COOPERATIVES - USDA Rural Development · 2019-11-20 · 4 September/October 1999 / Rural...

COOPERATIVESRural

COOPERATIVESUSDA / Rural Development September/October 1999

The Pr iceIs R ight

AGP sets pace for soybean industry withnew pricing program

The Pr iceIs R ight

AGP sets pace for soybean industry withnew pricing program

2 September/October 1999 / Rural Cooperatives

“Cooperation is people workingtogether to solve problems and seizeopportunities.”

This simple but concise statement isthe opening line of a report I recentlyreceived that examines how U.S. farmpolicy might be adapted to emphasizegreater reliance on cooperatives in the21st century. The report, prepared by atask force led by USDA Rural Busi-ness-Cooperative Service (RBS) staff,envisions an expanded role for cooper-atives in improving and stabilizingagricultural markets while helping tomaintain a dispersed ownership of ournation’s agricultural resources.

This is a fitting thought as we cele-brate National Cooperative Month inOctober. Nationwide, there are about47,000 cooperatives that do everythingfrom helping farmers process and mar-ket their crops to providing electricand telecommunications services forrural families, farms and other busi-nesses. Still other co-ops provide finan-cial services, housing and food. Yet, likemany of you, I believe we have barelybegun to tap the full potential of coop-eratives to help people improve theirquality of life.

USDA Rural Development has tak-en bold action in recent years to deliveron our promise to better support thenation’s cooperative movement. As thelatest indication of this, I’m pleased toreport that Secretary Glickman and Ihave requested that Congress provideadditional funding for USDA’s cooper-ative services program in fiscal year2000.

In addition to providing technicalassistance to co-ops through RBS,we’ve restructured our business loan

programs to funnel more financialresources to cooperatives. We can nowoffer loan guarantees for the purchaseof stock in new cooperatives. We areencouraging cooperatives to increasetheir use of this program, and partici-pation is rising steadily.

Through the Rural Utilities Service,USDA Rural Development providesabout $2.8 billion each year to buildnew or improved utility services forrural Americans, much of which isdelivered through user-owned coopera-tives. Now we are expanding ourefforts in areas such as Internet accessand Distance Learning and Telemedi-cine (DLT). Since 1993, we have pro-vided $81 million for DLT projects toimprove health and education servicesin rural America.

In the past, the co-op developmentbranch of our cooperative services pro-gram had only a handful of co-opdevelopment specialists located in ournational office and three field locations.Now, all 47 USDA Rural Developmentstate offices have a staff memberassigned to do cooperative develop-ment work. Working with our nationaloffice staff, these specialists are provid-ing another valuable resource to helplaunch new cooperatives to serve ruralAmericans. We’ve also increased fund-ing for USDA’s Cooperative Develop-ment Grant program, through whichwe provide money to the nation’s co-opdevelopment centers.

And, of course, USDA Rural Devel-opment remains the world’s leadingsource for cooperative educationalmaterials, distributing as much as aquarter-million pieces of co-op litera-ture each year. Many of these publica-

tions, including this magazine, are now available over our website,www.rurdev.usda.gov. I was pleasedrecently to hear a report from a co-opdevelopment volunteer in Africa who— once he exhausts his hard copy supplyof USDA co-op primers — plans to“pull down” additional copies from theInternet while in Africa.

If you or someone you work with istrying to start or improve the perfor-mance of a cooperative, contact USDARural Development. To be connectedto our nearest state office, call (202)720-4323, then follow the voiceprompts. Or call our national office at(202) 720-7558. We’re here to help yousolve problems and seize opportunities,cooperatively!

Jill Long ThompsonUnder Secretary, USDA Rural Development

C O M M E N T A R Y

Solving rural problemsthrough cooperatives

Rural Cooperatives / September/October 1999 3

F E A T U R E S

4 Network Difficulties

Termination of Georgia wood co-op provides lessons for exportco-op developmentAlan Borst

8 Taking Flight

Sioux Honey cooperative finds sweet success in new productsPamela J. Karg

14 The Price Is Right

AGP sets pace for soybean industry with new pricing programPatrick Duffey

19 The Changing Role of Trade Groups and

Dairy Co-ops

Jerry Kozak

21 Large Cooperatives Unifying:

A Strategic Trend To Monitor

James J. Wadsworth

25 Calcot’s Tom Smith, Other Outstanding

Communicators Win CCA Honors

27 Net Business Volume, Net Income for Farmer

Co-ops Decline in 1998

D E P A R T M E N T S

2 COMMENTARY

13 IN THE SPOTLIGHT

29 NEWSLINE

RURAL COOPERATIVES (1088-8845) is publishedbimonthly by Rural Business–Cooperative Service,U.S. Department of Agriculture, Washington, DC. TheSecretary of Agriculture has determined that publica-tion of this periodical is necessary in the transactionof public business required by law of the Department.Periodicals postage paid at Washington, DC. Copiesmay be obtained from the Superintendent ofDocuments, Government Printing Office, Washington,DC, 20402, at $3.50 domestic, $4.38 foreign; or byannual subscription at $15.00 domestic, $18.75 for-eign. Postmaster: send address change to: RuralCooperatives, USDA/RBS, Stop 3255, Wash., DC20250-3255.

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

Unless otherwise stated, contents of this publica-tion are not copyrighted and may be reprintedfreely. For noncopyrighted articles, mention ofsource will be appreciated but is not required.

The United States Department of Agriculture (USDA)prohibits discrimination in all its programs and activi-ties on the basis of race, color, national origin, gen-der, religion, age, disability, political beliefs, sexualorientation, and marital or family status. (Not all pro-hibited bases apply to all programs). Persons withdisabilities who require alternative means for com-munication of program information (braille, largeprint, audiotape, etc.) should contact USDA’s TARGETCenter at (202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA,Director, Office of Civil Rights, Room 326-W, WhittenBuilding, 14th and Independence Avenue, SW,Washington, D.C. 20250-9410, or call (202) 720-5964(voice or TDD). USDA is an equal opportunityprovider and employer.

Dan Glickman, Secretary of Agriculture

Jill Long Thompson, Under Secretary,Rural Development

Dayton J. Watkins, Administrator,Rural Business–Cooperative Service

LaJaycee Brown, Director of Public Affairs

Dan Campbell, Managing Editor

USDA Design Center, Design

Have a cooperative-related question?Call (202) 720-6483, orFax (202) 720-4641, Information Director,

This publication was printed with vegetable oil-based ink.

United States Department of Agriculture

COOPERATIVESRural

COOPERATIVESSeptember/October 1999 Volume 66 Number 5

O n t h e C o v e r :

The recent installation of this double-walled, automated soy flour baggingsystem has helped AGP increase production while providing customers witha superior packaged product. For a report on how AGP is leading the soy-bean industry in new value-added activities, see page 14. Photo courtesy AGP

Story on pages 14-18.


By Alan Borst, EconomistUSDA Rural Development

n every cooperative ven-ture, there are lessons tobe learned that can helpin future endeavors. Yet

even with the best education, soundtechnical assistance and low risks, somecooperatives never really take off. Thatwas the case with a Georgia co-oporganized to help forest product com-panies tap export markets.

Beginning in the late 1980s, woodnetworks — associations of small- andmedium-sized wood product firms —were established across America. InApril 1993, President Clinton spoke atan Oregon forest conference where hehailed the potential of such networks aseconomic development tools. Otherspeakers also promoted wood networksas a way to save both jobs and old-growth forests by adding value to whatmember wood product companiesalready produced from trees.

Through the early 1990s, the flexi-ble network economic developmentprogram concept was sweeping thecountry, driven by the precedent ofeconomic success among networks inNorthern Italy, Asia and other regions.During this period, economic develop-ment agencies at the federal, state andlocal government levels, along withnon-profit associations, were commit-ting funds to such network develop-ment projects, including several target-ed at forest product companies.

Most of these network ventureswere organized as non-profit associa-

tions with a general mandate toimprove the economic welfare of theirwood product clientele through variousjoint activities. Some of these associa-tions included a joint marketing com-ponent. Others did not.

One network organized as a market-ing cooperative with the relatively spe-cific mission of facilitating memberexport sales was the Georgia WoodExport Marketing Co-op, or “Georgia-Co,” as it was known. Some importantlessons in export marketing cooperativedevelopment can be drawn from GA-CO’s six-year history of operations.These lessons are of particular impor-tance for economic development spe-cialists or cooperative organizers.

The GA-CO caseIn 1988, the industrial marketing

division of the state utility, GeorgiaPower, proposed that small- and medi-um-sized wood products companiesshould form an export marketing coop-erative to facilitate their foreign sales.Georgia Power worked with othersponsoring organizations to supportGA-CO, including the GeorgiaForestry Commission; a major law firm(which handled Georgia Power’saccounts); the Southeast Lumber Man-ufacturers Association; University ofGeorgia Cooperative Extension Service;Georgia Department of Industry,Trade, & Tourism; and the USDA For-est Service-Region 8. Several similarcooperatives had been organized acrossthe Southeast and throughout the Unit-ed States. Georgia Power sold largeamounts of electricity to wood productscompanies, and took an interest inexpanding their customers’ foreign sales

base in order to “export kilowatts.”The idea for the co-op was planted

by a speaker from the Wood ProductsMarketing Cooperative (WPMC) ofAlabama, who made a presentation atthe Forest Products Global MarketingConference in Atlanta during the fall of1988. During this presentation, it wasrevealed that a large amount of fundinghad been secured for the WPMC. Themajority of shipments were beingshipped from western Alabama throughthe port of Savannah, Ga., into foreignmarkets. WPMC trucks were goingright past some GA-CO member mills.

Georgia Power’s economic develop-ment specialists took note of this devel-opment, and concluded that there wasno reason why Georgia mills could nottap into this export market flow. Theco-op’s export mix was planned to be35 percent hardwood and 65 percentsoftwood, with European andCaribbean markets as primary targets.GA-CO had an initial goal of generat-ing new annual sales of $2 million forits 13 members. A few of these mem-bers had some export experience at thetime the co-op was organized.

Sponsors did much of the up-frontorganizational work to establish GA-CO, easing the burden for prospectiveco-op members. Georgia ForestryCommission staff obtained a rulingfrom Georgia’s attorney general whichauthorized the network to be incorpo-rated as an agricultural marketingcooperative. An attorney from GeorgiaPower’s law firm obtained an exporttrade certificate of review from theU.S. departments of commerce andjustice, which conferred the co-op withprotection from the threat of antitrust

N e t w o r k D i f f i c u l t i e sTermination of Georgia wood co-op provides lessons for export co-op development

I


legal actions. The attorney also drewup the co-op’s by-laws and did the workto incorporate it under Georgia’s agri-cultural cooperative statute, with theconsequent benefits of limited liabilityprotection; single taxation on distrib-uted net earnings; and further limitedantitrust protection for operations.

Sponsors and executives from themember-companies visited their con-gressional representatives in Washing-ton, D.C., to secure funding for theproject and to check on the exporttrade certificate of review programprocess. Several small grants, loans anddonations of goods and services fromsponsoring organizations wereobtained, although far less than hadbeen the case for other network pro-jects which had been started a few yearsearlier in the region. Georgia Powerdonated the time of a manager whocoordinated the co-op’s organizationaltasks during its first year and alsooffered surplus equipment to GA-CO.

During 1989, orientation meetingswere held in Savannah, Macon andAtlanta for prospective members. Staffpresented the virtues of coordinatingexport marketing through a co-opstructure. At the time, domestic prices

were depressed and export marketswere seen as viable outlets for Georgiawood product companies. The differ-ent demands of importers were high-lighted, along with the importance ofbeing a committed supplier. Sponsor-ing staff planned to present the ideas,do some of the up-front organizationalwork and then step back and let themembers make up their own minds.

About two dozen companies attend-ed the Savannah meeting, of which halfagreed to participate in the co-op. Thecompany representatives discussed theneed to find new markets and tostrengthen their businesses before pass-ing them on to the next generation.One sponsor described the initial feel-ing among members as “guarded opti-mism.” There were no illusions thatGA-CO would carry its member firms,but it was thought that the co-op couldbe a factor — potentially adding a littleprofit to its members’ margins. Onesponsor reported that there was a gen-eral state of apprehension among somesponsors because it was the first timemany of them had worked together.

The sponsors withdrew from GA-CO after helping with its establish-ment. One sponsor had its budget for

economic development activities cut,and a couple of sponsors had theiractivities with the co-op limited due toregional disputes related to the scope ofassistance and targeted beneficiaries. Itbecame difficult for some sponsors tojustify their GA-CO assistance, giventheir mission and regional jurisdiction.Some sponsors reported that GA-COmembers did not fully take over thecoordination functions after the spon-sors withdrew from management. Noone stepped forward to “stir the pot.”Sponsors felt that the cooperativemechanism had been delivered, andthat now it was up to members to makeit self-sufficient.

Lack of economic needThere was consensus among

stakeholders that the primary reasonfor the termination of GA-CO wasthe lack of economic need amongmembers for the alternative foreignmarkets to which the co-op providedaccess.

During the initial planning phases ofthe co-op in the late 1980s, domesticprices were relatively weak, and exportmarkets were viewed as potentiallyimportant alternative sales outlets.However, domestic markets for mem-bers’ wood products had been at recordhighs throughout the 1990s, while tar-geted foreign markets had been inrecession and complicated by technicaltrade barriers and unfavorable macro-economic factors, such as a strong dol-lar making U.S. exports more expen-sive. Members did not conduct muchexport business and sold very limitedvolumes through their co-op becausedomestic sales were both simpler andmore profitable. Smaller mill opera-tors, such as GA-CO members, did nothave the working capital to tie up inlarge export shipments, which might berefused by the importer or subject tosome technical problem in transit, or atthe border. Because of their individualfears of such losses, the co-op idea hadsome initial appeal as a way to reducethis risk through collective action.

