al r u R COOPERATIVES - USDA Rural Development · 2019-11-20 · support projects throughout rural America. While several of ... • Oregon Woodland Cooperative was awarded a $150,000

USDA / Rural Development January / February 2012

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lCOOPERATIVESCOOPERATIVES

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‘Because we’reall in this together’

2 January/February 2012 / Rural Cooperatives

Commentary

By Judith Canales, AdministratorRural Business-Cooperative ProgramsUSDA Rural Development

egular readers of this publication areprobably well aware of USDA RuralDevelopment’s commitment to promotingco-op education, research and statistics viaRural Cooperatives magazine and the manyother co-op reports we publish (see pages 22-

23 for some examples). But co-op leaders should also beaware that a number of USDA Rural Development loan andgrant programs can help cooperatives.

Cooperatives are an integral part of rural communities andeconomies; their socio-economic contributions have beendocumented many times over. Farm supply, marketing andservice co-ops continue to be a part of the day-to-day lives ofmany rural producers, while housing, food, worker and utilityco-ops provide needed services to rural communities.

USDA’s portfolio of Rural Business-Cooperative Programshas had a tremendous impact on rural communities and therural economy. Since 2009, these programs have beenresponsible for the investment of about $6.9 billion tosupport projects throughout rural America. While several ofthese programs are specifically targeted toward co-ops,cooperatives are eligible to participate in all of them.

These programs assist businesses and cooperatives, createjobs and expand entrepreneurial opportunities in rural areas.They have advanced business development, local food andvalue-added agriculture, and renewable energy development.While many cooperatives across the country have takenadvantage of these programs to grow their business, manymore co-ops could be participating in them.

Following are brief overviews of some of the USDAprograms that every co-op should be aware of. To learnmore, visit our website at: www.rurdev.usda.gov, or call yourUSDA Rural Development state office toll free at 1-800-670-6553 to talk to a business and co-op program specialist.

Value-Added Producer Grants (VAPG) — Thisprogram provides competitive grants to farmer or ranchercooperatives, individual independent agricultural producers,groups of independent producers, producer-controlledentities and organizations representing agricultural producers

to create or develop value-added producer-owned businesses.Agricultural producers include farmers, ranchers, loggers,agricultural harvesters and fishermen who engage in theproduction or harvesting of an agricultural commodity.These enterprises help increase farm income, create newjobs, contribute to community and rural economicdevelopment, and enhance food choices for consumers.

Examples of funded projects include:

• In 2009, the American Prawn Cooperative Inc., in NorthCarolina, received a $197,250 working-capital grant tomarket value-added, freshwater prawns.

• The North American Bison Cooperative, based in NorthDakota, received a $50,000 VAPG to support economicplanning and research to identify new and existingmarkets for bison products.

• Also in 2009, Six Rivers Producers Cooperative inWisconsin received a $149,740 grant for working capitalto facilitate a producer-to-restaurant infrastructure tosupport the marketing and sales of locally grown, value-added produce, dairy and meat products.

• Oregon Woodland Cooperative was awarded a $150,000VAPG in 2009 to process members’ non-timber forestproducts (tree needles, bark, moss, etc.) into essentialoils, dried chips and other projects.

Business & Industry (B&I) Guaranteed Loans — Thisprogram helps to improve, develop or finance business,industry and employment in rural communities. It bolstersexisting private credit by guaranteeing quality loans that showpromise of creating lasting community benefits. The programtypically guarantees losses of up to 80 percent on loans of upto $25 million, or up to $40 million for value-added agprocessing plants in rural areas. “Rural” for this program isdefined as communities (and their contiguous, adjacent areas)of less than 50,000 people. There is an exemption to thispopulation limit for loans of up to $25 million when a co-opis engaged in value-added ag processing and all members’farms or ranches are within 80 miles of the processing facility.Inability to obtain other credit is not a requirement toparticipate.

Co-ops: Don’t Overlook Rural DevelopmentFinancial Programs

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continued on page 45

Features

Rural Cooperatives / January/February 2012 3

Volume 79, Number1January/February 2012

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

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

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

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

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

Tom Vilsack, Secretary of Agriculture

Dallas Tonsager, Under Secretary,USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

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

p.9

4 ‘Because we’re all in this together’ Sandhills Farm to Table Co-op’s goal: ‘Meeting local food needs with local food’By James Matson and Jeremiah Thayer

10 Learning from co-op closureDissolution of Producers & Buyers Co-op holds lessons for others pursuing institutional market By Margaret M. Bau

16 Changing course Milk producers tackle dairy policy, other key issues at annual meetingBy Carolyn Liebrand

20 Organic federation seen as a strategy for family farm survival,regional competitivenessBy Thomas W. Gray

25 Study raises important questions about co-op education efforts James Wadsworth

27 Keeping the ‘open’ sign onCanadian conference promotes employee ownership as alternative to business closuresBy Bruce Reynolds

32 The Nature of CooperativesRoles in economizing transaction cost is a new dimension for understanding value of co-opsBy K. Charles Ling

Departments02 COMMENTARY

09 CO-OPS & COMMUNITY

15 LEGAL CORNER

19 IN THE SPOTLIGHT

30 FOCUS ON

36 UTILITY CONNECTION

38 NEWSLINE

p. 30p. 16

ON THE COVER: The North Carolina-based Sandhills Farm to Table Cooper-ative is a prime example of a multi-stakeholder co-op. It has member classes thatinclude farmers, consumers and restaurant and food store owners. Here, straw-berries are harvested on a producer-member’s farm. Story on page 4. Photocourtesy Sandhills Farm to Table Co-op

By James Matson and Jeremiah Thayer

Editor’s note: The authors are both business consultants withMatson Consulting, a co-op business development firm based inAiken, S.C. Matson is a former co-op development specialist withUSDA Rural Development.

ince its inception two years ago, SandhillsFarm to Table Cooperative (Sandhills) — amulti-stakeholder enterprise — has made ahuge impact in the rural communitysurrounding Moore County, N.C. Sandhillsis providing fresh local food to more than

1,600 co-op members, while donating more than $30,000 tolocal schools and nonprofit organizations. In addition, it hashad a tremendous impact on 35 producer-members, paying

them more than 70 percent of the retail food dollars their co-op collects. Their multi-stakeholder model is providinginspiration for several other rural cooperatives beingdeveloped in North Carolina that are seeking locally basedsolutions to local food needs.

Expanding the co-op model From its inception, Sandhills Farm to Table Cooperativehas redefined the traditional cooperative model. Typically, aco-op is focused on benefiting one class of stakeholder, be it aproducer-owned, worker-owned or consumer-ownedcooperative. However, many cooperatives are unable tooperate successfully within the traditional “singlestakeholder” business model. But when there are multipletypes of members represented by one co-op, addressing morediverse concerns is a challenge — which Sandhills has been


S

Cliff Pilson packs Sandhills strawberries at his family's CV Pilson Farms in Cameron, N.C. The fruit will be marketed through the Sandhills Farm toTable Cooperative. Photos courtesy Sandhills Farm to Table Co-op

Sandhills Farm to Table Co-op’s goal: ‘Meeting local food needs with local food’

‘Because we’re all in this together’

designed to accomplish. By including three different stakeholder groups (producer-

farmers, consumer-customers and employees) in the decision-making structure of its operations, Sandhills has been able toexpand the scope of benefits. It is one of the first local foodcooperatives in the country in which the farmers, consumersand staff are all equal owners.

“People are less concerned about price, and the farmersare working to provide the best possible produce to theirneighbors,” says Jan Leitschuh, director of marketing andfarmer relations for the co-op. “We’re trying to be acooperative in the truest sense of the word.” While co-opleaders determined that the multi-stakeholder businessstructure was the best way to address the concerns of eachparty involved, the process is still evolving. They say the

flexibility of the cooperative structure is the key to sustaininggrowth.

Ultimately, Sandhills would tweak the multi-stakeholderformat through the use of the “one member, one vote”concept, partnered with a board of seven directors. Twoboard members are elected directly by each of the threestakeholder classes. These six directors then appoint oneadditional, unaffiliated board member to provide balance andobjectivity.

Reaching consensusThe decision-making process posed an interesting

challenge. The ideal of a “consensus” was never reallyconsidered. A simple majority vote of board members wouldallow any two interest groups to override the interest of thethird, which is inconsistent with Sandhills’ guiding principle:“We’re all in this together.”

A creative alternative emerged. Decisions are made by asimple majority vote, with the provision that at least onerepresentative of each interest group must agree. The formatof the cooperative serves as a watershed, expanding thebenefit base beyond the stakeholders and into the communityin which the cooperative resides.

Linking producers with consumers Sandhills Farm to Table Cooperative is an outgrowth of a

wave of Community Supported Agriculture (CSA) co-opsthat began springing up across the nation in the 1990s. At itscore, Sandhills is a multi-farm CSA cooperative. This multi-farm format allows the co-op to expand on the benefits oftraditional CSAs. In a typical CSA, consumer-membersfinancially support local producers and, in turn, they are

supplied with regular “shares” in the form of producedistributed throughout the season.

In Sandhills’ case, once customers become members, theyare able to sign up for a subscription to receive “produceboxes,” which are distributed on a regular schedule at various“gathering sites” located throughout the area. The multi-farm CSA format employed by Sandhills ensures that the co-op can offer a greater variety of produce as well as providejoint marketing and sales logistics. Similarly, the consumer-members receive the benefit of receiving their produce atgathering sites on a regular basis, instead of just when certaincrops are in season.

While serving as a conduit for local food demand (whichinfluences producers’ planting decisions), Sandhills alsoserves to bring producers and consumers closer together.

“The co-op has been very successful in building a positiverelationship between the farmers and community,” says JohnBlue, a Sandhills farmer-member. “It has stimulated interestin using local products that we, as farmers, could have neveraccomplished as individuals.”

This “consumer connection” is especially important for“transitioning farmers,” those who are too large to make aliving by selling at farmers markets, but not big enough toaccess large-scale producer markets. Or, these farmers may betransitioning from producing one crop type to another. Byparticipating in the cooperative, many of these producershave been able to succeed.

“A full-time farmer transitioning from commodity crops,like tobacco, into direct-to-consumer sales finds it difficult toadjust his production and marketing practices to meet thedemand for locally grown, fresh fruits and vegetables,” saysTaylor Williams, an agent with North Carolina CooperativeExtension. “Sandhills Farm to Table helps the farmer expandand diversify production and marketing practices to meet thedemand for locally grown, fresh fruits and vegetables. It is noexaggeration to say that two dozen farmers in our countyhave been able to survive and succeed because of theirparticipation in this cooperative.”

Sandhills returns local dollars to the community, primarilythrough payment to farmers for their produce. In 2011 alone,35 farmer producers were paid at least 70 percent of the retailfood dollars from the co-op’s produce sales.

Community impacts While Sandhills includes the functions of a traditional

CSA, it has become much more than that to the localcommunity. The co-op’s goals have always included


“…Two dozen farmers in our county have been able to survive and succeedbecause of their participation in this cooperative.”

community building. An example of this can be seen in theuse of “gathering sites,” rather than simple “pick-uplocations.” Jan Leitschuh says that the idea was to make thegathering sites a place where people could get to know theirneighbors, swap recipes and generally have a more pleasantexperience than is experienced at a typical “get your box andgo”-type pick-up site. She sees the gathering sites as one ofthe key benefits of Sandhills Farm to Table, compared toother cooperative models.

While community building is accomplished through thestrengthening of producer-consumer ties, it is alsoaccomplished by fostering volunteerism. People begin tounderstand that “we’re all in this together.” In 2010,Sandhills was the recipient of more than 2,500 hours of

volunteer services from members and others. Most of thisdonated time was used to operate the weekly gathering sitesat churches and elementary schools.

Working together to meet the personal needs of thecooperative members also helps meet the needs of people andorganizations outside the cooperative. Through donations togathering site hosts in 2011, more than $30,000 was given tothree public elementary schools, three churches and severalother local, nonprofit organizations. That amount is up fromabout $10,000 in 2010.

In addition to its role as a CSA, the co-op is also on thecutting edge of the emerging “food hub” trend, in which theInternet becomes a marketing vehicle for local producers anda shopping platform for consumers. Through the use of


The road to the development and ultimate start-up ofSandhills Farm to Table Cooperative (Sandhills, or SF2T))required long, hard work by a few dedicated leaders. Themulti-stakeholder business structure was not broadlyembraced when the concept was first floated, as publicinterest and awareness in local food sheds was in anembryonic stage at that time in North Carolina.Fenton Wilkinson — a local sustainable-community

development planner/activist who first envisioned the co-op— found that his initial attempts to “shop around” theconcept stirred little community reaction. Wilkinson hadexperience in this field from previous projects and thusknew how important it would be to lay the groundwork forthe co-op properly. “I started an enterprise similar to SF2T in Washington

state in 1997, as a for-profit worker cooperative,” Wilkinsonrecalls. “After 18 months of operations, the business closed— even though it was about at the point of liftoff — becausethe vast bulk of the energy fueling it was mine. I burned out.“Several years later, I moved to Moore County and felt

that a similar local food distribution company would worklocally. While the earlier attempt proved the concept'sfeasibility, I decided that I would only undertake it as acommunity development enterprise, rather than a personal,for-profit business. It seemed to me that the likelihood ofsuccess and longevity was much higher if the project was acommunity endeavor — that is, if it came out of agroundswell of support from a broad cross-section ofcommunity interests.” He tried to get various community leaders interested in

the concept in 2003, 2005 and 2007, looking for broadcommunity support. “While the idea was generally wellreceived, no one was interested in becoming directly

involved,” he says. “In 2009 when the idea was once again floated, Tim

Emmert, a Moore County Community Development Planner,jumped on board and the ember started glowing. Together,we slowly built a coalition of public agencies, NGOorganizations and citizens. The ensuing ‘blaze’ resulted inSF2T.”Reaching 3.5 percent of the county population as

subscribers in just the co-op’s second year “speaks volumesas to the efficacy of using the community endeavorapproach,” Wilkinson says. A key move occurred whenWilkinson (who would become the co-op’s general manager)enlisted the help of Jan Leitschuh (who became the co-op’smarketing director). With her involvement, communitysupport began building in earnest. Small grants from RAFI (the Rural Advancement

Foundation International/USA) — which supports smallfarms and co-ops that use sustainable agricultural practices— and from an individual gave the fledgling co-op an earlyboost. Outside assistance was sought from many sources. Key

to Sandhills’ ultimate success was its ability to form strongpartnerships in the agricultural community and receivingstrong support from USDA Rural Development staff andprograms. Bruce Pleasant, business/cooperative programsspecialist with USDA Rural Development’s state office forNorth Carolina, met with the leaders to help move the co-opdevelopment process into the next phase. Co-op organizers met with the North Carolina

MarketReady office and its development partner, MatsonConsulting. These groups provided critical technicalassistance for the community leaders through fundingprovided under in a USDA Rural Cooperative Development

Laying groundwork key to successful launch


Grant (RCDG), at no cost to the cooperative. NC MarketReady helped the organizational committee

through several months of planning and meetings. The manyhours of technical assistance provided through the RCDGfrom USDA proved invaluable for getting Sandhills Farm toTable Cooperative off the ground. The organizing process was overwhelming at times. The

cooperative had to resolve many internal issues to be fair foreach class of stakeholders. There were few exact patternsto follow. So, with the help of many others, Sandhills took“pieces” from many other organizations that seemed to bestfit its goals.Looking back at the effort, Leitschuh says: “There were

some intense ‘birth pains’ during the start-up, primarilybecause so many structures had to be invented from scratch— and each decision affected all the others. At that time,there were only two of us doing the heavy lifting, althoughFenton took pains to engage opinion from all segments of thepotential membership. We drew heavily upon Co-opExtension and NC University resources, including the NCMarketReady Center. It was a process that consumed twofull years of two lives and left us exhausted.” Leitschuh’s key advice for others following a similar

course of action: “Enlist more ‘heavy lifters’ from the

community at the start.” Also, borrow from other existing co-op business models. Wilkinson says one of the major barriers to starting a

local food hub is figuring out how to get both consumers andfarmers to make commitments based on the “raw concept.”The co-op adopted an approach of “leveraging incrementalsteps. We started with a no-commitment, online consumersurvey which garnered well over 600 responses, with 85-pluspercent saying they were very interested in the idea.”That enabled the co-op organizers to get the attention of

key local farmers and engage them in a dialogue. Whilethere was farmer interest, when it came time for them tomake a real commitment to plant and sign a deliveryagreement, there was resistance, because the consumershad not done anything to indicate they really meant it,Wilkinson explains. “We went to the consumers, explained that the farmers

were at the point of having to make a real investmentmonths before they had anything to sell, and they wantedsome indication that the consumers really meant it. Wecouldn’t sell subscriptions because no details of what thatmeant were known, much less the fact that we had noproduce supply in hand.”Instead, consumers were invited to become charter

members, paying $25 to join and support the co-op, butwithout any commitment to subscribe. “More than 450households joined as charter members in one month. Thiscommunity support surprised the farmers and was sufficientinducement for them to make growing commitments to SF2T.With farmer commitments in hand, we were then able tostructure the produce box subscription details and beginaccepting subscriptions in February. The rest is history.” n

Sandhills’ website, the co-op offers services much like a “pre-order” farmers market. Orders are placed via the website,then a “market day” is scheduled on which food and non-food items are picked up and a final bill is determined.

