Rur Coop May05 PRINT - USDA Rural DevelopmentRural Cooperatives / May/June 2005 5 Citrus co-op...

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lCOOPERATIVESCOOPERATIVESUSDA / Rural Development May/June 2005

Organic co-ops:Keeping families & farms together

Organic co-ops:Keeping families & farms together

SPECIAL SECTION

Organic Co-opsTaking Root

page 11

2 May/June 2005 / Rural Cooperatives

For 72 years, USDA (or, in itsearly years, the Farm CreditAdministration) has been publish-ing Rural Cooperatives magazine tohelp increase public understandingof the co-op business model and toimprove the operations of thenation’s cooperatives. The nameand format have changed over theyears, but the mission has alwaysbeen the same: to help strengthenrural America by ensuring thatfarmers maintain a significantownership position in the market-ing and processing of their cropsand livestock, and in securingquality, affordable farm suppliesand services for members.

Whether it’s an article on goodco-op governance practices, a LegalCorner about an important courtdecision impacting co-ops, a featureon an innovative co-op or an analy-sis of a co-op failure, each issuecontains information that can helpco-op leaders gain from the knowl-edge and experience of others. Sincechanging the name of the publica-tion from Farmer Cooperatives in1996, we’ve also included more cov-erage of rural utility and consumerco-ops, although the emphasisremains on ag co-ops.

Articles and photos are providednot just by USDA staff, but by co-ops, universities, co-op trade orga-nizations, extension offices and

commodity groups, etc. Thus, themagazine is a cooperative effort ofUSDA and the co-op sector wework so closely with.

With many organizations havingscaled back or curtailed their co-opeducation efforts in recent years,this magazine has an even largerrole to play than it has in the past.But it’s all for naught if we don’tget the information into the hands

of the people who can most benefitfrom it: co-op directors and otherleaders.

To help increase readershipamong co-op board members, wecan now offer seven copies of eachissue (free of charge), mailed in abundle, to your cooperative head-quarters for redistribution to direc-tors. See the back cover for details.

For those comfortable accessinglarge documents on the Internet,our new list-serve subscription ser-

vice may be preferable. Each timea new issue is posted on our Website, an e-mail will go out with alink to a PDF file. For those withbroadband Internet service, thisworks particularly well.

You may request both the hardcopy packs and the electronic sub-scription service. Typically, you’llget the Internet link about 10 daysbefore the hard copy.

While the primary target audi-ence for the magazine is co-opdirectors, managers, ag educatorsand other professionals who workwith co-ops (including extensionagents, attorneys and accountants),the magazine may benefit any co-op member or anyone else thinkingof forming or joining a co-op.Consider posting a link to the mag-azine Web site on your co-op Website: www.rurdev.usda.gov/rbs/pub/openmag.

Not only will you see the latestissue of the magazine posted there,but the previous six years of maga-zines are also on-line at that site,making this a helpful co-op educa-tion and research tool. Back issuesare posted in both PDF an HTMLversions. If you have any questionsabout either of these new services,please don’t hesitate to call me at(202) 720-6483, or send an e-mailto: [email protected]. — Dan Campbell, Editor

C O M M E N T A R Y

Spreading the word

The magazine is acooperative effort ofUSDA and the co-opsector we work soclosely with.

Rural Cooperatives / May/June 2005 3

Rural COOPERATIVES (1088-8845) is publishedbimonthly by Rural Business–Cooperative Service,U.S. Department of Agriculture, 1400 IndependenceAve. SW, Stop 0705, Washington, DC. 20250-0705.The Secretary of Agriculture has determined thatpublication of this periodical is necessary in thetransaction of public business required by law of the Department. Periodicals postage paid atWashington, DC. and additional mailing offices.Copies may be obtained from the Superintendent ofDocuments, Government Printing Office, Washington,DC, 20402, at $23 per year. Postmaster: send addresschange to: Rural Cooperatives, USDA/RBS, Stop3255, Wash., DC 20250-3255.

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

Unless otherwise stated, contents of this publicationare not copyrighted and may be reprinted freely. Fornoncopyrighted articles, mention of source will beappreciated but is not required.

The United States Department of Agriculture (USDA)prohibits discrimination in all its programs and activities on the basis of race, color, national origin,sex, religion, age, disability, political beliefs, sexualorientation, and marital or family status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means forcommunication 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.

Mike Johanns, Secretary of Agriculture

Gilbert Gonzalez, Acting Under Secretary,USDA Rural Development

Peter Thomas, Administrator, Rural Business-Cooperative Service

Roberta D. Purcell, Deputy Administrator,USDA Rural Business-Cooperative Service

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

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

This publication was printed with vegetable oil-based ink.

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COOPERATIVESCOOPERATIVESMay/June 2005 Volume 72 Number 3

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F E A T U R E S & N E W S

4 Innovation a necessity, not a choice,for 21st century co-opsBy Kimberly Zeuli & Judy Turpin

11 Special Section: Organic Co-ops Taking Root

32 Trading PlacesFortunes of California rice co-ops took opposite trajectoriesBy Jennifer J. Keeling & Colin A. Carter

36 Soybean extruder opens new doors for Dakota co-opBy Pamela J. Karg

D E P A R T M E N T S2 COMMENTARY 7 VALUE-ADDED CORNER

10 LEGAL CORNER 37 NEWSLINE 43 INSIDE RURAL DEVELOPMENT

O n t h e C o v e r :

