessing different organizational possi-bilities. The committee held occasional discussions during the spring calv-ing season and summer cutting season. In October 2002, the pace wasratcheted up, as the committee began meeting weekly to explore options ingreater depth.

Growers wanted tomaintain control oftheir own hay and tomake their own saledecisions. Ultimately,it was decided toorganize as a produc-ers’ association. Theprimary purpose ofthe hay association isto promote the quality

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Making hay,the r ight wayOregon farmers organize to market certified weed-free, premium hay


When organizing growers for group action, "a suc-cessful outcome depends on having the right produc-ers in the room. We have had that at every step,"saysExtension agent John Williams. From top: A produc-ers' planning meeting in Enterprise, Ore.; hay is irri-gated, cut and baled. USDA photos by Dan Schofer


and availability of weed-free and premium forage products produced bylocal farmers. The association provides customers — including brokers,exporters, ranchers, horse owners and back-country enthusiasts — with asingle point of contact.

“We work through the association to find buyers and bring them to thegrowers for both weed-free and premium hay,” says Jim Petty, a localgrower and association board member. The association has developed awebsite: (http://www.certifiedwallowacountyhay.com) containing productdescriptions and contact information. Those without Internet access maycontact association President Mark Butterfield at (541) 432-3735.

Growers’ goals definedAt a recent growers’ meeting, Butterfield described the group’s three

main goals for the coming year: • Establish and promote Wallowa County as a premier hay-growing

region;• Find and establish new markets, and • Determine market needs (bale size, quality, weed-free, transportation,

etc.).“Customer service, in addition to quality, is important to keep a good

reputation. The growers need to back up any sales with a quality product,”Petty says.

There are currently 18 participating growers in the association who pro-duce a variety of products, including alfalfa, alfalfa mixes, timothy mixesand wheat straw. These will be available as premium-quality products,judged by nutrient content, stage of maturity at harvest, harvest conditions,lack of weather damage, proper storage and customer preference.

Growers have adopted the standards set by the North American WeedManagement Association (NAWMA). NAWMA is composed of weed man-agers in local, state and federal land agencies, including the U.S. ForestService, National Biological Survey and Bureau of Land Management. Tomeet NAWMA standards, forage products have to be found to be free of54 noxious and invasive weed species.

Wallowa County has taken certification one step further. For the 2003season, the association had a “NAWMA Plus” line of hay which is free ofthe 54 weed species targeted by NAWMA, as well as of 18 other morecommon weeds. Wallowa County growers feel that this will ensure cus-tomer satisfaction. More information on NAWMA and its standards can befound at www.nawma.org.

Field inspections ensure qualityTo maintain high-quality forage, field inspections and a stringent certifi-

cation process are crucial. The Wallowa County government provides athird party inspection process through its vegetation manager (or a contrac-tor). Cost for field inspections is $3 per acre, and requires 7–10 days’ notice.

The inspector walks through the fields before harvest and lists all weedsfound. Weed sites are tracked using a Global Positioning System (GPS) unit.Special areas of interest are field perimeters, drainage swells and power-linerights of way. A report lists any weeds present and indicates whether the fieldpassed or failed. Fields can be reinspected, if the grower chooses.

It is not unusual for sections of fields to be accepted as “weed-free,”excluding swaths around the perimeter. Weed-free forage is stored sepa-rately from other hay and straw.

The county, through its Wallowa County Weed-Free Forage InspectionProgram, provides the farmer with a certificate of inspection and a separate

From top: Hay bales are loaded onto flatbed trucks orstored under tarps, then trucked to destinations, suchas a livery stable from where trail rides begin into thescenic mountains of northeastern Oregon. Oppositepage: a sign at the Wallowa County hay station urgesa concerted effort to help prevent the spread of nox-ious weeds.


transit certificate, if needed. This doc-umentation is important to customerspurchasing weed-free hay as well aslocal and state governments monitor-ing hay transportation.

John Williams, agriculture exten-sion agent in Wallowa County, main-tains the inspection records and servesas the storefront for the association.Growers apply for field certification atthe local Oregon State Extensionoffice.

“I have been amazed at the dedica-tion, professionalism and the follow-through that the growers have dis-played in the process of creating aweed-free forage program and thedevelopment of the association,”Williams says. “As an extension agent,I know that a successful outcomedepends on having the right producersin the room. We have had that atevery step.”

Government aids market researchPreliminary market research was

conducted by Wallowa County gov-ernment, Eastern Oregon University(EOU) and USDA’s AgriculturalMarketing Service. A questionnairewas designed to identify the type andnumbers of animals customers ownedand their preferences when buyinghay.

Wallowa County mailed question-naires to a wide range of hay buyers,including 4-H clubs, local FFA chap-ters, ranchers, guides, rodeo partici-pants and backcountry horse riders.EOU students handed out question-naires at local feed stores. The stu-dents tabulated and analyzed the infor-mation, which was then presented tothe growers.

Discussions have been held withhay brokers in Ellensburg, Wash., who market hay to many regions of

the country and to foreign markets.One broker alone moves as much as400,000 tons of hay per year. The brokers have expressed interest inshipping the association’s hay to thePacific Rim. Hay shipped fromEllensburg is compressed, shrink-wrapped and loaded into 40-foot shipping containers.

Wallowa Resources, a grassroots,nonprofit corporation in Enterprise,Ore., has also been working with thegrowers. It provided funds for thedesign and startup of the association’swebsite.

“Hopefully, local growers will get abetter price for their weed-free hay,”says Mark Porter, rangeland steward-ship coordinator for WallowaResources and chairman of the CountyWeed Board. “That is important,because economics are pretty tightthese days.”

The applicability of the Wallowa County Hay GrowersAssociation project goes well beyond Wallowa County. TimButler, supervisor of the Oregon Department of Agriculture(ODA) Noxious Weed Program, has been supportive of theassociation and sees statewide implications for it.

“ODA is taking a look at establishing a statewide,weed-free hay program and hopes to build on the success-es and learning experiences of Wallowa County, especiallyin the areas of establishing quality standards, developinginspection procedures and creating additional incomeopportunities for Oregon family farmers. By expanding thepilot project in Wallowa County, Oregon hopes to create awin-win situation in the future for farmers and from a nox-ious weed-control perspective.”

Wallowa County is famous for its natural beauty andwildlife. Visitors and residents depend on and enjoy theoutdoor resource values of this area. About 65-70 percentof the land within the county is owned and managed by theU.S. Forest Service or the Bureau of Land Management. Sothe support of the staff of the Wallowa-Whitman NationalForest has been important for the project’s success.

“We want to help our visitors to enjoy themselves anddo the right thing,” says Kendall Clark, area ranger for theEagle Cap District in Wallowa County and the nearby HellsCanyon Recreational Area. “Having local growers be ableto provide weed-free hay to our users makes our job a lot

easier. A website providing contacts for local certifiedweed-free hay will be a tremendous tool to help visitors.”

The Forest Service is both a potential customer forcertified, weed-free straw and a regulator of weed-freehay used by recreational and hunting enthusiasts on pub-lic lands. Certified weed-free straw is used to control ero-sion in wildfire rehabilitation and construction projects,thereby reducing the damage to soils, watersheds andburned-over landscapes. Priorities for stabilization activi-ties include protecting human life and property, stabilizingmunicipal watersheds, stabilizing steep slopes and unsta-ble terrain, protecting archeological resources, replacingculverts and protecting public health and safety. Thelarge number of acres affected by recent fires (and thelikelihood of future forest and range fires) represents apotentially large and expanding market for certifiedweed-free straw.

In 1988, the Eagle Cap Ranger District of the Wallowa-Whitman National Forest adopted a regulation that pro-hibits possessing, storing or transporting any supplemen-tal livestock feed that is not free of all noxious weedseeds. A similar plan is now being developed for the entireWallowa-Whitman National Forest, the Hells CanyonRecreation Area and, eventually, will be in effect for allNational Forest public lands in the Oregon and Washing-ton region. ■

Growers’ hay project may go statewide


Hay is often culpritin spreading weeds

“Weed-free hay also reduces thespread of weeds across the county andthe region,” Porter says, adding thatweedy hay is often responsible forweed infestations of Oregon forestsand rangelands.

Association customers “will not bebringing weeds onto their farms andproperties. That will save them moneyand a few headaches in the long run.”

Although this effort has become acollaborative one, it is important to

remember that hay growers ofWallowa County are responsible forthe initial concept, the direction andthe implementation of the project.The responsibility and credit primarilygo to these growers, working to bettertheir own farm businesses and qualityof life in a rural western community.

“Starting this association has beenan effort to help our neighbors and allpeople in the county,” says associationmember Jay McFetridge. “That’s justwhat you do when you live in a com-munity at the end of the road.” ■

Hay harvested in northeastern Oregon may be sold locally, or could wind up being compressed, shrink-wrapped, loaded into 40-foot con-tainers and shipped to customers around the Pacific Rim.

The Old Chief Joseph gravesite is a nationalhistoric landmark in Wallowa County, Ore.,and is sacred to the Nez Perce people. His son, also named Chief Joseph, isfamous for his "I will go no further" speech,which has come to symbolize the plight ofAmerican Indians during the 19th century.


By K. Charles Ling, Ag EconomistUSDA Rural Development/ RBSe-mail: [email protected]

Editor’s note: for a more detailed exami-nation of topics in this article, see ResearchReport 201, “Dairy CooperativeOperations, 2000” available on our website, www.rurdev.usda.gov/rbs/pub/newpub.htm. For a hard copy, call (202) 720-8381, or e-mail: [email protected].

airy co-ops continue tobe the nation’s primarysource for milk and dairyproducts. Data analyzedby USDA Rural

Development shows that dairy prod-ucts represented 33 percent of thevalue of all products marketed by agri-cultural cooperatives during 2002.Dairy cooperatives received, or bar-gained for, 86 percent of all milk soldby farmers (or 83 percent when non-member milk is subtracted).

The number of dairy cooperativesdecreased 13 percent, from 226 to 196,from 1997 to 2002. The number ofcooperatives that process milk andmanufacture dairy products droppedfrom 63 to 46 during that same five-year period.

More than 61,390 members market-ed their milk through the nation’s 194direct-member dairy cooperatives.Three regions – the East NorthCentral, West North Central andNorth Atlantic – together accounted for84 percent of all member-producers and52 percent of cooperative milk volume.

Sixty-two percent of total coopera-tive milk volume was sold as raw milk

in 2002, compared to 61 percent in1997. The other 38 percent was manu-factured at plants owned and operatedby cooperatives. The number of coop-eratives selling raw milk fell from 204to 174 during this period.

Types of co-op milk plantsDairy cooperatives operated 209

milk plants in 2002. Of these:• 35 plants only receive and ship

milk;• 49 plants manufacture American

cheese;• 21 plants process Italian cheese;• 30 plants package fluid milk prod-

ucts;

• 43 plants manufacture dry-milkproducts;

• 27 plants churn butter.Dairy cooperatives also held invest-

ments in 75 dairy plants that they didnot directly operate. Of these, 52plants package fluid milk products, 18process other dairy products and 7make ice cream. (The production ofthese plants is not counted as coopera-tive volume.)