During the late 1980s, domestic lumber prices were fairly low, so more attention was focusedon export markets. USDA Forest Service photo


European customers wanted high-grade, special orders of wood productsin metric sizes. European builderswanted the most valued wood fromlogs, and had little demand for the low-er valued wood, leaving the mills with alot of firewood and otherwise non-saleable byproducts. European carpen-ters tended to custom-build the woodcomponents of their houses, and didnot think in terms of standardizedsizes, as did American builders. Duringthe first two years of GA-CO’s opera-tions, domestic prices for memberwood products increased by 20 percentwhile Caribbean sales were flat andEuropean sales declined. By the timeGA-CO dissolved in spring 1997,domestic prices had increased about 40percent relative to their level at thetime of the co-op’s establishment whileexport markets remained depressed.

One of the sponsoring staff said hisexperience with GA-CO, in light ofthis lack of economic need, remindedhim of well-meaning boy scouts whoeagerly help a senior citizen across thestreet, only to find that the person didnot want to cross the street. WhileGA-CO members earned record prof-its in domestic markets, someCaribbean accounts previously servicedby a few co-op members were takenover by huge mills that under-pricedthem. European markets were moredifficult to serve, and were decliningbecause of macroeconomic factors andtechnical trade barriers. GA-CO’s totalexport sales between 1991 and 1996were slightly over $1 million, andannual sales never exceeded $300,000.In 1994, as European markets weak-ened and members declined to sellthrough the co-op, the Savannah salesoperations were consolidated in Val-dosta, Ga.

Weak cooperative cultureSeveral sponsors and member exec-

utives commented that there was anabsence of a “cooperative culture”among Georgia wood product firms.One respondent noted that, although

cooperative wood export ventures hadbeen tried before in the region, therewas not the history or culture of coop-eration among mills that existed amongfarmers in the Upper Midwest, wherehe had spent some time. Another spon-sor believed that there was a strongercooperative ideology among the forestproduct firms in the Pacific Northwest,where most forests are on public landsand where there is more ease with gov-ernment presence.

In Georgia, by contrast, most millsuse wood from privately owned foreststands and there is less governmentinvolvement in the forest productsindustry. One respondent asserted thatwood product companies in the Geor-gia area were conservative, indepen-dent, and distrustful of competitors,even with regard to informationalready publicly available. Anothersponsor reported that there were earlydoubts about whether the prospectiveco-op member executives could worktogether.

Limited effort limits potential lossesThere had been several previous

attempts at export cooperation forwood products in the Southeast. Onefailed because of technical trade barri-ers related to the pine nematode, unfa-vorable exchange rate shifts and loss ofits markets to competing suppliers.Two other ventures were dissolved earlyon in GA-CO’s six-year life.

GA-CO chose not to try to ally withother wood co-ops because of differ-ences in missions and geographic andfunctional orientation. However, it didinvite mills from the Carolinas to join asmembers. A few mills from South Car-olina did become GA-CO members.

The lesson learned from the experi-ence of some of the other wood exportnetworks known to sponsoring staff washeeded, as such high up-front fixedcosts had been incurred by networkswhich had failed before a single log wasexported. One co-op member wasalready an experienced exporter, andenjoyed good working relations with

some of the other members when GA-CO was formed. Despite some earlymisgivings among some of the stake-holders, co-op members agreed tooperate through the experienced mem-ber’s export marketing staff rather thanrisk incurring high fixed costs by estab-lishing their own office and staff beforeGA-CO was proven. The experiencedmill member had a sufficiently powerfuland positive place within its industry tofunction as the co-op’s sales agent.

The experienced mill member insu-lated co-op members from the financialrisks of export transactions by payingmember firms within 10 days — 30days at most — while waiting 60 daysor longer to receive payment fromimporters. There was some initial con-cern among some of the members andsponsoring staff, who worried that sucha dominant member could subvert theco-op towards its own purposes. Uponreflection, respondents were impressedwith the experienced mill member’sservice and confirmed that none oftheir fears were realized. These mem-bers knew of other failed wood co-opsthat had lost the up-front costs ofexpensive building leases and contract-ed management employees.

One sponsor commented that thedecision to administer through theexperienced member seemed to workout well and did minimize potentiallosses. However, the sponsor wonderedwhether or not it also limited potentialgains which could have been achievedthrough a more ambitious effort withindependent cooperative management.

Lack of member consensusMembers had different visions on

how GA-CO could best serve theirinterests, and disagreed on the amountof capital they were willing to con-tribute to fund cooperative operations.Some sponsors viewed GA-CO withguarded optimism as a tool that couldhelp members become more globallycompetitive. One member executivebelieved that a cooperative structurefor export could work well for wood


products because many importerswanted to deal with one, large supplierthat could fill individual orders. Acooperative could consolidate suchorders from its suppliers while alsoserving as a liaison between member-suppliers and importers. In his experi-ence with exporting, he found that for-eign buyers generally prefer thesecurity of dealing with large supplierswith recognizable trademarks. Theseimporters are concerned with qualityassurance through certification of somekind, while domestic buyers are look-ing for adequate quality at the bestprice and are willing to determine qualitythrough personal inspection.

A co-op structure, he concluded,could best help small mills collectivelymeet the demands of foreign buyers. Aco-op could function as a stable supplierwith multiple member sources and couldalso provide the standardized qualityassurance wanted by foreign buyers.

Another stakeholder described theGeorgia wood products industry asconservative and risk-averse followersof secure market trends. One sponsorreported that many smaller mills werefocused on the next quarter’s returns,and they were not committed to sup-plying export markets when greaterreturns were available in domestic mar-kets. One mill executive said his interestin exporting was to reduce supply and

raise prices in his domestic markets.There was pressure to make the first

export sale in order to prove the viabil-ity of the export marketing co-opstructure. In December 1990, the firstsale to the Caribbean Island of Curacaowas transacted and highlighted with amedia release. Eight of 13 membersmade at least some sales through theco-op, while the vast majority of busi-ness came from a core of two or three.

Some members viewed the co-op ashaving been formed to compete onlarge accounts, yet large inquiries fromimporters never came through. Theyperceived a mismatch between thesmaller import inquiries that GA-COforwarded to members, and the largerinquiries in which members were inter-ested. One member reported wishingthat GA-CO could have worked proac-tively on market development and deal-ing with export sale complicationsrather than only being an order taker.The initial mission of GA-CO was toincrease member export sales at themargin. Existing individual memberexport accounts were not turned over asco-op accounts. Some members expect-ed GA-CO’s value to come from itsability to handle large accounts whichfew or none of the individual memberscould meet on their own. GA-CO wasdesigned so importers had a right tochoose the individual member-supplier

they wanted to fill their orders.The size of the working capital

account limited the volume of exportbusiness the co-op could conduct. Forany given market period, the volume ofexport accounts receivable the experi-enced member mill could manage wastied to working capital from membercontributions. Members voted to allowGA-CO officers to take out a loan toincrease the working capital. One of thesponsors further increased the workingcapital pool by matching member con-tributions. At one point, members dis-cussed the idea of boosting their finan-cial commitment to GA-CO througheven more contributions to the workingcapital pool. Members were unable toachieve consensus on this point.

There was simply no consensusamong members on what kinds ofexport marketing services should beoffered, and how much capital shouldbe invested to support those services.When it became clear that memberswere not going to use their co-op, thedecision had to be made whether toshelve the co-op or liquidate it. Puttingthe co-op into inactive status, butmaintaining its structure, would costsome money to keep up the bankaccount and continue issuing reports.The decision was made to dissolve theenterprise.

Another challenge that complicatedcoordination was GA-CO’s attempts toconcurrently serve the export needs oftwo different kinds of members — soft-wood and hardwood lumber mills.Softwood mills are a lower margin,higher volume business that worksthrough larger operators. The prof-itable shipping range of hardwood logsis narrower than for softwood, proba-bly around 100 miles. After softwoodtrees are harvested, they are replantedand farmed, while hardwoods are natu-rally replenished. Huge, multi-nationalcorporations have a presence in thesoftwood industry, while there are onlysmall hardwood mills.

Some larger corporations have been

Lumber derived from softwood was expected to account for 65 percent of Georgia-Co’sexports. USDA Forest Service Photo

continued…page 31

By Pamela J. KargField Editor

oney mustard drippingfrom honey-glazedpretzels with a tall, coldglass of honey beer.

Honey-nut cereals. Honey-glazedchicken. Honey barbecue sauce andmeat marinades. Tea, cough drops andpower drinks with honey. There’s rawhoney and spun honey. And thenthere’s all those flavored honeys —such as clover, cranberry, orange peeland apple blossom — produced frombees pollinating specific types of blos-soms or by adding a second product.

Take a look at the latest productintroductions at the supermarket or inthe food service industry, and honey isall the buzz. It’s no accident that thisfood, cherised since ancient times, isfinding new ways into today’s consumermarketplace.

“Honey is a unique item to sell,”admits Jim Powell, vice president ofsales and marketing at Sioux HoneyAssociation, Sioux City, Iowa. “Honeyis a mainstream product, but it’s notused in every meal, and it’s certainlynot used the same way it was just a gen-eration or two ago. People today don’tknow exactly what to use honey in, andwe know they’re not using it in cookingand baking like they used to.”

So the Association — with its famil-iar Sue Bee Honey brand name — is ina continual quest to find new ways toget consumers worldwide to increasehoney consumption. The co-op’s mar-keting and research teams are busy asthe bees their members keep producingnew products, building a quality repu-

tation and finding new efficiencies.Beekeepers meet needs with co-opWith $200 and 3,000 pounds of

honey, five beekeepers located nearSioux City formed a marketing cooper-ative in 1921, and named it after thecity it was founded in. The cooperativewas designed to help members markettheir honey at greater profit by provid-ing service and equipment, process-ing/packing facilities and completemarketing and sales operations.

In the early days, honey was market-ed under the Sioux Bee label, but waschanged in 1964 to Sue Bee in order tofacilitate the correct pronunciation.Over time, other lines of honey wereadded and now include Clover Maid,Aunt Sue and Natural Pure NorthAmerican brands.

Previously, honey was delivered toone of seven packing facilities located inSioux City, Anaheim, Calif.; Waycross,

Ga.; Temple, Texas; Umatilla, Fla.;Lima, Ohio; and Wendell, Idaho. Astransportation improved, honey-produc-ing areas moved westward and the asso-ciation streamlined operations. Today,only the Sioux City, Waycross and Ana-heim plants serve the cooperative.

With a 17-percent share of the U.S.honey market, Sioux Honey is thelargest honey marketer in the world.There’s only one company — in Ger-many — that comes close to capturingas much market share as does the coop-erative.

Currently, there are some 340 mem-bers, most of whom live in the westerntwo-thirds of the United States, withothers in Florida and Georgia. Themembership is organized into 13 dis-tricts, with a director representing eachof these member areas.

“We had up to 1,200 members inthe 1970s,” explains Mark Mammen,


T a k i n g F l i g h tSioux Honey cooperative finds sweet success in new products

H

Sue Bee Honey accounts for 17 percent of the U.S. honey market. It is packed and shipped at facilities in Sioux City, Iowa (above), Anaheim, Calif., and Waycross, Ga. Photo courtesy

Sioux Honey Association


vice president for member relations.“But apiaries have grown, consolidatedand modernized like the rest of mostagricultural businesses. Our member-ship numbers are down, but theamount of product marketed grows.”

A changing membershipA majority of the operations were

originally small. Today, the coopera-tive’s board puts a priority on acceptingcommercial members who market atleast 40,000 pounds of honey annually.In fact, 45 percent of the membershipmarkets less than 40,000 pounds ofhoney annually. They account for only5 percent of the association’s annualcrop. The bulk of the membership —about 43 percent — markets between40,000 and 250,000 pounds annually.They account for 45 percent of sales.The top 12 percent of members, 41farmers who market over 250,000pounds annually, account for 50 per-cent of the crop sold through the SiouxHoney Association.

Dale Bauer, a Sioux Honey mem-ber since the mid-1970s, is a commer-cial operator near Fertile, Minn. In1951, then 16-year-old Bauer neededa job and went to work for a local bee-keeper. After a few years of militaryservice, the Nebraska native and hiswife, Lois, moved to her neck of thewoods in northwestern Minnesota.Beekeeping seemed as good a job asany other did, and the couple went atit with enthusiasm.

“From 1957 to 1974, we were pri-vate. We weren’t members of the coop-erative because we were buying anoperation and trying to pay it off,”Bauer explains, almost apologetically.“We needed every dollar we could get,and the marketing fee you had to payas a co-op member cut into that money.I’m not so sure it was the best way togo, but you gotta do what you gotta doat the time.”

Bauer has served on the Sioux Honeyboard for 21 years, the past eight asvice chairman. He’s also currently amember of the National Honey Board.

The Bauers, their son and theirdaughters’ families are involved in theoperation. Every last drop of the goldennectar is marketed through the cooper-ative. They are paid year-round,though honey production is a seasonaloperation.

“Many people think beekeeping is ahobby. I can tell you it’s not. It’s beenmy life’s work,” Bauer explains.

While the family home and honeyextraction and spinning operations arelocated on a seven-acre parcel, theBauers’ 8,000 hives are spread across thecountryside, where the bees feed onalfalfa, sweet clover and sunflowers.Every two weeks or so, the Bauer crewmakes the rounds of hives placed at leasttwo miles apart. They check the wood-en structures, the bees and the honey.Bees, like people, are vulnerable to dis-eases and parasites, sometimes at epi-demic proportions. Bauer says it takes atrained apiarist eye to catch and addressproblems early and avert disaster.

The farmers who own all the fieldswhere the bees do their work are paidin honey at the end of the year. Sincehoney is a natural product, the type offlowers from which bees gather nectar,the geographical region and the weath-er influence its flavor. The presence ofhives in any given area is a win-win situ-ation for both Bauer and other farmers.

