USDA / Rural Development January/February 2013 · USDA / Rural Development January/February 2013 Rural COOPERATIVES ... 28Co-op conversions help bring security to manufactured ...

USDA / Rural Development January/February 2013

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Rocky FordRenaissance Page 10

2 January/February 2013 / Rural Cooperatives

Commentary Raising the bar on safety

By William J. NelsonVice President, Corporate Citizenship andPresident, CHS FoundationChair, ASHCA Board of Directors

griculture, with its decentralized nature anddiverse structure, lags other industries inreducing the toll on its workers. Its fatalityrate is eight times that of the all-industryaverage. In a typical year, about 500 workers

die while doing farm work in theUnited States, and about 88,000suffer lost-time injuries,according to the NationalInstitute for Occupational Safetyand Health. The annual cost ofthese injuries exceeds $4 billion.

If our agriculture industry isgoing to feed the worldpopulation, which is estimated toreach 9 billion by 2050, we mustdo it safely, humanely andsustainably.

At CHS Inc., we see safety asa vital issue. Not only is CHSand each of its subsidiariescommitted to providing a safeand healthy workplace, the CHSFoundation provides grants tosupport education programs thathelp keep farm families, childrenand agribusiness professionalssafe.

One way in which CHSpromotes a culture that makes personal health andoccupational safety a priority is through its membership inAgricultural Safety and Health Council of America (ASHCA,http://www.ashca.com.)

ASHCA, established in 2007 with support from the FarmFoundation, is a consortium of agricultural producers, farmassociations and agribusinesses that has planned andpromoted strategies to make agriculture much safer andhealthier in the United States. We see ASHCA’s focus ascomplementary to the efforts of the University of Minnesota

and DuPont, as described in the article, “Creating a safetyculture,” on page four of this issue.

North American agricultural co-ops and others in the farmindustry have a unique opportunity to step up to help ensurethe safety of the agricultural workforce through publiccommunications, education and training.

We are particularly excited about the “2013 NorthAmerican Agricultural Safety Summit” Sept. 25-27, 2013, atthe Marriott Minneapolis City Center Hotel. The Summit,hosted by ASHCA with support from CHS and others, has

the potential to galvanize thepublic and private sector informing a common vision on howto update national agriculturalsafety and health priorities.

Committed speakers includeCarl Casale, president and CEO ofCHS, as well as John Howard,director of the National Institutefor Occupational Safety andHealth. Tom Vilsack, U.S.Secretary of Agriculture, isamong invited speakers.

The primary audience willinclude leaders and influencers ofcooperatives and farmorganizations, industry executivesand their risk managers,farm/ranch management advisorsand safety consultants, universityfaculty and researchers,agricultural educators,agricultural association leaders,and many others.

The Summit event will include interactive sessions andinnovative learning opportunities appealing to individuals andbusinesses involved in food production and worker safety. Tolearn more, go to www.ashca.com.

For another look at how agriculture can become safer andremain sustainable, read the account of four ASHCAmembers in the Journal of Agromedicine. Visit:http://bit.ly/RHyCAF or http://www.tandfonline.com/toc/wagr20/17/4. n

A

In a typical year,about 500 workersdie whi le doing

farm work.

Features

Rural Cooperatives / January/February 2013 3

Volume 80, Number 1January/February 2013

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

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

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

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

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

Tom Vilsack, Secretary of Agriculture

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. 10

04 Creating a safety culture Garden City Co-op tragedy underscores need for co-ops to make employee safety priority No. 1

07 Here today, here tomorrowAlabama co-op helps limited-resource growers process and market produceBy Fay Garner

10 Rocky Ford Renaissance Colorado cantaloupe growers rebound after crisisBy Lee Recca

14 USDA-supported programs help Mali farmers adapt in hard times By David Taylor

17 Bio-energy impact, base capital financing among topics at Farmer Co-op ConferenceBy Bruce J. Reynolds

22 Antitrust challenges facing farmers and their cooperativesBy Marlis Carson and Donald Frederick

28 Co-op conversions help bring security to manufactured housing ownersBy Steve Varnum

32 The Co-op Nature of (the Affordable Care Act) CO-OPsBy Charles Ling

36 Most Co-op Network members say 2012 was a solid economic year By Mary Erickson

Departments02 COMMENTARY

38 NEWSLINE

p. 14

ON THE COVER: On the cover: Although their cantaloupes were notthe cause, a food poisoning outbreak in 2011 badly hurt producers in theRocky Ford area of southeastern Colorado, including the Hirakata family(pictured here). Under the umbrella of the Rocky Ford GrowersAssociation (RFGA), growers bounced back in 2012 with a marketingcampaign that helped restore consumer faith in their product. Photo byDave Klein, courtesy RFGA

p. 28

Editor’s note: This article was provided by the University ofMinnesota, with additions by Rural Cooperatives staff.

wayne Seifried was the type of employee anyco-op manager or director would love tohave on staff. Well known as a “go getter”and a “workaholic,” co-workers and memberssay Seifried would always go the extra mile to

get a job done right because he was so totally committed toserving the farmer-members of Garden City Cooperative insouthwest Kansas. Many of those members were also hislifelong friends who he knew counted on the co-op as acritical part of their success.

When the co-op decided to form a safety committee, itcame as no surprise that Seifried, one of its longest-tenuredemployees, was named as its chairman. Agriculture is one of


Garden City Co-op tragedy underscores needfor ag co-ops to make employee safety priority No. 1

D

A deep reservoir of grain can act like quicksand, quickly pulling a person under and causingsuffocation. Here, workers learn rescue techniques at a CHS Inc. river terminal near Kennewick,

Wash. Photo by David Lundquist, courtesy CHS Inc.

Creating a safety culture


the world’s most dangerous professions, which also presentshazards for the men and women who provide goods andservices to farmers and ranchers. There are huge pressures toget work done as expeditiously as possible in agriculture. Sowhen machines break down, grain binsclog or inclement weather is approaching,all too often safety corners are cut.Even a knowledgeable, veteran hand like59-year-old Seifried — whose meticulousattention to detail and understanding ofsafety procedures earned him theleadership role on the co-op’s safetycommittee — can sometimes drop his orher guard when the pressure is on. It onlytakes one such slip to end in tragedy.

That’s what happened in November2009 when Seifried entered a grain bin tobreak up some clogged milo. Although hewas wearing a safety harness, he did not“rope off” from above, which is vital tosaving the life of a worker who gets pulledunder in a grain silo or bin. This provedto be a fatal error. By the time the rescueteam pulled Seifried out, it was too late torevive him.

Seifried’s death rocked the communityand the entire co-op, where he knew andworked with virtually every employee. Hisstory is told in a 25-minute video,“Roberta’s Request,” which should bemandatory viewing for all co-op managers, employees anddirectors, says Michael Boland, Koller professor and directorat the University of Minnesota Food Industry Center. Bolandis now leading an effort to get more co-ops to promoteemployee safety. The video is posted on YouTube at:http://www.youtube.com/watch?v= kRhk2lougPw.

Ramping up safety programsIronically, safety issues often intensify when employees

become comfortable in their work environment and developa false sense of security, feeling that they know the threatsand how to deal with them. Add to that the frequent pressureof needing to get work done as soon as possible, and youhave an environment where safety corners sometimes get cut.Saving a few seconds by letting a safety step slide can cost anemployee an arm, a leg or even their life, the video stresses.

The antidote to such tendencies is for co-ops to build aculture of safety in which managers, supervisors, directorsand all employees understand that safety is always the firstpriority — one that never takes a back seat to any “rush”assignment. At Garden City Co-op, people were promoted

into new positions to supervise and emphasize safety.“The story we have of the tragedy here at Garden City

Co-op has to do with an incident that happened in a grainelevator by an employee taking a short cut and getting into a

bin that he should have never gotteninto,” John McClelland, general managerof Garden City Cooperative, says in thevideo. “The message, though, is notabout a grain elevator vs. anything elsethat we do. The message is that peoplemake bad decisions in surroundings thatthey feel comfortable in when they areunder pressure. It’s kind of counter-intuitive, but the better you train, themore comfortable your people feel, andthe more likely it is for them to make abad decision.

“So, along with the training andprocedures, you have to make sure there isa culture and commitment behind thescenes,” McClelland continues. “Thatculture and commitment extends, beyondwhat happened to us with a bin entryfatality, to every part of our operation. Soour story isn’t a grain elevator story or abin entry story; it’s about one of the besttrained people we had on staff who gotlost in the moment and took someshortcuts that ultimately cost him his life.That can happen if you are working in a

cotton gin in south Texas, or a potato farm in NorthDakota.”

Goal: Outcomes-based culture “Moving from a compliance culture to an outcomes-based

culture is where we want to be in our regulatoryenvironment,” Boland stresses. “Building a safety culture isan important link in an outcome-based culture.”

Todd Ludwig, CEO of Watowan Farm Services (WFS) inTruman, Minn., spoke at the 2012 Farmer Cooperativesconference in Minneapolis, Minn., in November about aprogram his cooperative — and some other local co-ops —are participating in through the University of Minnesota.“We decided that more education on employee safety had tobe pushed throughout the organization,” Ludwig said.

“This partnership with the University of Minnesota andDuPont made this attractive to us,” added Mike Trosen,CEO of Country Pride Cooperative in Winner, S.D., whowas in the audience. “We had recently hired Tom Malek assafety director, and this was beneficial for him.”

“If someone had told me in February 2011 [prior to a

Learning the ropes: a safety trainingsession at United Farmers Cooperative(UFC) near York, Neb. Photo courtesy UFC

The annual costof farm work accidents

exceeds $4 bi l l ion.


CEO Roundtable in March of that year, see below] that Iwould be working with this group — and that one of mydoctoral students would be doing research on this topic, Iwould have not believed it,” Boland says. “It was totally offmy radar screen. What made this program special for me arethe people and cooperatives in this safety educationprogram.”

Graduate student Corey Risch has worked on the projectas part of her dissertation. “CHS recently funded a graduatestudent fellowship at several universities, including theUniversity of Minnesota,” Boland continues. “We receivedmatching funds for the fellowship, and the first studentfunded happened to be Corey. She decided to take thisproject on as part of her dissertation. It has been a goodprogram for the university, a good program for mydepartment and graduate students — and a good program forme, personally and professionally.”

CEO Roundtable sparks interest The University of Minnesota safety program had its roots

in a March 2011 CEO Roundtable, sponsored by CoBankand Kansas State University, with cooperation from theUniversity of Minnesota.

“My CEO went to the conference and came back talkingabout a presentation by DuPont and Cargill on safetyculture,” says Phil Pelc, safety and compliance director atUnited Farmers Cooperative, in York, Neb. “He said MichaelBoland from the University of Minnesota was going to try to

work out a program with DuPont that would be accessible tolocal cooperatives and asked if I was interested. I saiddefinitely yes.”

David Edwards, safety director at Farmway Co-op inBeloit, Kan., adds, “My CEO was at that same workshop andcame back saying, ‘We need to do this.’ It sounded like anexcellent opportunity to me.”

Ultimately, 11 cooperatives agreed to be assessed usingDuPont’s program. The initial assessment used a 24-questionsurvey designed to obtain feedback from employees aboutsafety processes, structure and similar activities correlatedwith safety culture. More than 4,500 senior managers, linemanagers and employees from the 11 cooperativesparticipated in the survey in the summer and fall of 2011.

“The results from the initial assessment revealed that therewas a lot of room for improvement in building safetyculture,” notes Boland. “We worked with DuPont to createan educational program for these cooperatives.”

“I did not know anything about this program,” says RyanArmbuster, safety director at Cooperative Elevator, Pigeon,Mich. “My CEO saw the initial assessment from DuPont,and we knew we needed to do better.”

“We had recently gone through a merger, and it was clearfrom the data that we had not yet merged our safety cultureto have one Trupointe safety culture,” says Brian Manges,safety and risk coordinator at Trupointe Cooperative inPiqua, Ohio. Ryan Janssen, the safety director at KeyCooperative in Roland, Iowa, adds, “We had also gonethrough a merger that essentially doubled us in size. We hadto take our safety culture into account.”

Workshops hone in on key topics

Over the next year, a series of workshops were held inOmaha, Neb., Kansas City, Mo., and Fort Wayne, Ind., ontopics such as incident investigation, safety observations,safety committee structure, leadership and other topicsrelated to safety. Participants included safety directors foreach cooperative and a senior line manager.

Doran Burmood and Mark Hueftle, safety directors at CPI(Cooperative Producers Inc.) in Hastings, Neb., notes thattheir co-op operates 38 locations, including agronomy,energy, feed and grain facilities. “But we also own a pizzaparlor, a tire store, a Midas dealership, and conveniencestores,” says Burmood. “Our employees are all over the boardwith regard to tenure and knowledge of safety as applied totheir own location. This is a challenge.”

“We had been doing incidence investigations and otherthings,” says Joe Toporcer, safety director for Agland Co-op,Canfield, Ohio. “But we really had no protocols for safetyobservations. The role playing we did at our workshopshelped us a lot.”

Thatcher Block of Innovative Ag Services in Monticello,Iowa, says, “We have learned a lot. I was hired as safety and

Stepping or falling into a loaded grain truck can also be deadly foremployees, hence, this safety training exercise in Kennewick, Wash.Photo by David Lundquist, courtesy CHS Inc.

continued on page 42


By Fay Garner, Public Affairs SpecialistAlabama State OfficeUSDA Natural Resources ConservationService

n 2006, Al Hooks’“Pick Today, UseToday” philosophy ofmarketing more thanmet his planting and

harvesting needs. Fast forward six yearsand you will see a completely differentoperation.

Today, Hooks and the othermembers of his small farmers co-op areparticipating in Alabama’s “Buy Fresh,Buy Local” campaign and USDA’s“Know Your Farmer, Know Your Food”effort. They regularly supply freshvegetables to restaurants, grocery storesand farmer’s markets in and aroundMacon County and as far away asBirmingham.

Hooks, who farms near Milstead,Ala., formed Al Hooks Produce in2002, which today is a small marketing

co-op that includes his son, Demetrius,and three other local growers.

In the summer of 2010, Al HooksProduce joined the Tuskegee UniversityFarmers’ Cooperative and is nowsupplying fresh produce to Walmart,the largest grocery retailer in theUnited States, among other buyers.

“When I started in the producebusiness, I had a vision,” Hooksexplains. “I did not want something thatwould be here today and gonetomorrow.” His ownership of about 45

Here today, here tomorrow

I

Alabama co-op helps limited-resource growers process and market produce

Al and Demetrius Hooks host field days to share success stories with others interested in expanding their smallfarming businesses. Photos by Fay Garner, Courtesy USDA Natural Resources Conservation Service


acres of fertile land and his love forfarming fueled his vision of expandingthe operation to grow more produceand to have a place to convenientlyprocess the crops for market.

The co-op pools produce — mostlypeas, cabbage and greens, includingcollards and turnip greens — from thefour farms for distribution torestaurants, grocery stores and nearbyfarmer’s markets after it is washed andpackaged in Hooks’ processing facility.

USDA provides key assistance Use of modern farming technologies

is helping to greatly expand hisproduction. USDA’s Natural ResourcesConservation Service (NRCS) helpedHooks install a micro-irrigation systemthat delivers water and nutrients inprecise amounts directly to plant roots.He also constructed a hoop house thatallows crops to be started earlier in thespring and harvested later.