Cooperative marketing of butter,dry-milk products and cheeseincreased from 1997 to 2002.Cooperatives’ share of butter increasedfrom 61 to 71 percent during the halfdecade. Their share of dry-milk prod-ucts (nonfat dry milk, dry-whole milkand dry buttermilk) climbed from 76to 85 percent. Cooperatives continuedto have an overwhelming share of non-fat dry milk, which was 86 percent in2002, a 5-point increase.

Co-op cheese volume jumpsCooperatives marketed 17 percent

more cheese in 2002 than in 1997, theirvolume increasing from 2,907 millionto 3,402 million pounds. Nationally,overall cheese production also increased17 percent. Cooperatives’ share of thenatural cheese market was unchanged at40 percent.

Sales of packaged fluid milk prod-ucts by cooperatives decreased both involume and in market share. The3,810 million pounds marketed by co-ops equaled 7 percent of the nation’sproduction, down from 14 percent in1997. Cooperatives sold 9 percent ofthe nation’s cottage cheese in 2002,down from 10 percent, while theirshare of ice cream decreased from 6

Dai ry co-ops cont inue dominant ro le in market ing nat ion ’s mi lk

D

A Maryland-Virginia Milk Producers’ tankerrolls through the farm country of Maryland.The co-op is one of 196 dairy co-ops in thenation, down from 226 in 1997. USDA photo by Ken Hammond


percent to 3 percent. In 2002, coopera-tives marketed 6 percent of the nation’sice cream mix, 2 percent of yogurt, 53percent of bulk-condensed milk, 52percent of dry-whey products, 13 per-cent of sour cream and 34 percent ofcondensed buttermilk.

Co-ops mostly small, but growingMost dairy cooperatives continue to

be relatively small business organiza-tions. But through consolidation andgrowth, an increasing amount of dairyproducts are being sold by larger coop-eratives.

Members of the nation’s eightlargest cooperatives marketed 52 per-cent of the total U.S. volume of milksold to plants and dealers, up from 42percent in 1997. Their volume rep-resented 63 percent of member milkmarketed through all cooperatives, upfrom 52 percent. However, theirshare of dairy products was less sig-nificant. The eight largest dairycooperatives sold only 6 percent ofthe nation’s packaged fluid milk, 36percent of cheese and 47 percent ofdry whey and dry whey products.They dominated only in marketing

butter (with a 67 percent share) andnonfat dry milk (80 percent marketshare).

Member milk of the four largestcooperatives accounted for 41 percentof U.S. milk sold to plants and deal-ers and 49 percent of member milkmarketed through all cooperatives.Their shares of U.S. production ofselected products were: packagedfluid milk products, 5 percent;cheese, 29 percent; dry whey and drywhey products, 34 percent; butter, 56 percent; and nonfat dry milk, 66 percent. ■

Jean-Mari Peltier has beennamed president and chief execu-tive officer of the National Councilof Farmer Cooperatives (NCFC), aWashington, D.C.-based trade asso-ciation representing the interests ofU.S. agricultural cooperatives.Peltier brings more than 25 years ofnational and state governmental,

agricultural and trade association experience to her newposition. Peltier most recently served in the Bush adminis-tration as counselor for agricultural policy for the adminis-trator of the Environmental Protection Agency (EPA).

“We were extremely impressed with Ms. Peltier’scareer accomplishments, the depth and breadth of hergovernmental and industry experience, as well as herkeen understanding of agricultural policy, trade issues andthe business challenges facing U.S. agriculture in generaland agricultural cooperatives in particular,” noted DouglasD. Sims, chairman of NCFC’s search committee and CEO ofCoBank. “She is uniquely qualified to lead NCFC at a criti-cal time when the needs of NCFC members are changingin a highly competitive and global business environment.”

John E. Gherty, president and chief executive officer ofLand O’Lakes Inc. and NCFC board chairman, added, “Ms.Peltier will bring a fresh perspective and dynamic leader-ship to NCFC. She has a passion for agriculture and astrong commitment to the future success of agriculturalcooperatives.”

“I’m enthused to devote my energy and experience toserving this country’s farmer cooperatives,” says Peltier,who began her NCFC duties Feb. 1. “This is not newground for me. I have been associated with agricultural

cooperatives for most of my career. I am looking forwardto working with my colleagues here in Washington andwith the agricultural business leaders across the nation.”

Prior to her appointment with EPA, Peltier held a num-ber of executive-level positions in the California agricultur-al industry and state government, including president ofthe California Citrus Quality Council, executive director ofthe California Pear Advisory Board, president of the Cali-fornia Pear Growers (a farmer-owned bargaining coopera-tive), and director of public and government relations forthe California Grape and Tree Fruit League.

In addition, Peltier served as chief deputy director ofthe Department of Pesticide Regulation for the CaliforniaEPA, senior policy specialist for the California StateWorld Trade Commission under Governor George Deuk-mejian, and as a legislative assistant for CongressmanTony Coelho.

A native Californian and graduate of Fresno State Uni-versity, Peltier also has served as a director or board offi-cer for a wide range of agricultural and trade organiza-tions, including the Coalition for Urban/RuralEnvironmental Stewardship, Minor Crops Farmer Alliance,Future Farmers of America Foundation, Agricultural Tech-nical Advisory Committee on Trade, Agricultural Council ofCalifornia, and Capital Agri-Women.

There are nearly 3,000 farmer cooperatives across theUnited States, whose members include a majority of ournation’s more than 2 million farmers, ranchers and grow-ers. Farmer cooperatives also provide jobs for nearly300,000 Americans, many in rural areas, with a combinedpayroll of over $8 billion.

Additional information about NCFC can be found atwww.ncfc.org. ■

NCFC names California’s Peltier president, CEO

By Steve Thompson, Writer-Editor, USDA Rural [email protected]

hat do lubricatingoils, diesel fuel,glues, plastics, paints,solvents, inks andpacking peanuts have

in common?If you immediately thought “petro-

leum,” you’re only partly right.Petroleum is usually used in the manu-facturing of such products, but otherraw materials can also be used, includ-ing those grown on farms. The manu-facture of new “bio-based” products toreplace or supplement those made withconventional, non-renewable materialsmay provide new opportunities forfarmer cooperatives to add value totheir members’ crops.

As the nation observes Earth Day inApril, it is a particularly good time totake a close look at a new federal gov-ernment requirement designed to spurdevelopment of bio-based productsand what that can mean for thenation’s farmers.

Farm Law spurs purchases The Farm Security and Rural

Investment Act of 2002 requires feder-al agencies to buy officially designated,bio-based products whenever possiblefor purchases of $10,000 or more. OnDec. 19, 2003, the U.S. Department ofAgriculture published a proposed regu-lation for designating bio-based prod-

ucts, to help pavethe way for pro-mulgating the newfederal procure-ment guidelines.

The 2002 actgives three mainobjectives for the newrequirement. The first isto improve the demand for bio-based products — good news for pro-ducers of commodities that can serveas raw materials. The second is toencourage the development of ag-based, value-added processing andmanufacturing in rural communities.The third objective is encouraging thesubstitution of fossil fuels with moreenvironmentally friendly substances(see sidebar).

The range of a new generation ofbio-based products already available issurprising. The best known are thefuel additives ethanol and biodiesel.Ethanol is made by distilling ethylalcohol produced by fermenting grainwith yeast — basically the sameprocess used for hundreds of years tomake distilled liquor. Because theethanol molecule contains atoms ofoxygen, its addition to gasoline canmake engines run marginally cleaner. The Environmental Protection Agencyrequires that many urban areas useoxygenated fuel, especially during win-ter, when air pollution is worst. Untilrecently, methyl tertiary butyl ether(MTBE) has been the oxygenator ofchoice. But revelations that MTBE has

contaminated groundwaterin some areas, along withits unhealthy effectswhen breathed as fumes,have caused many states

to ban it. That leavesenvironmentally friendly

ethanol as the best alterna-tive. Farmer-owned ethanol

plants — both traditional cooperativesand hybrid co-op/limited-liability cor-porations — are springing up likemushrooms across the Midwest.

W


USDA’s Agricultural Research Service(ARS) is exploring a number of bio-basedtechnologies. Microbiologist RodneyBothast works on developing feasiblemethods for processing vegetable oils into acrylic plastics. USDA/ERS photo

Greener pastures fo r b io- tech co-ops?New, bio-based products may only be scratching the surface of potential


Biodiesel is produced by modifyingsoy oil or other naturally producedoils. Even the waste fat from fast-fooddeep fryers can be used, and the con-version process is simple enough thatsome enthusiasts make it in their ownkitchens. When biodiesel is used byitself as diesel fuel, it reduces both sootand greenhouse gases as compared toconventional diesel. It also has betterlubricating qualities, which canenhance engine life. The major dieselengine and fuel injection system pro-ducers have endorsed its use.

Biodiesel’s most common usepromises to be as an additive, in a 1-to-4 mixture with the petroleum fuelknown as B-20. In addition to lowercarbon emissions, its improved lubrici-ty allows refiners to lower the amountof sulfur in their fuel, which reducesemissions that contribute to acid rain.Blue Sun Producers is a Coloradofarmer co-op that sells B-20 blended

biodiesel through retail outlets. Theco-op has set a goal of having 100biodiesel pumps throughout the stateby the end of the year, and is solicitingparticipation by local producers (seesidebar 2).

Bio-based cleaning products usetechnology that dissolves grease anddirt without harsh solvents. One bio-based cleaner is advertised as being“powerful enough to clean battleships,yet mild enough for baby kittens,”while offering better worker and envi-ronmental safety compared to compa-rable conventional cleaners. Soy-basedpaint-remover doesn’t give off harshfumes or burn the skin, unlike manyconventional solvents.

Iowa co-op producingsoy-based lubricants

West Central Cooperative, a farmerco-op in Iowa, markets a number ofsoy-based industrial and agriculturallubricants, including hydraulic fluidand penetrating oil, as well as special-ized cleaners such as graffiti remover.The co-op says these products reduceenvironmental impact and pollution.Modified castor oil is now used in the

The manufacture of biodiesel is only oneof a number of bio-based product initia-tives being pursued by Iowa’s WestCentral Cooperative. Photo courtesy WestCentral Co-op

For the purposes of the new initiative, a bio-based prod-uct is broadly defined as "a product determined by the Sec-retary as a commercial or industrial product (other thanfood or feed) that is composed, in whole or in significantpart, of biological products or renewable domestic agricul-tural materials (including plant, animal, and marine materi-als) or forestry materials."

Because part of the goal is to encourage developmentof new markets, the new requirements will not includeitems that USDA has determined have "mature markets."Thus, for instance, "silk, cotton and wool garments, house-hold items and industrial or commercial products areexcluded, unless made with a substantial amount of a bio-based plastic product."

Products are divided into 11 categories: adhesives;construction materials and composites; fibers, paper andpackaging; fuel additives; landscaping materials, compostand fertilizer; lubricants and functional fluids; plastics;paints and coatings; solvents and cleaners; sorbents(materials that soak up liquids); plant and vegetable inks.