“A lot of people don’t realize there’sa greater demand for commercial bee-keepers than ever before,” Bauer says.“Without pollination offered by com-mercial beekeepers and the millions ofhives they haul to places like Califor-nia, you wouldn’t have almonds, mel-ons or cucumbers [among dozens ofother crops]. There aren’t the big, nat-ural hives I remember seeing in thewoods as a kid. So now agriculture hasto depend on commercial beekeepersto pollinate so many crops.”

Making honeyThe National Honey Board esti-

mates that there are 211,600 beekeep-ers in the United States who tend somethree million honey-producing

colonies. The average worker beemakes only one-twelfth of a teaspoonin its lifetime. Bees visit 50 to 100flowers during one collection trip, tap-ping two million flowers to produceone pound of honey. U.S. per capitaconsumption of honey is just over onepound.

A worker bee’s entire existencerevolves around pleasing a queen bee,which lives about 50 times longer thana worker bee. Therefore, beekeepersand the industry invest a lot of timeand effort into queen bee production.

To produce queen bees, beekeeperstake a worker bee egg and graft it intoa cell cup. The hive is queenless andthe worker bees pay special attention tothe egg in the cell cup, feeding it royaljelly to help it grow big and strong. It’sthe queen bee, the only sexually devel-oped bee in the hive, that lays all theeggs to re-populate the colony.

Some keepers select their queensbased on hygienic qualities or bees thatdon’t make much propalis, the sub-stance bees use to seal the cracks oftheir hive. The Bauers select their beesfor production and gentleness.

The bees and hives are at peak pro-duction rates right around the lastweek of June in northern Minnesota.From then until the first frosts, the

Protective clothing prevents bee stings ashoney is collected from bee coloniesbelonging to Dale Bauer of Minnesota, aSioux Honey co-op member since the mid1970s. Photo by Mark Walters


Bauer family is busy. The sealed honey-combs are collected and the wax is cut.In a centrifuge, the comb is spun toseparate the wax from the honey. A sec-ond centrifuge spins the product again,removing more of the wax. There’s onepound of wax for every 100 pounds ofhoney. The wax is sold for further pro-

cessing into candles or floor wax andcosmetics.

The Bauers and other cooperativemembers are responsible for supplyingthe association with honey extractedfrom the honeycomb. This liquid prod-uct is most often shipped to processingplants in 55-gallon drums, which con-

tain approximately 650 pounds of hon-ey. Collectively, the membership pro-duces about 40 million pounds of honeyannually but markets as much as 60 mil-lion pounds around the world, Powellsays. The difference is made up throughnon-member honey purchased by thecooperative to meet customers’ needs.

At the Bauers’ operation, the honeyis loaded onto 50,000-pound tankersand shipped to the Sioux City plant.Two to three tankers leave the familyoperation every week.

After unloading at the plant, thehoney is melted for easier handling.From a large inventory, Sioux Honeyfollows sophisticated blending tech-niques to assure consistent flavor andappearance. In the processing facility,there are flash heating and coolingunits, filter presses and pumps thatdeliver the finished product to thepackaging line. These packaging linesinclude bottle cleaning, filling, capping,front and back labeling and grouppackaging. All finished goods are deliv-ered to storage areas by a system ofconveyors. The completely automated,high-speed packaging lines produce upto 8,000 cases of finished product ineight hours.

Still, the cooperative is constantlyupgrading automated productionequipment and maintaining stringentsanitary conditions, Powell explains.Vast warehouses with computer-con-trolled inventory facilitate quick-fillingand shipment of orders for all productspackaged by Sioux Honey. Warehousesare strategically located, which guaran-tees easy delivery to customers any-where in the U.S. and throughout theworld, he says.

Research and developmentBesides its familiar brand name,

Sioux Honey has several claims to tech-nological fame: exclusively designedequipment and top-notch laboratoryfacilities. The cooperative’s spun honeyspread mixing tanks and seed grinderswere developed by the co-op’s researchstaff and are found nowhere else.

From the days of the Egyptianpharaohs, through the Greek and Romancivilizations up to the present, honeyhas been treasured both as a medium ofexchange and as a rare taste treat. Andits popularity today has been boosted byits image as healthy food — an imagethat has provided a boost to Sioux BeeHoney marketing and product develop-ment efforts.

Honey is 100 percent pure and com-posed primarily of carbohydrates, sothere’s no fat or cholesterol. One table-spoon of honey contains less than twomilligrams of sodium, which the Foodand Drug Administration considers“sodium free.” A tablespoon has about60 calories. The product can be kept atroom temperature.

Because of its high fructose, honeyis sweeter than sugar. While it’s low innutrients, honey does contain morethan refined sugars, a fact noticed byscientists.

A 1998 food science and humannutrition review found that honey con-tains trace amounts of antioxidants anda wide array of vitamins, minerals andamino acids. Additional research isunderway to discover other benefits ofhoney.

Honey contains vitamins such as B6,thiamin, niacin, riboflavin and pan-tothenic acid. Essential minerals includecalcium, copper, iron, magnesium, man-ganese, phosphorus, potassium, sodiumand zinc. There are approximately 18different amino acids, adds Dr. SusanPercival of the University of Florida’sFood Science and Human Nutrition

Department. She conducted a study ofhoney last year.

Whether stirred into tea or coffee,spread across toast or eaten off aspoon, honey appears to boost a per-son’s daily supply of antioxidants.

“Antioxidants perform the role ofeliminating free radicals, which arereactive compounds in our bodies,”says Percival. “Free radicals are creat-ed through the normal process ofmetabolism and are believed to con-tribute to many serious diseases whenleft unchecked.”

But it still comes down to taste anduse. Consumer habits have changed,and where and how honey is used mustchange, says Sioux Honey’s Jim Powell.

With two-person family incomes,hectic lifestyles and people who wantmeal prep time to last no longer than afew minutes in a microwave, food ischanging. More chicken nuggets aresold every year, so Sioux Honey hasfound a new market: its own Sue Beebarbecue sauce.

National Honey Board-sponsoredprojects debuted at this summer’s Insti-tute of Food Technologists annual meet-ing included battered and marinatedcatfish products using honey as aningredient, consumer acceptance ofroasted chicken injected with honeymarinades and quality enhancement ofchicken baked without skin using honeymarinades.

The Board and Sioux Honey eachcontinue to eye more industrialavenues. ■

Honey’s hea l thy image he lps market ing


Yet it’s the product quality that is thefoundation of the cooperative’s success,and the success of its members.

“Color, flavor and moisture are thequalities we constantly need to moni-tor,” Powell says. “We also need tolook at contamination by antibiotics oreven pesticide residues picked up infields by the bees.”

Samples of honey coming into anyof the three plants is tested and gradedfor clarity, type, flavor, moisture andcolor. The most advanced methods andthe most exacting standards are used toassure that every grade of honey pack-aged under the Sue Bee label is thefinest available anywhere, he says.Members are paid color and moisturebonuses.

“Quality is the utmost concernbecause we have such a natural productto begin with,” adds Bauer.

On a random lot basis, the coopera-tive will test a member’s honey for sug-ar syrup adulteration, miticide residuesor any other adulterant that may causefinancial damage, explains Mammen. Ifsomething is found, the member isnotified and the quality control depart-ment of the cooperative must giveapproval before any payments areissued for a member’s honey produc-tion. Any member whose honey causesfurther contamination is responsiblefor reimbursing the Association for alldamages resulting from the contamina-tion, or the person loses his or hermembership, he adds.

Finding new industrial marketsOnce the Canadian cold fronts slide

south and the fall season ends, theBauers pack up their bees and movesouth. Their son, Daniel, daughterTammy and son-in-law Brad Campbellmanage the hives that are placed inTexas for the winter. Daughter Jodi andson-in-law Darren Straus manage thehives the Bauers place in Mississippi.The Bauers make their winter home inTexas and keep track of both operations.

“When our children were young,they’d spend the first semester at

school in Minnesota and the secondsemester at school in Texas. When theygot to be seniors, though, we let themmake a choice. All three graduated inMinnesota,” Bauer explains.

In fact, the greatest amount of honeythat’s marketed through the coopera-tive comes from Minnesota and NorthDakota. Other top-producing statesinclude California, Montana, SouthDakota, Texas, Idaho and Nebraska. Sothe Bauers and many of their fellowbeekeepers in Minnesota and NorthDakota could see each other for mostof the year — north or south.

The Bauers count themselves lucky.Not only do they escape the blizzards,sub-zero temperatures and frozenengine blocks of the Minnesota winter,but they also have children who areinterested in beekeeping. That’s notnecessarily the case across the industry.

“There aren’t a lot of young peoplegoing into beekeeping right now,”Bauer says. “I don’t think too many cansee the nature of it and how it can be afull-time career.”

Just like their shifting members,Sioux Honey is also eyeing places it canmove its products. Its global presenceextends to the Middle East, Far East,Europe, South America and Central

America. But new product develop-ment occurring in the United Statesthrough retail and industrial sales showpromise.

The cooperative’s advanced process-ing technology allows it to producehoney by the bucket, by the barrel orby the tanker truck for industrial use.Its transportation network ensuresprompt delivery of honey, which is usedin a variety of products — from cerealsand baked items to brewery and meatproducts.

Honey usage in manufactured foodand beverages is at an all-time high.Consumers associate honey with natu-rally good quality, boosting the imageof products containing it.

A sampling of companies that haverecently introduced new honey-fla-vored products to capture the imagina-tion of health-focused consumersinclude: Celestial Seasons of Boulder,Colo., which has an herbal tea samplerthat features Honey Lemon Ginseng;Caffe D’Amore of Pasadena, Calif.,which has eight new teas that blendtogether black tea, honey, creamers andspices; and Oregon Chai of Portland,Ore., which has introduced OregonChai Charger, a caffeinated tea featuringhoney, to an existing line of organic

Lab technicians in Sioux City, Iowa, monitor product quality and assist food manufacturers infinding new ways to incorporate honey in their products. Photo courtesy Sioux Honey Association


chai, which is a type of tea. The SueBee logo also appears on some Arizonabrand beverages.

Strong sales, weak pricesThe cooperative’s ability to create

demand for honey is essential becauseit’s been a tough market in recent yearsfor beekeepers such as Bauer. Accord-ing to Powell, the honey industry expe-rienced major changes in the past threeyears. Most of those changes center onprice and production — basic supplyand demand economics.

“Three years ago, there was anundersupply of honey throughout theworld and, because of that, it forcedprices up,” Powell explains. Prices arenow only about half that amount.

Those drastic price fluctuations arenot taken lying down, however. Theco-op is responding by concentratingon industrial and food service markets,both here and abroad, to fuel demandand maintain stable prices to members.

Bulk sales of honey have increased andSioux Honey Chief Executive OfficerGary Evans says the association intendsto continue the pursuit of sales in this

area because of the potential for greatergrowth.

“Areas of manufactured food andfood service open opportunities forhoney markets that, heretofore, wehave not fully exploited,” he says.

“The cooperative is the way to go,”Bauer adds. “Consumption may notbeing going up as much as we’d like tosee it go, but working together throughthe cooperative to expand markets is agood way for a bunch of people to kindof control their destiny.”

As he sits on the board, Bauerwatches directors and staff who try toget the best money for the farmer’sproduct. He witnesses the pooling ofresources from individual farms and thejob the cooperative’s employees do, dayin and day out, to sell members’ honey.

“This cooperative’s strengths are itshonesty, integrity and impeccable repu-tation for quality,” Bauer adds. “It’s givenme peace of mind since I started tomarket through the cooperative ratherthan worrying about doing it on myown. Now I can concentrate on thebees and knowing my cooperative isdoing an excellent job in marketing.” ■

Microbrewers havea tas te fo r honeyAt the Fourth Street Brewing Co. inSioux City, Iowa, Sue Bee Honey Alehas become a popular drink. Workingwith people such as Larry Chase,Fourth Street’s head brewer, SiouxBee Honey is finding that the smallbreweries sprouting all across Amer-ica have a definite taste for honey.

The American beer scene is expe-riencing a renaissance, of sorts.Microbreweries, brew pubs andhome brewers have provided most ofthe momentum towards making craftbeers — those made using tradition-al, complex recipes and costly ingre-dients to brew many classic styles ofbeer. In 1980, there were only fourmicrobreweries and no brew pubs.By 2000, it is estimated that there willbe close to 3,000 of them. Only one insix fail, a success rate that is turningheads in the brewing industry andgiving Sioux Honey ideas for thefuture.

Even large breweries have recog-nized this new market for specialtyand flavorful beers. From well-hoppedpale ales to robust, flavorful stouts,Americans now have more beer typeson the shelves in their favorite tavernthan at almost any other time in histo-ry. And that includes more and morebeers containing various flavoringssuch as fruits, herb, spices and, ofcourse, honey.

According to Chase, honey gen-erally rounds off the flavor profile ofbeer. It boosts the alcohol a bit andgives the brew a floral aroma, offset-ting some of its bitter flavors fromhops. The character added by honeydepends on what floral type of hon-ey is used and when the honey isadded to the beer. Honey’s contribu-tion overall is relatively subtle, so astout or porter which uses darkermalt ingredients will have lessnoticeable honey character than alight lager with the same amount ofhoney, Chase explains. ■

Dale Bauer’s bee colonies are prepared for shipment to Texas each winter. Photo by Mark Walters


By Pete PennerChairman of the BoardSun-Maid Growers of California

“With 30 percent of the California

raisin market, the entire industry

needs to be successful in order for

Sun-Maid to be successful.”

- Pete Penner

Co-op description: Sun-Maid Growersof California is celebrating its 87thcontinuous year as a grower-ownedcooperative. The cooperative began in1912 as the California AssociatedRaisin Co., which adopted Sun-Maid asits brand name in 1915. The co-op’sfamiliar logo was first created that sameyear and soon became one of America’sbest known trademarks. In 1922, thecooperative changed its name to Sun-Maid Raisin Growers to identify moreclosely with the popular brand-name.

Sun-Maid currently operates a 130-acre processing and packaging facilityowned and managed by its growermembers.