Hoop houses are easy and fairlycheap to build, simply consisting of ametal frame wrapped in plastic. Hoophouses extend the growing season intothe cold months, helping to increaseproductivity. They keep plants at asteady temperature and conserve waterand energy. Hooks has been so pleasedwith his hoop house that he plans toexpand with two more.

Hooks has also participated in ademonstration project with the Mid-South Resource Conservation andDevelopment Council using“plasticulture” — the practice ofcovering crop rows with sheets ofplastic to help regulate soiltemperature, slow loss of water fromevaporation and reduce soil erosion.

The system worked so well for himthat Hooks has expanded his acreage inthe program. Both plastic and drip tapeare installed at the same time using aspecial implement pulled by a tractor.

Hooks warns that using plastic isvery expensive and farmers need to beselective regarding which crops andland to use it for in order to ensure thatthere is a net gain going back into theoperation.

Al Hooks Produce has beensupplying the Kellogg Center inTuskegee with fresh produce for aboutfour years and also delivers to theWhole Food Market in Birmingham.The members supply Jim ‘n Nick’s Bar-B-Q in Prattville with cut greens andplan to provide peas, okra and othervegetables in the summer. They alsosupply produce for special events. Oneof the newest contracts is with EmbassySuites in downtown Montgomery.

Local farmers’ markets, including theTuskegee Farmer’s Market and theValleydale Farmer’s Market inBirmingham, are also a big part of theco-op’s marketing strategy. Hookssometimes works with as many as ninefarmers’ markets per week during thesummer.

Processing facility built The increase in demand allowed

Hooks to build a produce processingfacility. “I wanted to do somethingbeneficial for my family, as well as forthe community and the people whowant to be a part of it,” Hooks says. “Atthe same time, I wanted to do it in theright way. My vision was to build anapproved facility where we can processthe crops ourselves for a variety ofmarkets.”

To aid in this part of his plan, Hooksresearched the type, size, regulationsand available financing for such afacility. After deciding on a design, heturned to USDA’s Farm Service Agency(FSA) for financing. (Editor’s note:USDA Rural Development also hasprograms, including the Value-AddedProducer Grant program, which can helpbuild such facilities. For more information,visit www.rurdev.gov).

“There was a real need for this typeof facility,” FSA State ExecutiveDirector Daniel Robinson said during arecent tour of the farm. “There is

Demetrius Hooks, left, works with his father, Al Hooks, to sell produce to larger markets, such as Walmart.


always a demand for fresh products,whether they are chopped greens orsome other vegetable. We envision thatthis facility is going to increase hisacreage and allow more rural farmers toget involved.”

When the word spread about hisprocessing facilities, Hooks realizedthere were other producers who did nothave the funds to even rent a building,much less build one. He discussed thesituation with the other co-opmembers, and they decided to allowothers to use the building.

Inside the processing facility, a coolerholds the cut and packaged cabbage,collards and other items for restaurants,which want different types of cuts,ranging from strips to squares. “We do

not machine cut our greens. I hand-cutevery pound of greens shipped,sometimes 300-400 pounds a week,”Hooks says.

Supplying WalmartIn October 2010, Walmart started

the Heritage Agriculture Project to helplimited-resource farmers expand

markets and earn more income for theirproduce. In turn, Walmart benefitsfrom having fresh, locally-grownproduce to stock the shelves of itsgrocery stores.

The Alabama Small Farm RuralEconomic Development Center atTuskegee University has contractedwith Walmart for local growers tosupply two Alabama distribution centerswith seasonal produce.

In July 2011, Al Hooks Producestarted selling peas and greens toWalmart through the center. The pick-up and delivery process is convenientfor both parties. Walmart trucks pick upthe produce — as little as one pallet —and transport it to their distributioncenters.

Hooks’ son, Demetrius, a graduateof Auburn University in Montgomery,Ala., has been working full-time withhis dad for two years. Demetrius is incharge of marketing and publicrelations and helps with all otheraspects of the business. As a graphicdesigner (a field he worked in for 12years before going to work with his

father), Demetrius is instrumental indesigning logos, labels and packagingfor the business. He also works tosecure new agreements to supply freshvegetables to area restaurants and othercustomers

“When we first started withWalmart, it had never bought greens orshelled peas from small farmers in thisarea,” Demetrius says, adding that theco-op’s products are entirely local. “Weeven created the clam-shell plasticcontainer that holds the peas.”

NRCS State ConservationistWilliam Puckett sees great potential tospread this business model. As he putsit: “Al Hooks Produce is a primeexample of how limited-resourcefarmers can help meet larger demands

for fresh produce.”And in the true cooperative spirit of

co-ops helping other co-ops and theircommunities, Hooks and his son hostfield days on their farm to share theirstory with others interested inexpanding small farming businesses. n

The Hooks family uses plasticulture and micro-irrigation to improve productivity. The latter helps target nutrients and water directly to the roots of the plants.

here are no bettercantaloupes than thosegrown around RockyFord, in southeasternColorado, most

consumers in Colorado andsurrounding states will tell you. Theysay the melons are well worth waitingfor until they ripen, typically in August.

But the 2011 season was a departurefrom the 125-plus seasons during whichthis venerable brand has beenmarketed.

A cantaloupe Listeria bacteria crisisin 2011 was traced to a single grower insoutheastern Colorado, 90 miles fromRocky Ford, who allegedly transportedmelons in contaminated trucks without


Rocky Ford Renaissance Colorado cantaloupe growers rebound after crisis

By Lee Recca

Editor’s note: The author is acommunicator based in Denver,Colo., who has worked for SunkistGrowers, CoBank and the RockyMountain Farmers Union.

T


chilling. But some news mediainaccurately attributed the problem tothe Rocky Ford growing region, whichdevastated the Rocky Ford Cantaloupebrand that year.

Consumer and retail confidenceneeded to be restored quickly as the2012 season approached.

Michael Hirakata, the lead packer

and head of the Rocky Ford GrowersAssociation, recounted the way theassociation was conceived. “Thegrowers came together to brainstormideas to rebuild our name. We justwanted to get the complete story outabout what we had done in the past andthe steps we were taking for the future,without pointing fingers. We wanted to

tell our side of the story — thatgrowing Rocky Ford cantaloupe is notjust a job, it’s our livelihood.”

The growers had lots of help,including guidance from the ColoradoDepartment of Agriculture and theProduce Marketing Association,Hirakata says.

Growers invest in new packing shed

Even though the Rocky Fordcantaloupe has earned a reputation forsafety and quality, the Rocky FordGrowers Association (RFGA), formedin November 2011, decided to invest$800,000 in a new packing shed withthe latest equipment for washing,storing and packing.

With help from Colorado StateUniversity, RFGA researched bestpractices in cantaloupe washingtechniques. It developed safetyprotocols to upgrade all operations andhired a safety manager and asafety/quality tracking company. Arequest was made to USDA to performannounced and unannounced audits.Michael Bartolo, who heads the RockyFord Research station, providedexpertise.

To get the word out, the associationhired a marketing and public relationsagency, BrandWerks+Mulligan, todevelop and carry out branding,advertising, media relations, events andsocial media campaigns, all underRFGA supervision. As the melonsripened in the field, the growers filmedand appeared in commercials thatappeared just a week or so before the

The Michael and Glenn Hirakata families arekey players in the Rocky Ford GrowersAssociation, which has helped areacantaloupe growers bounce back from a crisisin 2011, caused by a food poisoning outbreakmore than 90 miles away from their farms.Photo by Dave Klein, courtesy RFGA


crops rolled into markets, buildingexcitement.

The Rocky Ford Cantaloupe andRocky Ford Growers Association nameswere trademarked, and the growingregion was defined as Otero andCrowley Counties, south of theColorado Canal.

Bar code-branded stickers weredeveloped for all cantaloupe producedby Hirakata Farms, giving the ability totrace a melon back to the field where itwas grown. All growers were requiredto register with USDA’s Farm ServiceAgency (FSA) and obtain current GAP(Good Agricultural Practices)certification or Global GAP training.

Growers accompany melons to market

Friday, July 13, was a lucky day forRFGA, as the new crop rolled intostores a couple of weeks early. Growerswent with the melons, standing in theproduce department of a King Soopers(one of Colorado’s major supermarketchains) to field reporters’ questions.

Local news outlets in Coloradoenthusiastically covered the story, whichwas picked up by news outletsthroughout the United States. A weeklater, a packing shed tour was equallywell covered in the press. A cook-offfeaturing four of Denver’s hottest chefs

and judged by local media stars broughteven more attention to all the socialnetworks and conventional media.

Appearances around the Rocky Fordarea by Colorado U.S. Senator MichaelBennett, state AgricultureCommissioner John Salazar andGovernor John Hickenlooper added to

the “pizazz.” The events culminated innational media coverage about therebound of Rocky Ford cantaloupe,including an article in the San FranciscoChronicle.

The public relations effort wasspearheaded by Diane Mulligan ofBrandWerks+Mulligan. The agencymonitored national news carefullythroughout the season, prepared for anyquality problems that might crop up.

RFGA was rewarded for its proactiveapproach: when Listeria outbreaksoccurred in other states, the mediacalled RFGA for backgroundinformation, which was freely given,along with a reminder of Rocky Ford’sreputation and recent upgrades.

“This was really the first time thatthe Department became this involved tohelp support a specific segment ofColorado’s ag industry,” says TomLipetzky, Markets Division director forthe Colorado Department ofAgriculture. “But we really felt it wasnecessary because of the high visibility

of Rocky Ford cantaloupe amongconsumers and the potential impact toother Colorado fruits and vegetables.

“Rocky Ford cantaloupes, along withOlathe sweet corn and Palisade peaches,have been one of the products that havehelped define the image of Coloradoproduce for many Coloradoans — we

couldn't just sit by and watchColorado's cantaloupeindustry disappear,” Lipsetzkycontinues. “We knew a broadcommunications effort torestore consumer confidenceand promote Rocky Fordcantaloupe was going to becritical.”

“We were really pleasedwith the way the growerscame together to form anassociation and with all theirefforts to implement measuresaimed at increasing foodsafety,” Lipetzky says. “Theydid an excellent job anddemonstrated to consumersthat they are committed to

producing a high-quality and safeproduct.”

Enduring commitment to growers’ brand

Generations of growers since 1887have dedicated themselves to RockyFord and growing this special melon.Their enduring commitment, often inthe face of adversity, is the “face”behind the brand.

Marketing materials, includingtelevision and radio commercials,billboards, posters and advertisingbrought it all home for consumers: theface of the growers, the heritage andthe simple pleasure of biting into asweet juicy melon that brings a smile toyour face.

Stories about the comeback of theRocky Ford brand appeared ontelevision, radio and in newspapers andmagazines throughout the state.Exceptional relationships with themedia led to balanced reporting, evenwhen Listeria concerns cropped up in

Billboards and ads played a key part in the association’s marketing campaign.


other states. Rocky Ford kept itsunblemished reputation for safetythroughout the 2012 season, selling outits crop early and earning a premiumprice for its growers.

What accounts for the amazingrebound of the 2012 season?“Everything fell into place,” saysHirakata. “It took everybody pullingtogether: the state of Colorado,Colorado State University, the growers.And we had outstanding support fromretailers, the media and the consumers.The media reporters were a great help.They were there from Day One helpingus tell our story.” There was also alively social media presence includingsites on Pinterest, Facebook, Twitter,YouTube, and a web site that is stillgoing strong off-season.

What experience taught them

Hirakata’s advice to othercooperatives and associations facingsimilar challenges is: “Don’t wait untilsomething happens. We were caughtcompletely off guard. Plan for the worstand hope for the best.”

Added Lipetzky, “Be ever vigilant inensuring food safety and proactive intelling your story to consumers and thepublic. By doing so, should an issueever arise, you will have alreadyestablished appropriate channels forcommunications and are more likely tobe viewed as credible in how you aredealing with the issue.”

“The 2012 season, while quitesuccessful by all measures, marked onlythe early stages of a recovery for

Colorado’s cantaloupe industry,” saysLipetzky. “Support from the retailerswas key to getting cantaloupe back infront of consumers in 2012, and theircontinued support will be critical tofurther expanding production and salesin 2013.”

Although the future depends, asalways, on growing conditions, Hirakatavowed that RFGA would keep movingforward, expanding the cantaloupemarket while maintaining vigilance onquality and safety. Plans are being madefor other melons to join the famousRocky Ford cantaloupe and brandextensions are being conceived that willuse the seconds (melons with surfaceimperfections) in processed products,giving growers and consumers more ofthe sweet, juicy Rocky Ford goodness. n

TV news reporters interview cantaloupe growers in a Kings Soopers grocery store in Denver as part of a marketing campaign to spread the word about the wholesomeness of their fruit.


By David TaylorCommunications Officer, Aga Khan Foundation U.S.A.

Editor’s note: This article is providedcourtesy of the Aga Khan FoundationU.S.A. It was written prior to the upsurgein fighting in mid-January.

n the day beforeThanksgiving, MaryBeth Leonard, the U.S.ambassador to Mali,took a trip to see how

the farm families and growercooperatives of Mopti, eight hoursnortheast of Bamako, the capital, arecoping in the challenging conditions ofthis west African nation.

Making a living by farming is nevereasy, but if you want a real test, try it inMali. The landlocked country on theedge of the Sahara Desert ranks just 12rungs up from the bottom of 187countries listed on the 2011 HumanDevelopment Index by the UnitedNations Development Program. Onechild in three here suffers from chronicmalnutrition. In the past year, a foodsecurity crisis, caused by erratic rainfalland spikes in food prices, has furtherhurt Mali’s farm families.

Following a coup in March 2012,conditions got worse. Rebel andIslamist groups took control ofnorthern Mali, claiming independencefor an area covering roughly two-thirdsof Mali’s land area. More than 300,000

people fled northern Mali in the face ofethnic and religious persecution andhuman rights violations. Manydisplaced people sought refuge in theMopti region, pushing that area’s fragilelimits.

Residents of the Mopti region facean unpredictable climate, poor access tomarkets and harsh seasons of foodinsecurity. Nearly 79 percent of themlive in extreme poverty. So AmbassadorLeonard was visiting families tested by adouble whammy of a food crisis andcivil unrest.

She found glimmers of hope. In asituation that requires a multi-prongedresponse involving health, educationand livelihood training, USDA and itspartners are giving Malians a chance

O

USDA-supported programs helpMali farmers adapt in hard times


through better skills and opportunities.

Season trainingOn Nov. 21, Ambassador Leonard

got a close-up look at programs thatprovide crucial help to farmer co-opsand other groups, including severalmanaged by the Aga Khan FoundationU.S.A. (AKF USA), which has longsupported farm training and livelihoodsin Mopti. Its programs ensure that farmfamilies have the materials and skills foroff-season agriculture, while buildingtheir resilience against future crises.

With funding from USDA, AKF hasalso scaled up efforts to prevent andtreat child malnutrition throughsupport of school-feeding programs, byeducating parents about nutrition and

by training community health workers.With the threat of political unrest andfood insecurity, new funding fromUSDA and the U.S. Agency forInternational Development is helpingto respond to the area’s most urgentneeds.