To qualify, a product must contain a certain percentageof bio-based materials, which varies by product. For exam-ple, 80 percent of a liquid fuel additive must be bio-basedingredients, while automotive lubricating grease is onlyrequired to contain 25 percent total bio-based materials.

For co-ops already producing bio-based items, the fed-eral government is not yet ready to start procurementunder the 2002 act. Each bio-based product will be desig-nated as suitable for preferred procurement only after con-sideration of such factors as feasibility, availability, relativeprice, long-term costs, performance and health and envi-ronmental benefits. Each designation will take the form of aregulation published in the Federal Register, first with pub-lication of a draft rule allowing for a 30-day comment peri-od, followed by the final rule.

USDA is charged with developing the pilot procurementprogram, including procurement guidelines and employeetraining, in cooperation with the White House's Office ofFederal Procurement Policy. Producers can help theapproval process along by providing information about theitems they wish to sell. On its Bio-based Preferred Procure-ment Program website, USDA offers a draft Product Infor-mation Sheet manufacturers can use as a template for sub-mitting product information:http://www.biobased.oce.usda.gov/public/prodSub.cfm.The information posted by manufacturers and venders willbe used by Federal agencies to help identify products thatfit their needs. ■

— Steve Thompson

Eligible bio-products defined


production of urethane plastics, inks,rubber and other synthetic products.Polymerized soy oil is used in paintsand caulking and glazing compounds.There’s even a new kind of paper thatqualifies as bio-based: it’s made fromkenaf, a fast-growing field crop relatedto cotton and okra.

Despite the growing number of bio-based products and the benefits theyoffer, their total share of the market isstill tiny. “It’s a chicken or egg prob-lem,” says Dan Manternach, presidentof the Bio-based ManufacturersAssociation. “To really take off, themarket needs to attract big buyers: theMcDonalds, the Walmarts and so on.The trouble is, the big buyers tell pro-ducers they’ll consider buying theirproducts only if they can promise largequantities of them. But the producerscan’t expand to make large quantitiesuntil they have big buyers.”

Manternich is excited about thepossibilities the new federal initiativeopens up for value-added activities.“This is extremely promising for pro-viding the seed the market needs,” hesays. He thinks the federal govern-ment’s role in the bio-based productsmarket will be similar to that of an“anchor store” in a shopping mall,attracting other customers and givingmanufacturers and potential manufac-turers the confidence they need to startup and expand. As a bonus, the mediaattention will, hopefully, provide thebio-based movement with a much-needed publicity boost.

Proponents of bio-based technologiessay that current products only scratchthe surface of possibilities. Kim Kristoffis the CEO of Gemtek, a company thatmakes bio-based cleaners, lubricants andother products. “Bio-based technologiesoffer tremendousvalue-added opportuni-ties for farmers,” hesays. “There are somany things they couldbe doing to enhancetheir income, butthey’re not looking forthem.” For example,Kristoff sees currentuse of the grainbyproducts from distil-lation and brewing —known as brewers’ anddistillers’ grains — ashugely wasteful. “They’re using them as animal feed,”says Kristoff, “But there are all kindsof useful substances that can beextracted from them.” He nameslignins, xanthan gums and complexsugars and proteins as examples, aswell as enzymes for use in manufactur-ing plastics.

European co-ops have head startKristoff says that European farmer

co-ops, especially in Belgium,Germany, Switzerland and France,have a big head start in exploiting bio-based technologies. Manternach pointsout that European farmers are allowedto plant canola farmland as participants

in set-aside programs similar to theU.S. Conservation Reserve Program,an option that isn’t on the horizon forU.S. farmers.

Recent research has investigatedthe extraction of nutritional supple-

ments and pharmaceuticals from dis-tillers’ grains. And oilseed byproducts,known as soapstocks, are also rich inexploitable chemicals, says Kristoff.USDA’s Agricultural Research Service(ARS) has been exploring other uses,and has found that cottonseed, saf-flower, soybean, and even rice bransoapstocks can be processed into asafe, food-grade coating that keepsvegetables such as cucumbers freshlonger. Other scientists are lookinginto a hair gel made from the sub-stance, which could be produced at alower cost than similar products madefrom synthetic polymers. Even water-melon rinds may be useful: ARS is

USDA grant helping Colorado cooperative produce biodiesel

West Central Co-op-marketed soy-based cleaning products arepromoted as less toxic and less harmful to the environmentthan are conventional cleaners. Photo courtesy West Central Co-op

Blue Sun Producers co-op was founded in June 2003 toprovide biodiesel production opportunities for farmers in Col-orado and neighboring High Plains states. Members will growa new kind of crop based on mustard seed, which, the co-opsays, is cheaper to produce and can be made into a higherquality fuel than can soybeans.

Mustard seed also requires less rain, crucial in the aridHigh Plains. The growing cycle of the new oilseeds allowsthem to be planted after harvest on land used for winterwheat, making two crops a year from the same acreage.

The co-op will provide feedstock to Blue Sun Biodiesel, acorporation founded in 2001, which opened its first biodieselpump Feb. 3 at a feed and hardware store in Fort Morgan,Colo. On the same day, the co-op received a $450,000 grantfrom USDA Rural Development for development of this newrenewable energy source.

Blue Sun is now recruiting farmers in Colorado, Nebras-ka, Wyoming and Kansas to grow the new crop. Furtherinformation is available on the web at <http://www.goblue-sun.com> or by telephone, 970-221-0500. ■


researching the extraction of a keyamino acid from them for use in treat-ing sickle-cell anemia.

Production of industrial lubricantsis a field that may offer attractiveopportunities to co-ops. A researchprogram of the University of NorthernIowa, called Agriculture-Based

Industrial Lubricants (ABIL), isexploring the manufacture of lubri-cants derived from such sources as cot-tonseed, soybeans, canola and otherfield crops. Lou Honary, an associateprofessor and the head of the program,says that producing greases and otherlubricants from plant sources isn’t thatfeasible for our farmers.

“We had farmers who set up soy-bean crushing and grease manufactur-ing on their farms,” Honary says.“Under a USDA grant, three farmsites were set up to crush soybeansusing mechanical presses, feed themeal to livestock and make fifth-wheelgrease for trucks.”

ABIL has developed some 30 differ-ent lubricants, including lubricants formachining metal, several differenthydraulic fluids and bearing and fifth-wheel greases. Their most successfulproduct, at 2.5 million pounds sold sofar, is rail curve grease for railroads.This grease is applied to the rail curvesor train wheels to reduce noise andwear on wheel flanges. According toHonary, two of the five largest Class IU.S. railroads use ABIL rail curve

grease and other Class I railroads haveapproved it or are in the process ofapproving it. “This is a ‘lost-in-use’product,” he says, “and the bio-basedgrease doesn’t present the kind of envi-ronmental contamination problemspetroleum grease does.”

Honary says that cotton farmers andco-ops could take advantageof the cottonseeds they har-vest to economically providea necessary “lost-in-use”lubricant to themselves.“Their cotton-pickingmachines each use gallons ofgrease every day to lubricatetheir spindles,” he says.Pressing oil from the seedsand making spindle greasefrom it would be easy andrequire only a small invest-ment. “They could make itand use it themselves, andsave money,” says Honary.And, since most of the greaselost goes on the field or into

the cotton, usingcottonseed-basedgrease would bemore environmen-tally friendly andsave cleaning costs.

Marketing exper-tise needed

ABIL-inventedproducts are mar-keted throughWest Central Co-op in Iowaand Illinois-basedGROWMARK.“They marketthem throughtheir own outlets,”he says. ButHonary thinks amajor problemwith that approachis that most co-opsdon’t have the expertise or resourcesnecessary to successfully market indus-trial lubricants. He believes that theanswer is to enter into relationshipswith established petroleum distributors.

“I don’t think the people who selloils and greases really mind what thesource is,” he says. “They just want tosell a product that solves the problemand which they can make money on.”

One issue that American farmersmust take into consideration whenlooking at value-added activities isopportunity cost: the cost of losingone opportunity to pursue another.The opportunity cost of using oilseedsas feedstock is currently high. Oilseed— especially soybean — prices arenow at record high levels, and someanalysts say that, because of risingincomes in China and India, the mar-ket may stay strong for quite sometime.

Despite the new federal bio-basedprocurement requirements, high pricesat present serve as a disincentive to soy-bean producers from making the invest-ment needed to add value to theircrops. But among the advantages ofselling value-added and finished prod-ucts is the vital one of more stable mar-

kets. Foregoing development of newvalue-added products in favor of takingadvantage of current high commoditymarkets may well impose on producersits own long-term opportunity cost. ■

A small, relatively inexpensive crushing press and greasekettle can be set up on farms to produce bio-based greas-es for use at the site or for sale. Photo courtesy ABIL

West Central Co-op’s biodiesel production facilities. The manufactureof most bio-based products relies on relatively accessible technolo-gy. Photo courtesy West Central Co-op

ransCon AG, aMissouri-based new-generation growercooperative, is posi-tioning itself to

become the central business hub fora variety of value-added agriculturalproducts. With a solid business planand a global marketing strategy, thecooperative has launched a line ofspecialty beers as its first products.The beers include: Pony ExpressGold, Pony Express RattlesnakePale Ale and Pony Express OriginalWheat. The beers are now selling inMissouri and Kansas, and should beavailable soon in California andArizona. Later in 2004, the co-opplans to expand distribution to themajority of the Midwest.

The grower cooperative is pursuinginternational distribution throughoffice presence in Taiwan, China,Japan and Mexico, according to JoeEffertz, president of TransCon AG and

chairman of the board for the co-op’sbrewing operations. The co-op isalready shipping beer to China.

“China is a big market for soy-basedproducts, like Pony Express Gold – asoybean-based beer,” says Mark Vogel,executive vice president for brand

management at Osborn & Barr in St.Louis, the co-op’s strategic partner formarketing. “Marketing research showsthat soy products are perceived ashealthy, so product perception of PonyExpress Gold is immediately high.”

Market demand could outpace pro-duction capacity, currently limited to15,000 barrels, although new equip-ment is being purchased to doublecapacity by the first quarter of nextyear.

The TransCon AG cooperative wasformed by Missouri producers whobanded together to establish a value-added organization to improve theprofitability of their farm operations.The co-op’s strategy may eventually becentered around taking advantage ofthe Kansas City SmartPort, located atthe old Richards-Gebauer airbase. TheKC SmartPort is designed to be themajor distribution hub of tradebetween Mexico, Canada and the


Missouri-based co-op breweryunvei ls Pony Express l ine of beer

T

Minnesota ethanol co-op producing premium Vodka Another farmers’ co-op has entered the “adult beverage”

industry with a premium vodka that has met with early suc-cess. A farmer-owned ethanol plant in Benson, Minn., is usinga small portion of its distilling capacity to produce ShakersOriginal American Vodka, which was unveiled last year. So farit’s been a huge hit – at least on its home territory. That suc-cess has the co-op and the beverage company that marketsthe vodka looking at much broader distribution.

Vodka is a sideline for Chippewa Valley Ethanol, which pro-duces the beverage through a subsidiary for Infinite Spirits ofNapa Valley, Calif. Just one month after its introduction, salesof 500 cases in Minnesota exceeded first-year projections.