Personal information: Pete Pennerbegan farming in 1955 and currentlyoversees 300 acres of grapes and 200acres of deciduous fruit in Reedley,Calif. A member of Sun-Maid since1960, he became a Sun-Maid directorin 1968. Penner served as vice-chairman from 1976 to 1986, when hewas elected chairman, a post he helduntil April 1999. Penner currentlyserves as second vice-chairman ofSun-Maid.

In addition to his longtime workwith Sun-Maid, Penner is very active inseveral community and business orga-

nizations in the Fresno County areaand continues to be a driving force inthe California raisin industry. He hasserved as chairman of the RaisinAdministrative Committee and is thecurrent vice chairman of the RAC. Heis also chairman of the CaliforniaRaisin Marketing Board, which ischarged with promoting Californiaraisins and expanding markets for theindustry.

Developments at Sun-Maid Grow-ers: “Sun-Maid is currently expandingand enhancing its sales and marketingfunctions and continuing to developnew ways of producing and marketingraisins. As with most businesses today,changing technology, regulation andconsumer demands require us to becreative and flexible. We’re trying to beproactive in meeting these challenges,”he explains.

Sun-Maid’s goals: “Sun-Maid is in thestrongest financial position in ourhistory,” Penner says, “and we’recontinuing to find ways to maintainthis strength and provide the best forour grower members. Sun-Maidrepresents about 30 percent of theraisin producers and we operate undera Federal marketing order which affectsthe entire raisin industry. As a result, tobe successful the entire Californiaraisin industry needs to be successful.”

Biggest concerns of raisin growers:“Raisins are an extremely labor-intensive crop,” Penner explains, “solabor supply is a critical and ongoingconcern for our industry. In 1998, laborshortages resulted in huge problems forour members and all raisin growers, so

we need to find ways to both automateand assure an adequate supply ofworkers now and in the future.”

“Water is another big issue in Cali-fornia,” he continues, “as is urbanencroachment and other land-useissues. We’re also very concerned withthe aging face of agriculture in general.We have to find ways of continuing thefamily farm by allowing young peopleto stay in the business of farming, notonly in the raisin industry but in all ofagriculture.”

What are the key rural developissues facing Western farmers andranchers? “As I mentioned, water andurban encroachment are big concernsfor us and the entire agriculturalindustry,” Penner stresses. “California’sraisin-growing region is confined to arelatively small area in the San JoaquinValley. This area is feeling growthpressure from urban areas within theregion and from metropolitan areas innorthern and southern California. Thismeans more land and water is shiftingfrom agriculture to residential use. Asan industry, agriculture must find waysof protecting its resources througheducation of the public andmaintaining a presence in the land-useplanning arena.” ■

I N T H E S P O T L I G H T

Pete Penner, Sun Maid board chairman.


By Patrick Duffey, Information SpecialistUSDA Rural Development

early 16 years ago, agri-cultural producers fromthe farm fields of theMidwest bankrolled a

new business that would strengthen thenation’s then-weak soybean processingindustry and give farmers a greater rolein determining the future of the marketfor soybeans. Today, as a more mature“teenager” in terms of operating years,Omaha-based Agricultural ProcessingInc. (AGP) is still setting the industrypace as it prepares to enter the new mil-lennium with annual gross sales thatwill soon top $4 billion. That’s a dra-matic increase from the $700 million insales it recorded in 1983.

AGP, owned by 285 local and 10regional cooperatives, will take onanother pioneering role for the indus-try this fall when it begins paying pre-mium prices at its nine processingplants for soybeans that meet graduatedlevel standards for oil content. Thenew program took effect Oct. 1.

Jim Lindsay, AGP’s chief executiveofficer, says the cooperative is “excitedabout the opportunities and benefits ournew oil premium program presents toour cooperative members. It representsanother avenue to add value to soybeansfor farmers throughout the cooperativesoybean processing system.”

While the pricing program is new tothe soybean industry, component pric-ing or value-added marketing is routineto other agricultural industries as bothproducers and processors try to matchcommodity traits with the demand of

food manufacturers and consumers. Ingrain, the protein content of wheat hasbeen measured for decades to determinefor price. The dairy industry calculatesprice to producers based on the proteincontent of milk, which is a critical factorfor making cheese. Oil content has beenmeasured in some specialty types ofgrains used in particular markets.

Lindsay anticipates this type of buy-ing will become a standard practice inthe future. “We believe farmers shouldbe rewarded for providing a product ofhigher value. AGP has made a sizableinvestment and commitment to launchthis oil premium program for theirbenefit,” he says.

Value pricing originsAGP started building the foundation

for the value-pricing system 18 monthsago in cooperation with field testing by14 Iowa local cooperatives, CharlesHurburgh at Iowa State University andthe Iowa Soybean Promotion Board.

Research was initially conducted atAGP’s processing plant and vegetableoil refinery at Eagle Grove, Iowa. AGPstudied ways to obtain an accurateassessment of soybean value prior toprocessing. Computers were linkedwith near-infrared transmission (NIT)technology which provides rapid andaccurate whole grain analysis of deliv-ered soybeans. The equipment has now

T h e P r i c e I s R i g h tAGP sets pace for soybean industry with new oil pricing program

N

Soybean oil formulations are monitored in AGP laboratories. In 1998, the cooperativeprocessed more than 1.5 billion pounds of soy oil. Photos courtesy AGP


been installed at all nine of AGP’s soy-bean plants.

AGP employees have been trainedto use the new equipment. NIT com-puter data, combined with normalgrading procedures, were compiled andanalyzed by AGP. Testing revealed thatthe new system more accurately andefficiently calculates the various oil lev-els, and computes and prints out settle-ment forms at the time of delivery. Itassesses the soybean value and reflectsthat in prices paid to producers.

Last year, AGP field tested 240 soy-bean samples representing 137 varietiesin Iowa growing zones. Tests revealedsignificant oil and protein variances intoday’s mix of varieties which have beenbred and selected for yield.

The highest yielding soybeans canvary by more than three pounds of oilper bushel. The 30 percent variance inoil content equates to more than 150pounds of oil per acre of soybeansyielding 50 bushels per acre. LarryBurkett, AGP senior vice president forcorporate and member relations, saysproject data convinced AGP thatselecting seed varieties with above aver-age oil content — without sacrificingyield — would generate added value.The oil premium would add to themarket price, increasing farmers’ returnper bushel and profit per acre.

Given the new technology, segregat-ed marketing of differentiated com-

modities is expected to catch on.Oil content variances in today’s seed

varieties are not expected to initiallytranslate into sizable value premiums,Burkett indicated. “The real advantageto growers lies in the future, when newvarieties will have improved oil contentand generate greater value levels thanare present today. Premiums will likelyincrease with that oil content advancein new varieties.”

Oil in advanced varieties“If a value-added system could be

adopted industry-wide, all U.S. soy-bean farmers would have greateropportunities to add value to theiroperation,” Burkett says. “The systemwould also create a way to provideincentives for the development of seedvarieties that could focus on value com-ponents and also benefit soybean farm-ers and their industry by making soy-beans more competitive in world oiland food markets.”

Burkett relates, “Our ability to worktogether as a cooperative soybean sys-tem was the key in striving for newheights in the soybean market andstrengthening prices for farmers. Itproved to be the catalyst for introduc-ing the new program.”

AGP builds marketThis type of attention to the needs

of both producers and customers has

helped AGP emerge as the world’slargest cooperative soybean processor,and the fourth largest overall soybeanprocessor in the United States. Sinceits formation in 1983, AGP has beencommitted to being a successful value-added company that returns its profitsto the local and regional cooperativesthat represent 300,000 farmers from16 states in the United States and threeCanadian provinces. AGP annuallypurchases and processes more than 5.5million acres of members’ soybeans atits plants in Iowa, Missouri, Nebraskaand Minnesota. As the nation’s thirdlargest vegetable oil refiner, AGP shipsproducts by truck and rail to food ser-vice companies for use as ingredients innationally recognized food products orfor specialty processing.

At the end of fiscal 1998, the co-op’spre-tax return on investment was 17.6percent. AGP spent a record of morethan $1.3 billion to purchase corn, soy-beans and milo for processing. AGPalso retired $10.7 million in allocatedequities, making it current with the1991 allocated equities balance. Mem-bers have $298.3 million in allocatedequities invested in AGP. By adding inretained earnings and capital stock, thetotal is actually $354 million.

Midwest ties to soybeansIn the 1930s, the Midwest became

the hub of U.S. soybean production.Cooperatives began building soybeanprocessing plants in the 1940s, recallsBurkett.

“These plants evolved into a highlyefficient system. And with all theinvestment in new uses, the potential infuture diets and possibilities withbiotechnology, we believe soybeanshave just started their climb. Soybeansoffer a continuous, bright future forfarmers,” Burkett says.

AGP entered the processing scene in 1983. “At that time, the soybeanindustry was plagued by weak marginsand considerable inefficiency. It was acase of something good evolving out of a very bad condition at the time,”Burkett says.

AGP added several hundred rail cars this year to enhance members’ access to markets andspeed deliveries.


AGP’s Lindsay Discusses Co-op’sGrowth, ManagementPatrick Duffey, Information SpecialistUSDA Rural Development

James Lindsay has been the first andonly chief executive officer and gen-eral manager in the nearly 16-yearhistory of Ag Processing Inc. He hadprior business experience with cornand soybean processing as an execu-tive with Archer-Daniels-Midland. Forfour years he was chairman of theNational Oilseeds ProcessingAssociation. The Omaha-based coop-erative he heads has become theworld’s largest cooperative soybeanprocessor and an aggressive player inthe U.S. market. In this interview, hediscusses the cooperative’s progressand aspects of his management phi-losophy.

Question: What is AGP’s mission?Answer: AGP serves local coopera-

tives and their agricultural producer-owners by performing the primarybusiness functions of acquisition, pro-cessing and marketing of agriculturalproducts. It adds value to farm com-modities and flows its earnings to pro-ducers through member cooperatives.

Q: How did AGP build its financialstanding in its short 16-year history?

Answer: When the company first

started, its aim was to survive.It had a high debt-to-equityratio, prompting the bank to keep aclose eye on it. We reduced expensesand hired the right people, whichhelped the company turn the corner.When you reduce costs, you add toproduction and improve your plants.

A commodity-based business canoperate on small margins with a highvolume. It took two to three years toreach our competitive goals. Afterthat, AGP learned it could survive. Thecompany needed to produce $115 mil-lion income in gross margins per yearbefore expenses. More capacity wasnecessary to compete with major soy-bean processing companies. As ourconcerns turned to being competitive,our competitors were also expanding.We always had a watchful eye forpotential disasters that we couldn’twork through.

AGP’s board and management

developed a strategic plan for thecompany to invest its resources andexpand the business. Three consider-ations were necessary for us toachieve 15- and 20-year goals: 1) Toget attention, a project must producethree times the annual interest rates(rate of return). Any project at two

times or less is notrealistic unless ittakes time to grow.2) What will a pro-ject do to the com-pany if it fails?Does it threaten thedestiny of the com-pany? AGP avoidsbig-risk projects. 3)Debt-to-equity con-

siderations. In a depression, a compa-ny works more carefully. It’s reason-able to work from a 20-30 percentposition. In some cases, you can evenstretch to 60 percent, but it’s good tobuild back to 30 percent.

Rail transportation is vital to AGP’soperation, so it leases rail cars to shipproducts to its customers. From afinancial point of view, leasing is thesame as going into debt, even thoughit doesn’t show on the balance sheet.We report both the actual debt toequity and debt to lease and equitycombined. We tell our members thereal rate so they don’t get the wrongimpression.

Q: What has prompted AGP’sextensive expansion in recentyears?

Answer: Much of the expansion

The AGP Food Group suppliessoybean oil and flour that areused in a wide variety of foodproducts, adding valuebetween the farm gate andconsumers’ plate.

James Lindsay

“Jim Lindsay, our first and onlyCEO, compiled a staff that attackedcosts with a vengeance. They built thecooperative into today’s very diversi-fied company that operates many busi-nesses. AGP has kept per-bushel costsat the same level or lower, in some cas-es, even with years of inflation.”

New technology was introduced intoits multiple-plant system and crushcapacity was expanded from 300,000bushels per day to more than 630,000,thanks to new facilities at Emmetsburg,Iowa, and Hastings, Neb. In vegetableoil refining, AGP climbed from zero tothird largest in the nation. Through

refining, AGP now markets multiplefood-grade oil products, lecithin andfeed fat.

Industrial uses for soybeansFurther value-added processing is

underway at the methyl ester plant atSergeant Bluff, Iowa, where AGP pio-


has been defensive, keeping pacewith the industry. AGP has built twonew soybean processing plants and anew corn processing plant. The newplant at Hastings is the first coopera-tive soybean processing plant inNebraska. Also, most free standingsoybean oil refineries have been goingout of business.

To survive, most processors havetheir own refineries. AGP expanded itsrefining capacity with a new plant atEagle Grove, Iowa, and is now buildinga new refinery at Hastings. Refined oilhas become a high-quality, commodi-ty-priced product that’s sold on thebasis of price and service. The busi-ness goes to those who provide thebest service. AGP builds its businessaround quality and service.

Q: Where is the future in soybeanexports?

Answer: Farm programs alwaysheld an umbrella over soybean prices.Argentina and Brazil, our major soy-bean producing competitors, contin-ued to build infrastructure. To staycompetitive, AGP now wants toprocess beans into exportable prod-ucts instead of merely bulk beans. Wecan produce corn and soybeanscheaper than any country in the world.

We should grow hogs and chickenshere. Whole grains face stiff tariffs insome countries. You add more jobs inthe United States through processing.In trade, it’s best to keep everybodyinterdependent. You’re less likely toget belligerent with them. It’s nice tohave balanced trade.

Q: What is AGP’s future direction?Answer: Diversity is critical to the

company’s future. As we add new busi-nesses to diversify, our objective is tobecome a low-cost producer in thatnew business. AGP has expanded intothe feed, hog and grain businesses.