Travis and Amy Forgues, Vermont dairy farmers, say organic farming andco-ops play an increasingly important role in helping keep more familyfarms, such as theirs, in operation. Photo by Carrie Branovan, courtesyOrganic Valley/CROPP

12 Going with the GrainN.M. organic wheat co-op provides lift to farmers, ruraleconomyBy Catherine Merlo

15 Cream of the CROPPDemand outstripping supply as CROPP dairy products go prime timeBy Dan Campbell

20 Local-based, alternative-marketing strategy could helpsave more small farmsBy Thomas W. Gray

24 A Fresh AdvantageCo-op helps small farms market produce to high-endrestaurantsBy Pamela J. Karg

27 Slice of the marketPenns Corner, Tuscarora co-opstarget growing restaurant tradeBy Stephen A. Thompson

30 Who you gonna call?ATTRA output helps low-inputag expand its market nicheBy Paul Williams

ost of the businessinnovation occurringtoday is in responseto market pressure,

according to Chris Peterson, a pro-fessor at Michigan State University.Co-ops, like their competitors, arebeing “forced” to innovate. Inorder to remain competitive,Peterson warns, co-ops should beimplementing innovative ideas con-stantly. Florida’s Nat-ural Growersis one cooperative that has clearlyheeded this counsel.


By Kimberly Zeuli, Assistant Professor;

Judy Turpin, student researcher

University of Wisconsin-Madison

Editor’s note: This is the third of a three-part series of articles with highlights from the seventh annual Farmer CooperativesConference — Cooperative Innovation —held in Kansas City in November.

Innovat ion a necess i ty, not acho ice , fo r 21st century co-ops

M

The “grove to the glass” advertisingand promotion campaign of theFlorida’s Natural citrus co-op, stress-ing the grower-owned nature of thebusiness, has hit a receptive chordwith consumers. This has helped theco-op compete with the giant bever-age companies that dominate thenation’s fluid orange juice trade.Photos courtesy Florida’s Natural


Citrus co-op competes with beverage giants

About 1950, the chairman ofFlorida’s Natural said: “It is most dis-couraging to do everything possible tomaintain prices that will bring decentreturns to our growers and then havethese prices made meaningless by ruth-less cuts of competitors.” If anything,this situation is even more acute today.

Florida’s Natural is pitted againstthe two biggest names in orange juice:Tropicana, owned by Pepsi, and

Minute Maid, owned by Coca-Cola. Asa result, the co-op faces continuouscut-throat competition while trying tomaintain a high return for its mem-bers. According to Walter Lincer, vicepresident of sales and marketing atFlorida’s Natural, this is nothing new.As manufacturers of a retail product,Florida’s Natural has always faced achallenging environment.

Florida’s Natural has constantlyrevised and adapted its marketingstrategy in an attempt to gain and keepcustomers. The acquisition of theTropicana brand by Pepsi and MinuteMaid by Coke was a “wake-up call” tothe co-op. Suddenly, the relativelysmall co-op had to figure out how tocompete with the deep pockets of thetwo giant soft-drink companies.

The mid-1990s brought increasedretail consolidation and the co-opworked hard to maintain shrinkingshelf space. Sales representation andsuppliers have also dwindled in the

past 20 years and the farmer’s returnon the retail food dollar has alsodeclined sharply.

Florida’s Natural decided to takeadvantage of its unique grower-ownedstatus, a distinction that companiessuch as Pepsi and Coca-Cola can’tclaim. In 1987, it launched the co-op’sfirst branded premium product: Fresh‘n’ Natural orange juice.

The “grove to the glass” promise ofFlorida’s Natural is what Lincerbelieves has made the company so suc-cessful that grocery stores want tocarry its product. He also suggestedthat if co-ops work together, all wouldbenefit from a stronger position in themarket, a theme repeated by many ofthe conference presenters.

Most important innovationresources are internal

“Innovation happens because youintend it to,” Chris Peterson said.“How are you going to innovate?”

Co-ops need to be prepared forinnovation. Innovation can occur inproducts and services, processes andtechnology, competencies and markets.Echoing thesame sentimentsas FloridaNatural’s Lincer,Petersonreminded co-oprepresentativesat the confer-ence that “thereally importantinnovationresources are internal.”

If no resources go into innovation,nothing will come out. He recom-mended that cooperatives seek adviceon innovation from universities,research & development firms, govern-ment agencies, trade organizations andconsultants.

Cooperative leadership can make orbreak the business. Mike Toelle andJim Rainey know this firsthand. Toelle,board chairman of CHS Inc., outlinedthe co-op’s board priorities: profes-sionalism, oversight, vision, account-ability and commitment to communi-

cation. Although the traditional direc-tor roles and responsibilities willalways be there, he argued that boardmembers need additional skills andknowledge to “stay the course” intoday’s business environment. “21stcentury leadership requires cultivatinga visionary, innovative and entrepre-neurial mindset,” Toelle said.

According to Toelle, the CHS boardis always “in the process of learning.”Being a board member with CHS cul-tivates a desire to gain knowledge andskills both in business and professionaldevelopment. The CHS board hearspresentations from outside experts fouror five times each year on topics suchas energy, health care and grain mar-kets, among others.

Other professional developmentopportunities for board membersinclude international exchanges andtrips to Washington, D.C. In additionto in-house training, board membersare required to attend external devel-opment workshops and conferencesthree or four times annually.

Jim Rainey, who has served on anumber of boards throughout his

career, retired in 1991 as CEO forFarmland Industries. He said he hadlearned many lessons over the years onhow co-op leadership can be improved,but perhaps the most challenging issueis achieving and maintaining an effec-tive board-management relationship.