The potential market for premium vodka –currently dominatedby European companies — is a large. Last year, consumers inthe United States spent about $9.5 billion on vodka, includingabout $950 million for premium brands.

Although sales have been focused in Minnesota, Shakersvodka is now being introduced in 14 states, includingCalifornia. The goal is nationwide distribution this year.Shakers is being promoted as the only ultra-premium vodkamade in the United States by the farmers who grow the grain.

The municipal liquor store in Benson, a town of 4,000, sawgross sales jump by $100,000 this year, which the managercredits to sales of Shakers vodka. ■



By Thomas W. Gray,Ph.D., Rural Sociologist, USDA Rural Development/ RBS [email protected]

gricultural cooperativeshave a long history ofhelping farmers achievetheir goals. For genera-tions, they have enabled

U.S. farmers to addressrecurring concerns: low cropand livestock prices, the highcost of farm production sup-plies and the need to expandmarkets to absorb surplusproduction. Historically,individual farmers have hadto contend with thesedynamics while competing ina marketplace with muchlarger — sometimes global— firms.

While cooperatives haveserved as vehicles for collec-tive action to develop mar-kets and to improve the eco-nomic viability of farmers,the strategies used to achieve gainshave tended to follow, and/or deepen,paths leading to an industrialized sys-tem of agriculture.

The predominant development tra-jectory of U.S. agricultural produc-tion, historically, has involved anincreasing use of biological, chemicaland mechanical technologies. Whilethis development path has resulted in amassive expansion in production, it hasalso created conditions that made it

impossible for many thousands of farmfamilies to stay in business.

Willard Cochrane of the Universityof Minnesota characterizes this dynam-ic as akin to being on a treadmill. Asindividual farmers have increased scaleto increase farm revenues, total quanti-ties of product released to the markethave increased and prices — whilefluctuating — have on average

remained stable or declined. Manyfarm families, unable to meet increas-ing costs of production and lower farmprices, have thus had to leave farming.

Agricultural cooperatives have hadto contend with these as well as othersocio-economic pressures. Fewer farm-ers means fewer co-op members.Large-scale production has allowedsome farmers to go direct to terminalsand bypass local cooperatives. Fewer,larger farms, low prices and keen com-

petition have made the economic ser-vices of many cooperatives redundant.Many have succumbed to bankruptcy,including some of the nation’s largestco-ops in the past few years.

Some co-ops have responded bydiversifying into other product-rev-enue centers, expanding geographically(including globally) as well as pursuinghorizontal and vertical integration.

These survival strategies —frequently adopted in a crisis-management mode — haveresulted in many cooperativestaking on a new shape aslarge, complex organizationsthat are far removed from theindividual farmer.

As farm numbers decline,so do rural communities

The result of thesestrategies has been largerfarms, fewer farmers andfewer, but larger, coopera-tives. As farms and coopera-tives go out of business, localcommunities struggle for

continued vitality with fewer people,fewer families and fewer businesses.Tax bases erode, services decline.With these declines, the ability ofcommunities to sustain themselvesthrough time comes into question, asdo the culturally enriching, and diver-sifying, experiences of rural living.

Thu and Durrenberger of theUniversity of Iowa suggest that as ruralcommunities decline, so also goes the“social and human character benefits

Exp lo r ing a g reater ro le fo ragr icu l tu ra l cooperat ives insusta in ing ru ra l l iv ing

A

The health of rural communities and cooperatives are often closelybound. Both are threatened by the decline in numbers of familyfarms. USDA photo by Ken Hammond


of learning honesty, hard work, inge-nuity, flexibility and fairness as part ofbeing reared in a farm [and rural] envi-ronment.” Yet the cultural importanceof rural living remains evident in vari-ous, not so subtle, advertising images.Hence we see product names such asNature’s Pride, Country Time andFlorida Natural. These symbols of arural lifestyle sell products on a mas-sive scale.

Hundreds of thousands, if not mil-lions, of people closely identify withthese images and invest their con-sumer dollars in them. Paradoxically,while there is a felt longing within theculture for the values of this rurallifestyle, there is a simultaneous declinein numbers of farmers and farms, andin opportunities for rural living.

Individual and collective benefitsCooperatives offer individual and

collective benefits. A farmer whoreceives a higher price for his or herindividual products when marketedthrough a cooperative is receiving anindividual benefit due to joint market-ing with other farmers. The fact thathe or she can raise a particular productfor a market that an individual farmercould not reach is a mutual collectivebenefit (Parnell).

Historically, agricultural coopera-tives have tended to emphasize individ-ual collective benefits (though notexclusively). Most have moved withmuch of the rest of agriculture down atrajectory dependent on large, capital-intensive production units and tech-nology, with heavy reliance on externalsources of energy and credit. Theunintended consequences — as men-tioned — have been to fragment familyfarming functions and to displace fami-ly farmers and rural communities.

While there are many trade-offs,some cooperatives made a historicchoice that emphasized individual col-lective benefits to farmers at theexpense of mutual benefits, such asmaintaining a dispersed ownershipagriculture and retaining overall familyfarm numbers. While large numbers ofindividual farmers have been able to

survive, the mass of farmers as a group,particularly family farmers, have not.

Rethinking directionsSome of the major names in agri-

cultural cooperatives have recentlygone bankrupt — most notablyFarmland, Agway and Tri-ValleyGrowers — while many others havemerged and acquired other organiza-tions to survive. Mid-sized farmerscontinue to go out of business andrural communities struggle to sustainthemselves. We may have reached anexhaustion point in our current ways ofdoing things and thinking, relative tothe inter-connections of agriculturalcooperatives, farmers and rural com-munities.

Farmers, managers, employees andrural residents may need to begin ask-ing themselves what they enjoy aboutliving in a rural environment and howit can be sustained. Agricultural coop-eratives are at the economic (and, insome ways, sociological) center ofmany rural communities. What agen-das might be developed that explicitlycapture the mutual stake-holding andinterests of rural residents generally?What roles might cooperatives playthat concretely embrace their centralimportance in rural communities,while developing the mutual interestsof rural residents?

Alternatives to considerSeveral rural sociologists —

Chiappe and Flora at Iowa State, Beusand Dunlap at Washington State,Gillespie and Hilchey at Cornell,Stofferahn at the University of NorthDakota, Wright at Northern Iowa —suggest there are a series of values andcommitments that could deepen ruralcommunity sustainability. As men-tioned above, most agricultural coop-eratives have moved with much of therest of agriculture down a trajectorydependent on large capital-intensiveproduction units and technology, withheavy reliance on external sources ofenergy and credit.

The unintended consequences havebeen to fragment family farming func-

tions and to displace family farmers andrural communities. The above authorssuggest there are various tradeoffs andchoices. Some of these choices are pre-sented here, not as mutually exclusivealternatives, but as possible shifts inemphases. They include:

• Deepening links between agricul-ture and small rural communities,including acknowledgment ofmutual interests as rural residents,rather than passive acceptance ofloosely connected, but dispens-able, relationships between agri-culture and rural communities.

• Understanding that farming is abusiness and a way of life (andpart of rural life) vs. viewingfarming solely as a business.

• Planning to place greater empha-sis on both short-term benefitsand long-term quality and perma-nence vs. predominant emphasisgiven to short-term benefits.

• Placing greater value on localknowledge, skills and wisdom andlessening dependence on externalspecialists and experts.

• Giving greater consideration torestrained consumption and con-servation to preserve rurallifestyles, rather than automatical-ly relying upon high consumptionas a driver of economic vitality.

• Broadening focus to, and encour-agement of, local/regional pro-duction, processing and market-ing, and dilution of dependenceupon, and searching for,national/international production,processing and marketings.

• More closely considering andencouraging smaller, lower capi-tal production units and technol-ogy, and lessened reliance uponlarger capital-intensive produc-tion units and technology asstrategies for sustaining farming(and rural living).

• Planning that gives greater con-sideration to dispersed control ofland, resources and capital, ratherthan passively accepting greaterconcentration in the control ofland, resources and capital.


• Pursuing greater cooperation andplanning to develop the mutualinterests of rural residents, ratherthan limiting cooperation aroundself-interest.

• Explicit valuing of traditions of arural and farming lifestyle, ratherthan passively devaluing of rural

and farming traditions and ruralculture as not mattering and dis-pensable.

These, of course, are only outlinesof choices for thinking about moreconcrete alternatives. Such thinkingmay not seem practical when decisionshave already been made, capital is sunk

and strategic plans set. However toignore these choices, and to continuealong traditional agricultural trajecto-ries, portends continued losses in alifestyle that many mourn losing andseek to re-attach to.

Land O’Lakes Inc. had net earnings of $83.5 million for2003, compared to $98.9 million for 2002. Co-op officials indi-cated that 2002 earnings were bolstered by vitamin litigationsettlements. When those and other one-time gains andlosses were factored out, earnings from operations weresubstantially improved over 2002. LO’L officials credit gener-ally improved markets, effective cost-reduction efforts andstrong sales volumes — particularly in branded and propri-etary value-added product lines – for bolstering the co-op’sperformance in 2003.

The co-op reported $6.3 billion in total 2003 sales, an 8-percent increase over $5.8 billion in 2002. The salesincrease was due in part to the consolidation of MoArk(Land O’Lakes’ egg industry joint venture) into the compa-ny balance sheet. Without that accounting change, saleswere up 3 percent for the year.

The company recently completed a debt-restructuringinitiative that included the sale of $175 million in bonds topay down senior bank debt and a three-year extension ofits revolving line of credit. LO’L paid down long-term debtby $131 million (excluding the debt restructuring initiative)in 2003. It reported finishing the year with strong liquidity,with $383 million in cash-on-hand and unused borrowingauthority, and remained in compliance with all its financ-ing covenants.

Co-op leaders say the new bond sale did not increasedebt levels, but rather enabled the company to improve itscapital structure by taking advantage of declining long-term interest rates, securing its sources of traditional sea-sonal and short-term borrowing, spreading term debt pay-ments over a longer period and maintaining strongliquidity. Major assets sold in 2003 included the co-op’spowdered cocoa business and its ownership position inQC, Inc. (a testing company).

New products in 2003 included two new Land O’ Lakesbrand dairy products: a spreadable butter withcanola oil and a soft baking butter withcanola oil. Sales are running ahead offorecasts. Strong sales were alsorealized in such areas as LO’Lbranded deli and foodserviceproducts; CROPLAN GENETICS

Seed; and AgriSolutions crop protection products. Land O’Lakes- and Purina Mills-branded products also continuedto provide the foundation for the co-op feed division.

• LO’L divisions reported the following 2003 fiscalresults:

• Dairy Foods – $5.6 million in earnings, as compared toa loss of $32.1 million for 2002. Sales totaled $3 billion,compared to $2.9 billion in 2002.

• Feed – $46.4 million in earnings, compared to $156.5million in 2002. Factoring out litigation settlements andother one-time gains and losses from 2002, feed earn-ings were down modestly from 2002. Feed sales of$2.5 billion, compared to $2.4 billion for 2002.