We’re constantly in a see-sawstate in the hog business — produc-tion is low and processing high or viseversa. Farmers need to expand moreinto value-added processing such asFarmland Industries has done andshare in the good and bad times withone another.

Hog processors had to get pricesto the point where producers stoppedshipping to them as supplies out-stripped the processing capacity. Thisresulted in heightened interest invalue-added swine processing coop-eratives. We congratulate FarmlandIndustries for setting a base price itpaid for hogs. As a farmer-ownedcompany, we need to keep producersin mind.

AGP is basically a processor andwholesaler. It would be wise to contin-ue to follow that pattern. We don’tenvision getting into a business inwhich we have little knowledge, suchas farm production supplies. Our realsuccess may be judged in another 50years because we’re a youngster inthe market.

We’re currently doing what ourstockholders want, adding value tosoybeans and their investment. Wehave an extremely active membership.We meet with them twice yearly at

regional meetings and at the annualmeeting to apprise them of finances,the grain situation and technical sub-ject areas ranging from transportationto marketing.

We encourage producers to dobusiness with their local cooperatives.But there is a tendency from farmer-members to put too much pressure onlocals for services at less than cost. Iffarmers insist on a lot of free services,it erodes the profits flowing back tothem. Nothing is free.

This is a time of high consolidationin agribusiness with movement towardsome form of integrated food productsystems. In the future, AGP may beprocessing different commodities, per-haps in concert with an allied compa-ny. If alignment becomes important inthe farm-food sector, AGP will find analliance.

Some members are already align-ing in pork and wheat. We anticipatemore shrinking of the number of localsinto larger operations, much as hasoccurred with farms. We also envisionmore centralization in marketing. Theregionals will become grain partnerswith locals. AGP is positioning itselfwith locals seeking an alignment.

We’re prepared to step in ratherthan let a local be sold to a competi-tor, particularly in the areas surround-ing our plants. Part of AGP’s challengeis to help farmers identify with value-added products. We see ourselves asa catalyst in the food-farm sector,working in alliances. ■

neered new industrial uses for soy-beans. Soy diesel, spray adjuvants andsolvents and cleaners have been devel-oped as environmentally friendlyreplacements for petroleum-basedcounterparts, Burkett explained.

“Corn processing added anotherdimension to AGP,” indicated Cal

Meyer, vice president, soybean/cornmarketing. “Our AGP Grain Coopera-tive, owned by AGP and 200 localcooperatives, markets more than 300million bushels of grain annually andassists several member cooperativesunder a marketing agreement.”

Expansion at Hastings, on the west-

ern edge of the corn-production belt,boosted processing capacity to 45,000bushels per day. AGP began ethanolproduction there in 1996 and was sub-sequently expanded.

“With the corn and soybean plantsat Hastings, AGP has the capacity toship trains containing DDGS (dis-


tiller’s dried grain solubles, a high-pro-tein ingredient used in livestock feeds),pelleted soyhulls and soybean meal tothe West coast dairy and poultry mar-kets,” Meyer says.

Feed diversificationAGP’s diversification into the feed

business has also paid dividends. Manyof Consolidated Nutrition’s feed plantsowned jointly by AGP and Archer-Daniels-Midland are located nearAGP’s soybean plants, and represent avaluable market for soybean meal.

The building of a new soybean oilrefinery at St. Joseph, Mo., in 1985marked AGP’s entry into value-addedrefining. Since then, AGP has bothexpanded its refining capacity and for-mulation capability due to increaseddemand from food companies. Today,AGP invoices nearly 600 specific for-mulations of vegetable oils appearing as

ingredients in food products thatconsumers use on a daily basis.

“All of AGP’s business groups arepositioned for continued growth,”Burkett noted, “and enable us to betterserve more local cooperatives and theirfarmer-owners. The next dimension isthe new soybean oil pricing program.”

Looking ahead, AGP expects to remain competitive in a global market-place.

“In the coming millennium, worldeconomic conditions will continue tobe of concern not only to AGP but toeveryone in agriculture,” Lindsay says.“International markets are critical tothe success of our industry. Duringchallenging financial times on the farm,the mission of AGP to add valuebeyond the farmgate by returningearnings to farmers through their localcooperatives becomes even morecrystal clear.” ■

AGP expandsglobal presenceGiven its strong financial base, AGPis emerging from a period ofunprecedented expansion whichexemplifies food integration thatenhances returns to AGP members.These expansions enabled AGP toeffectively compete in the globaleconomy. Shipping soybean meal to20 countries helped push interna-tional exports up 198 percent in fis-cal 1998. To fortify market presence,AGP has:■ Diversified into corn processing in1996 with a new plant at Hastings,Neb. Capacity was recently expandedby 50 percent.■ Entered soybean processingoperations with new plants atEmmetsburg, Iowa and Hastings,Neb. Created a soybean market atHastings for more than 36 millionbushels of farmer-produced grainsper year in central Nebraska.■ Opened a new vegetable oil refin-ery in 1998 at Eagle Grove, Iowa, andbroke ground for a new refinery in1999 at Hastings.■ Added a new methyl ester plant atSergeant Bluff, Iowa. Soy methylester is used in solvents, cleaners,agricultural spray adjuvants, cos-metics and soydiesel. It is exploringnew uses, such as explosives.■ Upgraded existing plants such asat Mason City, Iowa, where storagehas been boosted 150 percent. ■ Began manufacturing Amino Plus,a high-bypass soybean meal shownby AGP research to increase milkproduction by as much as 10 percentin lactating dairy cattle.■ Purchased interest inProtinal/Proagro, a broiler produc-tion, processing and marketing com-pany that also markets livestock feedand seed in Venezuela.■ Opened AGP Hungary, a premixand feed company owned by AGPand 12 farmer cooperatives in Hun-gary.

High-tech monitoring equipment in AGP plants assures consistent quality.


By Jerry Kozak, Chief Executive OfficerNational Milk Producers Federation

ears before the Cap-per-Volstead Actallowed cooperatives tocollectively bargain on

behalf of their members’ economicinterests, U.S. dairy leaders establishedthe National Milk Producers Federa-tion to create a single, national pres-ence for dairy associations. NMPF wasformed back in 1916, making it one ofthe first national, commodity-orientedorganizations to promote the economicand political interests of farmers andtheir collectively owned creameries andmarketing organizations.

But - as the cliché goes - times havechanged. While milk itself is still essen-tially the same as it was 85 years ago,the dairy industry is structurally verydifferent than before. And with a newcentury sure to pose new challenges, it’simportant to examine how a member-ship association like NMPF mustevolve to better represent the needs ofits member cooperatives. Let’s start bylooking at how the industry haschanged.

A historical perspectiveAt the end of World War II, there

were roughly 3.5 million dairy farms inthe United States. Today, 50 years later,there are 100,000. There were morethan 1,000 dairy cooperatives half acentury ago. Today, while there are stillmore than 200 dairy co-ops, just 20 ofthose market half of all the milk pro-duced in the United States (roughly160 billion pounds annually). The top

three cooperatives alone (Dairy Farm-ers of America, Land O’Lakes andnewly merged California Dairies) mar-ket approximately 50 billion pounds ofmilk annually.

It’s also worth noting that, 30 yearsago, only 65 percent of the nation’sdairy farmers marketed their produc-tion through a cooperative. That fig-ure has grown to 83 percent today. So,while the number of farms and cooper-atives has declined, the marketingpresence of farmer-owned dairy co-opshas actually expanded during the pastgeneration.

One of the primary missions of ourorganization, like countless othersbased in Washington, D.C., is to pro-vide representation in Congress andwith the federal agencies that regulateour industry. That’s a key reason whyNMPF was formed, and it’s still at theforefront of what our members look tous to do. As long as the government hasa presence in the production and distri-bution of dairy products, it will beimportant to have a Washington-basedpresence for dairy farm organizations.

In fact, there was a time not longago when the dairy cooperatives thatbelong to NMPF asked whether theystill needed a national presence. Andafter looking at their needs and therealities of the dairy industry, theanswer they arrived at was a resounding“yes” - they need to have a recognizedand consistent voice on Capitol Hilland with the USDA, Federal DrugAdministration, Environmental Protec-tion Agency and other agencies whoseactivities have a daily impact on theoperation of dairy farms.

Dairy co-op issues changingSo, National Milk continues to fill a

unique and important role for its mem-bers. But the assortment of issues inwhich we’re involved is changing, andthus our role is evolving in relation towhere we’ve been in the past. Forexample, take the issue of internationaldairy standards.

Ten years ago, the manner by whichEuropean nations determined the com-position of their cheese was of little orno concern to U.S. cheese manufactur-ers. We didn’t import or export enoughof the product for us to bother compar-ing notes with other cheese-producingcountries. But as the U.S. governmentand other nations work through theWorld Trade Organization to increaseglobal trade in products such as cheese,ice cream and butter, it is critical forthe U.S. dairy industry to involve itselfin that process. And it’s the role ofNMPF to give American farmer-owneddairy cooperatives a seat at the tablewhen international dairy standards areconstructed.

T h e C h a n g i n g R o l e o f D a i r y T r a d eG r o u p s a n d C o - o p s

Jerry Kozak

Y


Environmental concernsEnvironmental regulation is another

area where NMPF has evolved to bet-ter reflect the needs of its members. Asmost farmers are aware, the USDA andEPA are developing a new regulatoryapproach to managing the environmen-tal impact of animal waste. The regula-tions that result from this process couldhave as significant an economic influ-ence on dairy farmers as the FederalMilk Marketing Order program ordairy price supports. So, it’s importantto have a national organization such asNMPF to bring dairy producers’ con-cerns to federal regulators as theydesign the new animal waste guidelines.

Our evolving mission also reflects anincreasing concern with consumers’attitudes towards our members’ prod-ucts. The leading concern of dairy con-sumers, according to most attitudinalsurveys, is not price, variety or taste,but food safety. Dairy has an admirablerecord of providing safe, high-qualityproducts, but in this information-inten-sive age, one isolated pathogenic out-break can have national — even inter-national — consequences. NMPF mustserve as an educational voice for themedia and consumers during times

when a national presence is required tokeep consumer-oriented issues in theirproper context. No individual coopera-tive, or regional organization, has thesame capability.

Sorting through informationAnother factor that will determine

how NMPF changes in the future is thetransformational influence of informa-tion technology. At the core of our mis-sion is the exchange of information —not so much data, such as a financialservices or marketing organizationwould manage — but ideas, news andperspective. For decades, NMPFserved as a conduit for opinions andideas both from Washington to ourmembers, and vice versa. Thatexchange often took weeks or months,and was reliant on paper correspon-dence. Today, thanks to the ubiquity ofcomputers, we have the capability ofmoving that information much morethoroughly and rapidly. The use ofemail and the Internet enables NMPFto more rapidly and effectively commu-nicate both to our members and therest of the world.

Truth be told, thanks to informationtechnology, the same news that we pro-

vide to our members sometimes can beobtained by them directly from thesource (Congress, USDA, WTO, etc.).Where NMPF’s role becomes morecrucial is the addition of context to thatinformation. Our interpretation ofevents, and our assessment of theimpact of those events on the dairyindustry - these are where NMPF addsvalue to the daily flow of informationwithin the industry. And as we allbecome increasingly bombarded withthe facts, figures and conjecture of theInformation Age, the role of a tradeassociation increasingly will be screen-ing this flow of information so that it isuseful and instructive to our members,and not just confusing.

Ultimately, the role and scope ofNMPF is a mirror image of its ownmembership.

NMPF reflects both the hopes andfears of dairy producers and their coop-eratives. As the number of farmsdeclines and those remaining get larger- and the same pattern applies to coop-eratives themselves - NMPF will con-tinue to evolve to best reflect the needsof its changing membership base. ■

RECs on track for Y2KStatus reports on electric power

supply and delivery into 2000 indicatethat the nation’s cooperative electricutilities are on track with the rest ofthe industry in preparing to keep thelights on when the calendar changes.Eighty-six percent of the electriccooperatives participating in a surveyof the electric utility industry report-ed they had achieved Year 2000 readi-ness by the June 30 goal set by theU.S. Department of Energy. Another13 percent said they would be readybefore the end of the year.

Data from 96 percent of 858 elec-tric cooperative distribution systems

were compiled as part of a compre-hensive assessment of electric distrib-ution readiness contained in “Prepar-ing the Electric Power Systems ofNorth America for Transition to theYear 2000: A Status Report and WorkPlan,” delivered to DOE by theNorth American Electric ReliabilityCouncil (NERC). As requested byDOE, NERC is the official coordina-tor of Year 2000 readiness, risk assess-ment and contingency planning forthe electric utility industry.

The survey of electric co-ops,fourth in the series begun last year,was conducted by the National RuralElectric Cooperative Association,Arlington, Va., the trade association

representing private, consumer-owned cooperative utilities. Thenation’s nearly 1,000 private, con-sumer-owned cooperative electricutilities serve more than 32 millionpeople in 46 states. Electric coopera-tives serve 13 million businesses,homes, schools, churches, farms, irri-gation systems, and other establish-ments in 2,600 of 3,128 counties inthe United States.

For information on how USDAcan assist your cooperative with Y2Kreadiness, visit our website atwww.ocio.usda.gov/y2k/index.htm, ormake a toll-free call to the President’sCouncil on Year 2000 Conversion at1-888-872-4925. ■


By James J. Wadsworth,Agricultural EconomistUSDA Rural Development

Editor’s note: This article stems from

forthcoming RBS Research Report 174,

“Cooperative Unification: Highlights

From 1989 to Early 1999”, in which

highlights of unification activities, most

of them among well-known coopera-

tives, are described. That report is an

offshoot of RBS Service Report 57,

Cooperative Restructuring, 1989-1998.

nifications — mergers,consolidations andacquisitions. Whatdoes the future hold?

In the September/October 1998issue of Rural Cooperatives, CatherineMerlo provided an overview of recentcooperative merger activity (WhenCooperatives Combine, pp. 18-23),pointing out the big deals completed,the benefits, doubts and sticky points ofmerging. Her article also discussed themerger aftermath and potential formore mergers.