Evaluation of management essentialRainey provided a list of what he

considers 13 basic management disci-plines, but he chose to focus on justthree: accountability in management;strategic management and planning;and management of change.

The really importantinnovation resourcesare internal. If nonego into innovation,nothing will comeout.

He said evaluation of managementis essential to maintaining integritywhile also promoting constructive crit-icism and improvement in manage-ment techniques during a board’s term.Audit committees are another way toevaluate management and providefeedback on improvements andchanges.

The management of change is per-haps the most important element inco-op leadership, according to Rainey,and also the most difficult to achieve.Managing change means less surprisesand a greater sense of trust amongmembers, employees and management.

“It is imperative that managementand the board become fully committedto recognition that survival will dependupon proactive change, Rainey said.

Strategic management planningshould consist of a “timeline actionplan” that separates short- and long-term goals, Rainey advised. An objec-tive third party can help the co-opconstruct such a plan. The goals thenneed to be communicated to membersand employees to help maintain trustand to gain additional perspectives onthe viability of the plan. The actionplan should be reassessed annually inorder to make adjustments and addi-tions.

David Barton, director of theArthur Capper Cooperative Center atKansas State University, closed the ses-sion by offering six keys to a successfulboard: (1) bring the right peopletogether; (2) set high objectives andhave an ambitious vision; (3) educatethe board on how to work together; (4)set policy at the board level; (5)understanding is moreimportant than speed— the board

needs to get the decision right; (6)slow is fast and fast is slow in rela-tionships. If you take the time, youwill achieve more effective relation-ships.

Co-ops play important role in presidential swing states

Jean-Mari Peltier, president andCEO of the National Council ofFarmer Cooperatives, reminded thegroup that co-op leaders should alsomaintain a dialogue with their localand national policy makers. She pre-sented some data on the 2004 presi-dential election electoral map toillustrate how the “toss-up states” inthe election were states with strongco-op roots, bringing co-ops to theattention of both candidates.

Many upcoming changes in theHouse and Senate will also be influ-ential in deciding how agricultureand co-ops are treated in lawsCongress will act on in coming years.Peltier suggested coalitions, educationand grassroots activism as tools tocombat the lack of knowledge on theoverall benefits of co-ops for the econ-omy.

“We must all hang together…orassuredly we shall all hang separately!”Peltier said, using the words ofBenjamin Franklin to stress the needfor cooperation among co-ops toensure their future success.

William Nelson, president of CHSFoundation and The Co-opFoundation, wrapped up the confer-ence by encouraging co-op leaders to“take the conference lessons withyou,” and not end their discussionswhen the meeting adjourned. Hestressed the merits of bringing newideas and perspectives to co-op boardsfrom academics, industry, foundationsand co-op councils. “Co-ops shouldbe learning organizations,” Nelson

counseled, “with dynamic process-es leading to constant

innovation andrevitalization.” ■

Peterson’sResources forInnovation

A sampling of business/management books:

Senge, “The Fifth Discipline,”Currency/Doubleday, 1990

McGrath & MacMillan, “The Entrepreneurial Mindset,”HBS Press, 2000.

Godet, “Creating Futures,” Economica, 2001.

Christensen & Raynor, “The Inno-vator’s Solution,” HBS Press, 2003.



By Tony Kindelspire

Editor’s note: This article is reprintedcourtesy of The Daily Times-Call,Longmont, Colo. All rights and controlremain with the Times-Call.

tour through Gerard’sBakery is like observing acarefully choreographedversion of “TheNutcracker” — per-

formed seven days a week, 365 days ayear. The dough must be just the rightconsistency and temperature before itruns through the cutting and moldingmachines, which must be constantlymonitored to make sure the resulting

hoagie rolls or hamburger buns com-ing out the other end are just right forbaking.

Meanwhile, at the other end of theplant, while the loaves rising in theproofing ovens must be removed at theprecise time, the packaging departmentis running like a well-oiled machine.“We make 150 different types of

breads and rolls out of this plant,” saidGary Knight, Gerard’s president andCEO.

The bakery makes what are knownas “artisan breads.” Unlike mass-pro-duced breads bought in the grocerystore, the bread batches are smallerand the ingredients are much higherquality. But you couldn’t walk into astore and buy a loaf of Gerard’s if youwanted to.

The company’s customers are pri-marily restaurants, wholesalers andfranchises; Quizno’s and IHOP are twoof its better-known clients. Thoughthe client base already spreads fromcoast to coast, it’s about to get a lotbigger: Gerard’s has just invested $7.5

V A L U E - A D D E D C O R N E R

No loaf ingBooming business leads wheat cooperative to expand Gerard’s Bakery to East Coast

A

Mario Orozco takes bread dough off a giantmixer hook at Gerard’s Bakery. The bakery,owned by wheat growers through theirMountain View Cooperative, is investing in aNorth Carolina plant to bolster its Coloradoand California operations. Photo by JoshuaBuck, courtesy Longmont Times-Call

Since the co-op purchased the bakeryin ‘96, growth hasbeen explosive: 20 percent per year.


million in a plant in North Carolina asa counterbalance to its West Coastpresence in Livermore, Calif., just out-side Oakland, which opened in 2001.

The company will keep its headquar-ters here [in Colorado], on the Interstate25 Frontage Road, but expansion intolarger population areas is a natural evo-lution of the company, Knight said.