• Seed – Seed sales generated pretax earnings of $11.6million vs. $8.3 million for 2002. Sales reached $479.3million, up from $406.9 million in 2002.

• Layers/Eggs – Significant market improvement, vol-ume growth and the success of branded eggs con-tributed to the company’s performance in thelayers/eggs industry (conducted through its MoArkjoint venture), where year-end earnings totaled $33.4million, compared to a loss of $9.5 million in 2002. Con-solidated sales for the year were $317.8 million.Because consolidation began in July, only half-a-yearof MoArk’s sales are included. Full-year sales forMoArk were $552 million; 100 percent of MoArk’searnings are included in Land O’Lakes income.

• Swine – While the company reported a pretax loss of$9.8 million for the year, swine performance wasimproved over 2002, when losses totaled $23.2 million.Contributing to this improvement were better averagehog prices, production efficiencies and progress inreducing capital use and exposure to market risk.Swine sales were $91.2 million, compared to $83.2 mil-lion in 2002.

• Agronomy – Land O’Lakes conducts itsagronomy business through the Agriliance

joint venture, in which it holds 50-per-cent interest. The company reported

$13.2 million in pretax earnings,compared to a loss of $1.8 mil-

lion in 2002. ■

Land O’Lakes reports nearly $84 mill ion in earnings



By Beverly L. Rotan, EconomistUSDA Rural Development/RBS [email protected]

ocal U.S. farm supplycooperatives (many ofwhich also market grain)had slight declines inboth sales and net

income in 2002, but patronage refundsfrom regional cooperatives helpedmany show a profit for the year. Theyear was a dynamic one, with coopera-tives facing many challenges.

Average sales per local co-op were$15,288,026 in 2002, a 0.14-decreasefrom $15,309,299 in 2001. The aver-age net income per local co-op was$228,500 in 2002, a 0.13-percent

decline from $265,622 in 2001. Of 263 local co-op financial state-

ments analyzed for this article, 85 (or32.3 percent) had losses in 2002.However, patronage refunds paid byregional cooperatives were up 40.1percent. When patronage is included,only 20.1 percent of the local co-opsshowed a loss.

Farm supply sales by co-ops declined2.44 percent in 2002. Fertilizer saleswere down 3.6 percent and petroleumsales fell almost 11 percent.

Farm supply sectors showing gainswere: feed, up 4.4 percent; seed, up13.1 percent; and crop protectants, up3.1 percent.

Grain sales were stronger for localcooperatives — which is particularly

impressive in the face of declines innational production in some majorgrains (corn production was down 1percent, spring wheat production wasoff 17 percent, durum wheat declined23 percent and winter wheat was down5 percent). Soybean production, how-ever, was up 1 percent.

The 263 local cooperatives studiedwere classified by size: small, medium,large and super (table 2). The cooper-atives were further classified into fourtypes based on what percentage oftheir sales come from farm supplies(see table 2 for the precise criteria).

Stronger local co-op assetsBoth current assets and total assets

were up slightly, 9 and almost 6 per-

Net income, sa les dec l ine fo rloca l fa rm cooperat ives

L

Table 1–Average farm supplies sold and products marketed; change from 2001 to 2002

Change: 2001 2002 2001 to 2002

————— Dollars ————— ——Percent——Farm supplies sold: Feed 1,552,247 1,620,295 4.38Seed 301,070 340,479 13.09Fertilizer 1,782,396 1,718,493 -3.59Crop protectants 1,338,688 1,380,241 3.10Petroleum products 3,274,949 2,916,409 -10.95Other 1,226,632 1,269,071 3.46

Total 9,475,892 9,244,988 -2.44

Products marketed:Grains and oilseeds 5,761,800 5,994,056 4.03Other 71,507 48,982 -31.51

Total 5,833,407 6,043,038 3.60

TOTAL SALES $15,309,299 $15,288,026 -0.14


cent, respectively. All aspects of cur-rent assets, except cash, increased dur-ing the two-year study period. Cashwas down almost 7 percent.

Current liabilities for local co-opsjumped nearly 10 percent during thestudy period, with allocated equity(cash), current term debt and short-term (seasonal) debt having double-digit increases. Dividend on equity hadthe largest decrease (58 percent), withrevolving equity redeemed (53 percent)showing the second largest decline.

Possible causes for declines inrevolving equity include losses allocat-ed from previous years, merger and/orthe cooperative was fully capitalized.

Although total revenue was up 0.8percent, total sales were down 0.14percent. The rise of revenue wasattributed to a slight increase in serviceincome, marketing products and a siz-able increase in patronage refundsfrom regional co-ops.

The average operating income(from commodity marketing, farm sup-plies and service income) rose slightly.Marketing farm commodities (cropsand livestock) and grain sales both rosealmost 4 percent. Service incomeincreased 8 percent. Cost of goods soldwas down 0.11 percent. In 2002, costof goods sold averaged about 88 per-cent of net sales.

Total expenses was also up about 3percent). Total wages were up for thetwo-year period by nearly 5 percentand represented 8 percent of totalexpenses. Wage expense includes pay-roll/salaries, employee benefits includ-ing retirement and payroll taxes.

Co-ops in the study had an averageof 41 employees (part- and full-time),who earned an average salary of$24,681. Although there was anincrease in employees, salaries wereabout the same as in 2001.

Directors’ fees and expenses were asmall part of total expenses. However,director compensation is an importantfactor that helps many cooperativesconvince producers to divert time eachmonth to help guide their cooperative.Co-op boards averaged seven members,who were paid an average of $942 peryear. Director’s fees were up 3 percent.

Monitoring performanceSome performance factors are with-

in the control of cooperative manage-ment, but others are not. One way tomonitor the performance of yourcooperative is through financial state-ments and ratios. Ratios for the sur-veyed cooperatives remained relativelyunchanged from 2001 to 2002 (table3). Ratios that help assess your cooper-ative’s performance include:

• Liquidity ratios – focus on a com-pany’s ability to pay bills whendue. If liquidity ratios remain rel-atively high for a prolonged peri-od, too much capital may beinvested in liquid assets (for exam-ple, cash, short-term investments,accounts receivable and inventory)and too little is devoted toincreasing member equity. Theseratios should equal one or more.On average, surveyed cooperativeshad quick and current ratios ofslightly more than 1.0. Smallcooperatives did a better job, witha current ratio of 2.09 and a quickratio of 1.09.

• Leverage ratios – reveal a compa-ny’s use of borrowed funds (ratherthan members’ equity for invest-ments) to expand its business.The goal is to borrow funds at alow interest rate and invest inbusiness activity that produces ahigh rate of return, exceeding thetarget rate of return for invest-ment. Debt-to-equity ratio mea-sures the long-term solvency of acompany by comparing debt tonet worth. A company with a highdebt-to-equity ratio could havetrouble meeting fixedinterest/debt payments if business

Cooperative size Definition NumberSmall up to $5 million in total sales 90Medium over $5 million to $10 million 55Large over $10 million to $20 million 56Super over $20 million 62

Cooperative type Definition NumberFarm supply total net sales from farm supplies 137Mixed farm supply from 50 to 99 percent 57Mixed marketing from 25 to 49 percent 53Marketing less than 25 percent 16

Table 2–Size and type definitions used for respondent cooperatives

Ratio 2001 2002

Current 1.35 1.34Quick 0.68 0.65Debt 0.44 0.45Debt-to-total equity 0.81 0.81Times-interest-earned 2.81 2.90Total-asset turnover 1.93 1.97Fixed-asset turnover 6.61 7.11Gross profit margin 12.70 12.74Return-on-total assets

before interest & taxes 5.54 5.78Return-on-total equity 7.91 8.70

Table 3–Financial analysisratios for all cooperatives,2001 and 2002



By Kevin T. McNamaraJoan FultonSusan Hine

Editor’s note: Kevin T. McNamaraand Joan Fulton are professor and associ-ate professor, respectively, in theDepartment of Agricultural Economics,Purdue University. Susan Hine is anassociate professor in the Department ofAgricultural and Resource Economics,Colorado State University

ural economic develop-ment — always a topic ofgreat importance tocommunity and govern-ment leaders — has

taken on even greater importancetoday, given recent changes in the ruraland agricultural marketplace.Increased consolidation of Americanagriculture is resulting in fewer farms,which, in turn, places pressure on ruraleconomies, since there are fewer farmfamilies to generate spending and eco-nomic activity.

In addition, recent low commodityprices are placing pressure on thespending ability of producers and farmfamilies, which puts further pressureon rural economies. Locally ownedagricultural cooperatives — businesses,which have typically centered on farmsupply and grain marketing — havehistorically been an integral compo-nent of the local economy.

The objectives of this article are to:(1) calculate the direct and totalemployment and income impacts oflocally owned farm supply and grainmarketing cooperatives in Coloradoand Indiana; (2) evaluate the loss of

employment and income that wouldoccur in Colorado and Indiana if thelocally owned agricultural cooperativeswere to cease business; and (3) com-pare the local economic impact ofthese agricultural cooperatives in theGreat Plains (Colorado) and theEastern Cornbelt (Indiana).

Data for the analysis in the articlewas obtained from 70 locally ownedcooperatives in Colorado and Indiana(35 cooperatives in each state). In-per-son interviews with the managers wereconducted in the spring of 2000 anddata was collected on level of sales,number of employees and the volumeof business that would be lost to thelocal economy if the cooperative werenot operating.

Ag’s impact on state economiesThe agricultural sector is a large

industry in both Colorado andIndiana. The ag output of Coloradowas valued at just over $5 billion in1999 (USDA Economic ResearchService) and contributed more than$3.67 billion in value added to thestate economy (Bureau of EconomicAnalysis). That’s about 2.47 percent ofthe total $153.72 billion value addedgenerated in Colorado in 1999. Cattleand calves accounted for about 53 per-cent of 1999 farm receipts inColorado, which is home to 28,268farms and ranches. Following cattle inimportance were: corn (6 percent ofag receipts), dairy (6 percent), wheat(5 percent) and hogs (4 percent). Thevalue of Colorado agricultural produc-tion, while spread across the state, isconcentrated in the northeast regionof the state. About 39 percent of

Colorado’s ag receipts come fromWeld and Yuma counties.

Total 1999 farm receipts in Indianawere $4.89 billion (USDA EconomicResearch Service). Agriculture, forestryand fisheries, and farms contributed$2.94 billion to Indiana’s total $182.2billion of value added in 1999 (Bureauof Economic Analysis).

Corn (31 percent) soybeans (23 per-cent), hogs (12 percent), dairy (7 per-cent) and eggs (6 percent) accountedfor the largest share of ag receipts inIndiana. Agricultural production is lessconcentrated in Indiana than inColorado. Kosciusko and Duboiscounties, Indiana’s leading farm coun-ties, accounted for less than 6 percentof total state agricultural receipts.

Measuring ag’s impactusing multipliers

Multiplier’s used for estimating thecontribution of agriculture to theeconomy have not always been valid.For instance, seven is a commonlyquoted farm multiplier which can betraced back to Carl Wilken, an analystfor the Raw Materials NationalCouncil. In 1944, he published areport that used a multiplier of seven,based on the 7-to-1 ratio of nominalnational income to farm marketingsthat year (Schluter). Applying Wilken’sratio today would yield a farm multi-plier in the 20s.