This article adds to that discussionby recognizing the broad extent of theunification activity during the past 10years, conceptualizing unification as acomponent of strategic planning. Italso raises questions to consider in thefuture as the true implications of large-scale unifications manifest themselves.

Unification - to what extent?To provide a rough estimate of

cooperative unification activity, figure 1graphs activities derived from removalsfrom USDA’s cooperative mailing listfrom 1989 to 1997 (each year, farmer

cooperatives are dropped from themailing list because of mergers, consol-idations, acquisitions, dissolutions,etc.). The unifications are those coop-eratives that indicated they merged orconsolidated, or were acquired byanother cooperative. The trend ofthese statistics shows the peak year ofactivity is 1991, with 135 unifications.Other high years were 1992 (107) and1995 (90). Low years for co-op unifica-tion were 1997 (57), 1994 (61), and1992 (68).

From 1989 through 1997, USDARural Development documented a totalof 777 unifications. Of those, 65.8 per-cent were identified as mergers andconsolidations, and 34.2 percent wereacquisitions. These unifications includ-ed cooperatives of all sizes, althoughmany of them were local or smallercooperatives.

RBS Research Report 174 describes51 selected unifications that took placefrom January 1989 through early 1999.While selection for this study was arbi-trary, the unifications were sortedaccording to cooperative size or per-ceived market impact. Unificationswere categorized by type of cooperativeor activity performed. As a result, 20unifications were labeled as “dairy,”nine as “farm supply,” eight as livestockand seven as “fruit and vegetable.” Fourcooperative unifications were labeled“grain” and three involved “finance”(CoBank and its counterparts). The topyears for unification activity among thissample were 1995 and 1998, with nineoccurring each year.

Cooperative unification activityoccurred in a broad and scattered pat-tern across the United States, most of it

in California, Washington State, theMidwest, the Mid-South and parts ofthe East.

Looking over the past 10 years —and even further back — it is clear thatcooperatives have been making unifica-tion choices for some time. However,recent unifications have involved largercooperatives and expanded the pres-ence of nationwide cooperatives withbroad expanses of membership.

A strategic planning directionUnification is a direction often cho-

sen in response to dynamic trends andindustry conditions, and the inherentneed for cooperatives to realize mem-ber goals. Such conditions often pres-sure organizations to change or considerchange (figure 2).

In strategic planning, cooperativesrespond to trends affecting their opera-tions and service to members by assess-ing alternative strategic directions thatwill allow them to continue to accom-plish organizational and system-widegoals. Figure 3 shows cooperatives havethree directional choices. They can: 1)make internal changes to improvestructure, efficiencies and operations;2) unify with other cooperatives orcompanies; or 3) develop marketingagreements, joint ventures, strategicalliances or other working businessrelationships with other organizations.

Unification, often conducted toachieve stronger industry position, alsoprovides cooperatives with opportuni-ties to use new strategies. Figure 4illustrates cooperative strategic posi-tioning and potential growth channelsthat often result from unification.Flowing from unification are a variety

L a r g e c o o p e r a t i v e s u n i f y i n g :A s t r a t e g i c t r e n d t o m o n i t o r

U


of probable strategies that come intoplay. Unification develops a strategicposition that will often propel the sur-viving entity into one or more potentialstrategy channels of: vertical integra-tion, horizontal integration, scaleeconomies, capacity expansion, syner-gies and efficiencies.

Unification can create a survivingcooperative that: 1) participates in twoor more vertically adjacent industries(vertical integration); 2) expands anexisting line of business and amassingresources or bargaining power to sharemarket risks by accumulating volumerequired to realize scale economies inproduct procurement, sales, transporta-tion and distribution (horizontal inte-gration and scale economies); 3) sub-stantially increases assets andoperational base resulting in greatercapacity and improved use of resources(capacity expansion); or 4) collapsesspecific facets of operations into moreefficiently managed and operated cen-tral functions (synergies, efficiencies).

Examples of such strategies duringamalgamations are prevalent. Forinstance, the numerous mergers involv-ing Mid-America Dairymen led to theformation of Dairy Farmers of Americaand brought about horizontal integra-tion, economies of size/scale, vertical

integration involving value-addedproducts, and more efficient use ofcapacity. Those, in turn, created signifi-cant growth for the cooperativesinvolved and formed a cooperative ofsignificant size and scope.

In today’s business environment,growth is one of the critical goals ofunification for cooperatives. Economiesof size, greater market prominence andmembership enhancement are allgrowth factors that cooperatives striveto achieve. Vilstrup, Cobia and Ingals-be (Cooperatives in Agriculture, Chapter20, Prentice-Hall, 1989) contend thatgrowth is considered a sign of ahealthy, successful business, pointingout that advantages to growth are asso-ciated with economies of size and theability to achieve marketing and bar-gaining power, political power, legisla-tive influence and financial strength.

Questions to contemplateSo, growth through unification has

been prevalent, intriguing and is alter-ing traditional agricultural markets.Now, what does it mean? Why aresome cooperatives making the choice?These are worth contemplating sinceexperience and evidence indicate thatunification is often the hardest choicefor cooperatives to make and then pur-

sue. Unification alters cooperative cul-ture, internal and external structure,governance, asset base, membershipboundaries and more. It also ofteninvolves a drastic change in operationsand overall organizational and gover-nance structure.

With the kinds of growth the coop-erative movement has seen lately - thedevelopment of large regional coopera-tive organizations - it’s worth raisingsome questions. Let’s start with mem-ber governance and service:

How large can cooperatives become on anationwide basis and still be effective orga-nizations well represented and well gov-erned by member owners? Will producermembers be better served, or will the dilu-tion of joined cooperative cultures and theresulting broad governing bodies, waterdown the level of member-owner control?

In other words, will cultures bediluted as cooperatives grow into largerand more widespread organizations,crossing broad geographic boundaries?Will the transformed cooperatives haveless member representation and gover-nance? And, will those mega-coopera-tives be stronger and better able toserve members?

The ongoing and fast structuralchange in agricultural industries cloudsthe answers to these questions. Clearly,some agricultural markets need to beconsolidated for higher member bene-fits. Some are fragmented by too manycompeting organizations given the lim-ited producers and resources involved.

Some often contend that overcom-ing fragmentation can be a significantstrategic opportunity, and that oncebarriers to consolidation are overcome,the structure of an industry can beimproved for those that consolidate.The structures of agricultural indus-tries in dairy, farm supply and cattle,for instance, are changing due to con-solidation. The artificial inseminationindustry has seen considerable consoli-dation. Once an industry with a largenumber of stud operations, it has nowconsolidated into four cooperatives and

FIGURE 1Unifications, based on USDA mailing list drops

160

140

120

100

80

60

40

20

0

1989 1990 1991 1992 1993 1994 1995 1996 1997

Merger or consolidation Acquisitions Total


Farmland,Cenex HarvestsStates move closerto merger

The boards of directors of FarmlandIndustries, Inc., Kansas City, Mo., andCenex Harvest States Cooperative, St.Paul, Minn., have voted to combineoperations, effective March 1, 2000. Thenew organization would be called UnitedCountry Brands and have projectedsales of nearly $20 billion. The boardsmet Sept. 22 to sign final unification doc-uments. Informational meetings in 37cities will follow in October and Novem-ber. The members of both cooperativeswill vote Nov. 23 on the consolidation.

Both organizations have complimen-tary businesses and overlapping mem-berships. The consolidation wouldincrease opportunities to add value tothe grain and livestock raised by pro-ducers. A desire to be a stronger playerin a fast-paced and changing globalagricultural food system coupled withaccelerated concentration brought onby the industrialization of U.S. agricul-ture is triggering the union, officialsreport.

Not lost on the participants are the

opportunities to achieve substantialoperational savings and to open win-dows to expanding markets. An expect-ed $500 million in consolidation savingsduring its first six years will be offsetsomewhat by the expense of formingUnited Country Brands. A segmentedbase-capital plan that provides mem-bers with proportional investment in thebusinesses they use will become effec-tive Sept. 1, 2000.

Leadership slots for the proposednew cooperative have been designatedby an interim board. Bob Honse, Farm-land’s chief operating officer, would bethe initial chief executive officer throughDec. 31, 2003. John Johnson, presidentof Cenex Harvest States, would be pres-ident of United Country Brands untilDec. 31, 2004, then take over as CEO.Current CEOs H.D. “Harry” Cleberg ofFarmland and Noel Estenson of CenexHarvest States will become advisors tothe new cooperative until their plannedretirements on Dec. 31, 2000.

During a transition period throughDec. 31, 2001, Elroy Webster, CenexHarvest States chairman, will head the34-member interim board (17 from eachcooperative). Al Shively, current Farm-land chairman, will become the newvice chairman. After that, a 25-memberboard would be elected, consisting of 18producers and seven local cooperativemanagers.

What could be the last separateannual meetings of the two coopera-tives will be held Dec. 2-3 (CenexHarvest States) and Dec. 7-8 (Farmland).Although United Country Brands’ officeof leadership would be based in KansasCity, where Farmland is building a newheadquarters, the new cooperativewould maintain a significant employeepresence at Inver Grove Heights, Minn.Should the merger be approved,employee relocation should be minimal.The total number of employees in eachcity would remain about the same, offi-cials report. Grain and energy interestswould be based at Inver Grove Heights,while refrigerated foods and livestockwould be centered at Kansas City.

The proposed new cooperativewould not impact the joint agronomyventure started more than 12 years agoby Cenex and Land O’Lakes, Inc. Thatventure—continued after the merger ofCenex with Harvest States—will carryforward, officials report. United CountryBrands will share half ownership withLand O’ Lakes, and business will be con-ducted in both Kansas City and InverGrove Heights.

Both Cenex Harvest States and LandO’Lakes also have a 55 percent interestin CF Industries, Inc., an inter-regionalmanufacturer and distributor of fertilizers.

a select number of private firms. Thedairy industry, overall, continues toconsolidate. Though fragmentation inthat industry still applies in certainareas, Dairy Farmers of America andLand O’Lakes, for instance, continue togain large- scale prominence. The num-ber of players in the industry has shrunk.

Consolidations in the farm supplyindustry also are prevalent, including:Land O’Lakes and Countrymark,Cenex and Harvest States, and theprospect of Farmland and Cenex Har-vest States.

The changing structure of certainindustries cannot be ignored. However,overcoming fragmentation and seeingindustries consolidate, perhaps towardthe “rule of three” (which asserts thatthere is only room for two or threemajor competitors in an industry sec-tor-the companies that can supply thevolume and service needed to supportdemand), invites more questions.

How effective is unification for indus-tries and its participants? Will theyimprove along with member services of theremaining cooperatives? How will large-

scale unifications affect other cooperatives(local and regional) in the industry orrelated industries?

The structural changes taking placewill pressure existing cooperatives withcomparatively slight industry involve-ment or market share. It may forcethem to consider unification or otheraction. The impact of such pressuremust be carefully weighed. Continuingto serve producer-members in the mostefficient and beneficial way, givenchanging structures, should be the ulti-mate goal of remaining cooperatives.


So, cooperatives must assess the impli-cations of unification on their marketposition and revenue-driven businesspractices as well as on service.

Figure 5 summarizes the potentialimpacts and implications of unification.Given significant change via unifica-tion, there are a number of unknownsto contemplate. What will be theimpact on: 1) member service and gov-ernance, 2) other cooperatives andfirms, 3) industry and industry perfor-

mance, and 4) subsequent strategyemployment and organizational/opera-tional change? Cooperative leadersmust keep attuned to unificationsaffecting their cooperative and theirindustry and what impact these struc-tural changes have on the organizationsand services to members.

Unifications among co-ops areexpected to continue, and to furtheralter the structure and scope of agricul-tural industries. Questions as to the

effectiveness of further consolidationarise. The answers won’t be easy toassess, but time and a keen eye on theimpacts of such unification activity willeventually produce a clearer picture.Research and/or analyses beyond merelydescribing unification activities areneeded to gain a greater understandingof how unification is impacting indus-tries and of its effect on cooperativecultures and operations. ■

FIGURE 2Trends and conditions pressuring cooperatives

Broken boundariesof traditional marker

Value-added concept, vertical

integration

Fewer and largerfarms

Global economy, economic boom

Lower level of gov-ernment intervention

Striving for rela-tive market power

(rule of three) Need for criticalmass, economicsof scale, market

share

Competitive pressure from

large/strong coop-eratives and private firms

Cooperative(Change?)

FIGURE 3Industry dictated strategic positioning

Terms & Conditions

Organization, Adjustment, Planning, and Position

Industry Change

Organizational &System-wide goals

Internalchange Unification Ventures,

Agreements

AlternativeStrategic

Directions for GoalAccomplishment

External conditions

Decision nodes

FIGURE 4Strategy potential of unification

Unification

Vertical integration

Horizontalintegration Scale

economics

Capacityexpansion

Synergiesefficiences

FIGURE 5Strategic implications (questions) of unification

Membersservice,

governance?

Industry andindustry

performance?

Subsequentstrategies,

organizationalchange?

Othercooperative

firms?

UnificationImpacts &

implications

Industry StrategicPositioning

Growth

Organization, Adjustment, Planning, and Positioning


ommunication is a cor-nerstone of coopera-tives, and a profession-al organization

recognized outstanding contributionsto the field at its annual meeting inOmaha, Neb.

Tom W. Smith, chief executive offi-cer of the Calcot cotton and almondmarketing cooperative, was namedthe1999 CEO Outstanding Coopera-tive Communicator Award.

Presented by the CooperativeCommunicators Association, the awardrecognizes Smith’s efforts to promotebetter understanding of his cooperativeamong members, customers, employ-ees and the general public. Smithreceived the honor at CCA’s annualinstitute in Omaha.