The ambassador’s convoy visited thevillage of Soufouroulaye, where anAKF-managed farmer field schoolbrings together women who growmillet, sorghum and cowpeas. Farmerfield schools are essentially schoolswithout walls, where farmers learn fromeach other through hands-onexperience in their own fields and findanswers to shared problems themselves.

The USDA grant helps nearly24,000 farmers of rice, millet and

sorghum (and 4,000 cowpea producers)address shared problems and improvefood security during the “hungryseason,” before harvest. During amorning meeting, they discussed howintercropping cowpeas with millet andsorghum improves soil fertility andboosts yields for millet and sorghum.

Next stop: a livestock group in thesame village where women who breedlivestock were gaining field-basedinstruction on how to best fatten theiranimals when feed is scarce. The areahas 14 such women farmer groups.

“It really is wonderful to come on atrip like this and see what this meansfor people,” Ambassador Leonard saidin an interview with Catholic ReliefServices.

Facing page: The marketplace in Djenné, in the Mopti Region of Mali, features many items from farmer cooperatives. Photo byLucas Cuervo Moura, courtesy Aga Khan Foundation. Ambassador Mary Beth Leonard (below) greets participants in a farmer fieldschool who are learning ways to improve their yields of rice, millet and sorghum. Photo by Duden Yegenoglu


At the village of Sevare, she stoppedto visit rice farmers who receivedmarket development training, fundedby a USDA Food for Progress grant.The training helps them diversify theirproduction and increase farm revenues.The training, organized byACDI/VOCA, improves the ability offarmer co-ops and groups to get ahigher value from their crops andimprove their processes for marketing.

Making a business of farmingAs the ambassador looked on,

farmers learned how to deal withmarketing obstacles and howcooperatives can pool their members’production to grow economies of scale.

The USDA grant helps 20cooperatives provide market guidanceto their members. Through this, 5,000farmers around Mopti substantiallyboost their income from millet,sorghum, rice and vegetables.

AKF instructors also teach anotherpopular course, Farming as a Business,which features value-chain analysis,business planning and how to establisheconomic interest groups.

Making for healthier kidsBefore leaving Soufouroulaye,

Ambassador Leonard spoke withwomen growers who met toimprove their vegetable productionand marketing, which in turn helpstheir family’s nutrition and foodsecurity. Bintou Toulema, a 35-year-old local farmer with a son anda half dozen other family memberswho depend on her, spoke a fewmonths before about how thetraining and support helped herfamily.

“The training is a good thing,”Toulema said, noting that theprogram also helped provide thegroup garden with a well andprotective fences. But the mainthing, she said, is that “we can buildon the training.” She now earnstwice as much from the group’svegetable garden as she madeduring previous seasons from otherwork.

“There’s a marked improvement inmy income. The increase let me buytwo small goats this year and start otherventures like trading in rice.”

The program also supports schoolingfor children displaced by the unrestfurther north, providing school suppliesfor displaced children and theirteachers. It also supplies health suppliesfor the students (such as mosquito netsto protect against malaria) and theirclassrooms (such as disinfectant).

“I think this is a positive story,” saidSteve Mason, CEO for AKF Mali.“AKF is committed to improvingpeople’s quality of life in MoptiRegion.”

Mason added that AKF’s approach toreducing rural poverty, known as Multi-Input Area Development, weavestogether basic education with healthand livelihood programs. The women’sfarmer groups build fundamentalliteracy skills through more than twodozen mini-libraries and classesassociated with the groups. The mini-libraries get most use between July andOctober, before the rainy season, whenmost people work the crops.

“In spite of the painful events, AgaKhan Foundation is one of the fewnon-governmental structures that isworking with rural populations on theground,” Levy Dougnan, a reporterwith Radio Jamana Djenne, wrote in anarticle in Les Echos, a French-languagenewspaper published in Bamako.

New types of financing for farm groups

In her last visit of the day, theambassador stopped at the Sevare officeof Premiere Agence de Microfinance(PAMF), an agency of the Aga KhanDevelopment Network. Through theUSDA grant, PAMF improves access tofinancial services that smallholderfarmers would not otherwise get. PAMFmakes loans to farmers trained in theAKF field workshops so that they canobtain (for example) irrigation wells forvegetable growing, equipment and post-harvest financing.

Three-quarters of the loans aregroup loans for farming and livestockenterprises, many of them run bywomen. PAMF has tested new types ofloans with these groups, including

“inventory credit group” loans. Forthese loans, cooperatives trained inpost-harvest techniques can storetheir harvest securely and eachmember receives credit accordingto his or her portion. This allowsfarmers to save their harvest to selllater when they can get a higherprice.

Ambassador Leonard returnedto the capital impressed. “Theassistance that the internationalcommunity gave did actually helpthese people to come through thisperiod, and so now we can lookforward hopefully to a brighterfuture,” she told CRS. Back inBamako, she looked forward “tosupporting the resilience, so thatthere’s better agriculturalproduction and so they’re betterequipped to deal with suchchallenges in the future.”

As the next day dawned, thefarmers of Mopti were back atwork. n

Women vegetable growers in Mopti have receivedtraining in better production techniques and marketinformation, with USDA support. Photo by Lucas CuervoMoura, courtesy Aga Khan Foundation

By Bruce J. Reynolds, Ag EconomistCooperative ProgramsUSDA Rural Development [email protected]

he annual Farmer Cooperative Conference,organized by the University of WisconsinCenter for Cooperatives (UWCC), providesa forum for keeping up to date on majoreconomic and cooperative trends. The 15th

annual conference was held in Minneapolis Nov. 8-9. Thelongevity of the event indicates a continuing interest infarmer cooperative practices and developments.

Previous conferences focused on specific topics, such asrisk management, governance and finance. This year’sconference, “Leading Change: Envisioning the Future,” tookon a range of critical topics, reflecting the complexinteractions of issues in today’s economy. As in previousyears, UWCC has posted conference proceedings on its webpages: www.uwcc.wisc.edu/outreach/FCC/Current/program.html.

The conference, which opened two days after election-day,featured appearances by two prominent national farm leaders:Chuck Conner, president of the National Council of FarmerCooperatives and a former U.S. deputy secretary ofagriculture, and Dan Glickman, former congressman andU.S. secretary of agriculture. Both added insights on thepolitical landscape in the wake of the election and what itmight mean for farmers.

Other conference highlights are described below.

Bio-energy growth foreseenBio-energy has contributed to the income of U.S. grain

farmers in recent years and is an important factor in thedevelopment of a new farm bill. Gary Haer, a vice presidentwith the Renewable Energy Group, predicted continuedgrowth in bio-energy.

Glickman and other panelists shared the view that bio-energy is reducing agriculture’s reliance on USDA’scommodity support programs. Yet, farm income from bio-energy also increases the need for risk management.Specifically, the recent expansion in U.S. petroleum andnatural gas was not generally predicted three or four yearsago.

The shift of the United States from being a majorimporter of energy to a significant producer of energy willinvolve adjustments in the marketing of bio-energy.

Government policy was also discussed as it pertains toanti-trust and farmer cooperatives. Michael Lindsay, partnerin Dorsey & Whitney in Minneapolis, gave an overview ofrecent court decisions that pose a potential threat tomaintaining the limited exemptions from anti-trust, aslegislated in the Capper-Volstead Act of 1922.

A series of recent challenges have centered on fine pointsof the law as applied in cases where a non-farmer-ownedbusiness participates in market supply with cooperatives(mushrooms), use of product certifications (eggs) and pre-


Bio-energy impact, base capital financingamong topics at Farmer Co-op Conference

T

Several panelists shared the view that development of bio-energy (such as this ethanol plant) is reducing agriculture’s reliance on commodity support programs.


production coordination (potatoes). Editor’s note: for more onthis topic, see page 22.

Transitioning to base capital plansWays to improve cooperative operations is always a topic

of great interest at such gatherings. Financial experts have formany years recommended cooperatives convert fromdiscretionary equity redemption programs to base capitalplans, yet the majority of co-ops have not made the change.

Two managers discussed the transition of theircooperatives to base capital plans. Foremost Farms USA hasrecently had a surge in member turnover as older farmershave retired. Michael Doyle, Foremost’s vice president forfinance, emphasized the importance of placing ownership andfinancing into the hands of current members, in proportionto their use.

MGB Marketing is another cooperative that transitionedfrom a traditional equity revolving program to a base capitalplan. As an international marketer for U.S. blueberrygrowers, MGB has adopted aspects of new-generationcooperatives, such as member delivery rights, but it has keptthe traditional practice of one member, one vote.

Lorrie Merker, director of grower and industry relationsfor MGB, pointed out the importance of member financingfor the co-op with its value-added marketing and frozenblueberry operations. It participates in several joint ventures,including fresh blueberrymarketing with Chileangrowers. This affords mutualgains from seasonalitydifferences in the twohemispheres. As often happens,however, international partnerscan also become competitors, asoccurs with Chile when itmarkets frozen blueberries.

A “best practice” that has notoften been discussed is thebuilding of a safety culture incooperatives for the benefit ofemployees and members. Theprograms that severalcooperatives are implementingwere described by MichaelBoland of the University ofMinnesota and Todd Ludwig, President/CEO of WFS(Working for Farmers’ Success) Cooperative. The distinctiveidea is to make safety more than a set of procedures, but alsoa cultural change where employees and members are allinvolved in finding safer and better ways to operate acooperative (see page 4 of this issue for more on this effort).

Ove Hansen and Quintin Fox of Gay Lea Foods gave apresentation on developing member leadership. Theircooperative has an extensive director and delegate educationprogram. In addition to pursuing best practices of

governance, the Gay Lea Foods directors are closely involvedwith an ongoing dialogue with management on strategicdirections. Their process of both development andengagement of the board is an excellent model for manycooperatives to review.

International reach of co-opsMany U.S. cooperatives are involved with both exporting

and with projects to improve agricultural productivity indeveloping countries. Brett Stuart of Global AgriTrendspresented data indicating the severe pressure on the world’spoor from the impact of food price inflation, and substantialimpacts in the demand for corn and other feeds from China’sgrowing economy. Many U.S. farmers will benefit if increasesin corn and pork exports occur as predicted. U.S. farmers arealso benefiting from the involvement of their cooperatives inthe service economy of assisting foreign producers toimprove food quality and agricultural productivity.

Two cooperatives made presentations about theirinternational services and trade relations. Doug Wilson,CEO of Cooperatives Resources International (CRI), a dairygenetics, testing and livestock marketing cooperative,described its successful ventures with foreign partners,particularly cooperatives. Similar to MBG, CRI has partnerswho are also competitors, but their involvement withinternational cooperative dairy services is expanding the

global market for everyone’s benefit.Land O’Lakes has for many years

both exported products and inputs aswell as worked on dairyimprovement projects throughoutthe world. Carol Kitchen, senior vicepresident and general manager forthe co-op’s Global Ingredientsdivision, gave a presentation entitled“Linking Commercial andDevelopment Opportunities in theGlobal Marketplace.”

After she described projects inseveral continents of the world, shewas asked how helping China’s dairyindustry helps U.S. farmers.Kitchen’s answer amplified the titleof her presentation. She noted thatsomeone else will step in to improve

dairy production in China in any event. Those who will gainfuture trade and business opportunities will be the ones whowere involved in building relationships there.

Cooperative valuationValuations of cooperatives are often complex when

consideration is given to all the benefits they provide tomembers. Ways to improve the accuracy of valuations in pre-merger studies and acquisition planning was the topic of apanel discussion that included lawyers Mark Hanson of Stoel

The Farmer Cooperative Conference helps keep co-opleaders up to date on issues that are vital to producers and their co-ops.


Rives and Michael Weaver of Lindquist & Vennum, and anaccountant, Timothy Muehler of CliftonLarsonAllen LLP, allbased in Minneapolis.

About 70-80 percent of mergers fail to equal the combinedperformance of each cooperative when they were operatingseparately, it was noted. Excessive optimism in valuationsreflects a common fallibility, as witnessed by boom-bustcycles in the economy.

Pre-merger valuations ofa business often assumethat an increase in the sizeof a business will result inbetter market access, aswell as opportunities toreduce staff duplication.Such assumptions can tooeasily be made withoutthinking through theconsequences of changingthe ways these separatecooperative businessoperations evolved todevelop the distinctiveefficiencies with theresources they have.

It is unlikely anyone willever develop a fool-proofcheck-list to preventexcessive pre-merger orpre-acquisition valuations.But the panelistsrecommended a strategicapproach of identifyingspecific strengths that a merger would capture andweaknesses that would be ameliorated. Focusing on specificsources of new value is a better guide than easy assumptionsthat bigger is better.

Re-establishing a cooperative with a new value propositiondoes not happen often, so it was especially interesting tolearn about the renewal of CBH, an Australian wheat co-op,from Terry Cunningham, company secretarial servicesmanager. The gradual deregulation of its grain market over a30-year period, starting about 1980, forms the backdrop of itsstory.

Initially the cooperative operated as a grain handlingbusiness. Earnings were regulated by the Australian WheatBoard. As the market began to deregulate, the co-op lookedat various corporate forms and merger possibilities, but themembership was divided over the future direction of thebusiness.

CBH staff and directors held extensive meetings withmembers and traveled to Canada and the United States tomeet with other cooperatives, such as CHS Inc., and withuniversity economists as they studied alternativeorganizational forms. By 2009, CBH completed its

cooperative re-organization which was based on a policy ofmaximizing grain payments and reducing fees for members,without distributing patronage dividends. CBH’s earnings areentirely reinvested in its grain handling infrastructure to keepincreasing efficiency.

As background to CBH’s “no patronage dividend” policy,the Australian government had passed a tax exemption in

1972 for all earnings re-invested in graincooperatives. However, thistax plan involved a fixedpayment to growers, asdetermined by the WheatBoard, and prohibiteddistribution of dividends tocooperative members.

After deregulation, taxpolicies changed but CBHmembers chose to adhereto a “no patronagedividend” policy, insteadreinvesting all earnings inthe cooperative. This typeof policy raises enterprisevalue and the incentive tosell the cooperative.However, in the event of asale or dissolution,government taxation wouldbe sufficiently large thatlittle cash value wouldremain for its formermembers.

The value of cooperatives was a major topic of conferencesthroughout the world in 2012 as part of the InternationalYear of Cooperatives. Michael Cook, a professor at theUniversity of Missouri, pointed out some of the differencesin how U.S. and foreign co-ops create value for members. Similar to CBH, many non-U.S. cooperatives do notdistribute patron dividends. Cook pointed out that manynon-U.S. cooperative members believe that patron dividendswould diminish the solidarity of their cooperatives.

An objective of the International Year of Cooperatives wasto increase public awareness of all types of cooperatives.Much of the lack of awareness about cooperatives can beremedied with better collection of co-op data. Cook notedthe collection of U.S. cooperative data by the University ofWisconsin Center for Cooperatives (UWCC), and its report— Research on the Economic Impact of Cooperatives(http://reic.uwcc.wisc.edu/default.htm) — is helping toaddress this need. The 2013 conference will again be held inMinneapolis, with the date still to be determined. Forupdates, check the UWCC website for updates:http://www.uwcc.wisc.edu/. n

CRI representatives visit a Russian dairy farm, which participates in a dairy genetics joint venture with the U.S. co-op.