The advent of the computer andbetter access to data have allowed anumber of economists to constructinput/output models that can be usedto present a more exact estimate of theeconomic impacts of agriculture.Studies using these models were con-

Weighing inStudy gauges impact of local ag co-ops on rural economies of Great Plains, eastern Cornbelt

R


ducted for a number of states in the1990s.

The contribution of agriculture toan economy is generally evaluated bytotaling the sums of output, employ-ment and income for all industries inthe food and fiber supply chain. Theseinclude input suppliers, farm-produc-tion units, processing, marketing anddistribution. Sales, value-added andemployment from these activities areadded to the induced impacts associat-ed with household spending of incomeearned in the food and fiber system toproduce estimated total sales, value-added and employment impacts.

Using such methodology in aninput-output framework, as calculatedby Schluter and Edmondson (1986),shows that about 21 percent of thenational civilian workforce wasinvolved in the food and fiber system.Several economists have conductedsimilar studies to assess the importanceof agriculture to state economies.Johnson and Wade (1994) estimatedthe impact of Virginia’s agriculture sys-tem on the state’s economy to be 12percent of the state’s total value addedand 15 percent of employment in thestate. Henry (1995) included the state’sforestry sector, and estimated that theagriculture and natural resource indus-tries accounted for a 23-25 percentshare of the South Carolina economy.

The food and fiber industry inColorado and Indiana account forabout 14 percent of employment inboth states (USDA EconomicResearch Service). In Colorado, agri-cultural production accounts for 1.7percent of employment, farm inputs0.2 percent, processing and marketing1.3 percent and wholesale and retail10.6 percent.

In Indiana, farms account for 2.3percent of employment, farm inputs0.4 percent, processing and marketing1.4 percent and wholesale and retail 10percent.

Economic impact of ag cooperativesCooperatives provide a critical link

in the food and fiber supply chain. Bysupplying production inputs, coopera-

tives meet producers’ supply needs.The effectiveness of cooperatives influ-ences producers input costs and, con-sequently, their profitability. Likewise,the marketing functions that coopera-tives perform influence farmers’ abilityto market their commodities anddirectly affect the profitability of pro-ducers’ operations. Cooperatives, likeother input suppliers and service

providers, are a critical part of the foodand fiber industry’s supply chain.

Another aspect of cooperative oper-ations, which is the focus of the fol-lowing discussion, is as a source oflocal employment and income. It isalso a source of goods and services tonon-agricultural rural residents. Inother words, cooperatives function as acritical element in sustaining a com-munity’s economic base.

Direct impacts of local cooperativesThirty-five cooperatives in both

Colorado and Indiana provided infor-mation about the number of peoplethey employed. The Colorado coopera-tives employed 1,524 people, whoearned a total of $20.94 million. Usingemployment and income multipliers forthe retail establishments of 1.74 and2.25 respectively, estimated total

employment and income impacts asso-ciated with the Colorado cooperativesin the sample is 2,652 jobs and nearly$47.13 million in total income. TheIndiana cooperatives reported a totalemployment of 2,651 and income of$36.43 million. These jobs stimulated atotal employment impact of 4,613 jobsand nearly $81.98 million of income.

What loss of co-ops would mean tojobs and business service

To estimate the impact of coopera-tives as a source of local employment,in addition to the retail/service supportthey provide for agricultural produc-ers, cooperative managers were askedwhat local employment and businessimpact would be felt by the local econ-omy if the cooperative were to go outof operation. The managers wereasked to estimate what share of theiremployees would have to move out ofthe county or be unable to findemployment. They were also asked toestimate what share of their business,in terms of sales of products and ser-vices such as farm supplies, would bemoved to business establishments out-side of the local economy.

Managers of the Colorado coopera-tives estimated that 429 (28 percent) ofthe 1,524 people who work for theircooperatives would have to move outof the county to find work. Whilethese jobs would not be lost to theColorado economy, they would beshifted from the rural areas to othercommunities. The result would be adecline in the employment base of thelocal economy.

For many farming communities, theprobability is low of other investmentcoming into the county to createreplacement jobs. Additionally, thecooperative managers indicated thatabout 32 percent of sales of productsand services from all reporting cooper-atives would have to move to suppliersin counties outside the economy wherethe cooperative currently operates.

The reporting cooperatives indicat-ed that they had $472 million in salesduring 1999 and would lose $163 mil-lion of sales to suppliers outside the

For many farmingcommunities, theprobability is low of other investmentcoming into thecounty to createreplacement jobs(when co-ops close).


county if the cooperative were not inbusiness. Twenty-four of the 33 coop-eratives indicated that local businesswould be lost. On average, the cooper-atives estimate that 37 percent of totalbusiness would be lost. The range was15 to 100 percent.

Managers for the Indiana coopera-tives estimated that 265 people (18percent) working in the 2,651 co-opjobs would have to move out of thelocal economy to find work if thecooperative went out of business.Higher population densities andgreater economic diversification inrural Indiana counties lessen thepotential impact of employment losses,but the loss would be substantial forthe most remote counties.

The Indiana co-op managers esti-mated that 27 percent of sales ofproducts and services from all report-ing cooperatives would move toanother county if a cooperative wentout of business. The cooperatives,which reported more than $1.07 bil-lion in 1999 sales, said the countywould lose $289 million in sales if thecooperative were not in business.Twenty-seven cooperatives said localsales in the range of 15-75 percentwould be lost.

Comparing Colorado andIndiana economies

While the agricultural sector is animportant part of the economies forboth Colorado and Indiana, the statesand the regions they represent are

quite different. Indiana is part of theestablished manufacturing region ofthe country. Manufacturing is thelargest employment sector, accountingfor about 22 percent of all jobs and 32percent of gross product in Indiana(Bureau of Economic Analysis).

The service sector is the secondlargest sector in the Indiana economy,accounting for 17 percent of gross

state product. Indiana’s population ofjust over 6 million has grown 11 per-cent during the past 20 years. Andwhile Indiana boasts a strong, diversi-fied agricultural sector, every Indianaresident is within 60 miles of a majorcity, so off-farm employment possibili-

ties exist for farm families. Just over1.6 million people, 26 percent of thestate’s population, live in theIndianapolis metropolitan area.

Colorado, part of the Great Plainsregion, has an economy based on ser-vices and finance, real estate and insur-ance (FIRE). The service sectoraccounts for the largest share of thestate’s value-added activity, contribut-ing 23 percent of gross state product.FIRE accounts for 17 percent (Bureauof Economic Analysis). Colorado’spopulation of 4.3 million is 49 percentlarger than in 1980. About 60 percent,or 2.85 million, of the state’s total pop-ulation live in the Denver metropoli-tan area. The manufacturing sectorcontributes 10 percent of gross stateproduct. The state is known for someof the nation’s best vacation and recre-ation sites, a fact that supports theimportance of the service sector to thestate economy.

The rural areas of Colorado andIndiana are different from each otherin economic structure, farm structureand population density. According to aclassification system developed by theUSDA Economic Research Service, 30rural Indiana counties (or 55 percentof the state’s non-metropolitan coun-ties) are classified as manufacturingdependent (table 1). This means that30 percent or more of total personalincome in each of these counties wasearned from manufacturing wages andsalaries. Only three Indiana counties

Table 1–Selected characteristics of non-metropolitan countiesIndiana Colorado Farm-dependent Manufacturing- Farm-dependent Manufacturing- counties dependent counties counties dependent counties

Number of Counties 3 30 17 0

Population 25,000 1,093,000 86,000 -

Population/County 8,198 36,432 5,074 -

Persons/Square Mile 29.6 87.6 3.3 -

State Population 6,080,485 4,301,261 Source: USDA Economic Research Service’s 1989 Revised County Typology; Census


The cooperativeobviously representsan integral part ofthe county’s econo-my. It provides localjobs and is a majorsupplier of goods and services.


Iowa Turkey Growers Co-opexpands new processing plant

The Iowa Turkey GrowersCooperative (ITGC) is expanding itsMount Pleasant Foods slicing plantfrom 55,000 square feet with 12 slicingrooms by an additional 25,000 squarefeet and eight slicing rooms. The co-

op’s workforce at the plant will expandfrom 250 to 400. ITGC has alsoformed an alliance with MillardRefrigerated Services, of Omaha, Neb.,to build a cold storage warehouse adja-cent to the Mount Pleasant facility.The expansion of Mount PleasantFood and construction of the Millard

warehouse are expected to be completeby late this summer.

When it opened in June 2003 tofurther process turkey, ham and beefproducts, ITGC leaders thought theMount Pleasant facility would meetthe co-op’s needs for about three years.But customer demand has grown so

rapidly that thetimetable had to beshortened, accordingto Ken Rutledge, co-op president. ITGC operates two

other processingplants, West LibertyFoods and SigourneyFoods, which shipfully cooked, ready-to-

eat meat products to Mount Pleasantfor slicing. Slicing in a separate facilityhelps to ensure food safety. MountPleasant processes and sells deli andmeat products for several nationalretailers, including 1 million poundsof turkey annually for Subway, sand-wich “set-ups” for Wal-Mart and

sliced turkey and ham for Denny’srestaurants.

Finished product will move fromthe Mount Pleasant plant by conveyorbelt directly to the Millard facility nextdoor for storage and distribution, saysEd Garrett, ITGC senior vice presi-dent and chief operating officer.Miller’s 60,000-square-foot warehousewill have both refrigerated and frozenstorage, with a capacity of 52 millionpounds of meat products. It willemploy 30 people. ITGC has annualsales of $200 million and a workforceof 1,500.

Georgia oilseed co-op planlaunched with USDA grant

Georgia’s Farmers OilseedCooperative (FOC), after more thantwo years of planning, has hired itsfirst CEO and launched a stock drive.Robert Carlson, a native of Minnesotaand a veteran in the oilseed business,was hired in November and is nowdirecting the day-to-day operations ofthe co-op. Carlson has extensive expe-

N E W S L I N ECompiled by Dan Campbell

Send items to: [email protected]

falters or does not grow asplanned. Most lenders wouldprefer this ratio to be 3 or lower.Farm supply cooperatives had adebt-to-equity ratio of 0.57,which is better than average.

• Activity ratio turnover — alsocalled “efficiency ratios,” mea-sure activity or changes in cer-tain assets. Poor turnover gener-ally indicates resources areinvested in non-income-produc-ing assets. The inventoryturnover ratio measures how

quickly inventory is sold andreplaced each year. An inventoryturnover of 12 means inventoryis sold (turned over) once eachmonth. The times-interest-earned ratio measures a compa-ny’s ability to make interest pay-ments on debt. If the ratio doesnot exceed the interest rate oncurrent debt, the business maynot be making enough to payinterest expenses.