Leader of the Bakersfield, Calif.-based cooperative since 1977, Smithwas cited for expanding the scope andsubstance of the company’s communi-cations program and for adopting astrategic plan that emphasizes a strongcommunications component at virtual-ly all levels of Calcot’s operations.

He started his career with Calcot in1957 as a field representative just aftergraduating from Texas A&M. Eventhough he wasn’t trained as a journal-ist, one of his earliest duties was to editCalcot’s award-winning publication,“The Calcot News.” Smith says hefound this a tough assignment, but itopened his eyes to the need for com-munications vehicles that provide adirect link between management, co-op members and others.

Under Smith’s leadership, Calcothas grown from marketing 500,000bales of cotton annually to as many as

2 million. He currently is guiding theexpansion of Calcot’s marketing ser-vices to include almonds, a step takenin part to help members suffering fromdepressed cotton prices. Smith says hebelieves communications efforts areparticularly important when times aretight. Cutting back such programs toprove austerity to members is a hugemistake, he notes.

Communicators from Cenex andGROWMARK earned top cooperativecareer awards from the CCA.

Jantzen’s co-op career honoredJean Jantzen, recently retired vice

president of public relations withCenex Harvest States, received CCA’sKlinefelter Award given for careerachievement in cooperative communi-cations. Jantzen’s retirement earlierthis year marked the end of a 35-yearcareer with cooperatives, originallywith Cenex, St. Paul, Minn., and thenwith Cenex Harvest States after Cenexand Harvest States merged in 1998.

During her career, she moved froman administrative support role to keypositions in the public relations area,honing skills in areas ranging fromcorporate and marketing communica-tions to media relations, meeting plan-ning, cooperative education, govern-mental affairs and human resources.Her communication skills and under-standing of cooperatives helped herrise through the ranks to become oneof the first women named a Cenex vicepresident.

GROWMARK’s Hastings recognizedGROWMARK’s corporate relationsmanager received CCA’s Graznak

Award. Ann Hastings received theaward in recognition of career achieve-ments and excellence in cooperativecommunications by a CCA member 35years of age or younger.

She joined GROWMARK, Bloom-ington, Ill. in 1993 as publicationsmanager and was named to her currentposition in 1995. She has also workedat the Illinois Soybean Association,Bloomington, and the Coles-MoultrieElectric Cooperative, Mattoon, Ill.She’s a University of Illinois graduatewith a degree in agricultural communi-cations.

In 1997, she attended the GraduateInstitute of Cooperative Leadership atthe University of Missouri. She isworking on a master’s degree in busi-ness administration at Illinois StateUniversity, Normal. Hastings serveson the CCA board and the IllinoisCooperative Coordinating Committee.

Merlo, Haynes, Farmland honoredTwo communicators and the com-

munications staff of a major farmercooperative received top honors inCCA-sponsored competitions.

C a l c o t ’ s T o m S m i t h , o t h e ro u t s t a n d i n g c o m m u n i c a t o r s w i n C C A h o n o r s

C

Tom W. Smith, CEO Communicator of theYear.


Catherine Merlo was named writerof the year, primarily on the strengthof articles written for USDA’s RuralCooperatives magazine (see item below).Merlo, of Bakersfield, Calif., heads acommunications firm that works close-ly with a number of cooperatives andrelated organizations. She formerlyworked with Calcot. The recipient ofawards in a number of categories inthis year’s CCA writing competition,Merlo was cited by judges for her abili-ty to address a wide variety of assign-ments.

Page Haynes, communications spe-cialist at Tennessee Farmers Coopera-tive in Lavergne, earned photographerof the year honors. Judges saidHaynes’ winning photographs demon-strated both an ability to capture the

subject matter and eliminate outsidedistractions. They also praised her skillin capturing human emotions and feel-ings in her feature photos of people.

Best-of-class award in the specialprojects competition went to the com-munications staff of Farmland Indus-tries, Kansas City, Mo., for its web site(http://www.farmland.com). Judgessaid the site was a model of usefulinformation. The Farmland site won inthat category of competition and thenearned best-of-class honors among allwinners in special projects categories.

1999-2000 officers electedCCA officers for 1999-2000 are:

President Patricia Keough-Wilson,Minn-Dak Farmers Cooperative; VicePresident Lani Jordan, Cenex-Harvest

States; Secretary Heather Berry, Asso-ciation of Missouri Electric Coopera-tives; and Treasurer Tim Brown, Ari-zona Electric Power Cooperative.Other directors include Ann Hastings;Mark Bagby, Calcot; Karla Harvill,Gold Kist; Leta Mach, National Coop-erative Business Association; andSheryl Doering Meshke, AssociatedMilk Producers.

CCA formed in 1952 and is anorganization of some 400 communica-tions professionals who work for coop-eratives and closely allied organizationsthroughout the U.S., Canada andEurope. It can be found at www.Coop-Comm.com. Its 2000 annual meetingwill be held June 24 to 28 at GrouseMountain Lodge, Whitefish, Mont. ■

Klinefleter award winner Jean Jantzen(left) and Graznak award winner AnnHastings at the CCA CommunicationsInstitute in Omaha.

Rural Cooperativeswins editorial honors

Rural Cooperatives magazine wona number of editorial and photogra-phy honors during the CooperativeCommunicators Association (CCA)annual Communications Institute inOmaha, Neb.

Among the honors were threefirst place writing awards, for:“When Cooperatives Combine”(September/October ‘98 issue),about the merger trends amongcooperatives; “Hooked on Catfish”(May/June ’98 issue) about the DeltaPride catfish cooperative in Missis-sippi; and “The Triumph of theDawson Workers’ Cooperative”

(March/April ’98 issue) about aworker-owned textile cooperative.

Another article, “Pooling forPower” (July/August *98 issue),about an effort by California farmersto lower their cost for electricity,won a third place writing award.Catherine Merlo, the author of allthe articles, was named CCA“writer of the year.” The magazinewas awarded third place honors asbest overall co-op member maga-zine, and USDA photographer KenHammond won a second placephotography ribbon for a portrait ofa West Virginia seamstress.

CCA strives to promoteimproved communications andpublic affairs programs amongfarmer- and consumer-owned coop-eratives.


Editor’s Note: Information for this articlewas compiled by the Statistics Staff ofUSDA’s Rural Business-Cooperative Ser-vices, including Charles A. Kraenzle,Celestine C. Adams, Katherine C. DeVille,Jacqueline E. Penn and Ralph M.Richardson

Business volume of the nation’sfarmer-owned cooperatives declined to$104.4 billion in 1998, down from$106.7 billion in 1997, according todata compiled by USDA’s Rural Busi-ness-Cooperative Service. Business vol-ume includes gross receipts from thesale of crops, livestock, farm suppliesand services collected by the nation’s

3,651 farmer cooperatives.Farmer cooperatives’ net income of

$1.7 billion in 1998 was down from$2.3 billion in 1997. That’s the lowestincome level since 1993 and well offthe income record of $2.36 billion setin 1995. Lower margins for farmsupplies, poultry and sugar were majorfactors that caused the income decline.Losses suffered by a number of cooper-atives also hurt the overall incomeperformance.

Crop and livestock marketingreceipts dropped 1.5 percent, farmsupply sales declined 3.8 percent andservice receipts and other income fell

3.5 percent in 1998. Among the majorproducts marketed, grain and oilseeddollar volume dropped the most (13.6percent), largely due to significantlylower prices.

The drop in farm supply sales wasdue mainly to lower prices for livestock

N e t b u s i n e s s v o l u m e , n e t i n c o m e f o rf a r m e r c o - o p s d e c l i n e i n 1 9 9 8

TABLE 1 Farmer cooperative numbers, net income, and memberships, 1998 and 19971

Principal product Cooperatives2 Net income3 Membershipsmarketed andmajor function 1998 1997 1998 1997 1998 1997

Numbers Million dollars 1,000Marketing:

Cotton4 15 16 64.0 67.7 41.3 42.7Dairy 228 239 447.2 369.7 92.9 104.9Fruit & vegetable 249 259 76.9 189.7 44.0 44.0Grain & oilseed 964 1013 441.4 437.0 728.7 745.0Livestock & poultry 98 108 -71.2 191.4 197.8 270.3Rice 17 18 7.3 7.3 12.9 14.0Sugar 52 51 -12.1 -2.0 15.9 13.8Other products5 240 239 64.0 52.5 264.9 263.2Total marketing 1,863 1,943 1,017.5 1,313.3 1,398.4 1,497.8Farm suppy6 1,347 1,386 578.8 834.6 1,773.7 1,743.2Related-service7 441 464 146.0 166.5 180.6 183.1Total 3,651 3,793 1,742.3 2,314.4 3,352.6 3,424.2

1Preliminary. Totals may not add due to rounding.2Operations of many cooperatives are multi-product and multi-functional.They are classified in mostcases according to predominant commodity or function indicated by business volume.

3Net income less losses and before taxes.4Cooperative cotton gins included with related-service cooperatives.5Includes bean and pea (dry edible), nut, tobacco, wool, fish and miscellaneous marking cooperatives.6Data for 1997 memberships were revised.7Includes trucking, cotton gins, storage, artificial insemination, rice driers and other services cooperatives

TABLE 2Cooperative business volume,

1998 and 19971

Commodity Net volume2

or function 1998 1997

Million dollarsProducts marketed:

Cotton 2,961 3,004Dairy 25,324 23,374Fruits & vegetables 9,423 9,268Grains & oilseeds 3 21,295 24,639Livestock & poultry 9,555 9,578Rice 932 930Sugar4 2,445 2,284Other products5 4,737 4,765Total products 76,671 77,843

Supplies purchased:Crop protectants 3,163 3,125Feed 5,367 5,988Fertilizer 5,161 5,371Petroleum 6,420 6,756Seed 730 702Other supplies6 3,384 3,238Total farm supplies 24,226 25,181

Services & other income:7 3,520 3,647Total business volume10,4418 10,6670

1Preliminary. Totals may not add due to rounding.2Volume includes value of products associatedwith cooperatives that operate on a commissionbasis or bargain for members’ products.Excludes intercooperative business.

3Excludes cottonseed.4Data for 1997 were revised.5Includes dry edible beans and peas, fish, nuts,tobacco, wool, and other miscellaneous products.

6Includes building materials, containers, hard-ware, tires-batteries-accessories (TBA), farmmachinery and equipment and other supplies.

7Includes trucking, ginning, storage, artificialinsemination, rice drying and other.

feed, petroleum and fertilizer. Feed salereceipts alone dropped 10.4 percentfrom 1997. The drop in farm supplysales, as well as the lower margins, alsohad a significant impact on earnings offarm supply cooperatives. Net incomeof $578.8 million was down nearly 31percent.

Farm marketing cooperatives —those that sell crops, livestock and val-ue-added products for their members— also suffered a steep 22.5 percentdecline in net income. Fruit/vegetable,poultry and sugar cooperatives all suf-fered significant income drops. Buckingthe trend were dairy co-ops, whichposted a 21-percent income gain. Netincome for grain and oilseed coopera-tives increased 1 percent despite sub-stantially smaller sales volumes.

Co-ops reflect farmer trendsCooperatives continued to expand as

reflected by total assets reaching arecord $46.5 billion in 1998, anincrease of 5.8 percent from nearly $44billion in 1997. To finance this expan-sion, total liabilities also grew to $26.6billion from $25.5 billion, a 4.5 percentincrease. More importantly, however, a

larger proportion of total assets werefinanced by net worth as it jumped tonearly $20 billion from $18.5 billion,an increase of 7.6 percent.

The number of U.S. agriculturalcooperatives dropped to 3,651, downfrom 3,791 in 1997, reflecting thechanging structure of agriculture.Mergers, consolidations, acquisitionsand dissolutions resulted in a loss of195 cooperatives. However, 55 cooper-

atives were added to the list in 1998.Membership in farmer cooperatives

totaled 3.35 million in 1998, down 2.1percent from 1997. The number ofmemberships was larger than the num-ber of farmers in the U.S. because manyfarmers belong to more than one coop-erative.

Cooperatives employed 173,782full-time employees in 1998, up from172,199 in 1997.


FIGURE 2Cooperatives’ Net Business Volume,

1994-98120

100

80

60

40

20

0

Billi

on d

olla

rs

1994 95 96 97 98

106.7 104.7106.293.889.3

FIGURE 1Cooperatives’ Net Income, 1994-98

2.5

2.0

1.5

1.0

0.5

0.0

Billi

on d

olla

rs

1994 95 96 97 98

1.96

2.362.25 2.31

1.74

Farmland, Cenex-Harvest StatesTop NCB’s l istTwo agricultural organizations thatrecently announced plans to consoli-date operations top the list of thelargest U.S. cooperatives, publishedby the National Cooperative Bank(NCB), Washington, D.C. The annuallist recognizes America’s top 100cooperatives with annual revenuesgreater than $325 million.

Farmland Industries, with 1998revenues of nearly $8.8 billion, andCenex Harvest States, with nearly $8billion in 1998 revenues, were the

largest agricultural cooperatives inthe Co-op 100 list. In addition, the twoorganizations are the largest cooper-atives in the United States.

Consolidation among agriculturalcooperatives was a major trend in1998. Nine of the agriculture cooper-atives listed in last year’s report werepartners in mergers with four of thetop 100 cooperatives, notes the NCBreport. Agriculture remains the domi-nant industry sector in the NCB list,represented by 42 cooperatives withcombined revenues of $60 billion,compared to 49 ag cooperatives with$57 billion on the 1997 list.