CI

Co-ops 101An Introduction to CooperativesCooperative Information Report 55

United States Department of Agriculture

Co-ops 101: An Introduction to Cooperatives (CIR 55)Probably the most-read co-op primer in the nation, this report provides a bird's-eye view of the cooperative way of organizing and operating a business. Now in an exciting newfull-color format.

Assessing Performance and Needsof Cooperativce Boards of Directors(CIR 58)This report helps directors assessa) their individual abilities and areasneeding improvement; b) how well the board performs and how it can improve;

of board meetings.

Understanding Cooperative Book-keeping and Financial Statements (CIR 57)

All co-op board members should understand bookkeeping and be able

provides the basics in bookkeeping

Directory of Farmer Cooperatives(SR-22)Contains a listing, by State, of over 1,200 farmer-owned marketing,

bargaining cooperatives. Includes each cooperative’s contact informa-tion, type of cooperative, and products sold. This directory has been updated every four years but now will be updated yearly and revised on our Web page (www.rurdev.usda.gov) whenever information in an individual listing changes.

Strategic Planning Handbook for Cooperatives (CIR-48)Presents a method for facilitating the strategic planning process. Facilities, personnel, and equipment associated with the process

strategic planning are described in detail–agreeing to plan, gather-ing facts, evaluating facts,

results. Hints for success are provided throughout.

The Circle of Responsibilities for Co-op Board Members (CIR 61)All boards of directors are under increasing pressure to perform well and justify their decisions. Cooperative boards are no exception. This series of articles, originally printed in USDA's Rural Cooperatives magazine, lays out fundamental guidelines for cooperative directors to follow.

une up T your

Co-op

Cooperative Statistics 2011 (SR 72)Want to know how your co-opmeasures up? Need to know the latest co-op production and

Annual Audits – Board Responsibilities (CIR-41)Directors, managers, and advisers of new and developing cooperatives need to be well informed about the importance of an annual audit. This publication summarizes information concerning audits and reviews of accounting systems in four areas: (1) Reasons for an audit; (2) auditor selection; (3) audit procedures and audit report; and, (4) other account-ing services.

Managing Your Cooperative’sEquity (CIR 56)Do you manage your co-op’s equity, or does it manage the co-op? Here’s

equity capital while adhering to cooperative principles.

Packages for Cooperatives (SR 36) Attracting and keeping productiveemployees is a major challenge forco-ops. Here’s a guide to buildingcompensation packages that help do that while keeping the balance sheet in the black.

Inventory Management Strategiesfor Local Supply Cooperatives(SR 41)Presents vital strategies for farmsupply cooperatives to use duringeveryday management of inventory. Can help co-op managers make better inventory management decisions by using those strategiesas part of an organized plan.

Base Capital Financing of Cooperatives (CIR 51)

Successful management of equity requires a responsive and objective capitalization program. A base capital plan is an ideal way to meet this requirement. This guide provides

capital method of capitalization, and guidelines for implementing and operating such a plan.

request copies of any of the publications on these pages. Or download them from the Web. Either way, there is no cost.

For hard copies (please indicate title, publication number and quantity needed), e-mail: [email protected], or call: (202) 720-7395. Or write: USDA Co-op Info., Stop 0705, 1400 Independence Ave., SW, Washington DC 20250. To download from the Web, visit: http://www.rurdev.usda.gov/RDPublications.html.


By Marlis Carson and Donald Frederick

Editor’s note: Carson is general counsel with the National Councilof Farmer Cooperatives in Washington, D.C. Frederick is formerprogram director, Law, Policy and Governance with CooperativePrograms of USDA Rural Development (retired).

his article reviews antitrust law as it impactsagricultural producers who market theirproducts on a cooperative basis and bringsreaders up to date on related challenges tocooperatives. The story begins with the

enactment of our nation's basic antitrust law, the ShermanAct of 1890.

The Sherman ActFor the first three quarters of the 19th Century, most

American businesses were small, organized as a soleproprietorship or a partnership of a few people, managed bytheir owners, required little capital, produced a singleproduct and served local markets.

By 1890, a new industrial structure was taking shape. Arelative handful of large corporations were gainingdominance in many key industries. In these organizations,management was separate from ownership, large amounts ofcapital were used to acquire machinery and other fixed assets,and many products were produced and sold in a national orinternational market. Farmers and their cooperatives werecaught up in this change and influenced by the public andgovernment responses to it.

Some of these large corporations were organized asbusiness trusts. Competing companies would place theirassets in a trust and the organization would be run by a boardof trustees. A backlash developed among smaller businessesthat had difficulty competing with the trusts and customers of

these trusts, and it became known as the “antitrustmovement.”

Critics of trusts gained a valuable ally in Senator JohnSherman, widely recognized as the ablest financial expert inpublic service at the time. Legislation enacted in 1890 tolimit the power of trusts is commonly known as the ShermanAct because it would not have passed without his support.

Section 1. The Sherman Act has only two brief provisions.Section 1 provides:

Every contract, combination (trust or otherwise), orconspiracy that restrains trade is illegal and

Every person who signs a contract or participates in acombination or conspiracy that restrains trade ininterstate or foreign commerce is guilty of a felony.

As written, Section 1 of the Sherman Act sets a very tightstandard. It says every contract, combination, or conspiracythat reduces competition is illegal and every person whoparticipates in such conduct is guilty of a felony.

The word “person” is highlighted because in the eyes ofthe law, every individual or entity is a “person.” A smallfamily dairy farmer is on the same footing as globalconglomerates.

So, if it is illegal under the Sherman Act for largecompanies to agree on the prices they will charge for theirproducts, it is also illegal for two family dairy farmers toagree on the prices they will charge for their products.

Section 2. Section 2 provides that every person whomonopolizes, or attempts to monopolize, or combines orconspires with any other person to monopolize any part ofinterstate or foreign commerce is guilty of a felony.

Section 2 also sets a tight standard. Not only is everyperson who monopolizes any part of commerce guilty of afelony, but so is anyone who attempts to establish a

T

Antitrust challenges facingfarmers and their cooperatives


monopoly, even if that person isn’t successful.

Rule of Reason. Early court decisions applied the ShermanAct in a literal manner, holding even modest restraints oftrade illegal.

In 1911, the Supreme Court issued a landmark decisioninterpreting the Sherman Act. In deciding that Standard Oiland American Tobacco were illegal conspiracies to restraintrade, the Supreme Court moved away from this literalreading of the Sherman Act and established the test that isstill the basic standard for applying the Sherman Act: theRule of Reason.

Under the Rule of Reason, only agreements thatunreasonably restrain trade are illegal. This is a verysubjective test that requires judges and juries to interpretoften complex facts in deciding whether certain conductviolates the Act or not.

The standard most often applied is conduct is generallyfound to be reasonable (and therefore legal) if the benefits tosociety as a whole (including the firms involved) outweigh theharm to competition. This is hardly a bright line test offeringclear guidance to businesses and their leaders trying to planfuture conduct.

Rule of Per Se Illegality. The Court also adopted acorollary rule to the Rule of Reason: the Rule of “Per Se”illegality. Under this standard, some conduct is so inherentlyunreasonable that it is illegal whenever undertaken,including:

Price fixing; Territorial allocations (as when one person, for example,agrees not to do business in Illinois if a competitor won’tdo business in Indiana);

Group boycotts (no one will sell to Joe Smith until heagrees to pay our price);

Tying arrangements (example: if you want to buy mybutter, you also have to buy my ice cream).

At the top of the list of activities that the courts have heldto be illegal “per se” is price fixing. And what do farmers dowhen they market their products on a cooperative basis?

They agree on prices and other terms of trade, “per se”violations of antitrust law.

Clayton Act, Section 6In 1914, two additional laws to curb anti-competitive

business conduct were enacted.The Federal Trade Commission Act created the Federal

Trade Commission to investigate and order an end to “unfairmethods of competition.”

The Clayton Act prohibits certain business practices whenthe effect may be to substantially lessen competition,including price discrimination among customers, tyingagreements and mergers and acquisitions.

Section 6 of the Clayton Act was the first legislativerecognition of the unique needs of farmers and theircooperatives. It states that the antitrust laws shall not forbidthe existence and operation of labor or agricultural organiza-tions without capital stock and not conducted for profit.

While Section 6 of the Clayton Act was a step in the rightdirection for farmer marketing associations, it fell short ofproviding necessary protection for a couple of reasons:

While it says producers can form co-ops, it doesn't saywhat collective conduct they can engage in;

Section 6 only protects cooperatives without capitalstock, and many marketing associations were organizedas stock-issuing companies.

Cooperatives and their supporters asserted that Section 6of the Clayton Act might be adequate for labor unions, but itwas not enough protection for producer marketingassociations.

President Herbert Hoover (seventh from left) meets with a contingent of Kansas farmers and Arthur Capper(next to Hoover, in dark coat) in December 1929.


Capper-Volstead Act In 1922, Congress responded to producer concerns by

passing the Capper-Volstead Act. While it has a technicalname, like the Sherman Act it became known by the namesof its primary supporters, Senator Arthur Capper andRepresentative Andrew Volstead.

Capper-Volstead includes co-ops that issue capital stockand goes beyond just saying qualified producer associationsare exempt. It provides a positive statement that producerscan engage in several types of collective marketing activity. Italso contains safeguards to protect the public from abusiveconduct by farmers.

Section 1. Like the Sherman Act, Capper-Volstead containstwo relatively brief provisions. Section 1 describes the scopeof the limited antitrust protection provided.

Under Section 1, persons engaged in the production ofagricultural products may:

Act together in associations, corporate or otherwise, withor without capital stock;

Collectively process, prepare for market, handle, andmarket their farm products.

Producers have a great deal of flexibility under Capper-Volstead in deciding how they will market their production.Some cooperatives, called bargaining associations, limit theiractivity to negotiating prices and other terms of the contractsthat govern the sale of their members’ products directly to buyers.

Other cooperatives, such as Land O’Lakes and OceanSpray, have integrated forward to the point that they putprocessed versions of their members’ product right on thegrocery store shelf.

There are numerous degrees of value-added activity thatfall between these two extremes. These include selling rawproduct on a collective basis and producing finished goods

for the institutional and private-label markets. All levels ofcollaborative activity are protected.

Section 1 also authorizes collaboration amongcooperatives. Such associations may:

Have marketing agencies in common (federated co-ops,LLCs, partnerships, etc.);

Enter into contracts and agreements to coordinate theircollective marketing activity.

Several court decisions have indicated that producers may,through a single cooperative or in combination with othercooperatives, obtain monopoly power if it is achievedthrough natural growth, voluntary confederations andwithout resort to abusive practices. Thus, obtaining a largemarket share does not, absent unprotected conduct,compromise Capper-Volstead’s antitrust shield.

Section 1 also provides the organizational and operationalrules co-ops must follow to be eligible for its protection.They must:

Limit membership to agricultural producers; Operate for the mutual benefit of their members asproducers (conduct not directly related to marketingagricultural products is not protected);

Either use one-member, one-vote or limit dividends onequity to 8 percent per year, and

Do a majority of their marketing for members, measuredby value.

A couple of points to remember: All voting members must be producers. Even one non-producer in the membership (especially if that non-producer happens to be a buyer or competitor) mayrevoke the antitrust protection.

The amount of non-member business permitted is quiteliberal; almost 50 percent of the products handled maybe from non-members. This allows co-ops to seize

Representative Andrew VolsteadSenator Arthur Capper


business opportunities requiring product beyond whatthe membership can produce.

Section 2. Section 2 of Capper-Volstead provides anothercheck on cooperatives. It authorizes the U.S. secretary ofagriculture to order an association that monopolizes orrestrains trade to cease any anti-competitive conduct thatunduly enhances the price of an agricultural product. If a co-op does not abide by any such order, the U.S. Department ofJustice is empowered to enforce the order.

Rationale for Capper-Volstead. From well before 1922 andcontinuing into the foreseeable future, individual farmers areat a severe disadvantage in the marketplace when dealingwith typical entities buying their products. Co-ops level theplaying field.

Some argue antitrust protection for agricultural producersis no longer justifiable. They point to some largercommercial farmers and farmer cooperatives and say theseentities shouldn’t be allowed to agree on prices and otherterms of trade.

Given the increasingly concentrated and global economy,however, large buyers are — if anything — increasing theirmarket power. They can negotiate down prices paid tofarmers, even playing farmers in one country against those inother countries that produce the same products. Cooperativeleaders thus view Capper-Volstead as being as vital toproducers today as it was at the time of enactment.

In summary. Under Capper-Volstead, producers may: Agree among themselves on the prices they will acceptfor their products and all reasonable terms of trade;

Limit their collective activity to establishing a floor priceor integrate forward throughout the food marketingchain;

Collectively market their products with producer-members of other co-ops by having the firms use acommon marketing agency, form a federatedcooperative, or simply work together to accomplish theirmarketing objectives.

Unprotected Conduct. Capper-Volstead is not applicablewhen producers engage in other collective activity. Thisdoesn’t mean such activity is illegal under the antitrust lawsbecause it is not protected by the Act. If challenged in thecourts, it will be judged under the same “rule of reason” and“rule of per se illegality” standards applied to similar conductbetween non-cooperative firms.

Conduct not protected by Capper-Volstead includes: Contracts and other agreements with persons who areneither producers nor associations of producers;

Mergers, acquisitions and other combinations with non-cooperative firms;

Actions that are “predatory” in nature (anti-competitiveand without business justification or solely aimed ateliminating competition, such as blocking the door to acompetitor’s warehouse);

“Unduly” enhancing prices. (To date, no cooperative hasbeen found to have “unduly enhanced” prices.)

Fishermen's Collective Marketing ActIn 1934, a law was enacted that provides essentially the

same antitrust protections for fishermen and theircooperatives as Capper-Volstead does for agriculturalproducers.

Section 1 authorizes fishermen to engage in collectivelycatching, producing, preparing for market, processing,handling and marketing aquatic products. It alsocontains the same organizational and operational rules assection 1 of Capper-Volstead.

Section 2 contains similar enforcement provisions asCapper-Volstead, but authority is placed with the U.S.secretary of commerce.

This law is obviously important to cooperatives thatoperate in the fishing industry. And since the laws are similarin many ways, legal interpretations of this law can be valuablein assessing how the courts will judge certain types ofconduct by agricultural cooperatives.

Current challengesThe antitrust protection accorded farmers and their

cooperatives by Capper-Volstead is seldom free frominvestigation and challenge. Next we look at a recentgovernment study that included Capper-Volstead and fourongoing civil suits that could impact the cooperative system.

Antitrust Workshops. In 2010, the U.S. Department ofJustice, Antitrust Division, and the U.S. Department ofAgriculture held five workshops around the country toexplore competition in agriculture. Arguments for andagainst Capper-Volstead as currently written and interpretedwere raised at several of these workshops.

In May 2012, the Department of Justice released a 24-page report summarizing the testimony but notrecommending any additional legislation or regulatoryoversight. However, Justice has made it clear that it willcontinue to challenge in court cooperative activity that itbelieves to be outside the protection of Capper-Volstead. Andif the courts sanction cooperative conduct that it believes isharmful to competition, it will pursue legislative changes inthe law.

Mushroom Case. We next focus on civil suits that challengeagricultural producer conduct as a violation of antitrust law.The first involves a mushroom producer cooperative.