The use of market days allows producers to include fooditems that probably would not “survive” in the produceboxes, as well as to include more highly processed items, suchas cured meats, jams, jellies and baked goods. Because theyprovide a source of guaranteed sales, market days have alsoallowed producers to include more difficult-to-store items,such as grass-fed beef, pork, and lamb; sausages; breads; andjams.

While the website format allows producers to find a suremarket, it also opens the door for new business ventures in

the community. A recent survey identified several areas where there was a

potential market, but uncertainty existed about localproducers to meet the demand. One result of this is the OldeTime Bakery. Business owner Leslie Covington says she waswilling to start the bakery due largely to Sandhills Farm toTable Cooperative. “I broke even my first month, primarilyselling directly to Sandhills members on a limited basis,”Covington says. “I can’t wait to be able to offersubscriptions.”

Working with low-income households Sandhills’ service region includes several USDA-

designated “food deserts,” which are defined as “a low-

Sharing the workload will help prevent burn out by a co-op's "heavy lifters," according to leaders of the Sandhills Co-op (below).


income census tract where a substantial number of residentshave limited access to a supermarket or large grocery store.”Even in many areas not designated as a food desert, asignificant percent of the population may lack access tohealthy foods.

Sandhills takes its commitment to address food insecurityin the community seriously. In 2010, the co-op donated morethan three tons of produce — which farmers were paid for —to needy residents of Moore County. The food donationswere made through a local food bank and food pantries, afriend-to-friend program, and directly to families in need.

To ensure that community members have access to freshhealthy, locally produced foods, Sandhills has partnered withWest Southern Pines Citizens for Change (WSP) to enactthe “Affordable, Healthy Local Food Access Initiative.” Thisgrassroots, self-empowerment initiative in a low-income,minority neighborhood aims to increase access to healthylocal food. WSP’s 1,600 low-income residents currently haveno access to healthy – much less, local – food. Many of themalso lack transportation to get to better food sources. Bothchildren and adults there are experiencing severe diet-relatedhealth issues.

“The West Southern Pines initiative will add the crucialpiece of making healthy food more accessible in aneconomically depressed area while supporting local farmers,the local economy and our at-risk school children,” saysKathy Byron, director of the Communities In Schools (CIS)FirstSchool Garden Program, a project partner.

Community enrichmentA CSA’s activities tend to slump in winter, when most of

the farmer-members are not growing crops. Sandhills hasseized this opportunity to start the “SF2T University”(“SF2T” is often used as an acronym for the co-op). Theinformal “teach what you know” format allows people toteach community-based classes based on experience orexpertise.

Part of the resurgence of demand for local foodscorresponds to an increased interest in cooking at home.However, many of Sandhills’ subscribers did not know howto properly prepare the produce they were getting from theco-op. Recognizing this need, Sandhills not only beganoffering regular cooking classes that work with foodsincluded in that week’s produce box from the CSA, but it alsobegan offering canning and food preservation classes tocapitalize on the abundance of some foods during harvest.

Sandhills’ weekly newsletter, produced by Leitschuh,features recipes that use food from the co-op’s CSA produceboxes in ways that help broaden consumers’ palates whileencouraging the “exploration” of new foods. A recentmember survey found that 73 percent of respondents wereincreasing their frequency of cooking meals “from scratch” athome after becoming a co-op member. Cooking, canning andrecipe use are all areas Sandhills is focusing on in an attemptto teach “lost skills” to a new a generation.

Looking to the future Sandhills has big plans for the future. After being awarded

a Farmers Market Promotion Grant in November 2011 fromUSDA, the cooperative’s goals include expanding currentofferings to include a number of value-added foods, includingmeats, breads and locally prepared soups. The grant willenable the co-op to expand its influence even farther in thecommunity.

By purchasing new transportation equipment andelectronic payment system point-of-sale devices, Sandhillswill be able to offer foods to community members it has notreached to date, especially those in low-income communitieswhere access to supermarkets is limited. The co-op intends tocontinue the formation of community-learning classes, aswell as adding new members and subscriptions in the comingyear.

Influence spreadsSandhills is inspiring communities beyond its own.

Because of the co-op’s pioneering work in the multi-stakeholder arena, its business model is being adopted byothers and its influence is spreading. Sandhills’ membersbelieve that sharing knowledge and know-how in order topromote community on a larger scale is a foundation ofcooperative philosophy.

“I am indebted to this group for their willingness andproactive efforts to expand their own project to become aregional initiative, and for their unselfish sharing of not onlytheir success but their knowledge and experience,” says MarkTucker, North Carolina Cooperative Extension director forForsyth County. “This dissemination of information hasallowed for others to replicate similar efforts in additionalareas of our state.”

The success of Sandhills Farm to Table is attributable bothto its unique, multi-stakeholder structure and to Sandhills’actions to benefit many community groups beyond its ownmembers. Multi-stakeholder cooperatives are proving thatthe best way to solve community issues is often with acommunity solution. While still evolving, these co-ops canhelp offer local solutions to local issues, following the spiritof the cooperative through information sharing andpropagation, mutually benefiting every level of stakeholder.These co-ops exemplify the best aspects of cooperatives byhelping to identify an issue, take initiative and form acommunity of interest to solve it.

“Sandhills Farm to Table Cooperative’s intent and actionsare a reflection of a new-values system of commerce,” says itsfounder, Fenton Wilkinson. “It is not a business, but acommunity endeavor with the mission of meeting local foodneeds with local food,” he continues, saying this reflects theco-op’s belief that: We’re all in this together.

“When asked: ‘Is SF2T for-profit?’ I have to say yes, butnot in the usual sense,” Wilkinson adds. “With all parties tothe transaction being equal owners, we all profit from ourrelationship to our community and with each other.” n

By Karen Jones, GROWMARK

Editor’s note: With this article, RuralCooperatives is launching a newdepartment, Co-ops & Community, inwhich we will feature co-op employees andmembers who exemplify the co-op principleof service to community. This article isreprinted from Spirit, courtesyGROWMARK, where Jones is apublications and news specialist. To submitan article about volunteer efforts by amember or employee of your co-op (reprintsare accepted), please contact:[email protected].

hen a tornado rippedthrough the city ofJoplin, Mo., on May 22,2011, emergencyresponders from across

the country joined in the rescue andcleanup efforts. Putting the cooperativeprinciple of concern for communityinto practice, several Iowa FSemployees were among those who spenttime helping in the recovery efforts.

Steve Gerard, New Century FSenvironmental safety and regulatorydirector, is no stranger to disaster reliefefforts. As the chief of the New Sharon,Iowa, volunteer fire department, he hasworked both locally and nationally,using his training to respond toemergency situations.

“I was in Biloxi, Miss., after Katrinaand on the scene at Parkersburg (Iowa,site of another tornado), but I havenever seen such a widespread area withso much destruction,” he said. Aftermaking a phone call to a Joplinbattalion chief, Gerard was given thegreen light to take a crew of fellowfirefighters to Missouri to assist with

rescue and recovery. He mustered agroup of nine, including JacobyTremmel, New Century customapplicator and new recruit to the NewSharon Fire Department.

Upon arrival, the group was splitinto three teams. Each team served assupport to a canine unit. When thetrained search dogs found something, itwas up to the support team to dig untilthey found whatever the dog detected.

“When we started our time in Joplin,

most of the homes had already beenchecked, but we were conducting asecond sweep with the dogs to be surenothing was missed,” Gerard said.“There were times we had to crawl onour hands and knees to get into placeswhere the dogs had identifiedsomething.”

Part-time AGRILAND FS Inc.employee Dan Davis also volunteered,working three days to help clear treesand other debris.

“I met an elderly woman who hadlost everything,” he said. “She loved togarden, and when I found her gardenhose and returned it to her, it brought asmile to her face.”

All three men returned from theexperience glad they could help in somesmall way. Tremmel is training his dogto serve as a search-and-rescue dog forfuture disaster relief efforts. Davisreturned home with just the clothes onhis back, leaving behind the rest of whathe took for people who needed theclothing more than he did.

“You find out real quickly thatmaterial possessions mean nothing,”Gerard said. “I’m just grateful we wereable to help.” n


W

Jacoby Tremmel (below, with scent hound) and Steve Gerard, employees at New Century FSin Iowa, were part of the search and rescue effort after a tornado devastated Joplin, Mo.(above), last year.

Co-ops & CommunityCo-op safety director offers aid in tornado-ravaged communities

Producer-members of Producers & Buyers Cooperative hold a caucus in 2010 to elect a farmer-director to theboard of their multi-stakeholder cooperative. Despite initial successes selling to institutional food buyer-members,the co-op has ceased operations. Producer-members hope their experiences will help others avoid the pitfalls they

encountered. Photos courtesy Producers & Buyers Cooperative


Learning from co-op closure

Dissolution of Producers & Buyers Co-op holds

lessons for others pursuing institutional market

By Margaret M. Bau, Co-op Development Specialist,USDA Rural Development, Wisconsine-mail: [email protected]

nterest in local foods is continuing to buildwith every passing month. Households inmany regions now enjoy multiple options fordirect access to locally grown food viafarmers markets, roadside stands, pick- or

fish-your-own businesses and through community supportedagriculture (CSA) subscriptions. Independently ownedrestaurants and specialty grocers have long forged directrelationships with local growers, but even more of them arenow looking to source local foods.

For decades, consumer co-ops have been at the forefrontof offering natural and regionally grown food options inretail stores. But fewer inroads for local foods have beenmade with schools, universities, hospitals and nursing homes(also known as the “institutional food” market).

The Producers & Buyers Co-op in northwesternWisconsin was a highly visible attempt to bridge that gap. Itwas a multi-stakeholder cooperative in which membersrepresented all aspects of the local food system: producers,local processors, transport providers and regional institutions.For three years, the co-op coordinated the processing anddelivery of locally grown chicken, beef, cheese, pork,produce, fish, eggs, bison and lamb to area hospitals.

On July 20, 2011, members of the Producers & BuyersCo-op voted to dissolve their cooperative. As with anybusiness failure, a number of factors contributed to thedownfall of the co-op. For the benefit of future groupsengaged in rebuilding a system that connects local food toarea institutions, this article attempts to identify lessonslearned.

Lesson 1:Multiple members are needed in eachmembership class; don’t become identifiedas one member’s project

Rebuilding a local food system needs to encompass theperspective of each piece of the puzzle — be it producer,processor, transport provider or buyer. To fully understandthe needs of each perspective, multiple members are neededin each membership class. If multiple members are notbrought into the co-op, the co-op can be unduly subject tothe internal dynamics of a single member (which may not berepresentative of what is happening among all buyers or allprocessors).

The Producers & Buyers Co-op started at the initiative ofa single, medium-sized hospital. A much smaller ruralhospital (a sister hospital to the founding buyer) joined theco-op soon after the co-op’s incorporation. Learning initiallyoccurred between the multiple producers (representing awide array of products) and the two hospitals.

The producers and processors had hoped that the clout ofthe founding hospital would help convince other regionalhospitals, nursing homes, universities and school districts tojoin the co-op. After all, who better than an institutionalbuyer could convince its peers that local foods are worth theadditional cost and effort?

As the hospital stepped into the state and national mediaspotlight for its role in supporting local foods, the co-opbecame identified as that institution’s project. Initial interestexpressed in joining the co-op by regional universities andother hospitals then waned, possibly because the co-op was soclosely identified with another institution.

When personnel and policy changes occurred at its largest

I



buyer-member, the co-op lacked sufficient additional buyersto offset the loss. It never recovered.

Lesson 2:Raise sufficient capital before launching;hire an experienced manager

This is as true for cooperatives as it is for any other typeof business. The Producers & Buyers Co-op incorporated inWisconsin with the ability to offer preferred stock as a meansto raise equity from both members and the local community.The co-op board and supporters should have taken the timeto write a thoughtful stock prospectus as well as educationalmaterials.

With a prospectus in hand, ordinary citizens andcommunity-minded investors could have been approached fortheir financial support. A solid base of equity would haveallowed the co-op to hire experienced staff, including a“problem solver” knowledgeable about coordinating foodlogistics, but who was still willing to think outside the statusquo.

Equity would have provided a cushion to ride throughinevitable problems that arise in any new venture. If sufficientcapital could not be raised within a reasonable time window

(say six to nine months), this would have been a powerfulsignal to leaders that wider community support did not existfor the local food system concept.

But, as is so often the case, several buyer representativesand producers were in a rush to “just do something.” Withlimited funds, the co-op launched prematurely and tried toget by “on the cheap.” A young and relatively inexperiencedoperations coordinator was hired part-time.

With limited staff and so much to do, board membersstepped forward to fill operational and managerial functions.Over time, the board found itself in a reactive mode, ratherthan playing a proactive role in setting policy. The co-opwent through three part-time staff members within a year(and dealing with all the ensuing personnel issues that gowith rapid staffing changes).

As months turned into years, board members started to“burn-out.” Valiant individuals tried to balance the demandsof their business and personal obligations with the needs ofthe co-op. If the Producers & Buyers Co-op had sufficientstart-up funds, it could have hired an experienced, full-timemanager to establish and grow operations. This would havefreed the board to concentrate its limited time on governanceand policy setting.

An experienced manager could also have helped bridge thebusiness-culture differences between the hierarchal wayinstitutions operate and the realities of the way small-scalefarming and processing work.

Lesson 3:Require contracts between parties

Small-scale farmers and processors are often willing towork based on verbal agreements; sometimes just their wordand the word of a buyer over the phone or a handshake is allthat is required to seal a deal. This is not always the case withinstitutions, where turnover is frequent in both staffing andpolicies.

For example, a producer may have a verbal commitmentwith a buyer at a hospital or university. Depending on theitem, it can take anywhere from three months to two years toraise the product to maturity. As the date for processingnears, the food buyer for the institution with whom thefarmer made that verbal commitment may be long gone. Toavoid this scenario, contracts should be signed.

In the current food system, institutions are accustomed toplacing and cancelling orders with large food serviceproviders. Large national distributors can absorb orderchanges by re-directing a product to someone else. This isnot the case with small-scale producers and farmers. Farmerstake on risk to raise a product to institutional standards(which can often differ from general consumer preferences).Even one cancelation of a large order can severely hurt afarmer’s business.

To protect producers and processors from “institutionalchurn” and the risk of order cancellation, co-ops should use

Alan and Alaine Sonnenberg (far right) were dairy-farmer members of the co-op. Herby Radmann (below), whooperates Bullfrog Fish Farm, is another ex-member of the co-op. He has long been involved in seeking ways to

make small-scale farming sustainable and in helping to prepare future farmers to take over existing farms.


contracts when accepting orders. As with a CSA subscription,the contract could require the institution to place 100 percentmoney down when the order is placed (effectively shifting therisk from the producer to the institution).

A more equitable way of sharing risk would be a systemthat is widely used in the small business community. Thesecontracts require a 50-percent downpayment when an orderis placed, with the other 50 percent paid upon delivery. Suchcontracts would be in everyone’s best interests andprotection. Farmers could invest with confidence for inputsand equipment. Cooks at institutions could have pre-seasoninput to order items such as heirloom vegetables or otherspecial varieties, locking in hard-to-source product at anagreed-upon price.

The Producers & Buyers Co-op did not require contractsbetween buyers and producers or processors. In organizingthe co-op, more than a year was spent in discussions amongall parties, resulting in strong mutual feelings of trust. Withmuch fanfare, founding buyer-members publically pledged tobuy 10 percent of their food locally. After one year, thatpledge was increased to 15 percent. The co-op calculates thatthe institutions purchased about 7 percent of their food fromProducers and Buyers.

Order cancellations by kitchen staff— often just days before animals werescheduled for slaughter — was another bigproblem, farmers say. Several producers —along with their small-scale supplierrelationships — were severely affected bysudden cancellations.

To remedy the situation, the co-op’sproduct committee suggested that buyer-members sign contracts with producer-members. But the buyer-memberrepresentative on the board would notagree. Trust began breaking down.

Producers and processors grewreluctant to do business through the co-op, and its cash-flow situationdeteriorated. Shortly thereafter, thefounding buyer-members announced thattheir health system owner had entered intoa contract with a multinational corporationto manage dining services for all hospitalswithin the system.

While the co-op theoretically couldhave continued selling to the institutionsthrough the new dining management

contractor, it would have had to substantially increase itsbusiness liability insurance coverage and incur extraadministrative costs. These costs made continuing businesswith the institutions economically infeasible, based on therate at which the institutions were participating in the co-op.

Lesson 4:Educate and train members at all levels

Co-op principle No. 5 — which urges co-ops to provideeducation, training and information to members — is criticalto rebuilding a local food system. Quality local foods mayinitially cost more than conventional food products. Butthere are numerous rewards for buying locally; these rewardsmust be continually identified and communicated tomembers.

Within institutions, “buy-in” is necessary at every level,including kitchen staff, purchasing directors, employees,patients and senior administrators. Understanding andvaluing local food requires a cultural shift if institutions areto make long-term buying commitments to a co-op, despiteshifts in personnel, policies and the economy.