Top 15 on 1998 NCB Co-op 100®

Name ‘98 Revenue ‘97 Revenue Ag Rank$ millions

1. Farmland Industries $8,775 $9,148 1 2. Cenex Harvest States $7,959 $9,124 2 3. Dairy Farmers of America $7,325 $3,862 3 4. Land O’ Lakes

$5,174 $4,195 4 5. Wakefern Food Corp. $5,159 $4,613 – 6. TruServ Corporation $4,328 $4,224 – 7. TOPCO Associates Inc. $4,000 $3,900 – 8. Associated Wholesale Grocers

$3,180 $3,129 – 9. ACE Hardware Corp. $3,120 $2,907 –

10. Ag Processing Inc. $2,615 $2,948 5 11. Roundy’s Inc.

$2,516 $2,611 – 12. Spartan Stores $2,409 $2,475 – 13. Do-It-Best Corp. $1,948 $1,749 – 14. Certified Grocers of CA Ltd. $1,832 $1,827 – 15. Lumbermen’s

Merchandising Corp. $1,700 $1,656 –


N E W S L I N E

Wisconsin’s Karg new field editorPamela Karg, Baraboo, Wis., is now

the field editor of Rural Cooperativesmagazine, published bi-monthly byUSDA Rural Development. As fieldeditor, she writes several feature storiesin each issue as well as assists in editingarticles. Karg’s cooperative knowledgewas formed at Foremost Farms USA, aWisconsin-based dairy cooperative,during which time she earned numer-ous writing and photography awardsfrom the National Milk Producers Fed-eration and the Cooperative Commu-nicators Association (CCA). In 1991,Karg received CCA’s Michael GraznakAward, presented annually to an out-standing young cooperative communi-cator. She went on to serve CCA as adirector and as its president. In 1995,Karg opened her own communicationsbusiness and now writes for cooperativepublications, agricultural and dairynewspapers and magazines, commercialtelevision and community radio.

Gold Kist,Cotton StatesInsurancefounder dies

DavidWilliamBrooks, 97,retiredfounder ofGold Kist Inc.and of Cotton

States Insurance Companies, died Aug.5 in an Atlanta hospital. Brooksobtained bachelor’s and master’sdegrees in agriculture from the Univer-sity of Georgia and began teachingagronomy at age 19, making him one of

the youngest faculty members at the uni-versity. In recent years, he served in a vis-iting position which, he pointed out,made him the oldest professor on campus.

Brooks left the university in the early1930s to form Georgia CooperativeCotton Producers Association. In 1974,the company was renamed Gold KistInc. With annual sales of more than $2billion, Gold Kist is the second largestpoultry processor in the United States.Brooks served as general manager ofGold Kist until he retired in 1968.Brooks organized Cotton State MutualInsurance Co. (CSIC) in 1941 to pro-vide farmers with a source of fire andwindstorm insurance. He served aschairman of the board of CSIC until1983. It now serves 10 states in theSoutheast and had sales of $265 millionin 1998.

Three California cooperatives mergeMore than 98 percent of the mem-

bers of California Milk Producers, SanJoaquin Valley Dairymen and DanishCreamery Association approved merg-ing the three cooperatives, effectiveAug 1, 1999. The new cooperative isnamed California Dairies Inc. and willbe the nation’s second largest dairycooperative in terms of milk volume.California Dairies will annually market13 billion pounds of milk from 700members through five manufacturingplants. Until 2001, the three chief exec-utives of the predecessor cooperativeswill function as executive vice presidents.

Glencoe, AMPI consider mergerGlencoe Butter and Produce Associ-

ation, Glencoe, Minn., has signed a letterof intent to negotiate a merger with

Associated Milk Producers Inc., NewUlm, Minn. AMPI and Glencoe willimmediately begin negotiating a defini-tive agreement to merge the two coop-eratives. Glencoe members own anagricultural services division and dairymanufacturing plant. The plant pro-duces barrel cheddar and provolonecheeses. AMPI dairy farmer-membersshare in the ownership of manufactur-ing plants in the Upper Midwest. In1999, the combined cooperatives willmarket five billion pounds of milk andmanufacture a full line of consumer-packaged dairy products.

Land O’Lakes, Swiss Valley partnersLand O’Lakes, St. Paul, Minn., and

Swiss Valley Farms, Davenport, Iowa,announced a joint venture to combinethe fluid milk and cultured dairy prod-uct businesses of the two organiza-tions. Following approval by directors,the cooperatives proposed the forma-tion of the alliance on or about Oct. 1,1999. The venture, with combinedannual revenues of $480 million,would bring together the cooperatives’six Midwestern milk and juice bottlingplants and two cultured dairy productplants. The Land O’Lakes plants are inNorth and South Dakota, Minnesotaand Wisconsin. The Swiss Valley plantsare in Iowa and Illinois.

Carey named UDA executive directorDermot T. Carey has been named

executive director of United Dairymenof Arizona (UDA) in Tempe. Carey waswith Michigan Milk Producers Associa-tion before joining UDA in 1993 asdirector of operations. He is an honorsgraduate from the University College

D.W. Brooks


Cork, Cork City, Ireland, where hemajored in dairy and food technology,engineering, microbiology and chemistry.

MMPA pays equity capital retainsThe Michigan Milk Producers Asso-

ciation issued $4 million in equity pay-ments to producers who shipped milkwith the company in 1987 and 1988.Included in the cash payments was thefinal payment of the cooperative’sEquity Capital Retain Program, whichwas discontinued in 1987. Along withthe balance of the Equity CapitalRetains, the $4 million payment includ-ed all 1987 equity and half of 1988equity. Earlier this year, MMPA mem-bers received $1.9 million in cash pay-ments generated from the cooperative’s1997-98 fiscal year.

“It is not easy in today’s dairy indus-try to finance a cooperative exclusivelyfrom its profits, which MMPA has donesince 1987,” Kirkpatrick says. “Theneed to stay competitive requiresMMPA management to continuallyreview our plants and operations whileproviding a competitive pay price toour members.”

LOL Answer Farm celebrates 25 yearsThe Land O’Lakes Answer Farm,

one of the nation’s leading crop andlivestock research facilities, celebratedits 25th anniversary in September. Thefarm maintains a 180-cow dairy unit;uses more than 1,400 calves and 300litters of pigs in animal nutrition, man-agement and health research annually;and has a seed research system support-ed by more than 700 local cooperativetest plots. The celebration recognizedthe Answer Farm’s long heritage ofdeveloping new products, services andtechnologies which deliver value toproducers by helping them maximizeproduction efficiency, increase produc-tivity and enhance profitability.

USWP now Spring Wheat BakersThere’s a new name and marketing

strategy in place for the United SpringWheat Processors at its new plant in

McDonough, Ga. The cooperative isusing the name Spring Wheat Bakersfor both its products as well as its iden-tity with members, grain procurementpartners, flour milling partners andsuppliers, reports Gary Lee, chief exec-utive officer and president. The plant isthe first national par-bake co-manufac-turer in the country. It will manufac-ture frozen dough and partially bakedfrozen bread products for the foodser-vice and in-store grocery markets. Thecooperative is owned by 2,800 springwheat growers in Minnesota, Montanaand North and South Dakota. Its head-quarters is located in Fargo.

Wentworth ethanol plant plannedThe Lake Area Corn Processors

Cooperative is building a 40-million-gallon ethanol plant near Wentworth,S.D. The $43 million dry mill ethanolplant is the biggest construction projectin the history of Lake County, S.D. It isestimated that farmers will receive anextra 10 cents per bushel of corn withina 50-mile radius of the plant. Its annualexpenses are estimated at $50 millionand $60 million, including $33 millionfor corn. Thirty-five people will beemployed at the plant, which will havean approximate annual payroll of $1.3million. Fundraising for the value-added facility is taking place this fallacross South Dakota. The 12- to 14-month construction project is expectedto begin in spring 2000.

Tree Top acquires Watermill FoodsTree Top Inc., a Selah, Wash., apple

marketing cooperative, recentlyacquired Watermill Foods Inc., a Mil-ton-Freewater, Ore., processor offrozen sliced apples, cherries andplums. Watermill markets its productsaround the world in bulk as value-added items to industrial manufacturers.

California Custom Foods dissolvedThe fruit and vegetable processing

and marketing cooperative PacificCoast Producers (PCP), Lodi, Calif.,has announced that California Custom

Foods has been dissolved and its opera-tions rolled back into the cooperative asPacific Coast Producers-Flexible Pack-aging Division. The dissolved companyhad been founded as a California cor-poration by PCP in 1989.

Seald-Sweet celebrates 90thFlorida’s oldest sales and marketing

organization marked its 90th annualmeeting in Vero Beach this past sum-mer. The cooperative is Florida’slargest shipper of fresh fruit to bothdomestic and international customers.In addition, it markets non-citrus freshfruits and vegetables, including Vidaliaonions and Louisiana sweet potatoes.This past year, the organization formedSeald Sweet LLC to facilitate the mar-keting of other fruits and vegetables inNorth America and to expand citrusmarketing opportunities in off-seasonmonths.

“We are trying to structure our busi-ness in a way which protects thestrengths and advantages of a coopera-tive, but, at the same time, adds thecommercial flexibility of a limited lia-bility company,” noted Bruce McEvoy,Seald Sweet’s chief executive officer.

At the board meeting held in con-junction with the annual meeting, JohnLuther was re-elected chairman whileRichard A. Fort Jr. was re-elected vicepresident.

Bullock to step down in 2000Amid a cranberry glut hurting the

entire industry, Ocean Spray Cranber-ries Inc. announced that Thomas E.Bullock, chief executive officer, is step-ping down in 2000 after three years inthe top spot and 18 years with thecooperative. Bullock is the third OceanSpray executive to announce his depar-ture this year. According to OceanSpray, Bullock presented a “major tran-sition plan” to the Lakeville-Middle-boro, Mass., cooperative board that willhave him assist in the search for hissuccessor before leaving.

“One of the challenges I*ve faced —and one my successor will face — is


continuing to create value for ourgrower-owners, who are suffering from lower-than-expected returns dueto crop surpluses and low prices,” Bullock says.

PLA, IPLA discuss consolidationThe boards of Interstate Producers

Livestock Association, Peoria, Ill., andProducers Livestock Association,Columbus, Ohio, are discussing a pos-sible consolidation. A feasibility study isbeing conducted, especially in light ofPLA’s recent announcement of similardiscussions with MFA Livestock Inc.,Marshall, Mo. PLA serves more than34,000 livestock producers throughoutOhio, Indiana, Michigan and otherareas of the eastern Corn Belt. ILPAserves farmers and ranchers in Illinois,Iowa and Missouri and markets nearly2.5 million head of livestock annually.

USDA Rural Utilities Servicereceives Hammer Award

Employees from USDA’s Rural Util-ities Service received a Hammer Awardfrom Vice President Gore’s NationalPartnership for Reinventing Govern-ment. The award was presented to RUSAdministrator Wally Beyer on behalf ofthe RUS team. The award is given togovernment employees who cut paper-work, reduce costs, increase efficiency

and improve customer service. RUS wascited for reducing regulatory burdensthat cut more than 427 pages of regula-tions from the Federal Register.

DariGold now Northwest Dairy After nearly a year of discussions,

Darigold Farms has adopted newnames. Driven by the cooperative’s goalto achieve superior economic advan-tage for dairy farmers, both the corpo-rate name change to WestFarm Foodsand the cooperative name change toNorthwest Dairy Association supportits broader marketing strategy.

From 1961 to 1988, the coopera-tive’s name was Northwest Dairymen’sAssociation. Its processing and market-ing arm was known as ConsolidatedDairy Products Co. From 1929 to 1984the Seattle, Wash., cooperative primarilyproduced and marketed dairy productsunder the Darigold brand, and hadchanged its name to Darigold duringthe 1980s.

SWEPCO, Committee, WSTwithdraw Cajun Bankruptcysettlement

Southwestern Electric Power Com-pany, Committee of Certain Membersand Washington-St. Tammany ElectricCo-op have withdrawn their joint reor-ganization plan for Cajun Electric

Power Co-op as part of a settlementreached in late August to end Cajun’sfour-and-a-half-year-old bankruptcy.The agreement came during a settle-ment conference ordered by the U.S.District Court in Baton Rouge, La.Bidders wanted Cajun’s non-nuclearassets and the opportunity to sellwholesale power to Cajun’s 11 memberdistribution cooperatives.

Chugach to install world’s largestassured-power fuel cell

A new system for generating powerthat is virtually pollution-free andrequires little maintenance will beinstalled for the U.S. Postal Service byChugach Electric Association, a mem-ber-owned cooperative and the largestutility in Alaska serving customers atover 69,000 metered locations fromAnchorage to the northern KenaiPeninsula and from Whittier to Tyonek.

The new fuel cell system will beinstalled at the Anchorage Mail Pro-cessing and Distribution Facility. Thecell system is expected to be opera-tional early next year. It will be theworld’s largest assured-power fuel cellinstallation. The system will be ownedand maintained by Chugach. Each cellwill generate 200 kilowatts of electrici-ty, enough to supply electricity fornearly 150 homes. ■

attracted by the highest margins inhardwoods and have tried to establish apresence, but have failed. GA-CO salesended up being well over 90 percentsoftwood products. During the 1991-96 period in which the co-op operated,hardwood export market prices were ata 10- to 15-year low.

Causes for failureThe potential to serve foreign mar-

kets was provided through the co-opstructure, with staff passively monitor-ing importer inquiries, but not engag-ing in any market-building activities.There was consensus among mill exec-

utives interviewed that the sponsors didan excellent job of getting the coopera-tive venture organized, but the businesscycle in the wood products industryworked against the GA-CO effort.

The consensus among member-executives and sponsors was that theco-op ended for three reasons. First,there was a lack of a driving economicneed for mill members to enter exportmarkets. Second, there was not a“cooperative culture” among millmembers to ease that coordination.Third, there was no agreement amongmembers about how the cooperativeshould operate and be funded.

Mill members were free to individu-

ally pursue more profitable, secure andeasy transactions in domestic markets,and that is what they did. However, thedecision to operate through the facili-ties and staff of the experienced GA-CO member limited the size of theother members’ investments and risks.

However, several respondents inter-viewed after GA-CO was dissolvedcommented that members seemed notto be soured on the cooperativeprocess. One member believed that in afuture situation where domestic mar-kets were weak and export marketswere relatively strong, the export co-opstructure might yet work for them. ■

continued from…page 7

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