Marketing Agreements/Cooperatives

United States Department of Agriculture, Rural Development

USDA Rural DevelopmentDelivers over 40 programs that provide a variety of:

• loans and loan guarantees,

• grant programs,

• technical assistance

In the areas of:

• business;

• economic development

• cooperative development;

• rural housing;

• community facilities;

• water and waste disposal;

• electric power;

• telecommunications (distance learning and telemedicine)

Hawaii State Office

Program Delivery• State of Hawaii• American Samoa• Western Pacific–Guam, CNMI, Republic of Palau,

Federated States of the Micronesia, Republic of the Marshall Islands

Specialize in technical assistance to rural groups interested in organizing a cooperative, and to existing cooperatives.

Cooperative Program

Cooperative

A COOPERATIVE IS A FOR-PROFIT CORPORATION

It has:

• a corporate board of directors,

• a profit motivation,

• a service orientation,

• single tax treatment.

$$$$$$$$$$

SERVICESERVICE

What is a COOPERATIVE Business ?

A cooperative is a user-owned and user-controlled corporate business in which benefits are received in proportion to use.

Who owns the business.

• Who controls the business.

• Who uses the business.

• Who gets the profits.

A Type of Business Dependent On

What is a COOPERATIVE Business ?

• It is a fair way for producers to go into business together

• It is a locally owned and controlled corporation

• Its business purpose depends on its members

Types of Cooperatives

• Producer-owned cooperativesare owned by farmers, producers or small

businesses.

• Consumer-owned cooperativesenable consumers to secure a wide array of goods

and services.

• Worker-owned cooperativesare businesses owned and controlled by their

employees.

Distinctive Features

• Service at cost

• Financial obligation & benefits proportional to use

• Democratic control

• Limited return on equity capital

UNIQUEUNIQUE

User-Owner Principle:

The people who own and finance the cooperative are those who use it.

User-Control Principle:

The people who use the

cooperative are those

who control the cooperative.

USDA Cooperative Services

User-Benefit Principle:

The cooperative’s sole purpose

is to provide and distribute

benefits to members on the

basis of their use.

Participation Roles

Cooperatives operate through the roles of principal parties

• Members

• Directors

• Manager

• Employees

What Cooperatives Do

• Marketing

• Purchase supplies

• Provide services

Marketing Cooperatives

• Market products–acquire and sell commodities

Kona Pacific Farmers CooperativeMaui Farmers Cooperative Exchange

–bargain for price, terms of saleHawaii Banana CooperativeHawaii Cattle Producers Cooperative

Association

Purchasing Cooperatives

• Purchase supplies–operate farm supply store

Farm Supply CooperativeHikiola

–joint purchasing programsKona Pacific Farmers CooperativeMaui Farmers Cooperative Exchange

Service Cooperatives

• Provide needed member services:–Hamakua/North Hilo Agricultural

Cooperative

–Maui Produce Processing Cooperative

–Hawaii Livestock Cooperative

–East Kauai Water Users Cooperative

Steps to OrganizeSummary

• Hold exploratory meeting• Form steering committee• Conduct survey of potential members• Analyze market• Evaluate Feasibility• Prepare business plan• Prepare legal papers• Implement the business plan

Marketing Agreements

• A marketing agreement is a LEGAL DOCUMENT recording the rights and duties of farmers (members) and a marketing business (cooperative) with regards to marketing agricultural products.

• It is a CONTRACT between farmers and the marketing business.

Marketing Agreements

• Are DIFFICULT to enforce unless tightly written--must be ENFORCED quickly and equitably.

• Have PROVISIONS for what happens when the contact is broken.

• Outlines LIQUIDATED DAMAGES that can be assessed for non-delivery.

• OUTLINES quality requirements.

Energy Programs at USDA

• Section 9003: Biorefinery Assistance• Section 9004: Repowering Assistance• Section 9005: Bioenergy Program for

Advanced Biofuels• Section 9007: Rural Energy for America

Program (REAP): Replaces Section 9006• Section 9008: Biomass Research and

Development• Section 9009: Rural Energy Self-Sufficiency• Section 9011: Biomass Crop Assistance

Program

Section 9007Rural Energy for America

• Enhancements from previous program:– More technologies available (now includes

small hydro and wave energy)

– Increases loan guarantees from $10M to $25M

– Establishes an energy audit grant program

– Allows grants for feasibility studies

– Increases combined guaranteed loan/grant combination from 50% to 75% of project costs (subject to statutory $ limits)

Section 9007Rural Energy for America

• Program can be used to purchase a renewable energy system AND/OR

• Make energy efficiency improvements.

• Maximum grant is 25% of project cost:– Not to exceed $500,000 for an energy

system– Not to exceed $250,000 for energy efficiency

• Rural small businesses and agricultural producers

Section 9007Rural Energy for America

• Any renewable energy or energy efficiency project as defined in the law: – Biomass, Anaerobic Digester, Geothermal

(electric generation and direct use), Hydrogen, Wind, Solar (photovoltaic and thermal) and [small hydro and ocean energy—added 2008]

– Energy Efficiency Improvements--improvements to a facility, building, or process that reduces energy consumption, or reduces energy consumed per square foot.

Value-Added Producer Grants

• Program designed to assist producers to develop businesses that produce and market value-added agricultural products.

• Provides grants for planning or working capital purposes relating to the marketing of a value-added product.

Value-Added Producer Grants

Applicant Eligibility• Independent producers;

• Farmer or rancher cooperatives;

• Agricultural producer groups;

• Majority-controlled producer-based business ventures.

Value-Added Producer Grants

Purpose Eligibility• Planning activities, such as conducting

feasibility studies and developing business plans for processing and marketing value-added agricultural products.

• Working capital expenses for processing and marketing value-added agricultural products, including inventory, salaries, and office supplies.

Value-Added Producer Grants

What is NOT Eligible?• Purchasing any processing equipment,

• Agricultural production expenses,

• Land purchases,

• “Research and Development”

Small Minority Producer Grant

What is NOT Eligible?For cooperatives to assist small, minority

agricultural producers• Governing board and/or membership is at

least 75% minority• Provide technical assistance to small, minority

agricultural producers--market research; product and/or service improvement; legal advice and assistance; feasibility study, business plan, and marketing plan development; and training.

• Maximum grant--$175,000—no matching required.

Other USDA Programs

• Farm Labor Housing—1% loan for up to 33 years

• Rural Business Opportunity Grants—Technical assistance, leadership training, establishment of business support centers, economic development plans.

• Rural Business Enterprise Grants--for projects that finance/facilitate development of small and emerging rural businesses…

Tim O’Connell

Assistant to the State Director/

Cooperative Development Specialist

154 Waianuenue Ave., Room 303

Hilo, HI 96720

(808) 933-8313 (F)—8326

tim.oconnell@hi.usda.gov