• Profitability ratios — vary fromindustry to industry and should be

compared to a company’s ratios forprior years/periods. The return-on-assets measures how well acompany is using its assets to gen-erate net profits. The return-on-member equity ratio measures acompany’s return on members’money. Marketing cooperatives’gross profit margin was lower thancooperatives in the surveyedgroup. This may be an indicationof lower demand for their prod-ucts or higher production of mar-keted products (crops). ■

Net income, sales decline for local co-ops continued from page 25

Business is booming, so the ITGC slicing plant in MountPleasant is undergoing a major expansion. Photo courtesy ITGC


rience running an oilseed processingplant and in marketing the finishedproduct, both nationally and interna-tionally.

One of Carlson’s first actions was tolaunch a class-A stock sale. One shareof the stock represents a 50-pound unitof commodity: canola, soybeans orother oilseeds. The co-op will need tosell over 10 million shares to fully uti-lize its planned crushing and refiningfacility. Promotional material is beingsent out to all Georgia oilseed produc-ers. The co-op’s board anticipates thatstock sales will continue for about 10months.

FOC has been assisted in its plan-ning efforts with a Value-AddedDevelopment Grant awarded in 2002by USDA Rural Development. TheUSDA funds were used to complete a

business plan, finish securities work andpay for other organizational expenses.The co-op board has worked closelywith the University of Georgia and theRBS Cooperative Development divi-sion of USDA Rural Developmentthroughout the planning process, thegoal of which is to increase on-farmincome and to create a positive impacton Georgia’s rural economy. Visit:www.farmersoilseed.com for moreinformation.

Iowa Premium Pork sellingstock for plant purchase

Iowa Premium Pork Co. (IPPC), afarmer-owned co-op, is attempting toraise $6.5 million to buy a processingplant the Hartley, Iowa. The plant isowned by PM Beef Holdings LLC, ofRichmond, Va., which closed it a year

ago after it expanded a similar plant inMinnesota. IPPC farmer members arebeing asked to invest $10 to $12 pershare, up to 1.7 million shares, in asubsidiary called Majestic Food GroupLLC. Majestic plans to acquire theprocessing plant and have hogsslaughtered at other plants. Plans callfor 1,000 hogs to be processed daily,building to 2,000 daily within a monthafter operations begin this summer.Within three years, the co-op plans toprocess 6,000 hogs daily, or about 1.5million per year. The plant will employ130 people.

NMPF says CWT program having major price impact

The National Milk ProducersFederation is projecting that dairy pro-ducers in Wisconsin and Minnesota

ject. Funding for the project camefrom many sources, including the cityof Milford, Dickinson CountyEconomic Development Group, theIowa Department of EconomicDevelopment, the Iowa Energy Centerand CoBank.

“Our cooperative is a 101-year-oldcompany operating as a traditionalChapter 499 (Iowa Code) cooperative,”Kevin Hartkemeyer, general managerof the Farmers Co-op Elevator Co.,says in an article in the Iowa Institutefor Cooperatives newsletter. “Onerequired provision of being a 499 coop-erative is that a minimum of 20 percentof all profits must be returned to ourmember/owners each year. However,we return 40 percent of all our compa-ny’s profits in cash. This makes it verydifficult, if not impossible, for even aprofitable company like ours to buildlarge sums of venture capital neededfor a project like this.

“Having extra capital in addition tothe normal working capital it takes torun a corporation our size can be chal-lenging, especially when trying to growa company like ours. With that inmind, we knew it would be necessary to

tap nontraditional sources of fundingfor us to complete this project.”

In June 2002, the co-op learned thatit might be eligible for a USDA ValueAdded Development Grant after visit-ing with Dave Holm from the IowaInstitute of Cooperatives and with JeffJobe, director of cooperative serviceswith USDA Rural Development.

“Since we were almost half donewith the construction of our plant, wefocused on the feasibility of obtaininga working capital grant,” Hartkemeyercontinued. It was a tough decision todecide whether it was worth the largeeffort it would take to obtain a grant.

“To help our decision-makingprocess, I contacted Dick Drahota ofthe Storm Lake Rural DevelopmentOffice. Dick came to my office and satdown with my project manager andmyself, and very extensively reviewedthe program and its intent. We wentstep by step through the evaluation cri-teria, and compared our scope andintent – it was critical that these com-plimented each other. Based on ourreview, we reached the conclusion thatour project should be on target withmost of the evaluation criteria.

“Dick then went carefully througheach step of the application process. Asan applicant, we had to evaluate if thedetail of each step in the applicationprocess might be too involved and out-weigh the possibility of potentialreward. We reached the conclusionthat while this would be a lengthy andvery detailed process, it was prettystraight forward and there were obvi-ously people in the USDA that werevery willing to give advice and answerquestions.”

As a result of their work, FarmersCo-op Elevator Co. was awarded a$500,000 grant for working capital toassist in the start-up and operation of asoy biodiesel plant.

Hartkemeyer says “that onlybecause of this program was thecooperative able to commit resourcesto this project, without having toborrow additional funds for thedevelopment of this project. It alsoallows our entire membership to cap-ture the benefits of this type project,without having to form a new, closedmembership business where only afew of the cooperative memberswould participate.” ■

Biodiesel project looks promising for Iowa cooperative continued from page 9


will realize an additional $200 millionof income by September as a result ofthe Cooperatives Working Together(CWT) program. CWT is an indus-try-sponsored and funded self-helpeffort to boost prices to farmers byreducing surplus milk production.Participating farmers pay a 5-cent feeon every 100 pounds of milk they pro-duce, which NMPF uses to pay otherproducers for reducing their produc-tion or selling their herds. The herdretirement part of the CWT programhas removed 33,000 cows from thenation’s milking herd of 9 millioncows. Others have cut back productionby changing feed programs or stoppinguse of growth hormones, etc.

Milk prices have risen from $11 perhundredweight to about $13.50 inmuch of the Upper Midwest since theprogram was launched. Even manycritics are now calling the program asuccess, according to press reports.“With prices at record lows for 22

months, you had to do something,”Waterloo, Wis., dairyman Todd Topeltold the Associated Press. “It seemedto have some effect,” he added, notingthat he was not participating in theprogram.

California Co-op Center closes;services continue via Extension

Despite extensive support from theco-op community, the University ofCalifornia Center for Cooperatives inDavis closed Jan. 5, a victim of budgetcutbacks. However, rural cooperativeswill continue to be supported by theuniversity, which is moving the posi-tion of the center’s director, ShermainHardesty, to a specialist position in theCooperative Extension of the universi-ty’s Agricultural and Natural ResourcesDivision. Hardesty says she expects toestablish a new co-op center within thedepartment.

This smaller co-op center wouldcontinue to support the development

of new rural cooperatives in California,as well as addressing issues related toestablished rural cooperatives. In addi-tion to Hardesty, the center will bestaffed by a half-time program assistantand graduate research assistants. Thecenter’s mission will be to continue toprovide research, education, extensionand outreach to the state’s co-op com-munity, and to administer USDARural Cooperative Developmentgrants.

Wisconsin home-healthcareco-op named national finalist

Waushara County,Wis., and theCooperative Carehome-healthcareco–op are one of 50finalists for the 2003Innovations in AmericanGovernment award – con-sidered by may to be the “Oscars” ofpublic service. The award is bestowed

United States through its strategiclocation on the Kansas City SouthernRailway.

TransCon is initially focusing onthree areas of concentration: distribu-tion, malting and brewing operations.TransCon has acquired the trademarkof the former Pony ExpressBrewing Co. and is operating underthe name “Great Plains Brewing Co.”

The co-op has 153 members, 90percent of whom are producers.

“The other 10 percent areinvolved in other businesses whichadd value in other ways that an every-day producer could not, i.e., market-ing, finance, retail, distribution, etc.,”Effertz says.

Stock sold at $10,000 per unit, withthe option to buy 1-3 units.

“We started our drive Jan. 1, 2003,and we were funded by May 15th,”Effertz says, adding that the co-op maydo an additional membership drive orspin off one of its three operations intoa separate co-op.

TransCon is researching the oppor-tunity to malt alternative grains fromthe fields of its producers. Thesegrains include sorghum, soybeans, rice,corn, buckwheat and others. Havingthe ability to distribute these grains,whether in raw form or in any otherstage of production, down to a finalproduct, is the ultimate goal of the co-op, says Effertz.

Extensive research was conducted todetermine the initial product offering,brand positioning and marketingstrategies. Consumer research wasconducted with key beer-market targetsegments across the country and withChinese nationals. Research indicatedbrand positioning that could have highappeal with both young and moremature beer drinkers.

The brand attribute most valued bythe target market is the brand’sAmerican persona. The distinction of abrewery solely owned by the agricul-tural producers of the ingredients isgreatly valued by beer drinkers and

seen as an additional assurance of qual-ity and freshness. The market researchled to a campaign focused on Americanthemes of patriotism and indepen-dence.

The label design and packaging fea-ture eye-catching photographs of grainfields and patriotic imagery that posi-tion Pony Express as an all-Americanbeer. In addition to glass bottles, poly-ethylene terephthalate (PET) bottlesallow the beer to be sold at sports sta-diums and golf courses. The PonyExpress bottles use a multi-layer con-struction that incorporates a patentedoxygen scavenger. In the past, beer inplastic bottles had a short shelf life, butthe multi-layer technology keeps thebeer fresher longer by minimizinglight strike and oxygen ingress whileprotecting against CO2 loss. The 16oz. PET bottles were specificallydesigned to run through existing glasslines to minimize the cost impact ofadding PET bottles to the packagingmix. ■

Missouri-based co-op brewery unveils Pony Express line of beer continued from page 20


by the Kennedy School ofGovernment at Harvard University.

Cooperative Care is an 89-member,worker-owned co-op of home healthcare providers who assist the elderlyand disabled to live independently intheir homes. The co-op developmentprocess began in September of 1999and became operational on June 1,2001. For more on the co-op, see theMay-June 2003 issue of RuralCooperatives, pages 9-12 (on-line at:www.rurdev.usda.gov/rbs/pub/open-mag.htm).

A competitive judging process willchoose 15 finalists, to be announced inMarch. The National Selection

Committee on Innovations inAmerican Government, chaired byDavid R. Gergen, editor-at-large ofU.S. News & World Report anddirector of the Center for PublicLeadership at Harvard University, willthen choose five winning programs,which will be announced on July 28,in Washington. Winners receive$100,000 grants to promote and repli-cate their innovative efforts.

Jim Quane of Harvard Universityvisited Wautoma, Wis., February 25-27 to examine Cooperative Care’sinnovative approach and best practices.If the co-op’s application makes it tothe next round, a team from Wautoma

will be flown to Harvard to present theCooperative Care story before a distin-guished panel of judges.

Ralph Bunje, farm co-opbargaining leader, dies at 92

Ralph Bunje died Nov. 8 at the ageof 92. A nationally recognized farmleader, orator and innovator, Bunjeserved as president of the CaliforniaCanning Peach Association from 1950-1974. He was considered the dean offarm bargaining for over 50 years. He,along with Joseph Knapp, a formeradministrator of the USDA FarmerCooperative Service, was instrumentalin initiating the National Bargaining

are classified as farm dependent —counties in which 25 percent or moretotal personal income over the past fiveyears was earned in the farm sector. InColorado, by contrast, 17 of 53 non-metropolitan counties were classifiedas farm dependent. No Coloradocounties were classified as manufactur-ing dependent.