And the growth has been explosive.Since Gerard’s French Bakery — alongtime local staple — was bought byMountain View Harvest Cooperativein 1996, the company has grown 20percent a year.

In 1999, Gerard’s had about $12million in sales, a figure that hadgrown to between $25 million and $30million last year, Knight said.

“We have been growing so fast thatmost of our capital goes into buyingnew pieces of equipment so we canmake another piece of bread,” he said.The Mountain View Co-op, a group ofColorado wheat farmers who wereinterested in forming a value-added co-op, rose from the ashes of the bankruptFarmer’s Marketing Association (FMA).

“The whole value-added part of it isfarmers trying to get away from simply

producing generic quantities of com-modities,” said Dave Carter, one ofMountain View’s founding boardmembers. A national agricultural con-sultant on co-op development andorganic production, Carter was presi-dent of the Rocky Mountain Farmer’sUnion at the time of Mountain View’sinception.

By making the co-op value-added,Carter said, “the farmer maintains con-trol throughout the whole process. Inthe traditional systems, the farmer getscut out very quickly. They’re on thebottom rung of the ladder.”

Mountain View has 232 members,or shareholders, most of whom arewheat farmers, Knight said. Carter isno longer involved with MountainView, other than as a shareholder.

“One of the initial challenges thatwe faced was that when producersstepped into this value-added business,there was the feeling that there wouldbe a quick turnaround in (return oninvestment),” Carter said, explainingthat it took time to grow and any prof-its had to be put back into the business.

“I think that was a real turnaroundfor the cooperative, when the share-

holders said, ‘Look, we are going to bepatient, and we’re willing to put in thetime it’s going to take to build this intoa successful business,’” he said.

At the time it was moving awayfrom the FMA and becomingMountain View, the board received agrant from the U.S. Department ofAgriculture to study the feasibility of aco-op run by wheat farmers.

The study they commissioned hadtwo main recommendations. One wasto partner with an existing company, inthis case Gerard’s, which had beenaround for decades. The other recom-mendation was to specialize in whatare called “par-baked breads,” basicallyhigh-quality breads and rolls that arebaked almost to completion and thenfrozen for distribution. The end user— a Quizno’s, for example — willcomplete the baking, ensuring a freshtaste every time.

Four years ago, the Mountain Viewboard of directors tapped Knight, aveteran of the food industry who hadrun his own $100 million company anda $1 billion division when he workedfor Frito-Lay, to come in and run thecompany.

Bread is moved to a cooling room at Gerard’s Bakery in Colorado.


Knight said the thump-thump-thumping of the dough mixers throughthe walls was music to his ears. Thefact that Gerard’s is a smaller, leanercompany with the ability to make deci-sions quickly and room for an addedemphasis on customer satisfaction hasa great deal of appeal, he said.

The American Institute of Baking,he said, conducts 5,000 audits a yearworldwide, and only 3 percent of thecompanies audited receive a “superior”rating.

“This one’s gotten those nine yearsin a row,” Knight said with pride.

Gerard’s employs about 170 at itsheadquarters, 40 in administration and

the rest in the 19,000-square-foot bak-ery portion of the plant — which does-n’t include freezer space.

About 100 more are employed inCalifornia, and the North Carolinaplant is expected to add 108 jobs overthe next three years.

The company’s current locations —here and Livermore — produce about350,000 bread items every day. If oneof the three lines that runs continuous-ly is putting out baguettes, it’s making2,400 of them an hour. For hoagierolls, that number is 7,200. “It takesabout four hours from the time theingredients are mixed to the time theproduct is finished,” Knight said.

He said that in Europe, he’s been tobakeries roughly the same size that arefully automated, every step of the way.Unlike at Gerard’s, all of the ingredi-ents and spices are not mixed by hand.The temperature of the dough is notmonitored by humans. And the corn-meal on top of the hamburger buns isnot put there by hand.

But Knight said the dance will con-tinue as it has at Gerard’s, and cus-tomers will continue to be the betterfor it.

“We don’t have the demand forautomation, and we want to have theflexibility in what we do,” he said. ■

By Dave Carter

Editor’s note: Carter is one of Mountain View’s foundingboard members and a national consultant on co-op devel-opment and organic production.

More than a decade has passed since a small group offarmers huddled around a breakfast table in a Denver areacafé to discuss opportunities to develop a new value-added business. These farmers understood the difficultiesfacing producer-owned businesses because they allserved on the board of directors of a grain handling andfeed milling cooperative that had been forced into bank-ruptcy from a series of disastrous events. Yet, they wereconfident that a new producer-owned venture could capi-talize upon the emerging opportunities in value-added agri-culture.

The question they asked at the breakfast was: “Whichopportunity?” Discussion ranged from grain milling to strawfiberboard processing. They realized they needed help infinding the answer. With the assistance of the RockyMountain Farmers Union, the group approached USDA RuralDevelopment and received a $100,000 Rural BusinessEnterprise Grant, which they used to finance a feasibilitystudy into 14 potential opportunities for value-added pro-cessing for Colorado wheat farmers.

The studies funded by USDA Rural Development conclud-ed that emerging developments in the baking industry pre-sented a strong opportunity for a farmer-owned enterprise.The studies also encouraged the producers to partner withan existing business rather than construct a new facility.

Armed with the feasibility results and an ensuing busi-ness plan, the key leaders organized a new cooperative in1996 as Mountain View Harvest. They located an existingstate-of-the-art bakery north of Denver and successfullynegotiated an arrangement to purchase the business. Anequity drive conducted between November 1996 andMarch 1997 generated $5 million in producer capital, andon April 15, 1997, Mountain View Harvest Cooperative for-mally purchased Gerard’s Bakery.