Beginning in 2001, the Eastern Mushroom Marketing


Cooperative (“EMMC”) purchased several properties thathad been mushroom farms. EMMC then resold theproperties after placing restrictions in the deeds whichprohibited future use of the land to grow mushrooms.

The U.S. Department of Justice Antitrust Divisionnotified the co-op that it believed the deed restrictionsviolated antitrust law and were not protected by Capper-Volstead. In 2005, to avoid protracted litigation, EMMCsettled with Justice and removed the restrictions from thedeeds.

The producers hoped this would be the end of theirproblems. However, in early 2006, several firms thatpurchased mushrooms filed lawsuits against EMMC, severalmembers and several non-members in a Federal DistrictCourt in Pennsylvania. Issues raised include:

Was Capper-Volstead protection compromised by (1) theinadvertent sign-up of a non-grower entity as a memberand (2) the membership of vertically integrated growerentities?

Was the co-op’s supply management program (deedrestrictions) conduct protected by Capper-Volstead?

In 2009, the trial court judge said that one non-producerentity that became a voting member in the co-op through abookkeeping error voided the co-op’s Capper-Volsteadprotection. The U.S. 3rd Circuit Court of Appeals said itwon’t review that ruling until the case is decided.

The case is still in pre-trial proceedings.

Egg Case. In 2008, several purchasers filed lawsuits in thesame Pennsylvania court against numerous companies thatproduce eggs and processed egg products, including one co-op, United Egg Producers. These suits allege defendantsengaged in illegal supply management by:

Increasing the size of chicken cages and thus reducingthe number of egg-producing chickens;

Exporting eggs at a loss to increase domestic egg prices.The defendants have filed motions to dismiss the case on

several grounds. Discovery and other proceedings have beenstayed awaiting a ruling on various motions to dismiss.

Potato Case. In 2005, several potato marketing associationsformed United Potato Growers of America (UPG) to managethe supply of potatoes reaching the market and thereby raiseprices above the cost of production. Members contributedfunds to UPG which used the money to pay growers not toraise potatoes.

In 2010, several purchasers of potatoes sued UPG in anIdaho Federal District Court claiming the membershipillegally:

Agreed to reduce the supply of potatoes to raise prices; Included vertically integrated potato producers.

In December 2011, the trial court issued a non-precedential memorandum opinion that Capper-Volsteaddoes not protect pre-production supply control activities suchas acreage reductions and production restrictions. The judgealso questioned whether vertically integrated members arepermitted under the Act. Additional motions to dismiss arepending, and the Capper-Volstead issues have not beenresolved as yet.

Dairy Case. Cooperatives Working Together (CWT) is avoluntary, producer-funded program developed by theNational Milk Producers Federation (NMPF). One ofCWT’s programs was designed to strengthen and stabilizemilk prices by paying dairy farmers to reduce herd sizes.

In 2011, animal rights groups sued the NMPF and severallarge dairy co-ops in aCalifornia FederalDistrict Courtalleging that theCWT programillegally increasedmilk prices toconsumers and thatthe defendants aren’tprotected by Capper-Volstead.

The defendantsfiled motions to dismiss on several grounds, includingasserting that the court lacks subject matter jurisdictionbecause the Capper-Volstead Act vests the U.S. secretary ofagriculture with exclusive jurisdiction over the issues indispute. In October 2012, the court rejected the defendants’argument and denied the motions to dismiss. The case iscontinuing with pre-trial proceedings.

Issues under reviewThese cases raise three issues that are important not only

to the producers and co-ops involved but also to theagricultural industry as a whole.

1. Are pre-production supply controls agreed to by co-opmembers protected as “preparing for market” or“marketing” farm products as those terms are used inCapper-Volstead? A strong case can be made that at the heartof the marketing function of any company, including farmercooperatives, is the ability to estimate demand in themarketplace and set production capacity to provide adequatesupply. For instance, a car company — based on consumerresearch, industry trends and other proprietary information— estimates the presumed yearly demand for a new model. Ifthe target is 100,000 cars, it is obvious the auto company can

These cases raise issuesthat are important

not only to the producersand co-ops involved, but also

to the ag industryas a whole.


limit the supply produced to 100,000 cars.Farmer cooperatives must be just as responsive to

consumer demands. A cooperative marketing more of aproduct — whether a bulk commodity or a value-addedproduct — than can be sold will quickly becomeeconomically unsustainable.

Two existing decisions seem to support the cooperativeposition.

In Re Washington Crab — Federal Trade CommissionChair Paul Rand Dixon held fishermen can agree not tofish to limit supply and raise prices (1964).

Alexander v. NFO — The U.S. 8th Circuit Court ofAppeals said a two-week voluntary withholding action bymilk producers is protected by Capper-Volstead (1982).

2. Is the term “producer” broad enough to include entitiesthat have integrated forward into food processing andmarketing? In a U.S. Department of Justice case againstintegrated broiler producers that reached the U.S. SupremeCourt, both parties made this the central issue of theirarguments. However, a majority of the Justices determinedone or more members of the co-op, the National BroilerMarketing Association, did not have any broiler productionactivity and decided the case against the co-op on the non-producer member issue (1978).

Justice Byron White wrote a dissenting opinion arguingthat integrated firms with some production activity wereallowed in a Capper-Volstead protected cooperative. Inresponse to Justice White, Justice William Brennan, Jr. wrotea concurring opinion stating integrated firms in themembership voided Capper-Volstead. Thus the issue was farfrom resolved.

Two subsequent events failed to clarify the issue. Texas Produce Marketing Association — A Department ofJustice Business Review Letter provided upon request tothe Association concluded that firms that handle, packand store agricultural products for themselves and othermembers are “producers” and eligible under Capper-Volstead to be members (1988).

Hinote — In the early 1990s, the Department of Justicebrought criminal antitrust charges in a Federal DistrictCourt in Mississippi against Samuel Hinote, thepresident of Delta Pride Catfish Cooperative. Hinotewas charged with conspiring with other catfishprocessors and marketers to fix the wholesale price ofcatfish.

While most of the other firms involved were, like DeltaPride, owned entirely by catfish producers, two weresubsidiaries of ConAgra and Hormel. The trial court judgerejected Hinote's motion to dismiss the charges on thegrounds that his conduct was protected by Capper-Volstead.

The judge said that whomever Capper-Volstead was designedto protect, it didn't include ConAgra and Hormel.

The case went to trial and Hinote was acquitted of allcharges by the jury. The case died and no appeals were takenon the issue of whether large firms with catfish productioncould be members of a Capper-Volstead protectedcooperative.

3. Is the concept “association of producers” flexible enough toallow a co-op that inadvertently accepts a non-producer as amember to correct the error without having lost its antitrustprotection in the interim? Again we have conflictingguidelines in this area.

National Broiler Marketing Association — The SupremeCourt seems to take a hard line stance that one non-producer voids protection (1978).

Alexander v. NFO — In its subsequent opinion, the 8thCircuit Court of Appeals finds a few non-producers"sloppily" admitted as members do not void protection(1982).

Possible outcomesAs mentioned earlier, antitrust litigation is complex, costly

and time consuming. Results are difficult to project. Hereare three possible ways these cases could end and how eachmight impact farmer cooperative marketing.

1. Some or all of these cases could be settled. Managingthese cases is a serious drain on the resources of all partiesand takes management time away from the issues of day-to-day operations. When the fight is between buyers and sellersin the same industry, they can poison otherwise cordial andvital business relationships. So it is quite possible some or allof these cases will be settled before a definitive judicialopinion is issued and no meaningful guidelines for future co-op conduct will be established.

2. The co-ops may lose on some or all of these issues. Thismay limit the protection provided producers by Capper-Volstead.

3. The co-ops may prevail on some or all of these issues.While this would sanction the co-op conduct under review, itcould lead to the proposal of amendments to Capper-Volstead that could amend, or even override such decisions.

As these cases are moving through the judicial process,only time — perhaps a great deal of time — will reveal what,if any, impact they have on cooperative marketing byagricultural producers. It is important that all managers withand advisors to agricultural marketing cooperatives keepinformed about these and other challenges to Capper-Volstead. n


By Steve VarnumDirector of Communication and MarketingNew Hampshire Community Loan Fund

ike many powerfulsocial movements, NewHampshire’s firstmanufactured-homecooperative began at

the intersection of survival and justice.Bob Sirles was a can-do, determinedkind of guy. A school groundskeeper, hewas used to hands-on problem solving.

By late 1983, he had lived for 10 yearswith his wife and two sons in MeredithTrailer Park, in the Lakes Region ofcentral New Hampshire.

At the time, real estate sales in NewHampshire were booming, especiallyaround nearby Lake Winnipesaukee, amagnet for boaters and well-heeledvacationers. The blue-collar residents ofMeredith Trailer Park, however,reflected little of the area’s prosperity.Its owners, an elderly couple, wereincreasingly unable to keep up with the

13-home-park’s needs. Its gravel roadswere rutted and potholed, the septicsystem leaked into a nearby brook andrefuse littered some lawns.

In 1983, one of the owners wasadmitted to a nursing home. His wifeneeded to sell the park, but fearedhaving to leave her own home, whichwas located on the same plot. Land forcondos and summer homes in the areawas selling quickly and fetching topdollar. It wasn’t hard to predict whatwould happen if the park was sold.

Co-op conversions help bring securityto manufactured housing owners

L

Cooperative ownership of manufactured-home communities boosts the pride of residents — such as Sheila Dickerson of Soda Brook Cooperative inNorthfield, N.H. — in their homes and neighborhoods. Geoff Forester Photography; all photos courtesy N.H. Community Loan Fund


“Most of us just figured we’d bethrown out, so we were looking forsolutions — moving, buying somethingelse, renting somewhere, just hangingin and hoping for the best,” Sirles told anewspaper reporter.

“A couple of us tried to go to thebank to buy it as individuals, but wedon’t have that kind of credit,” Sirlessaid. Neither did any resident have theowners’ $42,000 asking price, or even asignificant down payment.

In the meantime, a potential buyerappeared who wanted to close the park,send its residents packing and buildapartments.

Co-op seed planted Enter Rebecca Storey, who was on

the steering committee of a brand-neworganization: the New HampshireCommunity Loan Fund. A graduatestudent of community economicdevelopment, she also shared classeswith Sirles’s sister.

Bob Sirles needed help saving hishome and those of his neighbors.Storey needed a project to complete hermaster’s degree. As a Native American,she also felt a deep connection with theplight of the families in the park.

“I identify with people being pushedoff their land. These people had beenthere a long time,” she told a reporter.“I had a real strong feeling theyshouldn’t be pushed off, that they must

help themselves.”Storey, Sirles and a few of his

neighbors began meeting around hiskitchen table. They developed a “what-if” scenario, based on New Hampshirehaving passed a law the previous yearthat recognized consumer cooperatives.What if, instead of trying to buy thepark as individuals, the MeredithCenter families bought it together? They formed Meredith CenterCooperative in January 1984, as Storeypulled together financial plans anddocuments.

Local banks weren’t persuaded thatthe co-op was viable. At least one loanofficer didn’t know what a cooperativewas.

Some said that even as a co-op, thefamilies didn’t have sufficient credit.They still didn’t have a down payment.Every bank in the surrounding townsturned them down.

So, the co-op leaders turned to theNew Hampshire Community LoanFund, which had incorporated as one ofthe country’s first communitydevelopment financial institutions(CDFIs strengthen communities byproviding financial services topopulations and markets that otherwiselack them) the previous September.

The Community Loan Fundcomprised one part-time person, onedesk and a bank account containing lessmoney than the residents needed to buy

the park. But the Community LoanFund’s founders had connected with theSisters of Mercy, who wanted to investsome of their retirement savings whereit would be used for public good.

The sisters loaned the money to theCommunity Loan Fund, which in turnloaned it to the cooperative to buy thepark on June 1, 1984. Meredith CenterCooperative became New Hampshire’sfirst resident-owned community.

The new owners wasted little timeshowing how proud they were. Theyhauled away three truckloads of debris.They installed a new water pump soshowers wouldn’t stall when a neighborflushed a toilet. Before long, they’dbegun replacing the septic system.

A pause, then concept explodesIt would be 2½ years before the next

New Hampshire manufactured-homepark converted to cooperativeownership, but then the conceptexploded. During the next 10 years, 35parks in the state converted to co-opownership; 46 converted during thefollowing decade.

As interest grew, the CommunityLoan Fund expanded and refined theservices it offered the co-ops to includecommunity organizing, training for co-op boards of directors and otherleaders, financing for purchase andimprovements, and technical assistancefor planning infrastructure projects.

New Hampshire’s 100thmanufactured-home co-op converted inFebruary 2012. There are now 103 suchresident-owned communities in thestate, containing about 5,700 homes.About one in five manufactured-homecommunities in N.H. is a cooperative;nearly all are in rural areas.

The spread of these communities

Greg MacIntosh tends his vegetables atBarrington Oaks Cooperative in Barrington,N.H. Cooperative ownership and managementof manufactured-home parks encouragescommunity projects. Jay Reiter photography


was greatly supported by loans andgrants from USDA Rural Development,because some park owners becamewilling to sell when faced with largeinfrastructure repairs. To date, USDARural Development has provided morethan $9 million for critically neededwater and wastewater projects in 13New Hampshire co-ops.

The Community Loan Fund andthree other national nonprofits — theCorporation for EnterpriseDevelopment (CFED), NCB CapitalImpact program and NeighborWorksAmerica, with significant investmentsfrom the Ford Foundation and theFannie Mae Foundation — formedROC USA LLC in May 2008 to makeresident ownership viable nationwide. Through November 2012, ROC USAhad converted an additional 27

communities containing 2,122 homes in31 states.

Affordable and secureIn New Hampshire, as in many rural

areas across the United States,manufactured homes are one of themost affordable housing choices. Insmall towns that lack multi-familyapartment buildings, they’re usually theonly affordable option.

That choice becomes even moreaffordable in manufactured-homecommunities, because the need to buyland is eliminated. Instead, ahomeowner leases the small lot beneaththe house.

Still, homeownership in a traditionalinvestor-owned park is risky.Homeowner-residents have no say inhow much they pay for lot fees or

whether that money goes to upgradethe community or to profit. Likewise,they have little say in the creation orenforcement of rules.

At any time the landlord may decideto close the park, evict the homeownersand develop the land. As noted earlier,park owners motivated by profit mayignore failing water, septic andelectrical systems, then sell or abandonthe property.

Tenants in these parks are captive toany of all of these conditions anduncertainties. Those who object torents or conditions can be evicted, andthose facing park closure have no legalprotection — they must move.

In either case, they’re likely to losetheir homes and all they’ve invested inthem. Gone are the days of being ableto hitch a mobile home to a pickuptruck and wheel it away; today’smanufactured homes are factory-builtto the U.S. Department of Housing andUrban Development’s national housingcode and are anything but mobile.

Moving a home — if it can be moved— costs several thousand dollars. Sometowns further limit mobility byrestricting the age of manufacturedhomes that can be moved in.

The experience of New Hampshire’sresident-owned communities is thatcooperative ownership of the landremoves most of those risks andinsecurities. The co-ops’ membersdemocratically decide the bylaws they’llall live under, what to charge for lotrents, and how that money will be used.

A co-op community cannot be soldwithout a vote of its residents, and theCommunity Loan Fund/ROC USAmodel eliminates a profit motive.Because the communities areincorporated as nonprofit consumercooperatives, the assets from any sale ofthe property— after the co-op’s bills arepaid and members are refunded theirshares (usually $500 to $1,000) — haveto go to another co-op or charitableorganization.