Producer and processormembers also need continualeducation to understand thedifferences in wholesale andretail pricing. The Producers &Buyers Co-op stressed toproducer-members and potentialapplicants that this co-op shouldnot serve as the only outlet for afarmer’s product.

Savvy producers needmultiple marketing strategies, ofwhich selling to institutions isbut one channel. For example,while institutions tend to use large amounts of ground beef,they use relatively few cuts of prime beef. Beef, pork, lamband bison producers were all encouraged to develop ormaintain their existing retail and restaurant relationships forselling prime meat cuts.

The Producers & Buyers Co-op was structured as a multi-stakeholder co-op so that all players in the local food systemwould have access to each other for cross-learning purposes.There were numerous instances in which processor membersmade suggestions regarding product use and marketing,which helped build bridges of understanding between small-scale farm production and institutional needs.

But producers felt hampered by their inability to gainaccess to, and information from, key players at someinstitutions. For example, producers say they needed greateraccess to kitchen staff to work more closely with menuplanners and cooks on new ways to prepare fish and lamb.Farmers and processors also wanted more feedback from thecooks about how to package product for the institutionalenvironment. The lack of connection between producers andkitchen staff severely hampered relations.

What worked? Co-op as coordinatorThe role of the co-op as coordinator among producers,

processors, transport providers and buyers worked well.Institutional buyers have limited resources and interest inidentifying individual producers of local food. They areusually not aware of what constitutes safe and sustainablegrowing practices at the farm level. Nor are institutionsinterested in setting up individual orders and followingthrough on each product all the way through production,processing and delivery.

When done well, co-ops can ensure an agreed-upon levelof quality, aggregate product and assure follow through in

delivery and invoicing. The Producers & Buyers

Co-op operations were financedthrough a 5-percent fee assessedupon every transaction. Theproducer, processor andtransportation company eachpaid 5 percent to the co-op oneach item handled by the co-op.The buyers also paid 5 percentto the co-op for each itempurchased.

This system worked, thanksto the efforts of a talented board

treasurer (an accountant by training) who set up the co-op’sspreadsheets. Future groups may wish to simplify the billingprocess and charge a single price to cover overhead.

The Producers & Buyers Co-op’s financial design ofmanaging purchases directly from institution to producerworked well on paper and in practice. This foresight helpedensure that all producers and processors were paid in full in atimely manner, despite the co-op’s financial troubles anddissolution.

Avoiding pitfalls Several of the lessons learned from the Producers &

Buyers Co-op experience could apply to any cooperative:raise sufficient capital before launching operations, hire anexperienced manager, provide ongoing training and don’t letthe co-op become identified as one member’s project.

One lesson that is more specifically applicable to localfood system co-ops is the cautionary tale about the differingways that hierarchal institutions operate and the way thatlocal producers and processors tend to do business. Be awareof how each stakeholder is accustomed to operating —everyone involved should be protected by the co-op insistingupon signed contracts and money down when orders areplaced.

Sometimes the most important lessons are learnedthrough failure. It would have been easy for the multi-stakeholder co-op pioneers of the Producers & Buyers Co-opto have quietly let their efforts fade from memory. But thisgroup truly was committed to rebuilding a sustainable, localfood system. The hard lessons they learned are offered herein the hopes that other groups may apply these insights todevelop mutually satisfying, genuinely sustainable systems forconnecting local food to hospitals and schools. n

Co-op members Vic and Mary Price on their Wisconsin farm. One of the functions Producers & Buyers Co-opdid best was work as a coordinator among producers, processors, transporters and buyers.


Legal CornerLegislative, regulatory, court actions in 2012 impact cooperatives

By Stephanie M. Smith, Esq.Senior Legal Adviser, CooperativePrograms, USDA Rural [email protected]

ver-changing economicand financial environ-ments during the pastdecade created majorchallenges for many

cooperatives as they worked tosuccessfully maintain their businessoperations. In response to thesechanges, Congress sought to implementvarious legislative measures to helpprevent the recurrence of some of theconditions that contributed to theeconomic downturn that rocked thebusiness world in recent years.

Legislation (particularly changes intax law) that may adversely impact theprofit margins of a traditional businessmay represent a triple threat tocooperatives and their members’businesses.

It is imperative for cooperatives tohave a good grasp of decisions made in2011 that may set a precedent forfuture decisions. Listed below are somehighlights of legislative and regulatoryactions taken by Congress this pastyear, as well as legal decisions made byvarious U.S. courts, which either direct-ly, or indirectly, impact cooperatives. • February — The Senate passed

legislation to repeal expandedreporting requirements which wouldhave made cooperatives submit aForm 1099 to the U.S. InternalRevenue Service (IRS) for non-creditcard transactions of $600 or morewith any vendor in a given year. TheHouse Ways and Means Committeeapproved two bills that support the

repeal, and in April President Obamasigned H.R. 4 into law, repealing theexpansion of the Form 1099 reportingrequirements.

• March — Dean Foods Co. and theU.S. Department of Justice (DOJ)reached a settlement under which thelarger of two processing plants itacquired from Foremost Farms USA(a cooperative) in Wisconsin must bedivested because of the large share ofthe fluid milk market it gave thecompany. In the future, it must giveadvance notice to DOJ of any plans toacquire milk processing plants valuedat more than $3 million. While thissettlement did not directly impactForemost Farms or any other dairycooperative, the case was nonethelesscarefully monitored by co-ops andothers in the dairy industry.

• May — IRS Code Section 3402(t) wasput in place by the Tax IncreasePrevention and Reconciliation Act of2005 to require, in part, federal, stateand local governments to withhold 3percent when making payments forproperty or services in amounts of$10,000 or more.

• July — The IRS issued a new draftForm 1120-C, U.S. Income TaxReturn for Cooperative Associationsand requested public comments.Cooperatives should pay closeattention to this issuance since it mayinclude, in part, changes to howpatronage dividends and special de-ductions are treated for IRS purposes.

• August — The Commodity FuturesTrading Commission stepped upregulatory efforts to implement TitleVII of the Dodd-Frank Act, whichregulates the over-the-counter (OTC)derivatives’ market. Some farmer-

owned cooperatives use OTCderivatives, also known as commodityswaps, to hedge the commercial riskof their own operations and toprovide customized risk managementtools to farmers and ranchers.

• September — The American Jobs Actwas proposed by President Obama tospur hiring and economic growththrough various tax incentives foremployers. Also in September, theEastern Mushroom MarketingCooperative filed a petition for itscase to be reheard in the ThirdCircuit Court (Court), which heldthat defendant mushroom growerswere “not a proper agriculturalcooperative under the Capper-Volstead Act because one of itsmembers was not technically a growerof agricultural produce.” To date, thecourt has not provided a decision onthis rehearing petition.

• October — The House approved H.R.674, which would repeal the 3-per-cent withholding requirement forpayments to government contractors(formerly proposed in May 2011).

• November — H.R. 674 passed in theHouse and was sent to the Senate,which added amendments thatinclude two new tax credits foremployers that hire military veterans.

• December — In the Fresh and ProcessPotatoes Antitrust Litigation case, aU.S. District Court judge concludedthat Capper-Volstead Act protectionsdo not apply to pre-production supplycontrol activities, such as acreagereduction and production restrictions,and ruled that a fact-specific inquirymust be made as to whetherintegrated growers qualify forCapper-Volstead protections. n

E

By Carolyn Liebrand, Ag EconomistCooperative ProgramsUSDA Rural Development

uccess in dairy policyreform [means] workingtogether to getsomething better thanbefore,” Randy

Mooney, chairman of the National MilkProducers Federation (NMPF), said atthe organization’s annual meeting inSan Diego in November. One ofNMPF’s main goals this year was toexplain to its members and guests howfeatures of its Foundation for theFuture (FFTF) program — which callsfor major changes in the nation’s dairyprogram — became included in theproposed Dairy Security Act of 2011(HR 3062).

Jerry Kozak, CEO and president ofNMPF, said he and the senior staff

spent part of the summer of 2011touring the country and speakingdirectly to farmers about dairy policyreform, the FFTF program and why itwas developed by NMPF. The tour alsoallowed NMPF staff to listen toproducers, hearing directly from thepeople on the farm about where theprogram might be improved, Kozaktold attendees at the meeting, whichNMPF holds jointly along with theNational Dairy Promotion andResearch Board and United DairyIndustry Association.

“Best solution to what isn’t working”

Congressmen Collin Peterson ofMinnesota and Mike Simpson of Idahowere praised by Mooney for theirleadership in co-sponsoring thelegislation. Representative Peterson saidvia a video presentation that he believes

the proposed Act is the “best solutionto what isn’t working.”

The bill before the subcommittee onLivestock, Dairy, and Poultry givesindividual producers the option toparticipate in the dairy producermargin-protection plan, along with thedairy market stabilization program. (InNMPF’s original plan, dairy producerparticipation was mandatory). Theproposed legislation also requiresUSDA to hold a national hearing onthe method of setting Class III milkprice competitively, with a new featureof reverting to the existing order terms,rather than terminating the ordercompletely, in cases where producers donot adopt the proposed changes to theorder.

This legislation, if approved byCongress, would replace the currentdairy programs: the Milk Income LossContract Program (MILC) and the


“S

Milk producers tackle dairy policy, other key issues at annual meeting

CHANGING COURSE


Dairy Product Price Support Program(DPPSP).

Producing for the marketResponding to questions from the

floor, NMPF staff explained thateliminating the DPPSP may help dairyprocessors become more attuned toproducing products the market desires.Other questions regarded how effectivethe FFTF program will be if partici-pation is not mandatory. NMPF staffresponded that analysis by the Food andAgricultural Policy Research Institute(FAPRI) indicated that if even 50percent of the nation’s milk volume isenrolled, there would be positiveresults. The Congressional BudgetOffice (CBO) has projected thatproducers accounting for 60 percent ofthe milk supply will participate in theprogram.

NMPF also reported on its work on

other issues that impact dairyproducers, including somatic cell countstandards, drug residues in dairy beef,immigration policy and tax issues.While NMPF pushed for a gradualreduction in the maximum threshold ofallowable somatic cell counts from thecurrent 750,000 to 400,000, theNational Conference of Interstate MilkShipments (NCIMS) failed by one voteto approve such a measure.

However, Mooney noted that theEuropean Union has been pushing theUnited States to certify that its dairyexports meet a 400,000 cell-count limiton individual farms — implying thatU.S. producers may be compelled tomeet that somatic cell standard event-ually, regardless of the NCIMS vote.

“An ounce of prevention...”Kozak highlighted the efforts of

NMPF in addressing the issue of drug

residues in the tissues of culled dairycows. NMPF provides education todairy producers on the best practices forusing antibiotics and other cattle drugs,including a free manual, intended tohelp producers avoid drug residues andother problems.

However, the U.S. Food and DrugAdministration (FDA), noticing that asignificant portion of residue violationsare being found in culled dairy animals,is developing a residue-screeningprogram aimed at the dairy industry.Mooney outlined NMPF’s concernswith FDA’s proposed screeningprogram, including the legality oftaking samples from testing labs and thepotential lack of anonymity forproducers.

Mooney and Kozak reported thatNMPF also worked last year to ensurethat milk producers can obtain neededagricultural labor. Other U.S. policies

Producers listen intently (facing page) during the “town hall” meeting, always one of the highlights of theannual meeting of the National Milk Producers Federation (NMPF). Above: A panel of NMPF officials field

questions during the town hall session. From left are: Jaime Castaneda, staff senior vice president, strategicinitiatives and trade policy; Dana Brooks, senior vice president, government relations; Jerry Kozak, presidentand CEO; Jim Tillison, senior vice president, marketing and economic research/COO of Cooperatives Working

Together; and Randy Mooney, board chairman. Photos courtesy NMPF

that NMPF tackled on behalf of itsmembers included:• Overturning a new tax reporting

requirement, known as InternalRevenue Service (IRS) form 1099,which would have increased farmers’paperwork burden;

• Minimizing the impact of the estatetax on the farming community; and

• Obtaining an exemption from theU.S. Environmental ProtectionAgency’s (EPA) Spill Prevention,Control, and Countermeasure(SPCC) rules for farmers’ bulk milkstorage equipment. Efforts by NMPF in the area of

long-term trade policies sought by dairyproducers came to fruition with: thepassage of three Free Trade Agreements(with Columbia, Panama and SouthKorea); allowing greater flexibility intruck traffic flow between the UnitedStates and Mexico (the existing ruleswere causing a negative impact on U.S.cheese exports to Mexico); and theapplication of the national dairy check-off program for imported products,under which importers of dairyproducts will be assessed 7.5 cents perhundredweight (or the equivalent) tohelp fund promotion and research, asspecified in the 2008 Farm Bill.

Officer electionSeveral new officers were elected,

while many were re-elected to theircurrent or new positions. Mooney, fromRogersville, Mo. (representing DairyFarmers of America), was re-elected asNMPF chairman, a position he has heldsince 2008. Ken Nobis, from St. John,Mich. (representing Michigan MilkProducers Association), was elected firstvice chairman. Nobis had been servingas NMPF treasurer. Cornell Kasbergen,from Tulare, Calif. (representing LandO’ Lakes Inc.), was re-elected as secondvice chairman. Mike McCloskey, fromFair Oaks, Ind. (representing SelectMilk Producers Inc.), was elected asthird vice chairman; he had beenserving as assistant treasurer. DaveFuhrmann, from Baraboo, Wis.(representing Foremost Farms USA)was re-elected as board secretary.

Newly elected officers include:Treasurer Pete Kappelman, from TwoRivers, Wis. (representing Land O’Lakes Inc.); Assistant Treasurer AdrianBoer, from Jerome, Idaho (representingthe Northwest Dairy Association); andAssistant Secretary Doug Nuttelman,from Stromsburg, Neb. (representingDFA).

Top awardsLong-time NMPF board member

and First Vice Chairman Clyde E.Rutherford was inducted into theNMPF Leadership Hall of Fame.Rutherford was instrumental in helpingto create the Cooperatives WorkingTogether (CWT) program, whichcontinues to operate through 2013 with70 percent of the nation’s milk supplycommitted to it. Rutherford has servedon the boards of a number of co-opsand dairy organizations, includingDairylea Cooperative Inc., where he has

been president since 1978, and DFA,among many others.

Foremost Farms USA’s extra sharpcheddar cheese was awarded the GrandChampion Cheese award at the 2011NMPF cheese competition. Thecheese, made in Marshfield, Wis.,received a score of 99.8 from thejudges. The Foremost Farms Cheddarwas selected from among 149 entries tothis year’s contest.

The 2011 NMPF Communicator ofthe Year award was presented toFrances Lechner of United Dairymenof Arizona (UDA), in Tempe, Ariz. Inaddition to directing UDA’scommunications, Lechner also serves asthe cooperative’s member relationsmanager, oversees its Young Cooperatorprogram and serves on NMPF'sscholarship committee. n


An ice cream break in the exhibit hall provided “cool refreshments” between meetingsessions. Below: Producers ask questions during the town hall meeting.

ichard L. Cotta, whorecently retired aspresident and CEO ofCalifornia Dairies Inc.(CDI), has been a

major force in the California dairyindustry for more than four decades.During a career of service to the dairyindustry, Cotta has been involved invirtually all aspects of the business,from dairy genetics to dairy processingand “dairy politics.”

Acknowledging his broad expertise,Cotta has been called to testify on keyindustry issues before the U.S.Congress and the California legislatureon behalf of the dairy industry. At therequest of the U.S. Secretary ofAgriculture, he has participated inworld trade missions to open moreoverseas dairy markets for U.S.producers.

In 1980, Cotta was named to his firstreal leadership role: CEO of UnitedDairymen of California, a producertrade organization. Previously, he hadworked as a sire analyst for AmericanBreeders Service, a classifier for theHolstein Association and for severalyears was a dairy consultant on feeding,breeding and management systems.

When United Dairymen merged toform Western United Dairymen(California’s largest producer tradeorganization) in 1984, Cotta was thechoice for CEO. He held that positionuntil 1993, when he became generalmanager of San Joaquin ValleyDairymen, a dairy processing andmarketing co-op.

In 1999, San Joaquin ValleyDairymen merged with DanishCreamery and California MilkProducers to form CDI. Cotta wasnamed the co-op’s senior vice president

of producer affairs and governmentrelations, a role he held until he wasselected as CEO in 2007. Under hisleadership as CEO, the co-op’s profitshave reached record levels.

Cotta graduated, with honors, fromCalifornia State Polytechnic University-San Luis Obispo with a degree in dairyhusbandry. He currently sits on theboards of the University of California-Davis Dean’s Advisory Council,California State University ChancellorsAg Advisory Council, Sacred HeartSchool Foundation and the InnovationCenter for U.S. Dairy. In addition, hesits on the Globalization OperatingCommittee for U.S. Dairy ExportCouncil.

Although retiring from the dairyindustry, Cotta will remain active inagriculture as owner/operator of CottaFarms and as a partner in Terra BellaFarms. Both are almond farmingoperations.