Gerard’s was a small regional company producingroughly $6 million in baked goods that were sold primarilyin the food service channel. Under the ownership of 225Colorado wheat farmers, Gerard’s generated $26.8 millionin sales and earned a net profit of $1.2 million for its share-holders in 2004.

But that growth didn’t come without pain. At the time of purchase by the cooperative, the majority

of sales from Gerard’s went to one foodservice outlet. Asthat outlet grew rapidly, the bakery cooperative struggledto keep pace. Every dollar earned by the new cooperativewas poured back into expansion. And, because of the low-margin business, the bottom line suffered significantly.

Again, the wheat farmers turned to USDA RuralDevelopment. In 2002, Mountain View Harvest successfullyapplied for a $342,210 Value-Added Producer Grant (VAPG)to finance the expansion of its product line and to fundmarketing efforts to diversify its customer base. With theassistance of the VAPG funds, the board and managementwere able to establish new products and outlets thathelped transform a $1.3 million operating loss in 2001 into a$1.4 million net profit in 2003. ■

USDA helps Colorado farmers cook up profitabil ity


By Donald Frederick

Program Leader for Law, Policy & GovernanceUSDA Rural Developmentemail: [email protected]

t is often said that a per-son can find almost any-thing on the Internet, ifyou just know where to

look. Finding information on coopera-tive and agricultural law is now easier,using the restructured and expandedWeb site of the National AgriculturalLaw Center:www.NationalAgLawCenter.org.

Congress authorized creation of theNational Agricultural Law Center in1987, which is part of the University ofArkansas School of Law in Fayetteville,

Ark. The Center has been funded withfederal appropriations through theNational Agricultural Library, an entitywithin the USDA AgriculturalResearch Service. The Center conductslegal research and provides informationon agricultural and food law. It isstaffed by a team of law and researchprofessors, lawyers, other specialists,

L E G A L C O R N E R

Web-based ag\co-op law l ib ra ry puts va luab le resources a t f inger t ips

I

Internal Revenue Code section 1401 imposes a self-employment (social security) tax on the net earnings ofindividuals who are in business for themselves as soleproprietors, partners or independent contractors. TheU.S. Tax Court has reaffirmed its position that coopera-tive member-patrons must pay self-employment taxeson distributions they receive from their cooperative.(Eric Fultz v. Comm’r, T.C. Memo 2005-45 (March 10,2005); Dennis Fultz v. Comm’r, T.C. Memo 2005-46(March 10, 2005)).

In these cases, a cooperative made two paymentsto its member-patrons after the end of its fiscal year.One was categorized as a payment to a patron for thevalue added to the patron’s product during its process-ing by the cooperative (a “value-added payment”).The other was called a patronage refund.

Some patrons did not report the value-added pay-ments for self-employment tax purposes. The InternalRevenue Service challenged the patrons’ position andthe dispute wound up in court. The patrons argued

that the “value-added payments” were investmentincome not subject to self-employment tax.

However, the court determined that the paymentswere income derived from business conducted withthe cooperative and subject to self-employment tax.The court also rejected an argument by the patronsthat since they had assigned the right to the fundsreceived from themselves to a family corporation, theywere no longer the recipients of the income for self-employment tax purposes.

Some tax advisers have suggested that similar pay-ments from an LLC to a member are not subject to self-employment taxes. But the courts have looked at thenature of the income (business, not investmentincome), not the structure of the business, in holdingcooperative distributions to patrons are subject to self-employment taxes. So, it seems possible that theywould also hold that payments from an LLC to a mem-ber, related to product delivered for processing andresale, are subject to self-employment taxes. ■

Co-op payments to patrons subjectto self-employment tax

continued on page 42


he organic food market has expanded and matured intoa $10 billion industry, with sales growing about 15 to 20

percent each year. Once the preserve of natural food stores,even most mainstream grocery stores now have organic food

shelves or sections. And increasing numbers of restaurants are buy-ing organic foods.

Many of the early co-ops that sprang up to serve the market havealso matured, while new co-ops continue to be formed to meet thegrowing demand for organic foods. In this special section, we profilea number of organic co-ops that are finding success in the market-place. While organic farms come in all shapes and sizes, some ofthese co-ops say they are proudest of the fact that they facilitatealternative production strategies that help keep more small, familyfarms viable and supporting their rural communities.�

g


By Catherine Merlo

very day, 200 to 300 cus-tomers line up at theCloud Cliff Bakery andCafé in Santa Fe, N.M.They come to dine on

the popular eatery’s cinnamon rolls,the roasted ancho chile rellenos, thestrong coffee. But mostly they comefor the bread.

The crunchy sourdough loaves aremade by hand and baked daily on astone hearth, giving the bread a flavorsimilar to that cooked in a wood-firedoven. Known as artisan bread, thedough is made from water, salt, yeastand a special organic wheat flour.Cloud Cliff’s specialty is “Pan Nativo,”Spanish for native bread.

Pan Nativo has been Cloud Cliff’sbest-selling product for several years,

accounting for up to half of CloudCliff’s wholesale income. The flour it’smade from is high in protein andgluten, and it comes from one placeonly: the organic wheat fields of theSangre de Cristo AgriculturalProducers Cooperative.