Other economic benefits of co-opownership include access to grants andloans from USDA and other publicagencies for needed infrastructure

Lawrence Shuman, president of Sandy Ridge Estates Cooperative, and other residentspurchased an Ossipee, N.H., manufactured-home community, saving the homes of 35 families.The previous owner had been ordered by the state to close the park and evict the families due tosubstandard water and wastewater systems. Matthew Lommano Photography


upgrades and access to fixed-rate homeloans with relaxed credit terms and lowdown payments, offered in NewHampshire by the Community LoanFund and two partner banks.

Last July, USDA Rural Develop-ment created a homeownership pilotprogram making residents in aBelmont, N.H., co-op eligible for its502 Single-Family Housing loans.Those loans offer 100-percent homefinancing at a 3.25 percent interest rate;four other USDA-approved co-ops inNew Hampshire are also eligible.

Social benefitsWith the stroke of a pen, a

cooperative’s purchase of its communityturns organizers into managers, tenantsinto co-owners and homeowners intoneighbors.

While security is one of the greatestbenefits residents enjoy, observers areoften struck by the pride and sense ofpersonal investment they experience inthe cooperatives.

George McCarthy, director ofMetropolitan Opportunity at the FordFoundation, has listened to co-opresidents in their kitchens and livingrooms. “The transformation of thepeople in those communities isprofound,” he says.

The physical transformation is easyto see. Homeowners, confident thatthey won’t be displaced, plant gardensand flowerbeds, paint their homes andpave their driveways. Some evenreplace their old homes with newermodels.

The common goal of buying,owning and managing a communityalso creates a greater sense ofcommunity.

Florence Quast was a key organizerof the Souhegan Valley ManufacturedHousing Co-op in Milford, N.H.,when it converted to residentownership in 1985.

“My proudest accomplishment ishelping us become a co-op and buyingthe park because it’s something peoplesaid we couldn’t do,” she says. After thepurchase, the co-op made major

From the start, the New Hampshire Community Loan Fund’s goalsin encouraging cooperative ownership of manufactured-homecommunities were to create permanent and stable affordablehousing, to maximize resident control of their communities and tomake co-op membership available regardless of income.

In New Hampshire’s resident-owned communities and thoseusing the ROC USA model in other states, status as nonprofitconsumer cooperatives makes it very unlikely that the land will besold out from under any of the manufactured homes.

Secondly, says ROC USA’s Paul Bradley, “Resident control putspeople most affected by the decisions in charge of making them.In a cooperative park, each homeowner owns his or her homeand one share in the cooperative corporation that owns the land.Most co-ops require that one must both own a home and reside inthat home in order to become a member.”

The third point, affordability of co-op membership, drove theCommunity Loan Fund’s choice of what type of cooperatives thesewould be. ROC-NH and ROC USA communities are zero-equitycooperatives with low membership share prices. If a residentcan’t afford to buy a share when the co-op is established, he orshe may make a very small down payment on that share, thenmake affordable monthly payments while enjoying all of the rightsand responsibilities of membership.

People who buy a home (or move one into) in a cooperativepark pay their membership fee up front, often rolling it into theirhouse financing. n

Loan fund boosts ownershipthrough co-ops

Lois Parris, left, of Lakes Region MHP Cooperative in Belmont, N.H., andFlorence Quast of Souhegan Valley MH Cooperative in Milford, N.H., arepowerful advocates for the rights of manufactured-home owners. GeoffForester Photography



By Charles Ling, Ag EconomistCooperative ProgramsUSDA Rural Development

he AffordableCare Act (section1322) created theConsumer Operated and OrientedPlan Program (CO-OP Program) to foster

the creation of new, consumer-governed, private, nonprofithealth insurance issuers (referred to as CO-OPs). These CO-OPs will promote integrated care and improve health planaccountability.

Through the loans authorized by the Act, the goal of theProgram is to create at least one new CO-OP in every stateto enhance competition in the Affordable InsuranceExchanges (also established under the Act) and provideadditional plan choices in the individual and small groupmarkets. The Program is administered by the U.S.Department of Health and Human Services (HHS). Thestatute and the rules and regulations implementing theProgram can be found at http://www.healthcare.gov/law/features/choices/co-op/.

The Program-qualified CO-OPs are supposedly modeledon existing health insurance cooperatives and other businesscooperatives. The acronym “CO-OP” (note: all letterscapitalized) has the same spelling as “co-op,” the abbreviationof the term “cooperative” in common usage.

There is strong interest in the co-op community (anddoubtless outside of it as well) to see where these new healthCO-OPs lay in the continuum of cooperative business modelvariations (Ling). Based on the Program’s CO-OP standardsand related requirements, this article looks into the structure,organization, governance, equity financing, and operation ofthe CO-OPs to shed some light on their similarities with and

differencesfrom other types ofcooperatives. The economicanalysis is through the lens ofindustrial organization, taking the lawand regulations governing the Program asgiven. It is not intended to be an interpretationof the Program, which is under the purview ofHHS Centers for Medicare and MedicaidServices (CMS).

Economic structureA CO-OP is an organization of health insurance

policy subscribers who are individuals or individuals withdependants. All insurance-covered persons are countedas members of the CO-OP.

The CO-OP makes decisions regarding how tomaintain and improve the quality of health care delivered tomembers, while keeping insurance premiums affordable.Subscribers are free to choose whether to join a particularCO-OP, or how — and how much — they may use theservices provided by the CO-OP as members.

Therefore, the CO-OP fits the economic definition that acooperative is an aggregate of economic units, which arecapable of independent economic functioning (Emelianoff). Itis also useful to note that a dictionary defines aggregate as:

T

The Co-op Nature of (the Affordable Care Act)

CO-OPs


“Anytotal or

wholeconsidered with

reference to itsconstituent parts; an

assemblage or group ofdistinct particulars massed

together.”

OrganizationA CO-OP is a Program-qualified, nonprofit

health insurance issuer organized under statelaw as a private, nonprofit, membercorporation.The creation of a CO-OP relies on theeffort of its sponsors. A sponsor may be an

organization or individual that is involved inthe development, creation or organization of theCO-OP or provides 40 percent or more to theCO-OP’s total funding (excluding funds fromProgram loans). However, no state or localgovernment or political subdivision (or theirinstrumentalities) can be a sponsor of theorganization or contribute 40 percent or moreto its total funding. Furthermore, noorganization excluded by CMS can be a sponsoror contribute 25 percent or more to the CO-OP’s total funding.After the CO-OP is organized, it will sign

up health insurance subscribers and they andtheir covered dependents will be members ofthe CO-OP. The CO-OP will become acentralized member organization when itsoperational board of directors elected by

members is in place.The CO-OP Program has the goal of

having at least one CO-OP in each state andgives priority to CO-OPs that offer qualified

health plans on a state-wide basis. Therefore, CO-OPs are most likely local (in-state) organizations that

do not cross state lines. When circumstances warrant it, aCO-OP may cover more than one state. States may havemore than one CO-OP if Program funds are available.

CO-OPs are to remain nonprofit, consumer-operated and-oriented insurance issuers after they have received Programloans and even after they have fully repaid their loans. Theyare not permitted to convert or sell to a for-profit or non-consumer-operated entity at any time, undertake anytransaction that would result in the CO-OP implementing agovernance structure that does not meet the stipulated CO-OP standards, or do things to harm its consumer orientation.

CO-OPs may join together to establish a privatepurchasing council to enter into collective purchasingarrangements for items and services that increaseadministrative and other cost efficiencies, including claimsadministration, administrative services, health informationtechnology and actuarial services. But the private purchasingcouncil is not allowed to set payment rates for health carefacilities or providers participating in health insurancecoverage provided by the CO-OPs. Further, the antitrustlaws continue to apply to any private purchasing council.

GovernanceA CO-OP is required to be governed by an operational

board with all of its directors elected by a majority vote of aquorum of the CO-OP’s members who are age 18 or older.Elections of the directors on the CO-OP’s operational boardare contested: the total number of candidates for vacantpositions on the operational board exceeds the number ofvacant positions. In the case of resignation, death, orremoval, the CO-OP may fill vacant director positions forthe remainder of the relevant term without conducting acontested election.

Positions on the board of directors may be designated forindividuals with specialized expertise, experience oraffiliation. But the designated directors cannot constitute amajority of the operational board.


No government (federal, state, local, political subdivisionor instrumentality) representative or representative of anorganization excluded by CMS can be a board member.

The majority of the voting directors on the operationalboard must be members of the CO-OP (not countingdesignated directors who are also members). Each directorhas one vote unless he or she is a non-voting director.

However, in the initial stage of forming the CO-OP andbefore it has begunaccepting enrollmentof insurancesubscribers and has anelection by themembers of theorganization to theboard of directors, aformation board is tosteer its development.The first electeddirectors of theorganization’s

operational board must be elected no later than one year afterthe effective date on which the organization providescoverage to its first member; the entire operational boardmust be elected no later than two years after the same date.

Equity financingThe initial funding of a CO-OP is supplied by its sponsors

and supporters. To help overcome the difficulty of obtainingadequate capitalization for start-up costs and state insurancereserve requirements, CO-OPs may borrow two kinds oflow-interest loans offered by the CO-OP Programspecifically for these critical activities:• Start-up loan to provide assistance in meeting the costs ofestablishing a CO-OP. The repayment period of the loan isfive years following each drawdown of loan funds.

• Solvency loan in meeting state insurer solvency and reserverequirements. The repayment period of the loan is 15 yearsfollowing each drawdown of loan funds.A CO-OP may borrow joint start-up and solvency loans,

or only borrow a solvency loan. By receiving the loans, theCO-OP must adhere to the standards and fulfill allrequirements established by the CO-OP Program. It mustmeet the required CO-OP standards no later than five yearsfollowing initial drawdown of the start-up loan or three yearsfollowing the initial drawdown of the solvency loan.

Net savings or surplus funds (revenue in excess of expensesor “profit”) of the CO-OP must be used to lower premiums,to improve benefits or for other programs intended toimprove the quality of health care delivered to its members.In addition, net savings may be used to conduct marketing,

repay Program loans, and meet state solvency requirements.They may also be used to provide for enrollment growth,financial stability and stable coverage for members.

CO-OPs are forbidden to ever convert or sell to for-profitor non-consumer operated entities.

OperationsCO-OPs develop healthcare provider networks to provide

services that meet members’ healthcare needs. They have tocompete for health insurance subscribers in the relevantmarkets. Therefore, their operations are the same as anyother health insurance issuers in the relevant markets.

CO-OPs are required to meet certain standards andrequirements for the issuance of health insurance plans toachieve Program objectives.

For example:• At least two-thirds of qualified health insurance policies or

contracts for health insurance coverage issued by a CO-OP in each state in which it is licensed must be in theindividual and small group markets.

• In every market where the CO-OP operates, it must offera qualified health plan at the Silver Level (defined as thelevel of coverage that is equivalent to 70 percent of thefull actuarial value of benefits provided) and at the GoldLevel (equivalent to 80 percent of full benefits).

• Meet certification requirements in order to participate inthe Affordable Insurance Exchanges.The incentive (trade-off) for CO-OPs to meet these and

other plan standards and requirements is the privilege to usestart-up loans and solvency loans at below-market interestrates to achieve the goals of the organizations.

ConclusionsThe impetus for creating CO-OPs is by Congressional

mandate to address certain public policy healthcare issues. Amajor portion of initial funding of CO-OPs is low-interestgovernment loans to help overcome the difficulty ofobtaining adequate capitalization. Legislative mandateseffected with government loans have precedents such as theinitial organizations of rural electric cooperatives and theFarm Credit System. As exemplified by these precedents,CO-OPs must be self-sustainable in order to be economicallyviable over the long term.

To ensure the CO-OPs created under the Program areviable, sustainable and stable, and to make certain they canrepay the loans and thereby protect federal investment in theProgram, they are required to meet CO-OP standards andhealth plan standards and fulfill many other requirements. Asa result, CO-OPs are somewhat unique in the spectrum ofcooperative business model variations as shown in table 1(adopted and modified from Ling, table 2). n

CO-OPs are forbiddento ever convert or sel l

to for-prof i t or non-consumer

operated ent i t ies.


Type of cooperatives

Dairycooperatives1

Agricultural marketingcooperatives

New-generationcooperatives

Purchasingcooperatives2

Affordable Care ActCO-OPs3

Multi-stakeholdercooperatives4

Farm productioncooperatives

Cooperatives with non-patronage members

Structure

Aggregates ofeconomic units




Aggregates ofeconomic units(health insurancesubscribers)


Aggregates ofeconomic units that arenot independent inproduction operation

Mixture of patron andnon-patron members

Organization

Centralized memberorganizations

Mostly centralizedmember organizations;some are federated

Centralized memberorganizations

Local (retail)cooperatives arecentralized; manyfederated with otherlocals; federatedcooperatives may havedirect members

Organized by sponsors;then become local (in-state) centralizedmember organization

Centralized memberorganization

Centralized memberorganization

Defined by state laws

Governance

Member-governed

Member-governed

Member-governed

Member-governed

Initially formationboard; then member-governed

Member-governed

Member-governed


Source of equity

Members

Members

Members; tied todelivery rights

Members

Sponsors andsupporters;accumulated surpluses

Members

Members


Operation

Members' exclusivemarketingagent―uniqueeconomics

Unique economics ifexclusive marketingagent; otherwise, likeother firms

Business volumedefined by deliveryrights

Sourcing supplies orservices for sale tomembers and patrons

Operations are thesame as otherinsurance issuers in therelevant markets; mustmeet CO-OP Programstandards andrequirements

A framework for multi-party, multi-stagecredible contractingamong members

A vertical integrationbetween members andthe cooperative inproduction

Defined by state laws;most likely member-patrons’ business

Table 1―Variations on the cooperative business model

1 Separately listed and used as the standard bearers of traditional cooperative business model.2 Include farm supply cooperatives, utility cooperatives, service cooperatives, consumer cooperatives, credit unions, etc.3 Qualified Nonprofit Health Insurance Issuers under the Consumer Operated and Oriented Plan (CO-OP) Program.4 Defined as cooperatives having, for example, farmers, final customers and intermediaries in the supply chain as members.

References• Emelianoff, Ivan V. Economic Theory of Cooperation: Economic Structure of Cooperative Organizations, Washington,D.C. 1942 (litho-printed by Edwards Brothers., Inc., Ann Arbor, Michigan), 269 pages. (A reprint by the Centerfor Cooperatives, University of California, 1995, may be accessed at:http://cooperatives.ucdavis.edu/reports/index.htm.)

• Ling, K. Charles. “The Many Faces of Cooperatives,” Rural Cooperatives, Volume 79, Number 6, November/December 2012, pp.24-29.

• American Heritage Dictionary of the English Language, New College Edition, Houghton Mifflin Company,Boston, 1976.


By Mary Erickson, field editorWisconsin Energy Cooperative News, Cooperative Network

Editor’s note: This article is condensed and adapted from severalarticles that appeared in a recent issue of 2012 Annual MeetingRecap, a Cooperative Network newsletter.

he year 2012 was a better than average yearfor a majority of cooperatives in Wisconsinand Minnesota, according to the results of astraw poll conducted during the annualmeeting of Cooperative Network in La

Crosse, Wis., Nov. 13. About 56 percent of the delegates saidthe economic performance of their cooperative was betterthan average last year, while 27 percent rated the year asaverage. Only 16 percent said their co-op had a belowaverage year.