Cotta shares some of the insights hegained during his career in thefollowing Q&A.

Question: What is the most importantthing you learned about building astrong working relationship with a co-op board?Cotta: “The key to building a strongrelationship with any board is trust,transparency and full disclosure. Allcompanies face the good, bad and theugly at some point. Being open andstraight forward with the board abouthow we got there and how we will solvethe problem is the key and helps buildtrust and confidence.”

Q. What is the most important thingyou learned about meeting the needsand expectations of co-op members?Cotta: “Probably the biggest hurdle toovercome is unrealistic expectations bycooperative members. A co-op is nodifferent in its daily operations than anyother company. We compete at everysegment of the industry. How onemeasures and evaluates expectations,and how that is presented to members,is critical. Return on investment is butone of the measures to reasonableexpectations.”

Q. What was the co-op’s greatestaccomplishment during your tenure —the one you are proudest of?Cotta: “It is difficult to limit this to oneitem because the end results overlapeach other. The movement away from acommodity-driven business to one ofever-increasing “value-added” productswas a major accomplishment. Ourvalue-added gains have increased byseveral million dollars per year.

“Our return on investment has beena great story. Over the past three tofour years, CDI has consistently


In the Spot l ightRichard Cotta: a life devoted to dairy and co-ops

R


Richard Cotta


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

Editor’s note: The author welcomesfeedback from readers on this article. Theirthoughts may be used in future articles andcan be e-mailed to:[email protected] research is referenced by author’sname and university affiliation. This articledraws heavily upon “Is RelationshipMarketing an Alternative to theCorporatization of Organics? A CaseStudy of OFARM,” by Amy Guptill andRichard Welsh.

uring the past severaldecades, the number ofU.S. farms has declinedwhile the size ofremaining farms

(measured by acreage and volume ofoutput) has increased, although therehas been an increase in number of thevery smallest farms. A similar trend hasoccurred in the U.S. industrial sector,with small- to mid-size firms declining

in numbers while much larger, oftenglobal, firms have grown in influenceand in proportion of total market share.

This is particularly the case in theagribusiness sector, where — through aprocess of vertical and horizontalintegration and the formation of jointventures and strategic alliances — largeagribusiness firms have come todominate the sourcing, processing,distribution and selling of manyagricultural products. Such marketpositions afford these very large firmstremendous market power relative tomid-size, often family-run, farms.

Mid-size farms are caught in amarket structure (i.e., few large andmany small actors) that results in theirpurchasing of high cost, industriallyprovided inputs — feed, seed, andfertilizer — while selling theirproduction at less-than-sustainableprices. This is generally referred to asthe cost-price squeeze.

Individual farmers lack powerIndividual farmers essentially end up

with little or no power in this context.

One of the most precious values U.S.farmers have held historically isautonomy. Little autonomy existswithin such market structures forowners of family-sized farms. Survival isprecarious, and many people leavefarming because of the low or negativemargins.

These processes have led to the oftenrepeated question of how to sustain afamily-sized scale of production whenfarmers are confronted with pressuresfrom large, global agribusiness firms. Ifno response is found, it means morefarms will be lost, with associated,negative impacts on rural development.Research studies have shown repeatedlythat “family-sized agriculture,” with amixture of larger farms, has the greatestbenefit (including multiplier effects) onagriculturally dependent counties (RichWelsh, Clarkson University).

The late Tom Lyson of CornellUniversity suggested that in order toescape the “cost-price squeeze” thatmost small- to mid-size farmers face, itmay be necessary to build alternativeforms of production and marketing that

D

Organic federation seen as a

for family farm survival, regional competitivenessstrategy


are beyond the influence ofconglomerate agribusiness firms.

Alternatives in productionOrganic foods have shown promise

for smaller producers. The qualities oforganics are not as easily convention-alized into commodities (i.e., massproduced, homogenous products).Costs can be contained with less, oreven no, reliance on purchased inputswith a high “carbon footprint.”Demand for organic foods has beenclimbing steadily, resulting in relativelyhigh prices for organically producedfarm products. These price premiumsare often sufficient to help sustainfamily-sized production units.

However, organics alone cannot bethe whole story for protecting familyfarm structures. Julie Guthman(University of California-Santa Cruz)suggests that traditional agribusinessesare getting involved in “high-value,high-turnover” organics, includingpostharvest processing, distribution andretailing. Amy Guptill (State Universityof New York-Brockport) and Rick

Welsh (Clarkson University) argue thatthese firms often work to compromiseorganic standards (e.g., not rotatingcrops, limiting free range and grassgrazing). The result is that organicproduction is actually being re-fitted toconventional commodity systems. Inthis process, organic farmers often losecontrol of their product (and its value)as they are reduced to lesserparticipants in the market. To protectfamily-sized farms, not only alternativeproduction, but alternative businessorganizations may be necessary.

OFARM offers survival strategy for farms and regions

In their classic work: The SecondIndustrial Divide: Possibilities forProsperity, Michael Piore and CharlesSabel identify small manufacturingfirms that have survived in the contextof large global corporations. They havesucceeded by creating products that arehigh in quality, craft oriented, small-batch produced and customized forparticular consumer interests.

Such products have emerged in

furniture, luxury shoes, motorbikes,textiles, specialty steel and precisionmachines tools, to name a few. Theseproducts are often produced innetworks of subcontracting andspecialized information sharing.Competition is built around productquality more than price.

Cooperatives have had a long historyof being able to respond to farmers’needs to gain higher prices and morefavorable terms of trade and power inthe market place. Farmers marketingtogether are often able to realize betterprices and terms of trade throughcooperative organization.

Guptill and Welsh suggest thatOFARM (Organic Farmers’ Agency forRelationship Marketing) addresses someof these traditional strengths ofcooperatives. OFARM also fits Pioreand Sabel’s profile of a survivable firm(e.g., subcontracting and specializedinformation sharing) in a context ofpowerful global conglomerates.

Formed in 2001, OFARM is afederation of six member cooperativesand one nonprofit firm. Members are:

Charlie Johnson (left), owner of Johnson Farms in Madison, S.D., discusses his harvesting plans with Tim Ennis, a marketer with NFOrganics. “IfMichael Jordon has an agent, I should be able to have one too when it comes to marketing,” says Johnson. NFOrganics is a nonprofit that workswith five cooperatives that formed OFARM as a federated co-op. It has members in 18 states and Canada. Photos courtesy OFARM


Buckwheat Growers Association ofMinnesota, Kansas Organic ProducersAssociation, Midwest Organic FarmersCo-op, Montana Organic ProducersCo-op, Organic Bean, WisconsinOrganic Marketing Alliance, andNFOrganics (the nonprofit).

According to Guptill and Welsh,OFARM is the largest single organizedblock of producers growing organicfield crops in North America, covering18 states and the province of Ontario.Like the Piore and Sable firms, it isspecialized in facilitating theproduction, not of motorbikes andluxury shoes, but in specialty foodproducts.

Founding members say OFARM wasformed to prevent conventionalizationof organics and the falling prices andloss of control that typically occur whenmultinationals enter a new marketsegment. Among its several missions,the federation seeks to provide a forumfor: (1) the exchange of pricing andmarketing information; (2) theeducation of policymakers; (3)facilitation of a bargaining function formember products; (4) assistance tofarmers in the adoption of new cropsand agronomic practices, particularly inreference to crop rotations.

As small- to mid-size enterprises(SMEs), OFARM and its seven memberfirms fit Piore and Sabel’s conception ofSMEs. They are “information dense”organizations that pool resources forresearch and development andinformation sharing while exercisinginfluence on the market. In theirprocesses of operation, Piore and Sabelmaintain, these kinds of firms supportinnovation and enhance firm andregional competitiveness.

OFARM’s strengthThe information services that

OFARM provides — for market prices,weather data and supply and quality ofproduct across the country — helpfacilitate a much stronger marketposition for sellers. “Through OFARM,we actually do a supply-and-demandsituation,” with suppliers using OFARMmarket intelligence and technical

assistance in the writing of contracts (ascited by Guptill and Welsh).

In addition to comprehensivemarketing services, OFARM providessuch ancillary services as legal counsel,office support and conference callinghelp as well. As a result of this marketrationalization, shipping generallyoccurs to closer locations in a mannerthat favors higher prices for farmers.

Gift and a challenge The booming demand for organic

products has been both a gift and achallenge to OFARM and its members.It facilitates trust and collaborationamong members by setting a floor pricethat is generally profitable. The solidityof the price facilitates mentorship,mutual support and joint promotion.

However, the seeminglyinexhaustible demand for organics alsomeans farmers have many choices,including selling to large corporations.OFARM membership involves amarketing charge for its services. Deep-pocketed corporations can at timescompete by paying a higher pricewithout having to make a marketing-deduction charge. They simply takepossession of the product by purchasingit. This can put the federation and itsmember organizations at a competitivedisadvantage.

However, multinational firms’ pricesoften come with production contractagreements that place the greatest riskson farmers and that minimize farmer

control and influence on their ownproduction. Farmer loyalty (and farmsurvival) can be a challenge, if membersaccept these short-term prices.

ConclusionOFARM was organized to help

maintain family-farm-scale productionin the face of large corporate marketconcentration. Large corporations mayat times offer better prices to break acooperative advantage. Once anadvantaged market position is attained,these prices typically are dropped to thelowest point possible, further pushingfarm consolidation.

What large corporations cannot offeris member control and democraticgovernance. OFARM helps empower itsmember organizations and memberfarmers by facilitating scale, assembly,marketing and purchasing functions inorder to improve the viability of smalllocal entrepreneurs.

Cooperatives, as do few otherbusinesses, build institutions up fromlocal relationships and maintain them intheir local communities. Ultimately,OFARM provides a democratizationfunction by providing an offset tomultinational market concentrationwhile seeking to keep family farmers inbusiness. As an information-dense SMEthat pools resources for research anddevelopment, it is also the kind of firmthat supports local innovation andregional competitiveness. n

This Buckwheat Growers Association of Minnesota mill in Wadena, Minn., not only performsgrinding, it also cleans and de-hulls buckwheat and other grain crops. The co-op has rail-sideaccess.


James Wadsworth, Ag EconomistUSDA Cooperative Programs [email protected]

USDA study foundthat 85 percent offarmer cooperativesprovide co-opeducation to their

members, directors, managers,employees or the general public. Thetype of education efforts vary, rangingfrom publications and websites formembers to workshops and trainingsessions for directors. The primaryaudiences for these efforts are directors,employees and management.

Not surprising, larger cooperativestend to conduct more co-op educationthan do smaller cooperatives. Educationefforts of large co-ops most often targettheir directors, more so than withsmaller co-ops.

The co-ops surveyed indicated thatthat the audiences with the biggest needfor co-op education (in order) are: thegeneral public, members, employees,directors and management. However,while the general public is most lackingin co-op knowledge, most co-ops seeeducation for directors, employees andmembers as the most critical need.

Cooperative education efforts aremost often conducted by co-op staffmembers, followed by educationprograms of cooperative councils orother co-op organizations that offerworkshops.

Looking at farmer co-ops by type,more than 80 percent of grain andoilseed, farm supply, service and cottonand cotton gin cooperatives provide co-op education. More than 70 percent ofdairy, fruit, vegetable and nut coopera-tives provide education.

Cooperative educational materials

and programs used by co-ops mostoften come from USDA, cooperativecouncils and other cooperatives. About76 percent of co-ops said that there aresufficient educational resourcesavailable, while 17 percent did not feelthere are enough and 8 percent saidthey “didn’t know.”

Co-op finance is the No. 1 educationtopic for directors, followed by tax andlegal issues, leadership, governance,board meeting functions and “coopera-tive basics.”

The full study (available fromUSDA) contains more information onfarmer co-op educational activities andshows breakouts by co-op type, size andlocation.

Key questionsThe general public and members are

the two audiences deemed bycooperatives to need co-op educationthe most, according to the survey, butthey are not the primary audiencesbeing focused on by co-ops. Why not,and what can be done to motivate co-ops to focus more effort on generalpublic and member education? Whateducational initiatives or materials

should cooperatives use to reach theseaudiences?

While co-op education is beingbroadly conducted, are theseeducational activities adequate toproperly educate the target audiences?Are the educational delivery methodsbeing used sufficient to reach allaudiences?

Are cooperatives using internal staffto develop educational materials, orusing existing educational resources?Why aren’t some types of cooperativesusing cooperative council educationprograms more?

While a majority of cooperatives feelthat there are enough educationalresources available, are they meeting alleducation needs, and are somecooperatives unaware of theiravailability from USDA and others?What other kinds of educationalresources need to be developed?

Do cooperatives feel that educatingthe general public is “beyond theirmeans or ability,” and therefore expectothers to take on that responsibility?What role do they feel they can play?

Are director education effortssufficient? Are cooperatives regularly

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evaluating their director educationalneeds?

These are questions that co-ops andorganizations that support co-ops needto weigh carefully and to develop plansfor addressing.

Recommendations from the study

More co-ops should becomeinvolved in cooperative education. They

need to ensure that their efforts addresspertinent topics for directors (and otheraudiences). Cooperatives need to bettereducate members by providing morematerials and programs or by holdingspecial events. They need to activelysearch for good education materials andprograms.

Co-ops need to reach out toeducators when they feel gaps exist inmaterials and programs, and to work

with educators to fill those gaps. At thesame time, educators need to effectivelypromote their materials and programsto ensure that cooperatives are aware ofand have access to them.

Finally, further research should beconducted to gain a betterunderstanding of the content ofcooperatives’ education programs inorder to develop better targetededucation materials and programs. n

New publication looks ateducation needsEducation Initiatives of

Farmer Cooperatives(Research Report 223)examines how farmercooperatives promote co-opeducation for members,directors, management,employees and the generalpublic. It addresses whetherco-ops provide education,the audiences they reach,the delivery methods theyuse, the topics covered,where they get theireducational resources,whether they feel there areenough resources available,and what topics are mostimportant for educatingdirectors. The data used for the

study came directly fromfarmer cooperatives. Of the2,389 cooperatives sur-veyed, 31 percent, or 751 co-ops, responded. To order acopy of the report, pleasesend an e-mail to:coopinfo@wdc. usda.gov, orcall (202) 720-8381.

Co-ops providing education 84.7%

Percent of cooperatives educating different audiences / audiences perceived to need education the most Directors 82.2% / 2.9 rating (1 = least important, 5 = most) Employees 70.0% / 3.0Management 66.3% / 2.6Members 34.9% / 3.3General Public 14.8% / 3.4

Delivery methodsInternally with co-op staff 64.3%Externally through a co-op council or organization putting on a Workshop 59.8%

Internally through use of publications & materials 38.5%Attendance at a state or national conference where education is provided 34.4%

Internally using a consultant 30.2%Joint educational meeting with another co-op 15.4%Internally through an online course 7.6%Externally through an online course 6.3%

Enough educational resources 75.6% yes, 16.8% no, 7.6% don’t know

Topics Directors Most NeedFinance 3.4 rating (1 = least, 5 = most)Tax and legal issues 3.2Leadership 3.1Governance 3.0Board meeting functions 2.9Co-op basics (what they are, principles, roles, practices, etc.) 2.8

FinancialAverage total sales $86.7 million (co-ops with education programs);

$31.5 million (co-ops without educationprograms).

Return on equity 17.3% (co-ops with education programs);14.4 % (co-ops without education programs).

*Full report contains more data (with breakouts by type, size, and location).

Select Education Initiative Statistics*


By Bruce Reynolds, Ag EconomistUSDA Rural DevelopmentCooperative Programse-mail: [email protected]

he retirement of thebaby-boom generationwill have majoreconomic effects in theUnited States, Canada

and many other nations. Among theseeffects will be high turnover rates inownership — or closure — of manysmall businesses.

When the present owners wish toretire, the most readily available buyersare often local or regional competitors.Yet, many businesses acquired bycompetitors will be closed once theychange hands. A new owner may buy abusiness simply to prevent a competitorfrom operating it. This closure outcomecan often be avoided with successionplanning that includes employees orothers potential owners. The challengeof sustaining small, mostly family-owned businesses is confronting manycountries.

Canadian cooperative organizationshosted a conference on businesssuccession and employee ownership inQuebec City last October. (see confer-ence highlights at: www.cooperation2011.coop). The conference proved tobe an extraordinary event, both in itsinternational scope and in the expertisethat speakers and audience brought tothe discussion of issues surrounding theways to transition business ownership toemployees.

Quebec City was an appropriatelocation for such a conference. Theprovince of Quebec has an exemplary

track record for cooperativedevelopment, as noted in theMarch/April 2001 issue of RuralCooperatives. Quebec is home to morethan 2,700 cooperatives and haspioneered the development of themulti-stakeholder co-op model.Desjardins, a credit union, has 5.8million members and is a leadingfinancier of cooperative development

projects in the province. Canada hasabout 615 worker cooperatives, ofwhich 394 are in Quebec.