The number of people impacted byagriculture in the respective states isnoteworthy. About 25,000 people livein Indiana’s three farm-dependentcounties. There are 17 farm-dependentcounties in Colorado. There are 3.3persons per square mile in the farm-dependent counties of Colorado com-pared to 29.6 (nine times greater) per-sons per square mile in the farm-dependent counties in Indiana.

While it is useful to examine theimpacts of local cooperatives onemployment and income at the statelevel, those aggregate measures maynot tell the complete story withrespect to their importance to ruralcommunities. To illustrate the impactfrom the perspective of rural commu-nities, one locally owned agriculturalcooperative’s county level data wasevaluated. In this one Colorado coun-ty, the local cooperative accounted for20 of the 807 civilian jobs. In that

same county there were 47 private,non-farm establishments. The cooper-ative operated a convenience store,retail gasoline station, retail farm sup-ply outlet, car-care operation, andgrain-marketing facility, and it soldanimal health and feed products aswell as liquid propane, fertilizer andbulk petroleum.

The cooperative obviously repre-sents an integral part of the county’seconomy. It provides local jobs. It alsois a major supplier of goods and ser-vices to the local economy. If coopera-tives in remote rural counties like thiswere to go out of business, jobs wouldbe lost and consumers could loseaccess to critical retail markets.

ConclusionsAgricultural cooperatives are an

important source of income andemployment in Colorado and Indiana.Seventy reporting cooperatives accountfor 4,175 jobs and an estimated $56million in income in the two states.The combined total employment andincome impacts associated with theoperation of the cooperatives are:7,265 jobs and $129 million in person-al income.

While the income and employmentcontribution of cooperatives is impor-

tant to the state economies, coopera-tives can be a critical income andemployment source to remote ruralcommunities.

To the extent that a communitycan sustain a cooperative as a viablelocal enterprise, it is maintaining theassociated income and employment ina community that would not be com-petitive in attracting other privatebusiness capital (manufacturing,retail, or service) because a businesscould not achieve the scale of opera-tion to obtain a competitive return oninvestment.

Given the presence of cooperativesin rural communities, rural develop-ment programs should consider theimportance of sustaining cooperativesas viable businesses for theirincome/employment contribution tothe local economy. Policy might alsoconsider strategies that use the man-agement and other resources of localcooperatives as a building block fordevelopment activities that expand theavailability of goods and services torural residents.

References:For references, contact Sue Hine

at (970) 491-7370, [email protected]. ■

Weighing in continued from page 28


Conference in the early 1950s, whichcontinues to meet annually.

Bunje was also instrumental in coa-lescing California and national bargain-ing groups in supporting passage of theAgricultural Fair Practices Act in 1967.At the behest of Randall Torgerson,then administrator of the USDAAgricultural Cooperative Service, Bunjeauthored the book “Cooperative FarmBargaining and Price Negotiations,”published by USDA in 1980 (asCooperative Information Report 26). Itis still in demand and was recentlyreprinted by USDA. It is a publicationof enduring importance that is used bymany farm groups today.

Bunje emphasized the importanceof having a well-informed board ofdirectors as a key to successful cooper-ative organizations. He also stronglybelieved in political action and mem-ber involvement.

Ron Long, A.I. innovator,retires from Select Sires

Ron Long, a respected innovator inthe artificial insemination (A.I.) indus-try, has retired after 30 years withSelect Sires. Long, who was vice presi-dent, dairy sire procurement, retiredDec. 31. Long began his career withSelect Sires in 1973, working on a

dairy herd-consultation service. Thisprogram, Select Mating Service, hassince evolved into the largest matingprogram in the world, conductingmore than 3 million matings per year.

“Without a doubt, Ron Long is themost respected person in the A.I. busi-ness for his cow knowledge,” says Lon

Peters, manager of SMS, Select Sires.“He has traveled to all corners of theworld to judge cattle shows, and to dis-cuss genetics and the economic impactthat good corrective-mating programscan have. Ron is a one-in-a-millionindividual who will be missed at SelectSires.”

In addition to his accomplishmentswith Select Sires, Long has been an

industry leader, serving as president ofNational Dairy Shrine, on theHolstein Association USA TypeAdvisory Committee and GeneticAdvisory Committee, on the NationalAssociation of Animal Breeders(NAAB) Standardization of Type Traitscommittee and on the Ohio StateUniversity Dairy Science Advisorycommittee. This national and interna-tional dairy judge was also elected intothe Ohio State University DairyScience Department Hall of Fame.

Based in Plain City, Ohio, SelectSires Inc. is a federation of 10 farmer-owned and -controlled cooperatives.

Community credit unionto serve low-income co-ops

Northcountry Cooperative FederalCredit Union (NCFCU), a new com-munity development credit union, ishelping to make affordable homeownership available to more peopleacross Minnesota and the UpperMidwest. The credit union will makeloans to housing cooperatives andmembers of housing cooperatives tosecure affordable home ownershipthrough owner-occupied housingcooperatives. The credit union alsooffers socially motivated investors anopportunity to support the develop-

Co-ops as bulwarksof rural living

The larger culture — in the sym-bols they embrace, and the massiveconsumption they pursue — seeksgreater attachments reminiscent ofrural family farms and communities.Agricultural cooperatives are at thecenter (economically and sociological-ly) of many of these images. Whilepursuing individual collective benefitsof farmers has kept many in business,the mutual collective benefits ofretaining family farmers in business asa group has not been emphasized.The lost benefits of rural living gener-ally, are rarely considered.

Yet agricultural cooperatives have a

rich history of pursuing the interests ofpeople seeking change in their lives.Embracing the desire to continue livingout a rural identity, as rural residents —including managers, employees, farm-ers, families, husbands, wives and chil-dren — could provide a base to activelycarry, if not protect, rural culture.

Re-shaping cooperative rural pres-ence as an organization with the com-mitments of farmers — as being rearedon a farm — in rural communities thatvalue decentralized living, neighborli-ness and closeness to the seasons andfood production, might serve to makeexplicit the mutual and collective inter-ests of rural residents generally. Thedemocratic aspects of cooperative

organization, service and voluntarycollective action are quite congruentwith the older democratic, republicanvalues of rural people (Lauck).

Perhaps cooperatives, even if onlyin support of the activities of others,could help pursue alternatives that aremore directed toward deepening ruraltraditions and culture, sustainingsmaller rural communities, as well asthe survivability of farmers. Thisbroadening would require agriculturalcooperatives to augment their olderagendas of “getting a fair share,” andgreater power (the freedom to have) toone of “a freedom to be”— to continueto embrace, live out and express theiridentities as rural residents. ■

Exploring a greater role for agricultural cooperatives in sustaining rural living continued from page 23

Ron Long is a leading genetics expertwho travels around the globe to judgecattle shows. Photo courtesy Select Sires


ment of affordable housing in theircommunities while enjoying the safetyof federal deposit insurance.

“NCFCU’s primary mission is toincrease access to financing productsfor housing cooperatives and theirmembers,” says Margaret Lund, exec-utive director of NorthcountryCooperative Development Fund(NCDF), sponsor organization for thecredit union. “Housing cooperativesare one of the best entry-level homeownership opportunities that exist.Unfortunately, widespread use of thisimportant tool is hindered by the factthat few conventional lenders knowhow to lend on these properties. Thecredit union will be a catalyst, provid-ing communities across the upperMidwest access to this vital wealthbuilding opportunity.”

NCDF is a CommunityDevelopment Financial Institution(CDFI) and has been making loans tocooperative enterprises across theregional Midwest since 1978. NCDF isstructured as a cooperative, with over

100 member cooperatives, and acts as acatalyst for the development andgrowth of cooperative enterprises.

Co-ops gain North American option for .coop registration

Cooperatives now have a NorthAmerican option for registering orrenewing .coop Internet addressees.Pennsylvania-based Domain BankInc., 10th largest registrar in thiscountry and among the 20 largest inthe world, has begun registering .coopnames in addition to other popularInternet domains such as .com, .netand .org.

“Domain Bank is highly regarded inthe industry and a North American reg-istrar is something we all have wantedfor some time,” said Paul Hazen, CEOof the National Cooperative BusinessAssociation, which won approval for the.coop top-level domain in November2000. Hazen said a key advantage ofusing Domain Bank is its full range ofservices for those registering .coopnames. For example, he said, Domain

Bank offers free and easy activation ofInternet names as part of its registrationfee. In addition, it offers forwarding ser-vices for email and website support ser-vices for a seamless transfer from a .comor .org address to .coop. ■

Penlight restores power in record time

Winter storm conditions in Januarytested the reliability of Peninsula LightCompany’s (Penlight) distribution sys-tem, but the 26,000-member electriccooperative reports that it passed withflying colors. CEO Rob Orton saidthat manyother utilitycustomersin the PugetSound region were without power fordays. “Our response time has signifi-cantly improved,” said Orton, whocredits the co-op’s accomplishment toits power-reliability program, which“undergrounds” overhead lines,replaces old underground cable andtrims “rogue tree branches.”

Competition for milk leads to volume premiums

The hottest membership issue forthe past couple of years has been thevolume premiums the co-op pays tolarge producers. Some members withsmaller farms view them as unfair, butthe Cass-Clay board feels it has tooffer them to maintain the milk vol-ume needed to keeps its plants operat-ing at maximum efficiency.

To understand why, one must con-sider the changing farm demograph-ics of the area. In the mid-1980s, theco-op’s largest farm had about 200cows. Today, it has eight memberswhich each milk 800 to 1,000 cowsand account for nearly 25 percent ofthe co-op’s milk volume. Still, theaverage farm in the co-op has about50 cows.

Cass-Clay competes for milk with anumber of other, larger co-ops, includ-ing DFA, Land ‘O Lakes and AMPI, as

well as some private purveyors.However, co-ops in the area oftenwork together. For example, Cass-Clay and DFA have a co-haulingarrangement that has saved both co-ops money.

“We need those large members, butthen the smaller members feel they arenot being treated fairly. It’s a balancingact – how far do you go with premi-ums?” Pagel says.

The competition for milk hasgrown as the number of farmers quit-ting the business in the UpperMidwest has risen. The average age ofa dairy producer in the region is about57, and even though it’s not unusualfor a farmer to work into his or her70s, there’s a definite horizon issue.(See sidebar.)

“Personally, I don’t like the volumepremiums,” Glawe says. “But if you’recompeting with others that initiatedthem, we have little choice. We can’t

make our co-op a sacrificial lamb forthe sake of principle. Right now, youhave to do it to get the product youneed to keep your plants operatingefficiently. I’d says the general feelingof the board is that it’s necessary, butwe’re not fond of it.”

Given current trends, Pagel thinksvolume premiums will soon pass awayon their own, which he notes hasalready occurred on the West Coast.

Not too many years ago, qualitypremiums were the hot issue of theday, notes Pagel, whose nearly twodecades with Cass-Clay, including 11years as manager, have changed hisattitude about co-ops.

“There is such strength in themembership and in their commitmentto see this business succeed,” saysPagel. “Their participation has beeninstrumental in shaping the directionand success of this co-op every step ofthe way.” ■

Making good things continued from page 8



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