Co-op helps boost rural incomesOne hundred miles north of Santa

Fe, along the New Mexico-Colorado

Going wi th the g ra inNew Mexico organic wheat cooperative provides lift to farmers, rural economy

E

Del Jimenez, agricultural specialist with New Mexico State University’s (NMSU) Cooperative Extension Service, examines wheat grown by theSangre de Cristo Agricultural Producers cooperative in Costilla, N.M, north of Taos, just before harvest last November. The organic wheat ismilled into flour and sold to local bakeries and restaurants. Photos courtesy NMSU


border, members of the Sangre deCristo Agricultural ProducersCooperative have just planted their11th grain crop. From September’sexpected harvest, they hope to producea record crop of more than 400,000pounds of organic wheat, which will bemilled into flour and sold to local bak-eries and restaurants like Cloud Cliff.

The co-op has come a long waysince it was formed in 1995 with helpfrom New Mexico State Universityand the New Mexico Department ofAgriculture. Organized to improveeconomics and reintroduce grain pro-duction in the sparsely populatedCostilla Valley, the co-op has donemore than revive local wheat farming.It has boosted incomes and hope inrural Taos County, where the medianhousehold income is less than $27,000per year and nearly 21 percent of thepopulation lives below the povertyline.

Unlike the co-op’s early years, whenmembers irrigated their fields fromditch systems (or acequias), the ninecurrent co-op members now watermost of their fields with a center pivot.They’ve also learned to use modern

tractors and combines, with assistancefrom Costilla and Questa.

Flour mill adds value to cropThe co-op has also just purchased

its own whole-wheat flour mill (albeitused). Now, instead of paying to havesomeone else mill their wheat, theyadd value to their crop by grinding andbagging it themselves. They’ve seenproduction rise from 60,000 poundsthe first year, and watched their co-op’srevenues climb to $100,000 last year.

But what hasn’t changed is the co-op’s commitment to organic, chemical-free, wheat production. It’s proved tobe a bonanza for the tiny co-op. Eachmonth, it sells 18,000 pounds oforganic wheat flour, including 10,000pounds to Cloud Cliff, its best cus-tomer.

“We chose to produce and sell anorganic product because that’s what’shappening all through this area,” saysco-op president Gonzalo Gallegos,who farms 40 of the co-op’s 120 acresnear Questa. “Much of this land hadbeen fallow for so long, and peoplehad never used chemicals on it. Ourwater comes directly from the moun-

tains. What better place could there beto grow organic?”

By offering a locally grown organicproduct, the co-op enjoys a profitableniche market. Organic wheat here sellsfor 11.6 cents a pound, compared withabout 3.3 cents a pound for conven-tionally grown wheat. The co-op millsall of its wheat into organic flour,which is sold to New Mexico cus-tomers at 30 cents a pound. Afterdeducting production, operating andtransportation expenses, co-op mem-bers earn a net profit of 16.6 cents apound for their organic wheat flour.

“That’s more than five times theamount conventional growers earnselling wheat on the open market,”says Del Jimenez, agricultural specialistfor New Mexico University’sCooperative Extension Service.

Jimenez has worked with the co-op,named after the nearby Sangre deCristo Mountains, from its beginning.“We never thought we’d get this far,”he says.

“Demand for our flour is growing,which is why we’re working so hard toincrease our production,” Gallegossays.

New Mexico’s wheat growers are not alone in seiz-ing opportunity in the organic foods market. Burgeon-ing consumer interest in organically grown foods hasnot only opened new markets for farmers, but is trans-forming the organic foods industry.

“Organic foods have penetrated conventionalsupermarkets with breathtaking speed since the late1990s,” says Catherine Greene, agricultural economistwith USDA’s Economic Research Service. “Sales havegrown by 17-20 percent per year since 1997.”

Like the members of the Sangre de Cristo Agricul-tural Producers Cooperative, many small organic farm-ers also are selling directly to high-end restaurants,she adds.

“Retail sales of organic foods totaled an estimated$10.4 billion in the United States in 2003,” Greene says,citing the Nutrition Business Journal, a nutrition indus-try publication.

That’s almost three times as much as the $3.6 billion

sold in 1997.Produce remains the biggest category of organic

retail sales. Soy beverage and organic dairy products(see page 15) have been among the fastest-growingsegments.

“The increasing availability in conventional super-market channels has played a major role in expandingorganic food sales,” Greene says.

Through the 1990s, natural foods stores were thedominant venue for purchasing organic foods. “Today,conventional supermarkets sell as much organic prod-uct as the natural foods sector,” says Greene.

Direct marketing of organic produce is still a vibrantsegment of organic foods distribution, she adds.

“Organic food remains a bright spot of opportunityfor farmers,” says Greene.

For more information, visit:http://www.ers.usda.gov/briefing/organic/. ■

—Catherine Merlo

Organic food sales growing at ‘breathtaking’ speed


Proud of their productLike many locals,

Gallegos, 54, holds twoto three jobs to supporthis family. He has sea-

sonal work as a meat-cutter, high schoolfootball coach and physical educationinstructor. Like other locals, he couldhave left for better-paying jobs in SantaFe, Albuquerque, Los Alamos orDenver. But he stayed, and Sangre deCristo Agricultural Producers Coop-erative has rewarded him in ways henever imagined.

“This experience has meant quite abit to me,” says Gallegos, once aninexperienced farmer. “It’s put food onpeople’s tables, but it’s also the qualityof our product that I like. We got peo-ple together. And it’s taught me a lotabout running a business.”

Through the Sangre de CristoAgricultural Producers Cooperative,members have added roughly $12,000extra to their individual yearly incomes.