Canadian research findingsQuebec’s Ministry of Economic

Development, Innovation andExporting has done a survey onownership succession of smallbusinesses in the province. It is

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Canadian conference promotes employeeownership as alternative to business closures


projected that about 55,000 Quebecbusiness owners will retire from 2010 to2018, 50 percent of whom have aninadequate or non-existent plan for thesuccession of their businesses. The ageof employees is an important factor insuccessful business transfers, researchershave found. Successful transfersfrequently have a core group ofemployees between the ages of 40 and55. When the bulk of employees areover 55, there is an insufficient timehorizon to finance ownership transfers.

Transfer of ownership when a largepercentage of employees are in the 25-35 age range can also be difficult, dueto the lack of commitment and limitedwork experience often found in that agegroup. However, people in their 20s arevery active in start-ups of workercooperatives, especially in businessesthat appeal to a younger demographicgroup, such as bicycle shops.

The Canadian Worker Co-operativeFederation, a co-host of the conference,is actively involved in the developmentof cooperatives and is also focusing onsaving businesses through successionplanning (for more information on thisfederation, visit: www.canadianworker.coop). Conference speakerscited a study in Canada that reports anestimated 200,000 small businesses (notself-employed entities) will be for saleby 2020. Several Canadian governmentand trade association officials voicedtheir concern over the impendingdecline of many rural communitiesfrom closures of small businesses.

Farms and ranches have a similarprocess of succession planning,although in contrast to small businesses,they more often stay in productioneither with new owners or in rentalcontracts. Nevertheless, retirements ofboth business owners and farmers are

depopulating many rural communities. The negative impacts on local

economies from business andpopulation decline are a problem thatboth Canada and the United Statesmust confront.

International perspectivesSpeakers from the United States,

Italy, France and Argentina also madepresentations at the conference. Workerownership in the United States isfrequently organized as an employeestock ownership plan (ESOP), which isa distinct business model in theinternational context. Don Jamison ofthe Vermont Employee OwnershipCenter gave a presentation aboutESOPs, during which he noted that thetax advantages for ESOPs havecontributed to more than 11,000 U.S.businesses operating with employeeowners.

By Melissa Hoover, Executive DirectorU.S. Federation of Worker Cooperativese-mail: [email protected]

Although a relatively small slice of the cooperative world,worker co-ops in the United States and Canada (and their co-op “umbrella” organizations and federations) have beengrowing steadily in recent years. Now they’ve organized on acontinental scale with the formation of a North Americanregional organization of worker cooperatives.

CICOPA (the International Organization of Industrial,Artisanal, Worker Cooperatives) North America was formed inQuebec this past October during a nearly week-long series ofconferences, jointly organized by U.S. and Canadian workercooperative organizations. The conferences, attended byseveral hundred worker cooperators (including some fromaround the world), were designed to address a broad range ofworker co-op development issues. The Quebec City location of the conferences helped to

attract attendance by members of all of the Quebec-basedworker co-op federations. The event marked the forging of acloser relationship between English and French Canadian

worker cooperative groups — an important development forCanadian cooperative movement-building. For the first time, LeRéseau de la Coopération du Travail du Québec (the generalworker cooperative network for Quebec), La FédérationQuébécoise des Coopératives Forestières (a forestry workercooperative federation), and Fédération des Coopératives desParamédics du Québec (a paramedic/ambulance workercooperative federation) joined the Canadian WorkerCooperative Federation (CWCF). Attendees from the United States included the board

members and staff of the United States Federation of WorkerCooperatives (USFWC), staff from Ohio and Vermont employee-ownership centers, and both longtime and new workercooperative developers and supporters. Conference plannersincluded USFWC and the North American Students ofCooperation (NASCO) from the United States, and CanadianWorker Cooperative Federation and Le Reseau from Canada.

International SupportInternational co-op leaders in attendance included: José

Orbaiceta, president of the Federation of Worker Co-ops ofArgentina (FECOOTRA); Alberto Zevi, president of the

Continental movement: worker co-ops join forces in Quebec


The application of the workercooperative model for ownershipsuccession in the United States wasdescribed in a case study by RoyMessing, director of a Rural Coopera-tive Development Center that isaffiliated with the Ohio EmployeeOwnership Center. He also gave apresentation on organizational steps andresources for transitioning closely heldbusinesses to employee ownership,pointing out the key roles for businessowners’ trusted advisors in making suchtransitions feasible.

According to Messing, the targetaudience for how to plan businesssuccessions to workers should not onlybe retiring owners but ought to includethe accountants and lawyers who serveas trusted advisors to small businesses.By informing such advisors about theprocess of transitioning businesses toemployee ownership and the benefits to

the community of sustaining theoperations of companies after theirprimary owners have retired, moretransitions will be facilitated.

Worker co-ops popular in Italy There are about 20,000 worker

cooperatives with a combinedmembership of about 700,000 worker-owners in Italy, with the EmiliaRomagna region being a major centerfor these co-ops. Most of the workercooperatives were organized as start-upbusinesses, whereas the U.S. experiencewith employee ownership has largelyserved as a strategy to keep businessesin operation. Alberto Zevi, president ofthe Legacoop Education Center, gave acouple of presentations about workercooperatives, including a case study ofsuccession of a family business toemployee ownership.

Zevi emphasized the lack of

succession planning as a major cause ofclosures of small businesses in Italy. Headvocates for the adoption of“employee-share ownership plans,”which are similar to employee stockpurchase plans in the United States.Such plans are the start of a gradualprocess of ownership transfer, reducingthe burden of financing a buy-out all atonce.

France promoting worker co-ops

The perspective from France waspresented by Patrick Lenancker,president of the ConfederationGenerale des Societies Cooperatives etParticipatives. Similar to the case studypresented by Roy Messing, he discussedexamples of forming workercooperatives in France that include thesoon-to-retire business owners as co-opmembers for at least a few years while

Legacoop Education Center, Italy; Patrick Lenancker, presidentof the National Confederation of Worker Co-ops (CG Scop),France; Mikel Lezamiz, director of Co-operative Dissemination,Mondragon, Spain; Bruno Roelants, secretary general of theInternational Organization of Industrial, Artisanal and ServiceProducers’ Cooperatives (CICOPA) in Belgium; and FéliceScalvini, co-president of Cooperatives Europe and vice-president of International Co-operative Alliance (ICA), Italy. The international guests shared their enthusiasm for the

work of the North American worker cooperatives, as well asstories and lessons from cooperative organizing in theircountries.U.S. Federation Board President Rebecca Kemble of Union

Cab Cooperative of Madison, Wis., was elected president ofCICOPA North America. The organization’s first governing bodywas also selected, which drafted bylaws for the fledglingentity. Kemble, representing USFWC, Alain Bridault of theCanadian Worker Cooperative Federation, and the presidentsof the three Quebec worker cooperative federations, jointlysigned the “Quebec Declaration,” pledging their commitmentto work together.The declaration notes that worker cooperatives are

“enterprises that are owned and controlled by their workers.Their purpose is to provide their member-owners with a workenvironment which facilitates their professional and humandevelopment, and provides the best wages and benefitspossible within the capacity of their businesses. Worker co-ops are run democratically on the principle of one person, onevote.” The full text of document is posted online at:www.canadianworker.coop/news.

South American counterpart formedA parallel conference was held about the same time in

South America, resulting in the formation on Oct. 20 of CICOPAMercosur, a sub-regional organization of CICOPA. JoséOrbaiceta, president of the Worker Cooperative Federation ofArgentina (FECOOTRA), was elected as its president. Mercosuris an economic and political agreement among Argentina,Brazil, Paraguay and Uruguay to pursue trade. The North and South American sub-regional organizations

integrated to form CICOPA-Americas on Nov. 15 in Cancun,Mexico. Through the two sub-regional entities, it is hoped thatmore effective collaboration will occur throughout theAmericas to spread the development of worker co-ops. n


Focus on: Sevier Farmers Co-op

By Chris Villines

Editor’s note: this article is slightlycondensed from the December 2011 issue ofTennessee Cooperator, the memberpublication of Tennessee FarmersCooperative. Villines is a communicationsspecialist with the co-op.

s the gateway to theGreat SmokyMountains, SevierCounty is known for itsvariety of attractions

for out-of-towners and locals alike.Judging by the overwhelming

turnout for the grand “reopening” ofSevier Farmers Cooperative’sbeautifully renovated campus onSaturday, Oct. 8, the co-op is anothermust-see destination to add to the list.More than 3,000 people took advantageof comfortable, picture-perfect fallweather to visit the co-op’s $3 millionredesign and expansion at its 17-acreproperty.

“It’s been a great day,” said SevierFarmers Co-op General ManagerAnthony Hastings as he shook handswith a group of attendees. “Theresponse of the community has justbeen excellent, and the feedback we’vebeen receiving has been very positive.”

Current co-op director JamesGibson, surveying the activities from acomfortable rocking chair near thestore’s entrance, said the new structure— designed by Michael Brady Inc. andbuilt by Merit Construction, both basedin Knoxville — represents a markedimprovement for the farmer-ownedbusiness, especially in visibility.

“You can see it from one end ofSevierville to the other when you comeacross the hill,” said Gibson, a member

of the co-op for 34 years. “Before, therewere people who didn’t even knowwhere the co-op was, and some of themhad been living here for a while. Wespent a year and a half coming up withideas on what to do here, and we’revery happy with the results. It was a bigdecision.”

Customer Patty Hanson of WearsValley and her sister, Debra Kelly ofSevierville, gave the co-op high marksas they admired its updated look.“I love the stonework,” said Hanson,who also brought along her husband,Sven. “They picked a beautiful color topaint the building, too. It just adds tothe charm of the entire area. It’s goingto be a lot of fun shopping here.”

Grand opening festivities included amix of product demonstrations, livebluegrass music, antique tractordisplays, free food and soft drinks, kids’activities, and door prizes. Visitorsenjoyed some 1,000 hot dogs, 62pounds of beef, 40 pounds of popcorn,and 30 gallons of ice cream servedduring the event.

But the main attraction for attendeeswas waiting inside — the co-op’ssparkling new showroom, whichdebuted with expanded business hours:from 7:30 a.m. to 7:30 p.m., Mondaythrough Saturday.

“I’m at the co-op once, sometimestwice, a week, and I couldn’t always getthere by the time they closed, so Iappreciate them staying open later,”said part-time farmer Jeff Matthews ofSevierville, who attended the event withhis wife, Karen. “And this place is justwonderful now. They’ve done a greatjob of modernizing everything andoffering more products. Today, youhave to stay up with the times to sparkpeople’s interests and keep them

coming through the doors or you willlose business.”

Along with the co-op’s core farmsupply products, the showroom alsofeatures expanded sections for equineproducts, pet care, wild birds, outdoorpower equipment, apparel, gift items,and a separate Lawn and GardenCenter that is connected to the mainbuilding by a walkway under thetowering new entrance to the co-op’sautomotive center. Outdoors, lawn andfarm equipment and a complete line ofEZ-Go all-terrain and golf carts aredisplayed, and an expanded fuel center


Renovated Tennessee supply co-op attracts 3,000 to ‘reopening’ event

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offers both traditional and diesel fuels.The exterior of the fertilizer-

blending facility has been redesigned toinclude signage for the co-op’s seasonalfarmers market, which operatesWednesdays and Saturdays from Junethrough October.

All told, the co-op now has 15,000square feet of retail space, doubling its

previous size.“We’ve added a lot of new products

that we haven’t been able to displaybefore,” said another Sevier Farmersdirector, David Sarten. “It takes a lot ofwork by a lot of people to make aproject like this come together. You cansee that the results were worth the wait.We’re real pleased.”

Amelia Smith of South Knoxville,who filled a shopping cart withproducts for her sheep and chickens,said she was “blown away” by theupgraded store.

“They’ve got everything in here,”

said Smith, who was joined by daughterValerie and son Alex. “It’s like ashopping mall. And outside, it has morecurb appeal with all of the flowers andthe nice-looking building.”

Since incorporating in March 1948,the 2,750-member co-op has been aconstant source of products and servicesfor the area’s farmers. But with few full-

time farmers left in Sevier County,Hastings said it was imperative that theco-op adapt to the changingdemographic of its customers.

“Our goal is always going to be toserve farmers, but to remain servingthem you have to offer other productsand services that are profitable,” heexplained. “Pet care is such a bigcustomer base, and the wild bird marketis an area of opportunity because it isnot really serviced in this community.When you’re talking about feeding andgrowing, no matter what the animal,the co-op should be the expert.”

Foresight of strong leaders andcontinuing support of people inSevierville and the surroundingcommunities have allowed the co-op toeffectively serve a new generation offarmers, homeowners, and everydayconsumers, said Hastings. And with itsfresh new look, expanded range ofproducts, and increased business hours,

he is hopeful that even more newcustomers will be drawn to the co-op.

“More and more people are gettingback to their roots and embracing therural lifestyle,” he noted. “These arepeople who work a full-time job, thengrow a garden or raise animals on apart-time basis. And because of wherewe’re located, we have a large market topull from — more than 100,000 peoplestay in Sevier County each night. Youhave to go beyond traditional co-ophours to serve these customers. That’sjust reality. We’re starting a whole newera for Sevier Farmers Co-op.” n


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his series of articles has attempted to clarify the nature of thecooperative business model in our free-market economy by explainingthe cooperative’s unique economic structure as an aggregate ofindependent economic units (member-farms). Co-ops are organizedto achieve a common goal(s) using organization, governance, equity

financing, operations and economics that are unique to cooperatives. Cooperativeshave been shown to be pro-market, helping farmers gain market access and exercisecountervailing market power, and serving as a competitive yardstick for their industry.

This final article attempts to show how cooperatives relate to other marketparticipants through their roles in transaction governance, or “in aligning incentivesand crafting governance structures that are better attuned to their exchange needs”(Williamson, 2002, p. 172).

As it has been in some of the previous articles, the dairy industry will again be usedas an example to demonstrate the role of the co-op. In marketing milk and milkproducts, farmers and their cooperatives may engage in the following transactionscenarios.

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The Natureof Cooperatives

By K. Charles Ling, Ag EconomistUSDA Rural Development Cooperative Programs

Editor’s note: This completes aseries of five articles that examinethe characteristics that makeagricultural cooperative businessesunique and valuable in our economy.The previous articles in the serieswere: “What Cooperatives Are (andAren’t)” (November/December2009 issue); “What CooperativesDo” (March/April 2010); “DairyCo-ops: What They Are and WhatThey Do” (March/April 2011); and“How Co-ops Do It: Dairy Co-opsAre a Prime Example of theEconomics of Co-op Marketing,”(November/December 2011). Pastissues of Rural Cooperatives areposted on the USDA RuralDevelopment website:www.rurdev.usda.gov. Hard copiescan be obtained by e-mailingrequests to: [email protected],or by calling (202) 720-8381.

Roles in economizing transaction cost is a newdimension for understanding value of co-ops

A worker prepares to pull milk samplesfrom co-op tankers. The samples arechecked before a tanker is cleared forunloading. USDA photo by Lance Cheung


Scenario I. — In a subsistence agricultural economy, farmproduction in excess of family consumption may be sold offfarm. For example, a farm family may have one or two cowsfor producing milk to satisfy the family’s food needs. If thereis surplus milk, it may be sold to neighbors (food safetyregulations permitting). The transactions are incidental tosubsistence farming, do not require specific assets, and areprimarily operations of a bygone era in the United States.

Scenario II. — Commercial milk production requiressubstantial capital investment in specialized assets: milk cows;barns, milking parlors and other buildings; machinery andequipment; skilled labor and management, etc. Most of theseassets are specifically for producing milk and cannot be easilyemployed for alternative uses. Furthermore, milk is a “flow”product and is highly perishable. Its market is inherentlyvolatile due to daily, as well as seasonal, variations of milkproduction and fluid milk demand. Supply and demandvariations are not coordinated.

Asset specificity, high product perishability and marketvolatility make dairy farmers vulnerable when dealing withmilk buyers (usually dairy food processors). There are manydairy farmers, but a small number of milk processors.Processors also must deal with “asset specificity” — they owndairy plants that are capital- and technology-intensive andrequire large size to take advantage of the economies of scale.But they are in a dominant bargaining position vis-a-visindividual dairy farmers.

Farmers organize cooperatives to gain bargaining andcountervailing power. However, asset specificity still causesuncertainty and poses hazards to the investment of the dairyfarmers and the processors if there is no credible contractualsafeguard. Contracts that spell out the terms of trade as legalrules may be formulated in an effort to relieve the hazard.

But it is impossible to foresee and encompass allcontingencies in a contract, due to human limitations.Relying on courts for relief is time-consuming and costly.This is a scenario of transaction without credible contracting,and the transaction does not have safeguards to relieve theinvestment hazard and protect the investment.

Scenario III. — For a highly perishable commodity suchas milk, it is vitally important for both producers andprocessors to work together to make sure milk flow is smoothand without interruption. Producers need to have an assuredoutlet for the milk once it is produced, while processorsrequire a steady supply of fresh milk to manufacture high-quality dairy products and efficiently utilize plant capacity.

The dairy industry has evolved in such a way that manydairy cooperatives and processors have developed a highdegree of bilateral dependency. Because dairy cooperativesare organizations of farmers, they have the comparativeadvantages of working closely with members for assemblingmilk, providing field services and performing farm-relatedfunctions (84 percent of U.S. dairy farmers marketed milk

through cooperatives in 2007, the year of USDA’s latest dairycooperatives survey).