One in four delegates said they expect to hire additionalemployees during the coming year, while 68 percent said theywould maintain their existing workforce. Only 6 percent ofco-op representatives said they expected to reduce staff in2013.

Nearly 200 members participated in the instant-responsesurvey, using transponders to answer 14 multiple-choicequestions projected on a screen. Cooperative Networkrepresents a cross-section of cooperatives in Wisconsin andMinnesota.

About 92 percent of delegates said they had contactedtheir state legislator or member of Congress during the pastfive years, either on their own or in conjunction withCooperative Network. Another 60 percent said lobbying onlegislative or regulatory issues is the most important serviceCooperative Network provides for its members.

Other responses to the inquiry about the organization’smost important functions included 29 percent who identified

“educating the public and promoting the cooperative businessmodel,” while 9 percent cited director and staff education,and 2 percent chose development of new cooperatives as themost important functions.

Asked, “What is the greatest threat to the success of yourcooperative?” 65 percent identified “government regulationand/or legislation.” Trailing far behind were “talentretention” (12 percent); “competition” (12 percent); “growth”(9 percent); “safety” (2 percent); and “litigation” (1 percent).

Aging population poses major challengesTwo events occurred in January 2008 that are leading to a

new set of challenges and opportunities for the nation, TomGillaspy, of Gillaspy Demographics, told delegates. A formerMinnesota state demographer, Gillaspy said the recessionthat hit in January 2008 left the nation in an economic holethat will take a long time to recover from. Jobs no longerexist where they once did, Gillaspy explained, and manyAmericans have stopped searching for employmentopportunities.

Second, the first wave of the Baby Boom generationturned 62 in January 2008. With this massive Baby Boomgeneration entering retirement over the next two decades —and a much smaller Generation X to replace it — Gillaspysaid the nation is facing demographic trends that will have ahuge impact on the economy for many years.

For the next 20 years, almost all growth in U.S.households will be in the “empty-nest” sector, and the laborforce will be at record low levels by the end of this decade.This could make the challenges of paying for health caretoday seem mild compared to the much bigger challenge in20 years, he said. An aging population is a global trend,Gillaspy said. Other countries, such as Greece and Japan, alsoare struggling with the same issues. Even China, whose

T

Most Co-op Network members say2012 was a solid economic year

“This is one of the most wonderful times for opportunity in my lifetime,” saysdemographer Tom Gillaspy.



Blue Diamond marks record, $1 billion sales year

Blue Diamond Growers’ salescatapulted to a record $1 billion forfiscal 2011-12. The almond co-op’stwo-year sales growth of $300 millionhas been driven by demand for value-added almond products, President andCEO Mark Jansen said in is his addressto the cooperative’s grower-owners attheir 102nd annual meeting inModesto, Calif.

“We are winning in the marketplaceby executing our superior businessmodel, enhancing margins and growingour value-added businesses,” Jansensaid. “We added $13 million in savingsto the $14 million we achieved last year,and we will continue to invest in newtechnologies that will lower costs andincrease processing yields for higherlevels of profitability year after year.”

Board Chairman Clinton Shick toldgrowers they received record paymentsof $670 million on the 2011 crop, for areturn that was 18 cents per poundhigher than on the 2010 crop.“Revenue per acre also exceeded theprevious (2005) record by 19 percent,”Shick said.

Blue Diamond will open phase oneof its new, 88-acre almond processingplant in Turlock, Calif., in May 2013,where it will hire up to 100 employees.The co-op already operates the world’slargest almond processing facilities, inSacramento and Salida, Calif.

“Our balance sheet is investmentgrade, which allowed us to finance ournew plant over the next 15 years at arecord-low rate that will earn growerswho deliver to Blue Diamond severalcents more on their 2013 annual returns

and for many years to come,” saidJansen.

Adding processing capabilities toBlue Diamond’s existing operations ispart of a plan to expand its brandglobally, he added. This is a strategythat is already paying off, as thecooperative’s global value-addedingredient business leaped 69 percent

over the past two years and globalconsumer-branded businesses increased45 percent.

A new North American advertisingcampaign, designed to inspire a healthylifestyle among consumers, waslaunched during the 2012 LondonOlympic Game. Blue Diamond snackalmond sales jumped 21 percent during

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

Co-op developments, coast to coast

Blue Diamond CEO Mark Jansen, left, greets members during the co-op’s 102nd annual meeting,which marked the first time sales topped $1 billion.


the fiscal year ending Aug. 31, withsales during the Olympic Games aloneleaping 43 percent.

Cunningham succeeds Rice asCEO of Farm Credit of Florida

Gregory Cunningham is the newCEO of Farm Credit of Florida, acooperative of 2,300 members and witha $925 million loan portfolio. Hesucceeds Don Rice, who has retiredafter a career spanning more than 30years with the Farm Credit System.

“Greg comes to our association with26 years of financial experience and astrong agricultural background,” saysWoody Larson, the co-op’s boardchairman. “We anticipate our memberswill benefit from his experience in thecommercial banking industry, combinedwith his 22 years of Farm Creditservice.”

Cunningham was previously CEO ofLegacy Ag Credit. He started his careeras a loan officer with the Federal LandBank Association of Lake Providence,Louisiana, then became branchmanager/corporate loan manager forCarolina Farm Credit and worked forseveral other farm lenders.Cunningham grew up in Louisiana on acattle ranch and was an avid 4-H andFFA participant. He is an alumnus ofLouisiana Tech University and servedfor 21 years in the Army NationalGuard in North Carolina andLouisiana.

As one of the largest agriculturallenders in Florida, Farm Credit ofFlorida’s portfolio includes many ofFlorida’s leading agribusinesses.Headquartered in West Palm Beach,the cooperative has 11 service centersthroughout the state and has 140employees.

Ocean Spray sets sales record Ocean Spray had net sales of $1.66

billion for fiscal 2012, the highest netsales in the cooperative’s history. It wasa 3.2-percent increase from theprevious year.

“Our fiscal 2012 financial resultsreflect strong performance amid a

sluggish economy and volatilemarketplace and continue a trend,”Randy Papadellis, Ocean Spray’spresident and CEO, says in the co-op’sannual report for 2012. “Over the pastfour years, Ocean Spray has deliveredrecord highs in sales and profits, as wellas in returns for our grower-owners.”

Ocean Spray is owned by more than700 cranberry growers and 35 Floridagrapefruit growers. It has becomeNorth America’s leading producer ofbottled juices and juice drinks.

The company attributed its successto the strength of the Ocean Spraybrand, continued product innovation,in-store marketing and promotions,ongoing focus on operating efficiencyand risk management and the pursuit ofstrategic business partnerships.

Spackler succeeds Reagan as AGP Inc. CEO

Keith Spackler is the new chiefexecutive officer and general managerof Ag Processing Inc., in Omaha, Neb.

He takes overfrom retiringMarty Reagan.Spackler hadbeen thecooperative’schief financialofficer and groupvice president.

AGP, thelargest farmer-owned soybeanprocessor in theworld, is owned

by 180 local and regional cooperativesrepresenting more than 200,000farmers from 16 states.

“Keith Spackler is a seasonedprofessional in agribusiness,” says BoardChairman Brad Davis. “His in-depthknowledge of AGP and its businessoperations will serve him well in hisnew role. We are confident that underKeith’s leadership, AGP will continueto fulfill its commitment to serve ourcooperative members and theirproducer-owners.”

“At AGP, building on the existing

strengths, while creating and capturingnew opportunities, has resulted in agreat history of success,” says Spackler. Spackler is a native of Clinton, Mo.,where he grew up on a dairy and rowcrop farm. He holds BS and MSdegrees in agricultural economics fromthe University of Missouri at Columbia,and an MBA from the University ofNebraska at Omaha.

Prior to joining AGP, Spacklerserved as an economic analyst for Far-Mar-Co (a subsidiary of FarmlandIndustries) in Kansas City, Mo., and as aresearch analyst at Clayton BrokerageCo., St. Louis, Mo. He joined AGP in1985 as manager of business analysis.During the past 27 years, he has heldvarious positions of leadership at thecooperative.

Florida’s Natural celebrates best year

The 2011-12 season was the greatestyear in the history of Florida’s NaturalGrowers cooperative, board ChairmanDick Fort said at the co-op’s 79thannual meeting, which coincided withthe 25th anniversary of the launch ofthe Florida’s Natural orange juicebrand.

“By all measures, the cooperative hasexperienced a record year in growerreturns, sales, market share andcustomer loyalty,” Fort said. “Thesuccess of our cooperative isinextricably linked to the success andgrowth of the Florida’s Natural brand.”

Gross sales for 2012 were a record$624.8 million. New records were also

Keith Spackler

set with a return to growers of $1.90per pound for oranges and $1.55 perpound for grapefruit, according to ChipHendry, the co-op’s chief financialofficer

“The addition of our 14th member,Southern Gardens Grove Corporation,will help address our fruit needs for theforeseeable future,” said CEO SteveCaruso. The launch of the Florida’sNatural Brand changed the cooperativefrom a private-label packer to a

consumer-brand marketer, said WaltLincer, vice president of sales andmarketing.

The co-op is comprised of 14 growerorganizations representing almost 1,000individual growers who own about60,000 acres of citrus in Florida.Florida’s Natural Growers operates aprocessing plant in Lake Wales, whichemploys 670 people, and a juice-packaging plant in Umatilla, with 101more workers. In addition to Florida’s

Natural, its brands include Florida’sNatural Growers Pride, Donald Duckand Bluebird.

California Dairies acquiresSecurity Milk Producers

California Dairies Inc. (CDI), thelargest dairy processing cooperative inCalifornia, has acquired assets ofSecurity Milk Producers Association(SMPA), a California milk marketingcooperative, and added SMPA membersto CDI’s membership, effective Jan. 1.

The SMPA and CDI boards ofdirectors determined that the member-owners of both cooperatives would bebetter served by promoting efficienciesgained by combining theirmemberships. SMPA members voted todissolve the current managementcontract and to submit applications formembership in CDI, which is adding 33dairies owned by 25 SMPA members.

“The addition of SMPA members tothe CDI membership fits well withCDI’s growth strategy,” says AndreiMikhalevsky, CDI president and CEO.“Increasing milk supplies willstrengthen CDI’s market position to thebenefit of its member-owners, both oldand new, through a continued positivereturn on investment.”

“For the last several years, the SMPAboard of directors had been looking tobetter balance its milk supply to its fluidsales with the goal of increased returnsto its member-owners,” said SMPAChairman Ed Haringa. “As optionswere explored, it became clear thataligning SMPA’s successful fluid milksales business with CDI’s extensiveprocessing capacity provided anopportunity for SMPA and CDI tobetter balance milk supplies in thestate.”

CHS initiative to foster co-op university education

CHS Inc., one of the nation’s leadingfarmer-owned cooperatives, haslaunched the CHS University Initiativeon Cooperative Education. This $2million program represents a majorinvestment in building understanding of


Hispanic and womenfarmers and ranchers whobelieve that the U. S.Department of Agriculture(USDA) improperly deniedthem farm loan benefitsbetween 1981and 2000because they areHispanic or female, maybe eligible to apply forcompensation if:1) You sought a farm loanor farm-loan servicingduring that period;

2) The loan was denied,provided late, approvedfor a lesser amountthan requested, approved with restrictive conditions or USDAfailed to provide appropriate loan service; and

3) You believe these actions were based on your being Hispanic orfemale. To receive a claims package, visit: www.farmerclaims.gov, or

call 1-888-508-4429. For further guidance, you may contact a lawyer or other legal

services provider in your community. USDA cannot provide legaladvice.

If you are currently represented by counsel regardingallegations of discrimination or in a lawsuit claiming discrimination,you should contact your counsel regarding this claims process. n

Hispanic, women farmers may seek compensation

the cooperative business model througheducation, development and practicalexperience. Partner organizations thatwill help roll out this program includethe Federation of Southern Cooperativesand 10 universities, including Cornell,Kansas State and the University ofWisconsin.

Designed to foster the integration ofcooperative education into agribusinesscurriculums, cooperative developmentand farm business studies across thecountry, the CHS University Initiativeon Cooperative Education will alsosupport graduate-level cooperativeeducation programs, soil, water andenvironmental studies and technology-based learning programs.

The program builds on more than 80years of work with agricultural,cooperative and education entities, saysWilliam Nelson, president, CHSFoundation and vice president, CHSCorporate Citizenship.

“As a farmer-owned cooperative,CHS is committed to investing in thefuture of the cooperative system,” saysJerry Hasnedl, CHS board chairmanand a farmer. “This exciting newinitiative will enable the next generationto achieve new levels of success asfarmers and ranchers in the globalmarketplace, as employees withchallenging careers in agriculture and ascontributing citizens of ruralcommunities.”

Some 350,000 farmers and ranchersown CHS either directly or indirectlythrough more than 1,000 smaller co-ops.

United Cooperative purchasesAuroraville grain facilities

United Cooperative, Beaver Dam,Wis., has purchased a new grain-storagefacility in Auroraville, Wis., fromWillow Creek Grain LLC, Berlin, Wis.The Auroraville facility has 1.25 millionbushels of grain storage, 26,000 bushelsper hour of receiving capacity, 1,000-and 500-bushel unloading pits, and a4,000-bushel-per-hour grain dryer.David Olsen, who has more than 40years of experience in grain

procurement and origination, ismanaging the Auroraville location.

In other news, the UnitedCooperative’s Pulaski feed and grainlocation has completed construction ofa new receiving pit, a new receiving leg,a new dryer and additional storagespace.

Jill Long Thompson to chairFarm Credit Administration

President Obama has designated JillLong Thompson as chair and CEO ofthe Farm Credit Administration (FCA).She succeeds Leland A. Strom, who had

served aschairman andCEO since May2008. LongThompson hasserved as amember of theFCA board sinceher appointmentby PresidentObama in March2010.

As FCA chair,Long Thompson

will be responsible for policymaking,adopting regulations and overseeing theexamination and regulation of theinstitutions that comprise the FarmCredit System (System), including theFederal Agricultural MortgageCorporation (Farmer Mac). The Systemhas $239.7 billion in assets. As ofSeptember 2011, it held about 43percent of the nation’s farm businessdebt.

Strom will remain a member of theboard, pending future action by thePresident and the U.S. Senate. KennethA. Spearman, who was appointed to theboard by President Obama in 2009,serves as the third member. He alsoserves as chairman of the Farm CreditSystem Insurance Corporation.

Long Thompson representednortheast Indiana in the U.S. House ofRepresentatives from 1989 to 1995. Shewas under secretary for USDA RuralDevelopment during the Clintonadministration.

California dairy co-op leader Brian Pacheco honored by UC

Brian Pacheco, board chairman ofCalifornia Dairies Inc. (CDI), thenation’s second largest dairy co-op, washonored in October with the Award ofDistinction from the College ofAgricultural and EnvironmentalSciences at the University of California(UC), Davis. Pacheco is also a memberof the Nisei Farmers League, Sun-MaidRaisin Growers and Western UnitedDairymen.