Cloud Cliff produces 8,000 to9,000 loaves of its Pan Nativo eachmonth, which it sells for a wholesaleprice of up to $3 a loaf to natural foodstores and other retailers in northernNew Mexico. Cloud Cliff ownerWillem Malten thinks there’s room forgrowth in the Sangre de Cristo

Agricultural Producers Co-op.“It’s taken them a long time to get

where they are now,” Malten says. “It’sbeen quite a learning curve for them.Now, they’re taking a harder look at itas a business.”

Malten has offered ideas to the co-op: figure out a way to sell organicwheat berries; think about growing dif-ferent varieties of wheat, such as spelt,amaranth or quinoa; look into the useof straw for the region’s popular straw-bale housing; consider growing rota-tional crops.

“They’re still trying to find theirbearings,” Malten says. “But I’m gladthey’re still motivated to remain inbusiness. That, in itself, is a success.”

Reviving northern N.M. ag Jimenez would like to see the co-op

eventually produce its own unique prod-uct, probably bread. “It would be idealto have an integrated system,” he says.

The co-op has brought more than ahigh price for the locally grown organicwheat. It’s revived farming in northernNew Mexico, a major wheat-growingarea before World War II. It’s improvedincomes and added jobs here.

“The co-op has done wonders forthe community,” says Jimenez. “Everydollar that comes into northern New

Mexico is turned over seven times inthe community.”

The co-op has received significantfinancial support, Jimenez says. TheNew Mexico Legislature has givensome $50,000 in funding over theyears to help the co-op operate.Expertise has not only been providedby Jimenez, but also by the NewMexico Department of Agriculturethrough staffer Craig Maple.

Even so, the co-op has had its shareof troubles, Jimenez admits. “Ourbiggest challenge is getting coopera-tion within the group to follow thesame procedures and growing tech-niques,” he says. “We have had someleadership problems and the growingpains every group goes through.”

Drought is a regular visitor to thearea, making water a valuable, preciousresource. “We’ve been hit hard bydrought three out of the last 10 years,”says Jimenez.

For Gallegos, marketing the co-op’s product and name has been oneof the hard parts. But he is taking abusiness management class andpreparing to help draft a business planfor the co-op “to turn this into a realbusiness,” he says. “It may take a cou-ple of years, but we are going toexpand.” ■

Cloud Cliff bakery owner Willem Malten (left) and baker Luis Chavez make Pan Nativo (Native Bread) from organic wheat flour supplied by theSangre de Cristo Agricultural Producers cooperative. Pan Nativo is Malten’s best-selling product, accounting for one-third to half of the SantaFe bakery’s annual sales.


By Dan Campbell, editor

ravis Forgues, who withhis father runs an 80-cowdairy farm near Alburg,Vt., can still recall thedire warnings they heard

after deciding to have their farm certi-fied organic in 1997. Too many dairyproducers were going organic, and themarket would soon crumble, they weretold.

But the Forgues were undeterred,having been virtually organic since1991 anyway. “‘Trav,’ my dad said, ‘weare going to get on this mule and rideit until it’s done.’ Well, we’re not rid-ing a mule anymore; now we’re on oneof those big Budweiser Clydesdales,and we’re enjoying the ride,” Forguessays. “The market is screaming formore organic milk.”

Indeed, with an annual industrygrowth rate of 20 percent, organicdairy foods seem to be on the verge ofbusting out of niche-market status.There were maybe 30 organic dairyfarmers in the state when they wentorganic, vs. about 100 today.

The Forgues belong to the nation’slargest organic co-op, CROPP(Cooperative Regions of OrganicProducer Pools), which outpaced thecategory’s envious growth rate, with itssales surging 36 percent last year.Overall sales of the co-op’s OrganicValley Family of Foods label are pro-jected to hit $265 million for 2005, upfrom $204 million for 2004.

About 85 percent of CROPP’s salesare fluid milk, although it also marketsother dairy products, eggs, orangejuice, produce and meat. The LaFarge,

Wis.-based co-op owns only one plant,a butter factory in Chase-burg, Wis.,which produces an unsalted, Swiss-style butter. Otherwise, it co-packswith other dairy co-ops and compa-nies around the nation and contractswith them for milk hauling and relat-ed services.

Nationally, CROPP has more than500 dairy producer-members whobelong to one of 24 milk pools nation-ally. It added two new pools in the pastyear. In December, it opened for busi-ness in the Fort Collins, Colo., areaand in April started its first pool inTexas (see sidebar, page 19).

Economics and philosophycontribute to going organic

The Forgues’ motivation for goingorganic was “probably driven 75 per-

cent by economics, 25 percent by thephilosophy of it,” Travis recalls. Hewas 23 at the time, just out of college,“and the idea of owning our ownbrand of organic milk was really cool.”

The biggest attraction was that theywere guaranteed a stable price of $18per hundredweight (cwt) for two years.“That was really exciting — to nothave to worry about the hills and val-leys of milk pay prices.” That remainsthe main selling point helping CROPPrecruit about 100 dairy farmers peryear.

“Our claim to fame as a co-op isstable milk prices,” says CROPP ChiefMarketing Director Theresa Marquez.“When farmers started the co-op in1988 that was the goal, and stable pric-ing remains a steadfast rule today. Itwas unheard of at that time, but it hasworked.”

CROPP started out offering $2 or$3 per cwt more than the market forconventional milk and has been gradu-ally pushing up the differential eversince.

This year, Forgues averaged $24 percwt for his milk vs. $15 for conven-tional milk. That was earned on a $22base price in Vermont, plus about $2per cwt in various incentives.