Many processors rely on dairy cooperatives for milksupplies that are tailored to their requirements for volume,quality, composition and/or delivery schedule, so they canfocus their attention on processing and packaging dairyproducts. Under such an arrangement, the transactionsbetween cooperatives and processors are assisted with what iscalled credible contracting and supported by inter-firmcontractual safeguards. Instead of a set of legal rules withcourt enforcement, the contract here is a framework or a setof guidelines for interactions between the firms.

Discrepancies in performance are resolved throughamicable consultation or negotiations or by arbitration. Thecourt is only used as a last resort remedy.

Scenario IV. — Besides selling members’ milk to buyers(processors), it may be necessary for a dairy cooperative toforward-integrate into processing some or all of its members’milk into various dairy products. Being marketers ofmembers’ milk, many cooperatives have to maintain plantcapacity to balance milk supply and manufacture reserve andsurplus milk into storable products. Otherwise, the surplusmilk will be at the mercy of the market and lead to depressedmilk prices. In order to generate higher margins from themarket for members’ milk, some cooperatives also maychoose to integrate into processing fluid products or specialtydairy products, or further processing hard products. Theseprocessing enterprises are under the cooperative’s hierarchicaladministrative control.

Transaction governance structuresThe roles of a cooperative in the above scenarios fit with

the analysis of the roles of a firm in transaction governancethat constitute the core of transaction-cost economics(Williamson, 2010, 2007, 2005, and 2002).

In Scenario I, transactions between numerous suppliersand buyers are for an undifferentiated product. The productis made with a general purpose technology and does notrequire assets that are specific for its production (assetspecificity is zero). Transaction governance is accomplishedthrough market competition. The transaction governancemode is unassisted market.

When the product uses special purpose technology thatrequires specific assets for its production, as described inScenario II, asset specificity is greater than zero. Assetspecificity causes uncertainty and poses hazards to theinvestments of the suppliers and the buyers. Contracts thatare formulated as legal rules may provide no safeguards toprotect against investment hazards. Here, transactiongovernance is still the market, and the transaction governancemode is unrelieved contractual hazard.

In Scenario III, firms seek out reputable, trustworthycounterparts to reduce investment hazards. Such transactionsgive rise to bilateral dependencies, and the parties have


incentives to promote a continuous, long-term relationship,thus safeguarding specific investments. Transactions aresupported by inter-firm contractual safeguards; the contracthere is a set of guidelines for mutual adaptations. Thetransaction governance mode is credible contracting, a hybridmode between (unrelieved hazard) market and fullintegration.

Successive, technologically separable stages are broughtunder unified ownership and vertically integrated andcontrolled in Scenario IV. In this scenario, the transactiongovernance mode is hierarchical administrative control. Thismode occurs when a higher degree of asset specificity andadded uncertainty pose greater needs for cooperation inmutual adaptations between successive stages.

The transaction governance modes are summarized intable 1. Each mode in the table represents a generic mode ofgovernance, and each generic mode of governance embodiesits own internally consistent attributes of incentive intensity(reward for effort), administrative control, and contract lawregime – and, therefore, has its own strengths andweaknesses.

The governance structure Mode A is the unassistedmarket. The governance structure Mode B is the marketwhere asset specificity exposes transacting parties touncertainties and, without safeguards, to unrelievedcontractual hazards to their investments. Mode C is where

the market is assisted with credible contracting. All successiveproduction stages are integrated under hierarchical control intransaction governance Mode D.

The attributes of a market mode are high incentiveintensity, little administrative control, and a legal rulescontract regime. On the other hand, attributes of hierarchyare low incentive intensity (where pricing for the successivestages is cost-plus), considerable administrative control (by

fiat), and forbearance is the implicit contract law of internalorganization (the parties must resolve their differencesinternally).

Transaction governance in practiceDairy cooperatives may be classified into one of four

categories, based on the main marketing function(s) theyperform (table 2). Their transaction governance rolesdepend on their lines of business.

All four categories of dairy cooperatives may have jointventures with other cooperatives or firms to process andmarket certain dairy products. The cooperative supplies dairyinputs and the partner(s) provide technical or marketingknow-how to the joint venture.

This is one way of bringing product processing under thecooperative’s partial control. In this case, transactiongovernance mode may be viewed to fall somewhere betweenMode C and Mode D.

ConclusionsCooperatives are transaction governance structures, as are

non-cooperative firms. Depending on the lines of business ofa cooperative or other type of a firm, transactions can occurunder all possible governance modes. Cooperatives adapt tovarious governance modes for economizing on thetransaction cost, just as other firms do.

For entering into credible contractual relationships withbuyers (processors), the cooperative’s functions of providingmarket access and exercising countervailing power put itsmembers, collectively through the cooperative, on a relativelymore equal footing with buyers. This should make crediblecontractual relationships between sellers and buyers moreattainable and stable.

Furthermore, as its members’ collective marketing agency,

A: Unassisted market 0 0 High Little Competitive norm

B: Unrelieved hazard > 0 < > Legal rules contract regime

C: Hybrid (Credible contracting) > > < > Credible contracting

D: Hierarchy (Administrative) > > Low (Pricing Considerable Internal implicit contract lawfor successive (by fiat) (Forbearance)stages is cost-plus)

Source: Adopted from Williamson, 2005, Figure 1: Simple Contractual Schema.Note: ">" indicates a mode having a higher intensity of the particular attribute than the mode above it.

"<" indicates a mode having a lower intensity of the particular attribute than the mode above it.

Assetspecificity

Transactiongovernance mode

Investmenthazardsafeguard

Table 1―Transaction governance modes and attributes

Incentiveintensity

Admin.control

Contractlaw regime


the cooperative serves as a single transaction entity forcredible contracting with buyers. It also introduces order andeliminates conflicts among members who would otherwise becompeting individually for customers. As a result, transactioncosts should be reduced.

A cooperative does not own the assets for producing themilk (for example) that the cooperative markets for itsmembers; the assets and the investment hazard associatedwith asset specificity belong to member-farms. By poolingmembers’ milk in its marketing efforts, the cooperative, inessence, also pools the investment hazard. As a result, eachmember’s share of the hazard conceivably is less than if theyindividually market their products. The fact that assetspecificity and the associated investment hazard belong toindividual members reaffirms the cooperative’s uniqueeconomic structure of being an aggregate of its member-farms.

These analyses show how cooperatives relate to othermarket participants through their roles in transactiongovernance and will hopefully broaden understanding of thecooperative’s place in the market economy. Together with the

earlier work on cooperative basics, they should clarify thenature of the cooperative.

References• Ling, K. Charles. The Nature of the Cooperative: A Dairy Cooperative Case

Study, USDA Rural Development, Research Report 224. (Forthcoming)

• Williamson, Oliver E. “The Theory of the Firm as Governance Structure:

From Choice to Contract,” Journal of Economic Perspectives, Volume 16,

number 3, summer 2002, pp. 171-195.

• Williamson, Oliver E. “The Economics of Governance,” American

Economic Review, 95 (May 2005), 1-18.

• Williamson, Oliver E. “Transaction Cost Economics: An Introduction,”

Economic Discussion Papers, Discussion Paper No. 2007-3, March 1, 2007.

http://www.economics-ejournal.org/economics/discussionpapers/2007-3.

• Williamson, Oliver E. “Transaction Cost Economics: The Natural

Progression,” American Economic Review, 100 (June 2010): 673-690. (Prize

Lecture, the Sveriges Riksbank Prize in Economic Sciences in Memory of

Alfred Nobel 2009, Stockholm University, Sweden, December 8, 2009). n

Table 2―Category of dairy cooperatives by marketing function(s) and their transaction governance roles

Category of cooperatives

Bargaining

Niche marketing

Fluid processing

Diversified

Main function

Negotiate with milk buyers formilk prices and terms of trade; afew may operate milk handlingfacilities but not milk plants.

Own or retain plant capacity toprocess members’ milk intospecialty/niche products.

Own or retain plant capacity toprocess members’ milk into fluidproducts. May also process softand cultured products.

Perform bargaining and all ormost other marketing functions.As a group, sold 53 percent ofmilk to other handlers(bargaining), whilemanufactured the remaining 47percent into various products.

Dimension

108 cooperatives (out of 155U.S. total, or 70 percent).Together handled 23 percent ofthe 155.8 billion pounds U.S.cooperative milk volume, butfew handled more than 1 billionpounds of milk each.

19 cooperatives. Most handledless than 50 million pounds ofmilk each. Together handledless than 1 percent of U.S.cooperative milk volume.

Four cooperatives. Milk volumeprocessed was moderate.Together handled less than 1percent of U.S. cooperative milkvolume.

24 cooperatives. Three out offour cooperatives in this grouphandled 1 billion or morepounds of milk and nonehandled less than 50 millionpounds. Together handled 75percent of the U.S. cooperativemilk volume.

Transaction governance mode

Regular milk sale is usuallyMode C (hybrid); may be Mode B(unrelieved hazard) for spot milksales.

Product processing stages areMode D (hierarchy); wholesaledistribution of products isusually Mode C and may beMode B; and retail sales areusually Mode B.

Product processing stages areMode D; wholesale distributionof products is usually Mode C.

Bargaining function is usuallyMode C; product manufacturingand further processing stagesare Mode D; wholesaledistribution of products isusually Mode C and may beMode B; and spot milk sales maybe Mode B.

Table source: All dairy cooperative statistics cited are 2007 data, the year of USDA Cooperative Programs’ most recent dairy survey.

By Anne MayberryRural Utility ProgramsUSDA Rural Development [email protected]

e have a saying inMontana: ‘There’s a lotof dirt between lightbulbs,’” says BonnieLorang, general

manager of Montana IndependentTelecommunications Systems. Whatthat means, she continues, “is that thereare not many people in rural Montana;but through collaboration, we candeliver services that otherwise wouldnot be available.” The advantages ofcombining broadband with thecooperative business model is deliveringhigh-speed Internet service crucial tothe advancement of rural areasthroughout the state, she says.

Broadband and collaboration haveprovided residents with tools toestablish small businesses and deliverservices to Montana’s ruralcommunities.

For USDA Rural DevelopmentUnder Secretary Dallas Tonsager, theability of broadband projects to delivereconomic opportunities to ruralcommunities across the country is whyfunding rural broadband projects is soimportant. “Broadband takes localmarkets and makes them global,”Tonsager says. “It has the capacity toopen business opportunities inunparalleled ways. With broadband,rural consumers have better access tohealth care. Increasingly, rural schoolsfor the first time have access toadvanced placement and foreignlanguage classes. Broadband expandsservices and increases business

opportunities, which means jobs.” Broadband projects help rural areas

overcome the barriers of time anddistance. “This is about our overallcompetitiveness,” Tonsager says.“Broadband in rural areas givesbusinesses the ability to competeglobally. For kids, it opens the door tothe world. Without broadband, wecannot fully compete in the world’seconomy.”

Funding for rural electric andtelephone cooperatives nationwide wasoriginally authorized under the U.S.Rural Electrification Administration(REA) to deliver electric andtelecommunications services to ruralareas. In Montana, these cooperativescollaborate to offer high quality,scalable services that otherwise wouldnot be available to their rural

consumers. “Cooperatives’ commitmentto their communities is among theirprinciples and part of the cooperativebusiness model,” Tonsager noted.

Triangle Telephone Cooperativeprovides broadband services for ruralMontana communities that have createdand expanded business operations,improved rural economies and helpedcreate jobs. Among the businesses andservices that have resulted frombroadband efforts are medical centersthat can offer technologically advancedservices for rural residents.

With broadband service, a ruralcookware manufacturer can marketproducts worldwide. Women thousandsof miles away can purchase work pants,made in Montana, from Red AntsPants. Web hosting, design and searchservices around the globe depend on a


Uti l i ty Co-op Connect ion Telephone co-ops build broadband, create rural jobs

“W

Sarah Calhoun is founder and owner of Red Ants Pants, a women’s work-clothing business thatoperates out of rural Montana, thanks to broadband service. She designs the products, managesproduction, finance, marketing and sales. Photo courtesy Red Ants Pants


growing Montana company. Commun-ities benefit not only from broadbandservices but also from the jobs that theycreate when companies expand theirmarkets.

“It makes complete sense to use thecooperative business model in ruralareas, especially in areas with smallerpopulations,” says Gail Rainey, assistantgeneral manager for Hill CountryElectric Cooperative and TriangleTelephone Cooperative. Both theelectric and telephone cooperatives areaware of the need for robust economicdevelopment programs.

“We elected to focus on business andyouth. We want to keep people in thecommunity because that’s how wesucceed,” Rainey says. Because co-opsare member owned and rely onfeedback from members, members valuewhat co-ops offer.

“We work with schools andnonprofits to provide help financially,offer business guidance and provideservices,” Rainey adds. The growth ofthe Internet and broadband servicecontributed to these efforts, Raineynotes. “Broadband opens up the wholeworld to everybody.”

Rural telecommunicationcooperatives nationwide work together,and, with their investor-ownedcounterparts, they combine resourcesand leverage their abilities to deliver arange of services that their communitiesmight otherwise not be able to access.

Montana telecom providers, forexample, joined forces to establishVision Net, an information technologyservices provider that employs morethan 100 people and offers a full rangeof advanced networking services toMontana’s schools, businesses and otherinstitutions. Vision Net deploys itsservices using over 4,000 miles of fibernetwork. In addition to servingMontana, Vision Net has clientsnationwide, from Alaska to Maine andis staffed to provide technical supportround the clock.

Vision Net CEO Rob Ferris explainsthat Vision Net was formed in 1995 toprovide distance learning via interactivevideo conferencing to small, rural

schools. The growth of the Internet ledto a change in its business model.Broadband technology, Ferris notes, hasmade it possible for rural students tobenefit from advanced calculus classesand for soldiers stationed in Iraq andAfghanistan to see and talk to theirfamilies here at home.

Because the video learningexperience is so popular, Vision Net hashired an employee to assist the schoolswith class scheduling and to promoteunique virtual learning opportunities.“Two of the more popular classes werewith the National Aeronautics and

Space Administration (NASA) and theMontana State Forensics Labs,” Ferrissays. “With NASA, students were ableto talk to former astronauts. For theforensic class, we connected a highschool crime scene investigation classwith a crime lab where a scientistwalked students through aninvestigation on ballistics.”

Thousands of miles from Montana,Trevor Bonnstetter, CEO of TelecomManagement Services, managestelephone companies in West Kentuckyand Tennessee that deliver a range oftechnology services, including“megasites” designed to attract largebusiness. One such site serves theTennessee Valley Authority.

“We have a global economy. Ruraltelephone cooperatives can help theircommunities compete by providingInternet services that can be used torecruit employees in areas with highunemployment and draw business tosuch areas.” Bonnstetter says.

“Technology allows business toprovide jobs, products and services inareas where in the past, it was notfeasible.” Bonnstetter points to AgConnections, a Kentucky company thatdevelops crop management software to

help farmers more efficiently manageproduction, control inventory, developfinancial reports, map fields and makemarketing decisions using technologicaltools. In Tennessee, broadband hashelped a public power utility offer smartgrid applications that increase theutility’s efficiency through automatedmeter reading and can help manageelectric load. “These types of servicescan’t happen if there is no broadbandbuildout,” Bonnstetter says.

A 2009 USDA Economic ResearchService study found that employmentgrowth is higher and non-farm private

earnings greater in counties with alonger history of broadband availability.Yet, Tonsager notes that whilebroadband has triggered one of thebiggest technological transformationsever seen in this country, we still do notdeliver affordable and reliable service torural areas that could benefit fromInternet access.

“USDA will continue to support theefforts of rural telephone and electriccooperatives, which have played asignificant role in bringing broadbandto rural communities.”

USDA funding has deliveredbroadband service to more than 2million rural residents in the past threeyears. In additional to traditionalinfrastructure program for ruraltelecommunications cooperatives,USDA’s Farm Bill broadband programis an important tool that can financebroadband service in rural areas. USDARural Utility Programs has general fieldrepresentatives in most states to provideassistance in applying for broadbandfunding and ensuring that the proposedsystem will provide sustainable servicefor rural residents.

For more information, visit:www.rurdev.usda.gov. n

“Broadband takes local marketsand makes them global.”

—Dallas Tonsager


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

Co-op developments, coast to coast

Mikhalevsky to lead California Dairies

California Dairies Inc. (CDI), thenation’s second largest dairy processingcooperative, has named AndreiMikhalevsky as president and chiefexecutive officer. He succeeded RichardL. Cotta, who retired Dec. 31, 2011(see page 19 for more on Cotta).Mikhalevsky brings more than 35 yearsof leadership experience to CDI.

For the past five years, he has servedas the managing director of globalingredients and foodservices at FonterraCooperative Group Ltd., the world’slargest dairy exporter. In this role,Mikhalevsky was responsible fordeveloping and building many ofFonterra’s global customer partnerships.In addition, he oversaw Fonterra’sresearch and innovation division and itsbranded business in Latin America.

Previously, Mikhalevsky heldexecutive positions at Campbell SoupCo., Georgia Pacific Corp. and SymriseInc. Mikhalevsky is a graduate ofStetson University with a BA inbusiness administration in finance. Inaddition, he has attended the FoodExecutive Program at the University ofSouthern California.