The award is presented annually tothose whose contributions andachievements enhance the college’sability to provide cutting-edge research,top-notch education and innovativeoutreach. Pacheco, a fourth-generationdairyman from Kerman, Calif., earnedhis Bachelor’s degree from UC in 1991,with a major in agricultural andmanagerial economics and a minor in

rhetoric andcommunications.His PachecoDairy Inc., with1,300 Holsteincows and an elitegroup ofpurebred BrownSwiss cows, is amodel ofenvironmentalstewardship andhas been

recognized as a top-producing herd inFresno County every year since 1998.

Pacheco is also president of theFresno County Farm Bureau and serveson boards for the Community RegionalMedical Center and the Fresno DairyHerd Improvement Association and isboard president of the Kerman UnifiedSchool District.

NCBA Veterans Initiative offers job opportunities

The National Cooperative BusinessAssociation has launched an initiativethat will support transitioning disabledveterans. According to the SmallBusiness Administration, veterans are atleast 45 percent more likely to be self-


Jill Long Thompson

Brian Pacheco


employed than those with no active-duty military experience. NCBA’sVeterans Initiative will offertransitioning service members theopportunity to learn about thecooperative business model as theyconsider entrepreneurial civilian careeropportunities.

NCBA’s Veteran’s Initiative willinitially focus on introducing veteransto two types of cooperatives: worker-owned and purchasing/shared servicesco-ops. Worker cooperatives createlong-term, stable jobs and provide theirmembers with an ownership stake in abusiness enterprise without all the riskassociated with going into business as asole proprietor. Purchasing and shared-services cooperatives enable those whochoose to start a small business with theprice advantages of group buyingpower.

The November 2012 issue ofEntrepreneur magazine touts thebenefits of purchasing cooperatives,noting that cooperatives such as AceHardware and CarpetOne offerindependent business owners thebenefits of group buying and a brandidentity without the rigidity of afranchise.

NCBA’s Veterans Initiative also willcelebrate what the cooperativecommunity already is doing to hireveterans and encourage cooperatives tohire transitioning service memberswhose skills are well suited to theirbusinesses. Through the program,cooperative staff will have theopportunity to learn to mentortransitioning service members whochoose to become member-owners ofcooperative enterprises. For moreinformation, visit: www.ncba.coop.

Wisconsin dairy co-ops merge

Family Dairies USA, ManitowocMilk Producers Cooperative andMilwaukee Cooperative Milk Producershave voted to merge, establishingFarmFirst Dairy Cooperative. Themerger of the three Wisconsin dairy co-ops became effective Jan. 1, following a

mid-December vote by the members ofthe co-ops.

“Our members made history,”Dennis Donohue, general manager ofthe new co-op, says in a statement onthe new co-op’s website. “Thismembership vote to merge the threecooperatives affirms our members’ goalsfor industry success throughcollaboration. Collectively, the strengthof our three organizations becomes oneunified and powerful voice.”

FarmFirst Dairy Cooperative willserve around 5,100 producers inWisconsin, Michigan, Illinois, Iowa,Minnesota, and North and SouthDakota. The co-op will become thethird-largest dairy co-op in the country,based on member milk volume.

The new co-op, which will have itsheadquarters in Madison, will includethe 2,300 members of Family DairiesUSA, the 2,650 member-producers ofManitowoc Milk ProducersCooperative and the 500 producers ofMilwaukee Cooperative MilkProducers. The three co-op boards hadpreviously given the merger unanimoussupport.

“The combined size and strength ofthe new cooperative will provide all ofour members with a deeper and broadervoice in policymaking decisions, bothlocally and nationally,” says DavidCooper, general manager for FamilyDairies USA. “And by combining theresources of three independentorganizations, we will be able toimprove efficiencies and effectiveness.”

“The timing of coming togethercould not be better,” adds Donohue,

who had been general manager ofManitowoc Milk ProducersCooperative. “The current, individualfinancial status of all three cooperativesis outstanding. This allows the neworganization to start out on very strongfooting, so that we can immediatelyfocus on growing and improvingmember benefits.”

Under the new cooperative, thecombined member representation willbe divided into nine districts. Thecurrent 20 directors from each of thethree cooperatives will transition intothe new organization, helping ensureconsistency in leadership andmembership voice.

NMPF seats new board members

The National Milk ProducersFederation’s (NMPF) board of directorsseated two new members at theorganization’s 2012 annual meeting inOrlando, Fla. Donald De Jong fromDalhart, Texas, was elected to representSelect Milk Producers Inc., while LarryWebster from Buffalo, N.Y., was electedto represent Upstate NiagaraCooperative.

In other news, Jim Mulhern, aveteran public affairs professional withthree decades of government policy andcommunications experience inWashington, D.C., joined the NMPFstaff Jan. 1 as chief operating officer, anew position for the association of dairyco-ops. He will have direct oversight ofthe communications, governmentrelations and membership functions ofthe organization. n


compliance director after the firstassessment, so this was new to me. Butwe are looking forward to seeing if wepushed the bar with the reassessmentcoming in the summer of 2013.”

“This has been a great program forme and WFS,” says DeAnn Miller,environmental health and safetydirector at the co-op. “We have learnedso much. And more importantly for me,I have met others like me who work insafety in other cooperatives. We share

experiences and learn from each other.”“We think of firms with a strong

safety culture as being nuclear powerplants, oil refineries, chemical plantsand similar industries,” notes Boland.“Farm supply and grain and oilseedmarketing cooperatives are all different.There are no cookie-cutter typeoperations. We have remote locations,seasonal employees and locations, andwe have traditionally placed a highvalue on employees with a ‘get it done’attitude. Getting it done safely is thecritical part.”

For more information about thisprogram, please contact Boland at (612)

625-3013, or via e-mail at:[email protected].

Editor’s note: Cooperatives in Iowaworking with the Ag Cooperative SafetyDirectors of Iowa (http://acsdia.org/) haveformed a consortium of safety directors forcooperatives in their states and have startedoffering an educational program. Inaddition, the Grain Elevator andProcessing Society, known as GEAPS(www.geaps.com), offers safety topics at itsmeetings. The Agricultural Safety andHealth Council of America (ASHCA)(www.ASHCA.com) will hold its 2013Summit Sept. 25-27 in Minneapolis,Minn. n

improvements to the roads and waterlines. Other co-ops hold communitycleanup or beautification days, or startrewriting community rules.

Participation in the co-op not onlyreduces costs, it builds vibrantneighborhoods. That participation caninclude everything from baking cookiesfor a summer barbecue or helping plana glow-stick sledding night to operatingthe well system or serving on thevolunteer board of directors.

Residents also learn that they belongto a community much larger than theirneighborhood. They are connected toother resident-owned communities inNew Hampshire through theCommunity Loan Fund’s ROC-NHprogram and across the countrythrough ROC USA, both of whichcreate opportunities for education,collaboration and networking.

Co-op members also have access totraining and education sponsored byROC-NH, and some have beenappointed or elected to leadershippositions in their towns. Graduates ofits community leadership training alsoearn college credit they can use towarda degree.

Swift transitionNone of the leaders of New

Hampshire’s 103 manufactured-homeco-ops will say managing a communityis easy.

“People and a system are needed tocollect the rents and keep the books,approve new members, maintain theinfrastructure, enforce park rules,mediate disputes and endlesslycommunicate,” says ROC USAPresident Paul Bradley. “Effectiveoperations rely upon good informationand frequent communication — bothchallenges in volunteer organizationsrun by busy people.”

Although many smaller communitiesare run completely by their volunteermembers, most use a portion of theirrental income to hire companies forservices that include rent collection andfinancial management. One large co-op,192-unit Greenville Estates insouthwestern New Hampshire, hasalways relied upon paid staff — anoffice manager, a bookkeeper andmaintenance workers.

An additional challenge is thatroughly 75 percent of New Hampshire’smanufactured home co-op residentsqualify as low-income. While all bringvaluable and varied life experience, fewhave previously had the opportunity toserve on a nonprofit board of directors,much less run a multi-million-dollarcorporation.

Nevertheless, not one New Hampshireco-op has failed since the Meredithconversion 29 years ago. That’s atestament to the hard work anddedication of the volunteers in these co-ops; to the training, support andtechnical assistance provided by ROC-NH; and to the crucial support ofprograms like USDA-RD.

Regardless of a co-op’s managementsystem, all residents — even those whochoose not to become members of theco-op (which usually means they pay ahigher lot rent and have no votingrights) — enjoy the benefits ofownership. Some economic benefitswere documented in a 2006 study bythe Carsey Institute at the University ofNew Hampshire.

The study found that the advantagesenjoyed by homeowners in co-ops overthose in investor-owned communitiesincluded higher average home salesprices, faster home sales, access tofixed-rate home financing and,eventually, lower lot fees.

And through ROC USA, the ripplesflow over the state border. The nationalnonprofit is providing connections withco-ops in other states throughaggregated opportunities such asleadership conferences and onlinetraining, marketing and jointpurchasing. n

Co-op conversions help bringsecurity to manufacturedhousing ownerscontinued from page 31

Creating a safety culturecontinued from page 6


economy is predicted by some long-range forecasters to surpass the UnitedStates’ economy sometime between2016 and 2020, will be shifting to anaging population in about 10 years.

However, Gillaspy said China ispushing up worker productivity now,before its population begins to age.“There are only two ways to grow aneconomy,” he pointed out. “Increase theworkforce, or increase workerproductivity.”

This dilemma will have repercussionsthat Gillaspy said will result in a “newnormal,”characterized by slowereconomic growth, rising interest rates, ashift in the home ownership/rentalgradient and talent becoming the mostscarce resource.

However, Gillaspy said the newchallenges also make for newopportunities.

“This is one of the most wonderfultimes for opportunity in my lifetime,”he said.

Innovation is a key to increasingproductivity, he said, referring toexamples such as the development ofrust disease-resistant wheat to helpmeet the growing world demand forfood, and new cures for diseases.

Gillaspy predicted these trends wouldlead to a third industrial revolutioncharacterized by advances in robotics,materials and software.

Cooperative Network is a leadingWisconsin business association. It servesmore than 600 member-cooperatives, ownedby more than 6.1 million Minnesota andWisconsin residents, by providinggovernment relations, education,marketing, and technical services for a widevariety of cooperatives including farmsupply, health, dairy marketing, consumer,financial, livestock marketing,telecommunications, electric, housing,insurance, worker-owned cooperatives, andmore. For more information aboutCooperative Network, visitwww.cooperativenetwork.coop. n

Most Co-op Network members say 2012 was a solid economic yearcontinued from page 36

USDA is an equal opportunity provider and employer. USDA is an equal opportunity provider and employer.

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An old favorite has a new look!

USDA’s popular educational tool, Co-ops 101− used as textbooks in many high school and even college-level courses − has been exten-sively updated, with expanded content and full color illustrations in an exciting new format.

39

12

After the fiscal year is over, a cooperative computes its earnings

on business conducted on a cooperative basis. �ose earnings are

returned to the patrons — as cash and/or equity allocations — on

the basis of how much business each patron did with the coopera-

tive during the year. �ese distributions are called patronage re-

funds.For example, if a cooperative has earnings from business con-

ducted on a cooperative basis of $20,000 for the year, and Ms.

Jones does 2 percent of the business with the cooperative, she

receives a patronage refund of $400 ($20,000 x .02).

�is allows the cooperative to return margins to members on an

annual basis, consistent with standard accounting conventions and

13

without regard to how much was earned on

each transaction.Limited Return on Equity Capital

Members form a cooperative to get a ser-

vice—source of supplies, market for products

or performance of specialized functions—not

a monetary return on capital investment.

Many cooperatives don’t pay any dividends

on capital. Others pay a modest return, in line

with state and federal statutes that bar sub-

stantial payments.Limiting returns on equity supports the

principle of distributing benefits proportional

to use. It also discourages outsiders from try-

ing to wrest control of a cooperative from its

members and operate it as a profit-generating

concern for the benefit of stockholders.Cooperation Among Cooperatives

Many cooperatives, especially local associa-

tions, are too small to gather the resources

needed to provide all the services their mem-

bers want. By working with other coopera-

tives—through federated cooperatives, joint

ventures, marketing agencies in common, and informal networks—

they pool personnel and other assets to provide such services and

programs on a collaborative basis at lower cost.owning and managing fertilizer plants, food manufacturing facili-

ties, power plants, national financial institutions, wholesale grocery

and hardware distribution programs, and so forth. Benefits flow

back through the local cooperatives to the individual members.

through 150 years of continuous evolution in the business world.

tive method of doing business.40

Centralized cooperatives have individuals

and business entities (including partner-

ships and family corporations) as mem-

bers. Virtually all locals are centralized.

Regional cooperatives may also be central-

ized.A centralized cooperative has one cen-

tral office, one board of directors elected by its

members, and a manager (or chief executive of-

ficer) who supervises all operations. Business may

be conducted through numerous branch stores or

offices staffed by employees responsible to the central

management team.Federated cooperatives have other cooperatives as their

members. Each member of a federated is a separate coop-

erative that owns a membership share entitling it to voting

rights in the affairs of the federated. Local cooperatives com-

monly form federated regional cooperatives to perform ac-

tivities too complex and expensive for them to do individually,

such as manufacturing production supplies, tapping major financial

markets and marketing on a national or international scale.

Each local cooperative member of a federated cooperative typi-

cally has its own board of directors, manager, employees and facili-

ties to serve its members. �e federated has its own hired manage-

ment and staff and a board of directors elected by and representing

its member cooperatives.Mixed cooperatives have both individuals and other cooperatives as

members. Individuals have voting rights and the cooperatives usu-

ally do also.Functions PerformedCooperatives may perform one or more of three core functions:

marketing products, purchasing supplies and providing services.

Many marketing cooperative brand names are familair

sights on grocery market shelves

41

Marketing cooperatives help members maximize

the return they receive for crops and goods they pro-

duce. Most cooperative marketing activity involves either agricul-

tural products or producers in related industries, such as forestry,

aquaculture and horticulture. New marketing ventures are develop-

ing in such diverse industries as handicrafts, professional services

and information technology.Some marketing cooperatives limit their activity to negotiating

prices and terms of sale with buyers. Dairy farmers and producers

of fruits, nuts and vegetables grown for processing are primary us-

ers of these cooperatives, often called bargaining associations.

Other marketing associations assemble member production

Many marketing cooperative brand names are familair

sights on grocery market shelves

Introducing

New a

Look for it online at:http://www.rurdev.usda.gov/supportdocuments/cir55.pdf

Or get your freehard copies [email protected],calling (202) 720-8381, or writing:

USDA Co-op InfoStop 07051400 Independence Ave, SWWashington, DC 20250

Chapter 6Classifying Cooperatives

by Structure

Cooperatives are described by a number of clas-

categorize them are based on the geographical

territory served, the governance system and the

functions they perform.Geographic Territory ServedOne factor determining cooperative structure

is the size of the area served. Cooperatives are

loosely categorized as “local” or “regional.”Local cooperatives typically operate within a

single State, often within one or two counties.

which to serve members.Regional cooperatives usually serve an entire State

that are nationwide or cover major portions of

the United States. Some regional cooperatives

also have international operations with sales and

members in more than one country. Governance SystemCooperatives can also be classified based on

membership structure, as “centralized,” “feder-

ated” or “mixed.”

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