“As we considered candidates,Andrei’s breadth of experience andstrategic vision identified him as theclear choice to lead our cooperative,”says CDI Chairman Brian Pacheco.“We are confident his ability toimplement visionary strategies will leadCDI into the future as a dairyprocessing cooperative committed todeveloping and delivering the dairyproducts the world demands.”

Pacheco also saluted Cotta for hismany years of service. “As CEO the last

five years, Richard has led the companyto experience unprecedented growthand profits. His knowledge, expertiseand leadership have been fundamentalin CDI’s expanded product offeringsand entrance into new markets. Heleaves CDI in a strong position poisedfor future growth.”

“As the largest dairy processing

cooperative in California and thesecond largest in the nation, CDI isuniquely positioned to capture growthopportunities in the U.S. and in theglobal market,” Mikhalevsky says. “Ilook forward to leading CDI in itscontinued success.”

CDI is co-owned by more than 450dairy producers, who ship more than 17billion pounds of milk annually. Theco-op is a manufacturer of qualitybutter (including the Challenge andDanish Creamery brands), fluid milkproducts and milk powders. Its dairy

products are available in all 50 statesand in more than 50 foreign countries.

CHS posts record earnings, revenue

CHS Inc., the nation’s largest farmercooperative, reported earnings of$961.4 million for fiscal 2011, thehighest in the farmer-owned energy,grain and food company’s 80-yearhistory. Earnings for fiscal 2011 (Sept.1, 2010 – Aug. 31, 2011) increased 91percent over the $502.2 million forfiscal 2010. The co-op’s previous recordearnings were $803 million in fiscal2008.

“While we celebrate record resultsfor fiscal 2011, our greatest achieve-ment this past year continued to beadding value for our producer andmember cooperative owners, who counton CHS as a source of energy and cropproduction inputs, a connection todomestic and global grain markets, andaccess to risk management tools,” saysCarl Casale, CHS president and chiefexecutive officer.

Revenue for fiscal 2011 reached$36.9 billion, compared with $25.3billion for fiscal 2010, reflectingcontinued higher values for the energy,grain and crop nutrients products thatcomprise the majority of CHS business.The previous revenue record, also set infiscal 2008, was $32.2 billion.

CHS provided a strong financialreturn to its owners in 2011 — basedon fiscal 2010 results — in the form of$227.3 million in cash patronage, equityredemptions and preferred stockdividends. In fiscal 2012, based on 2011earnings, the company expects to returna record $421 million to its owners.

CHS’ energy operations — including

Andrei Mikhalevsky


The latest NCB Co-op 100 report shows that thenation’s top 100 revenue-earning cooperative businessesposted total revenue of about $193.8 billion in 2010. Thereport (issued in October) marks the 20th anniversary ofthe NCB Co-op 100, published annually by NationalCooperative Bank (which has shortened its name toNCB). “The boom of cooperative organizations and the key

role they play in both our national and global economy isclearly evidenced in the growth and expansionhighlighted in this year’s report,” says Charles E. Snyder,president and CEO of NCB. “As a cooperative businessourselves, we are proud to support these efforts andparticipate in the United Nations General Assemblydeclaration of 2012 as the International Year of theCooperative, to educate the public on the benefits ofcooperatives. Our report is just one of the many ways wework to inform the public on the advantages ofcooperatives in all fields of enterprise.” The top two revenue producers in each primary

business sector in 2010 for the NCB Co-op 100 are:

Agriculture co-ops:• CHS Inc., Saint Paul, Minn.; $25.3 billion in revenue in2010, maintaining its first place position in both the agsector and on the overall NCB Co-op 100 list.

• Land O’Lakes Inc., Saint Paul, Minn; $11.1 billion inrevenue, earning the number two ranking again thisyear in both the ag sector and on the overall list.

Grocery co-ops: • TOPCO Associates LLC, Skokie, Ill.; $10.4 billion inrevenue, also holds the number three spot overall onthe Top 100.

• Wakefern, Elizabeth, N.J.; $9.5 billion in revenue (fifthoverall).

Hardware & Lumber co-ops: • ACE Hardware, Oakbrook, Ill.; $3.5 billion in revenue(11th overall).

• Do It Best Corp., Fort Wayne, Ind.; $2.3 billion in revenue(18th place overall).

Finance co-ops:• Agribank FSB, Saint Paul, Minn.; $4 billion in revenue(eighth overall);

• Navy Federal Credit Union, Merrifield, Va.; $3.1 billion inrevenue (14th place overall).

Healthcare co-ops: • HealthPartners Inc., South Bloomington, Minn.; $3.6billion in revenue (10th place overall).

• Group Health Cooperative, Seattle, Wash.; $3.2 billion inrevenue (13th place overall).

Energy & Communications co-ops:• National Cable Television Cooperative Inc., Lenexa,Kan.; $2.1 billion in revenue (19th place overall).

• Basin Electric Power Cooperative, Bismarck, N.D.; $1.5billion in revenue (29th place overall). To see the entire list, visit the publications section at:

www.NCB.coop.Released annually in October during National Co-op

Month, the bank says that the NCB Co-op 100 is just oneway it strives to educate and promote the importance ofthe co-op sector. This year it is also supporting the 2012International Year of Cooperatives initiative. The globalcampaign led by the United Nations, with the officialslogan “Cooperative Enterprises Build a Better World,” isfocused on educating and informing the public of thecontributions cooperatives make to socio-economicdevelopment. n

NCB Co-op 100 shows revenue near $194 billion

refined fuels, propane, renewable fuelsmarketing and lubricants — led all unitsfor earnings. This was due primarily toimproved margins from the refinedfuels manufactured at the CHSRefinery at Laurel, Mont., and theNational Cooperative RefineryAssociation (NCRA) of McPherson,Kan., in which CHS owned nearly 75

percent. On Dec. 1, it was announced that

CHS was buying the shares of the twominority owners of NRCA:GROWMARK Inc. and MFA Oil Co.The purchase will be made in fourtransactions, culminating Sept. 1, 2015.NCRA’s 650 employees will thenbecome CHS employees.

CHS renewable fuels marketing anddistribution business also generatedrecord earnings. The company’slubricants and propane businesses,while profitable, were down from fiscal2010 performance.

CHS Country Operations — itslocally controlled retail locations —generated record earnings within the


co-op’s Ag Business segment, due tohigher grain volume and increasedmargins. The Ag Business grainmarketing, crop nutrients and oilseedprocessing operations also contributedincome that exceeded 2010 levels. AgBusiness earnings also reflect a pre-taxgain of $119.7 million on the sale ofCHS’ investment in Multigrain AG, aBrazil-based joint venture.

CHS-owned insurance, riskmanagement and financing businessesreported increased earnings for 2011,much of which was due to increasedmarket volatility. The companyrecorded strong contributions from its50-percent ownership of Ventura FoodsLLC, a vegetable oil-based foodmanufacturing business. The 24-per-cent CHS share of Horizon MillingLLC, the nation's leading wheat miller,generated record returns, primarily dueto improved margins.

Wisconsin co-ops to merge with United Co-op subsidiaries

Members of Mid-CountyCooperative, Shawano, Wis., andPulaski Chase Cooperative, Pulaski,Wis., have voted in favor of mergerswith wholly-owned subsidiaries of

Beaver Dam, Wis.-based UnitedCooperative. Both mergers becomefinal on Feb. 1, 2012.

“We look forward to serving patronmembers from both cooperatives withthe assets obtained through themergers, in addition to futureequipment and facility investments,”says David Cramer, United Cooperative

president and CEO. The merger shouldresult in better products and services formember-patrons in northeasternWisconsin and upper Michigan, headds.

With its feed, grain, automotive andenergy departments, Mid-CountyCooperative revenue topped $23million in fiscal 2011. Pulaski ChaseCooperative has feed, grain, agronomy,and energy departments, as well as ahardware store and an automotive andmachinery parts business. It had $22million in sales during fiscal 2011.

USDA grant to help create Great Lakes Co-op Center

The University of Wisconsin Centerfor Cooperatives and CooperativeNetwork were recently awarded$225,000 through USDA RuralDevelopment’s Rural CooperativeDevelopment Grant program to helpcreate the Great Lakes CooperativeCenter. This new co-op developmentcenter in Madison, Wis., will providetechnical assistance and counsel toexisting cooperatives, as well as groupsinterested in forming cooperativebusinesses in the Upper Midwest.

In the coming year, the UW Center

for Cooperatives will focus its efforts ondeveloping cooperative businessesventures within regional food systems.These ventures will provide agriculturalproducers and rural communities withincreased opportunities for meeting thegrowing demand for local productsfrom retailers and institutions such ashospitals and schools. Cooperative

Network will work with cooperatives inthe fields of health care, energyefficiency and senior housing.

Under USDA’s Rural CooperativeDevelopment Grant program, grants ofup to $225,000 may be awarded tocolleges, universities and nonprofitgroups to create and operate centersthat help individuals or groupsestablish, expand or operate ruralbusinesses, especially cooperatives andmutually owned businesses. Grants maybe used to conduct feasibility studies,create and implement business plans,and help businesses develop newmarkets for their products and services.For more information on this and otherUSDA Rural Development programs,visit: www.rurdev.usda.gov.

Snokist files for bankruptcy Snokist Growers, Yakima, Wash.,

filed for bankruptcy in December,according to a report in the YakimaHerald-Republic, which said that the108-year-old co-op cited causes thatincluded the business lost in the wake ofa critical federal Food and DrugAdministration (FDA) report anddifficulties securing operating loans. Snokist employs more than 600 mostly

seasonal workers in itsfood processing plantin Terrace Heights andseveral warehousesacross the YakimaValley. Thecooperative is ownedby more than 150growers who ship theirapples, pears, cherriesand plums to the co-op to be canned orturned into fruit cups,purees and juices.

The Herald-Republic reported that the co-op hasdebts of nearly $73.4 million owed tomore than 2,000 creditors, vs. totalassets of $69.6 million, according tobankruptcy documents filed in U.S.Bankruptcy Court. Last spring, Snokistvoluntarily recalled 3,300 cases ofgallon-size cans of applesauce, with sixcans in each case, after the food was

United Cooperative’s South Beaver Dam (Wisconsin) facility is one of its largest grainlocations. Two other Wisconsin co-ops recently voted to merge with United.


Editor’s note: this item is reprinted from, and courtesy of,Today’s Farmer, the member publication of MFA Inc. Itwas written by Chuck Lay, the co-op’s communicationsdirector.

Standing at the lectern during the kickoff meeting in1997 just months before he retired, B.L. Frew told thoseassembled that honesty and integrity are the keystones ofMFA Incorporated. “I don’t want this organization to everlose that,” he said. “Remember who owns you,” heboomed into themicrophone to theassembled group for thefinal time as presidentand CEO.“It’s been a real ride,”

he said. “But I’ve gottenmore from theorganization than it’sgotten from me. Thequality of the employees,the quality of themanagers, the support,dedication and the hardwork. Never in my wholetime have I asked anything that you haven’t done anddone well.“Always remember,” he said, “what’s good for the

company, not what’s good for me, for my division, for myarea. It’s what’s good for the company. I’ve always triedto search out what is right, to do what is right and try tomake a difference. If you’ll continue to do that, theorganization will continue to shine.”He died Sept. 25 at age 77. B.L. (always known as Bud)

Frew was president and CEO of MFA Incorporated from1985 to Jan. 31, 1998. He leaves behind his wife, Kit, andchildren, Scott Frew and Suzette Marsch in addition to hisgrandchildren.Current MFA President and CEO Bill Streeter said Bud

Frew’s contribution to MFA is a legacy of a professionallymanaged business organization focused on servingfarmers and ranchers. “He was the force behindemployee training at all levels. He constantly sought

improvement. He wanted updated, modern locations, aninformed and well-trained workforce, and professionalismat all levels. Bud Frew instilled pride and financialresponsibility. People wanted to live up to his standards.People wanted to be associated with him and his efforts.He made you believe.” Frew began his career at MFA in 1970 when he was

hired as director of exchange operations. Within a year,he was selected to manage the Exchange Division (latercalled Retail Distribution). He came to MFA from FS

Services Inc. (nowGrowmark), where hehad worked since 1960after having graduatedfrom Bradley Universitywith an engineeringdegree.By 1981, he had

become MFA’s chiefoperating officer. Withinfour years, MFAIncorporated’s board ofdirectors hired Frew aspresident and CEO. Heproceeded to

strengthen the financial position of MFA by instituting aseries of financial measurements with specific emphasison strategic planning as well as streamlining thecooperative by closing non-profitable locations andinvesting money into profitable locations and ventures.He retired after having presided over 12 straight years ofprofitability.Frew focused first and foremost on the people and

company’s image, from managers at locations to peoplethroughout the organization. Before retiring he listed ashis three most important accomplishments at MFA: 1) thepeople who do their jobs and do them well; 2) the cultureof the organization that is built around mission, strategy,honesty and integrity; and 3) a focus on businessdecisions that advance the mission and profitability of thecooperative.His legacy is one of accomplishment. n

Former MFA President Bud Frew dies

B.L. “Bud” Frew


linked by FDA to temporary upsetstomachs among nine schoolchildren inNorth Carolina, the paper said.

Record sales for Blue Diamond Blue Diamond Growers, which

achieved record sales of $825 million in2011, is heading into 2012 powered bygrowth in all business segments, newproduct launches and a manufacturingexpansion plan that will support itsglobal business, President and CEOMark Jansen told the cooperative’sgrower-owners at their 101st annualmeeting. Based on current growthtrends, the co-op is slated to be abillion-dollar business within the nexttwo to three years.

Jansen said Blue Diamond led theCalifornia almond industry with growerreturns (crop payments) on the 2010crop. With farming costs increasing forfuel, fertilizer and chemicals, almondrevenues must increase on a per acrebasis to ensure grower profitability.Blue Diamond projects the 2011 cropshould achieve a new record in returnsper acre.

The record sales year was driven by a34-percent increase in the global use ofalmonds as an ingredient in other foods,by double-digit growth in every U.S.-branded consumer product line and bya new plan to expand distribution ofsnack almonds in the United Kingdom,Jansen reported. Major new productintroductions last year included NutChips and a new Almond Breezealmond-coconut milk blend.

To support the co-op’s drive to addvalue to all business segments globallyand to meet consumer demand forhealthy products, Blue Diamondrecently purchased 88 acres of land inTurlock, Calif., (near Modesto) as thesite for its newest manufacturingfacility. The first phase of the facilitywill open in May of 2013. Plantupgrades are also planned for the co-op’s almond plants in Sacramento andSalida.

“This is an expansion plan, not arelocation plan,” Board ChairmanClinton Shick said during the meeting,according to the Modesto Bee. “Our

business is booming, and we need moreroom to grow.”

RFA: report shows ethanol not leading to cropland expansion

An in-depth analysis of U.S. land-usepatterns released Dec. 21 by the U.S.Department of Agriculture shows totalcropland decreased by 34 million acresfrom 2002 to 2007, reaching the lowest

level since USDA began collecting thisdata 1945. The USDA report alsoshows that significant increases inforestland, grassland and rangelandoccurred during the five-year period.

The Renewable Fuels Association(RFA) says the new report adds to amounting body of evidence that provesincreased ethanol production has notresulted in expansion of total U.S.cropland or a decline in grassland andforest.

“Using real data from the real world,this report from USDA shows yet againthat U.S. cropland is not expanding inresponse to increased ethanol demand,”says RFA President Bob Dinneen. “Thereport also shows that forest andgrassland increased dramatically during

a period when ethanol production morethan tripled.”

Meanwhile, the report shows thatland dedicated to urban areas andspecial-use areas (roads, industrial areas,rural residences, etc.) increaseddramatically. “It is ironic that the landuse debate has fixated on biofuels, whenthe actual culprit of land conversion hasclearly been urban and suburban

sprawl,” Dinneen says. According to the report authors,

urban land acreage quadrupled from1945 to 2007, increasing at about twicethe rate of population growth over thisperiod. Land in urban areas wasestimated at 61 million acres in 2007,up almost 2 percent since 2002 and 17percent since 1990 (after adjusting the1990 estimate for the new criteria usedin the 2000 Census).

The estimated acreage of grasslandpasture and range increased by 27million acres (almost 5 percent)between 2002 and 2007, while forest-use land increased 20 million acres (3percent) from 2002 to 2007,“continuing a trend that became evidentin 2002 and reversing an almost 50-year

A biofuels trade group says a recent acreage report shows that ethanol production hasnot resulted in losses of grasslands, forests or rangeland. USDA photo by DanCampbell


downward trend.”

CoBank closes merger with U.S. AgBank

CoBank announced Jan. 3 that it hadsuccessfully completed its merger withWichita-based U.S. AgBank. Themerger, which formally closed on Jan.1, creates an $85 billion financialservices institution that serves as aleading source of credit to the U.S.rural economy. The combined bank’scustomer base includes agriculturalcooperatives and rural power, water andcommunications service providers in all50 states. The bank also offerswholesale financing to 29 Farm Creditassociations that provide loans andfinancial services to more than 70,000farmers, ranchers and other ruralborrowers.

The combined bank continues to dobusiness under the CoBank name andremains headquartered outside Denver,Colo., with Robert B. Engel in the roleof president and chief executive officer.The bank retains its cooperativestructure, with qualified borrowersearning cash and equity patronage inproportion to the amount of businessthey do with the organization.

For the first year following themerger, the bank will be governed by a32-member board of directorsconsisting of the entire former CoBankand U.S. AgBank boards. On Jan. 1,2013, the size of the board will bereduced to 24 directors elected bycustomer-owners in six geographicvoting regions. There will also be atleast two, and as many as five,appointed directors.

CDF cites achievements in 2011Among its accomplishments in 2011,

the Cooperative DevelopmentFoundation (CDF) reports that it: • Awarded $144,000 in grants

scholarships to support the growth,development and recovery fromnatural disasters of cooperativebusiness enterprises;

• Raised $206,500 for co-op recoveryfrom devastating natural disasters inthe United States and Japan;

• Through administration of UnitedCo-op Appeal (a workplace givingprogram), it raised more than $65,000to support other cooperativedevelopment organizations;

• Received foundation and federalgovernment grant awards of $225,000to support its cooperativedevelopment efforts;

• Raised more than $250,000 throughspecial events and contributions tosupport its operations.“But dollar amounts are only one

measure of what’s been accomplished.Equally important are the newpartnerships we’ve launched, the newvisibility we’ve given to the cooperativebusiness model, and the tangibleoutcomes achieved over a longer periodof time,” CDF Executive Director LizBailey said in a letter to supporters.(Bailey was recently named interimpresident of the National CooperativeBusiness Association; see news item,below.)

Bailey also cited progress indeveloping co-ops for direct home careworkers. “The home care co-op is notonly a solution for the growing numberof seniors and individuals withdisabilities who simply need help withdaily living, but it’s a solution for homecare providers who now have benefitsand a living wage, access to training,increased self-esteem, and a stake inrunning/governing their own co-opbusinesses.”

Liz Bailey named interim CEOat NCBA; search firm hired

Liz Bailey has been named interimpresident and CEO of the NationalCooperative Business Association(NCBA), effective Feb. 1, when PaulHazen is stepping down. Bailey hadbeen serving as NCBA vice presidentfor Policy and Domestic Developmentand executive director of the Cooper-ative Development Foundation. Shewill continue with her responsibilitiesfor both of those jobs during her timeas interim president and CEO.

NCBA has formed an executivesearch committee, headed by MartinLowery, immediate past chair of the

NCBA board, to look for theorganization’s next leader. Thecommittee has retained the firm ofKincannon and Reed to assist in thesearch, which it says may not becomplete until mid-year 2012.Supporting Bailey in the interim will beother members of the NCBA seniorleadership team: John Gillespie, interimchief operation officer/chief financialofficer, and Amy Coughenour, vicepresident for the CLUSA Internationalprogram. The positions of vicepresident of domestic cooperativedevelopment and vice president ofpublic affairs and member services havebeen eliminated as part of organiza-tional changes.

Hazen, meanwhile, has accepted theposition of executive director of theOverseas Cooperative DevelopmentCouncil, also effective Feb 1. He willcontinue in his role as a delegate to theInternational Co-operative Alliance,where he currently serves on theorganization’s board of directors.

A recent letter to members andsupporters said NCBA was makingorganizational changes to help meet thestrategic vision set by the board toachieve three primary objectives:1. Forge a cohesive and mutually

supportive partnership betweenNCBA’s CLUSA International andDomestic divisions in order toleverage the strengths of thesedivisions to achieve our global vision.

2. Increase public awareness of cooper-ative enterprise and of NCBA.NCBA has a great story to tell, andwe want to start telling it better.

3. Upgrade operations infrastructure byinvesting in new systems to bettersupport the International, Domesticand Marketing and Communicationteams.

USDA REAP funds create jobswhile reducing energy costs

USDA in December announcedloans and grants for agriculturalproducers and rural small businessesacross the country to help implementrenewable energy and energy efficiencymeasures in their operations. The

funding is provided through USDARural Development’s Rural Energy forAmerica Program (REAP). UnderSecretary for Rural Development DallasTonsager made the announcement onbehalf of Agriculture Secretary TomVilsack during a conference in NewOrleans that focused on energyefficiency.

It was noted that stable energy costscreate an environment for job growth inrural America. Collectively, the REAP-funded projects announced inDecember, and those announced earlierby USDA, are expected to lower energyuse by 2 billion kilowatts and preventnearly 2 million metric tons ofemissions from being released into theenvironment. REAP, authorizedthrough the 2008 Farm Bill, providesloans and grants for farmers, ranchersand rural small business owners topurchase and install renewable energysystems and make energy-efficiencyimprovements. These federal dollars areleveraged with other funding sourcesfor the projects.

Tonsager said that in fiscal 2011,USDA Rural Development’s REAPprogram provided $23.2 million forenergy efficiency projects, $20.9 millionfor biodigesters, $20.3 million for solarenergy projects, $8.2 million forhydroelectric systems, $7 million forbiomass energy projects, $4.28 millionfor flexible fuel pump projects, $3.9million for wind energy projects, $1.4million for geothermal installations.

USDA Rural Development fundedmore than 280 projects last year to helpreduce energy costs. Overall, USDAfunded more than 1,100 energyefficiency projects in fiscal 2011,including improvements in aquaculture,poultry lighting and ventilation,irrigation system upgrades, maple syrupproduction efficiency, small businessheating and cooling, rural grocerycooler replacement and others.

Cooperative Network electstwo new directors

Cooperative Network, the tradeassociation for Minnesota andWisconsin cooperative businesses,

elected two new directors at its annualmeeting Nov. 15 in Rochester, Minn.The new directors are: ElaineEckendorf, Central Wisconsin ElectricCooperative, Custer, Wis., whorepresents electric cooperatives andreplaces retiring director LynnPeterson, and Mark Clark, LandO’Lakes Inc., Rollingstone, Minn., whorepresents Minnesota dairy cooperativesand replaces director Steve Schlangen.Jim Hathaway, Dunn EnergyCooperative, joins the executivecommittee as the new treasurer.

Proposed rule extendsminimum wage to home care workers

A proposed rule announced Dec. 15by President Obama and U.S. Secretaryof Labor Hilda Solis would extendminimum wage andovertime protections tohome care workersunder the federal FairLabor Standards Act.Home care workers arecurrently excluded fromminimum wage andovertime protectionsbecause they areconsidered“companions,” a rulingthat “fails to account forthe health and personalcare services theyprovide to elders andpeople with disabilities,”according to the DirectCare Alliance.

“Extendingminimum wage andovertime protections tohome care workers hasbeen the Direct Care Alliance’s flagshipissue since the Supreme Court ruledagainst Evelyn Coke,” says LeonilaVega, executive director of the DirectCare Alliance (DCA). Coke was a homecare worker who challenged thecompanionship exemption in court. Hercase went to the U.S. Supreme Court,which ruled in 2007 that the U.S.Department of Labor was acting withinits authority in upholding the

exemption. “The nearly 2 million in-home care

workers across the country should nothave to wait a moment longer for a fairwage. They work hard and play by therules and they should see that work andresponsibility rewarded,” PresidentObama said in a White House pressrelease.

The rule was announced at a Dec. 15event at the White House, whichattracted advocates for home careworkers from across the country,including home care worker and DCABoard Chair Tracy Dudzinski. “I wasthrilled to be part of this specialoccasion,” says Dudzinski. “My state,Wisconsin, happens to have minimumwage and overtime laws that coverhome care workers, but hundreds ofthousands of my peers in other states

don't have the sameprotections. That’s justnot right.”

Dudzinski is alsoboard president ofCooperative Care inWautoma, Wis., a homecare workers co-oporganized in 1998 thathas received extensiveco-op developmenttechnical assistancefrom USDA RuralDevelopment’sWisconsin state office.Cooperative Care wasnamed a semi-finalist inthe prestigious 2002Innovations inAmerican GovernmentAward from HarvardUniversity and the 2003Top Rural Initiative by

Wisconsin Rural Partners.Written comments on the proposed

rule can be submitted on or before Feb.27, 2012. Comments may be submittedvia Direct Care’s website,www.directcarealliance.org. Just clickthe appropriate link in the “ActionAlert” portion of the home page. Orvisit: www.regulations.gov, and indicate“proposed rule” and “RIN 1235-AA05”in the appropriate boxes. n


President Obamaannounces a proposedrule change that wouldgive basic laborprotections to home careworkers. Among the homecare worker leadersattending the ceremonywas Tracy Dudzinski (farright), board president ofCooperative Care.

Rural Cooperative Development Grants (RCDG) —This program provides funds to cooperatives anddevelopment centers to assist individuals and business owners

in rural communities who require startup, expansion andoperational improvement assistance. The grant program alsohelps rural communities improve their economic conditions,create and retain jobs and develop new rural cooperatives andvalue-added processing. In fiscal 2011, 26 states and theDistrict of Columbia received 36 RCDGs worth more than$7.9 million from Rural Development.

Examples of funded projects include:• The Mississippi Association of Cooperatives used an

RCDG to provide small and minority farmers withdevelopment assistance. The Center focuses the vastmajority of its efforts on the most distressed rural areasof the state. The group also helps minority farmersestablish financially sound businesses.

• The California Center for Cooperative Developmenthelps develop new cooperatives, promote community-supported agriculture, strengthens the marketing of

small farm production and develops systems to linkgrowers with regional consumers. The Center also helpslocal farmers form cooperative corporations to enhancetheir marketplace position.

Small Socially Disadvantaged Producer Grants(SSDPG) — This program awards grants to eligiblecooperatives and associations of cooperatives that providetechnical assistance to small, socially disadvantagedagricultural producers in rural communities. In fiscal 2011,

USDA Rural Development awarded 19SSDPG grants totaling more than $2.9million to African-American-, Hispanic-,Native-American-, and women-ownedcooperatives that will use the grants toassist 1,469 businesses. Examples of grantawardees include: • The Louisiana Association of

Cooperatives will use a $200,000 SSDPGto provide technical assistance to smallproducers in 41 rural parishes throughoutthe state, including areas affected byHurricane Gustav.

• In South Carolina, the 31-memberPiedmont Farmers MarketingCooperative used a $43,600 SSDPG tocomplete seminars and workshops onanimal husbandry, vaccinationrequirements and breeding and rearingtechniques. The SSDPG will also allowco-op members to visit a facility thatconverts livestock waste into renewableenergy. The energy produced will helpreduce the facility’s operating costs.

Rural Business Enterprise Grants(RBEG) — The RBEG program provides

grants for rural projects that finance and facilitatedevelopment of small and emerging rural businesses andhelps fund distance learning networks and employment-related adult education programs. To assist with businessdevelopment, RBEGs may fund a broad array of activities. Anexample is the Island Grown Farmers Cooperative (IGFC) inBow, Wash., which operates a mobile processing unit thatwas the first USDA-inspected mobile slaughter facility forred meat in the nation. A $55,000 RBEG grant was used toprovide technical assistance to develop the USDA-certifiedmobile meat processing facility to serve remote rural islandfarmers.

The cooperative business model is a time-tested tool forrural producers and communities to use in filling a void inthe marketplace and keeping resources in the community.Cooperatives can use USDA Rural Development programs tooffer increased opportunities for long-term, sustainableeconomic gains for their member and for rural America. n

Commentarycontinued from page 2


The grand opening of the Placerville Natural Foods Co-op, which was assisted by theCalifornia Center for Cooperative Development and USDA.

workers gain management skills. Although these are one-member/one-vote cooperatives, there are covenants thatprotect original owner’s rights until they receive totalpayment for their ownership shares and then retire.

Lenancker emphasized the differing mentalities betweenbusiness owners and their employees. In addition to the legaland financial steps required for transfer, there is a criticalprocess for all participants to reorient themselves to newroles and responsibilities.

His organization has developed programs for mentoringworkers and helping the original owners adjust to a new roleof teaching the new owners how to operate these businessessuccessfully.

Rapid conversions in ArgentinaThe South American nation of Argentina provides a

special case of rapid and widespread conversion of businessesto worker ownership that occurred after the countrydefaulted on its international debt in 2001. When JoseOrbaiceta, president of the Federation of Worker Co-ops ofArgentina, opened his address by thanking the host countryfor providing him with political asylum 27 years ago, theaudience could anticipate that his presentation would coversome dramatic events.

As credit dried up in Argentina, most of its manufacturingindustries closed with no indications of when they mightreopen. Out of desperation, workers from many of thesefactories eventually returned to “recuperate” these businesses,which involved more than just doing their previous jobs butalso everything from procuring inputs to selling products.Worker cooperatives became the model for “recuperating”many of the businesses that closed in 2001.

The legal and policy issues that ensued from“recuperation” are too lengthy to describe in this article, butOrbaiceta discussed some of the conflicts that ensued whenowners of these factories initiated lockouts. In some cases,factory owners had equipment moved out during the nightfor sale to competing companies in neighboring countries,such as Chile.

In response to these conditions, the government modifiedits bankruptcy laws to give workers legal standing. Workerswho lost their employment would have to be indemnified,and — under some circumstances — the government oversawlegal and financial transfers of ownership to workercooperatives.

Currently, there are about 6,000 worker cooperatives inArgentina that provide about 300,000 jobs and produce about10 percent of the nation’s gross domestic product (GDP).

Although the developments in Argentina are unique, itsexperience with worker ownership highlights a point that isapplicable to all countries. Workers either re-occupying or

buying closed businesses is not a new phenomena. There is along history in many countries of transferring ownership ofbusinesses to the workers when the equipment and facilitiesare worn-out or obsolete. The Argentine experience involvedmany factories in good condition, which is the basis for thesustained success of its worker co-ops.

Conference ‘takeaways’A conference of this type offers more “takeaways” than can

be succinctly described in this article. Furthermore, many ofthe workshops were concurrent, but some of the keyconference presentations can be viewed at this website:www.coopzone.coop/en/node/3771.

There are many key points to understand about making atransfer of business ownership to employees, but a selectedfew are presented here:

• Small business owners can improve their opportunities andoptions for transferring ownership in the future if they getan early start on succession planning. ESOPs provide a wayfor employees to gradually buy portions of a business priorto the event of the initial owner’s retirement. In other cases,owners may convert from a sole proprietorship toalternative forms so that employees may purchase shares ofa business with small deductions from wages, which easesthe financial burden as compared to a one-time completetransfer to a worker cooperative. The key is to get an earlystart on planning.

• The relationship of an owner with employees needs to besufficiently congenial so that adjustments in attitudes andorientations of both parties can be made to form acooperative that can complete a transfer of ownershipshares, responsibilities and know-how in a timely manner.

• Businesses should have a core group of employees withseveral years of experience, typically in the age group of 40-55 years old.

• Businesses that are suitable for ownership transfers need tobe examined in terms of their future prospects. At aminimum, such businesses must have an established marketof repeat customers and be positioned with physical capitalthat is in good running order and not in need of immediatereplacement.

• A target audience for conveying information on successionplanning for employee ownership is the trusted advisors orestate planners. They are typically local accountants andlawyers. Over time, each such advisor is likely to helpnumerous owners plan their retirements and the sale oftheir businesses.The above points do not cover the many steps and actions

that have to be taken to transfer businesses to employees.These points are a sampling of insights that internationalexperts shared with their audience at the Business Successionand Employee Ownership Conference in Quebec City lastOctober. n

Keeping the ‘open’ sign oncontinued from page 29


returned 35 to 40 percent on ourmembers’ investment in the co-op.”

Q. What one thing would you liked tohave done differently?Cotta: “Even though the dairy industryhas gone through some very tougheconomic times, I would have pushedharder for a greater financialcommitment to continue to invest in,and accelerate, CDI’s move towardmore value-added lines. We shouldhave done more because, in the end,this serves the members well.”Q. On the marketing front, do you see

the export market being moreimportant to the future of the co-op, orthe U.S. dairy industry in general?Where are the greatest exportopportunities? Cotta: “Exports offer a uniqueopportunity for U.S. dairy producersand processors. The domestic market isa mature market. Any substantialgrowth will come from exports and/ornew products. The greatestopportunities will be in China andSoutheast Asia.

“The Middle East and North Africaalso are growing markets. With thepassing of time, even though India iscurrently the largest dairy-producingcountry in the world, I believe realitywill set in and current barriers toexporting into India will come down,creating new market opportunities.”

Q. What are the other bestopportunities you see for the dairyindustry, focusing on the domesticfront? Cotta: “The dairy industry needs to geton the ‘health and wellness’ bandwagonas quickly and as vigorously as possible.We compete with all other beveragesand food companies for the consumer’sdollars. PepsiCo, Coca-Cola and mostrecently Starbucks, with its acquisitionof Evolution Fresh to cater toconsumers’ desire for ‘better for you’foods, make it imperative that dairybecomes a bigger player in this game.All snack food companies will try tocapitalize on the ‘better for you’ trend.After all, dairy is the original, naturalhealth and wellness food.” n

In the spotlight: Richard Cottacontinued from page 19


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