The biggest downside to producingorganic milk is that for those farmerswho have to buy feed, the cost oforganic grain is much higher — aboutdouble the cost of conventionallygrown grain in Vermont, Forgues says.

Drought in portions of the Midwestand some other regions this year droveup organic grain prices. “Producerswho don’t grow most of their feed

Cream of the CROPPDemand outstripping supply as CROPP organic dairy products go prime time

T

Travis Forgues and his family not only lovelife on their organic dairy farm, but the pre-mium price they receive allows them tosupport two families with only 70 cows intheir herd. Photos courtesy Organic Valley


have been hurting a bit,”Marquez says.

Less stress boosts herd health

Forgues does not push his cattle totry to squeeze every last drop of milkout of them. Keeping them under lessstress helps keep the herd healthier, hebelieves. That is doubly important onan organic farm, since antibiotics can-not be used (unless ananimal’s life is threat-ened by sickness; iftreated with drugs, thecow then has to bemoved to a convention-al dairy farm and can-not return).

This approach alsokeeps cows in produc-tion longer than onmost conventionaldairy farms. His annualcull rate is only about 8percent of the herd vs.an industry average ofclose to 30 percent, hesays.

The average cow onhis dairy is six yearsold, and he has a number of cows stillin production that are 10 or older.“And no, we don’t wait for them tobecome a broken-down animal that isall used up before we cull them,”Forgues says, although he admits thatthe older cows require a bit morepatience.

This approach makes good econom-ic sense, he says. “When you figure outthe cost of replacement cattle, it’s pret-ty darn expensive to cull cows aftertwo or less lactations.”

Forgues’ herd average is about 40pounds (of milk per cow per day), thesame as before the family went organ-ic. “There are other organic producersaround us averaging 70 pounds. It alldepends on how you want to run yourfarm; we like a low-input approach andwe’re very happy with what we areearning.”

While his herd is just slightly larg-er than the co-op’s average of 65, the

co-op has members with as many as500 cows.

Prior to Organic Valley, theForgues were members of St. AlbansCooperative, which Travis calls “agreat cooperative.” He still considershimself part of St. Albans, sinceCROPP contracts with it to truck andlab-test member milk. “They do ourpaperwork and we still use the co-opstore,” he says.

Minn. organic dairywas ahead of curve

CROPP’s stable milk pricing policyis also what Pam and Jeff Riesgraf likebest about the co-op. The Riesgrafskeep their 60 cows on 50 acres of pas-ture most of the year, and also growcorn and alfalfa near Jordan, Minn.Their herd average is about 50 pounds,but they too say their managementstyle is “to not push the cows too hard;we believe they stay healthier when onpasture and can get their own feed,”Pam says.

The co-op’s base price in the UpperMidwest is $19.20 but will soon bumpup to $20. With various incentives, theRiesgrafs earned $23 per cwt this year.

“With stable pricing, we can set apretty accurate budget,” she says. Andwith the farm supporting a family offive (her eldest son recently got mar-ried and moved to Florida), that’s

important. “CROPP re-evaluates pay price at

the end of every year,” says Riesgraf,one of the co-op’s seven board mem-bers. “The farmer always has a voice inwhat pay price is going to be,” sheadds.

The farm has been organic sinceher father-in-law bought it about 1950.“My father-in-law didn’t even knowwhat “organic” meant. It was just the

way he farmed becausehe didn’t believe in farm-ing with chemicals. Heinstilled that in Jeff, andwe’ve carried on that tra-dition,” Riesgraf says.

Most of those years,the farm’s milk netted nomore than conventionalmilk. “It wasn’t until thelate 1980s that we evenrealized there was a mar-ket out there that wouldpay us more for ourmilk,” says Riesgraf.

The Riesgrafs growmost of their own feed,but their farm wasimpacted by drought thisyear, forcing them to buy

more organic alfalfa hay at inflatedprices. Organic corn and soybeanprices were also up sharply this year.In addition to drought, more organicbeef and poultry is being raised in theMidwest, which further increases com-petition for organic feed grains.

“High-cost feed grain definitelyputs a dent in your paycheck,” Riesgrafsays. If there is a bright side to the feedsituation, she says, it is that it may trig-ger more interest among grain farmersin converting acres to organic. “I thinkwe’ll see corresponding growth in theorganic grain industry.”

Another type of growth Riesgraf isless fond of is the urban growth com-ing their way. “We’re starting to getcrunched from two sides,” Riesgrafsays. “The city [Jordan] sent out anotice three years ago that city limitswill be moving out to the back of ourfarm by 2015. We hope we can hangon to the farm for the kids if they want

Pam and Jeff Riesgraf say what they like best about being CROPP members isthe stable milk prices they receive, which has allowed them to accurately bud-get for the needs of their family and farm.


to farm [and it appears that at leastsome do, she says]. If not here, hope-fully we can set them up somewhereelse.”

Under a program of the MinnesotaDept. of Transportation, the Riesgrafshave set aside 18 acres of the farm aswetland wildlife habitat, which ishome to ducks, geese and other wet-land critters.

“The best thing about farming iswhat it offers our kids — a chance tobe outdoors, to explore andenjoy the environment andspend time with the animals.Most kids do not have thatopportunity.”

Co-op mentoring programThe Riesgrafs participate

in CROPP’s farmer-to-farmer mentoring programto help conventional farmerstransition to organic. “Jeffand I have been mentors, notjust to help Organic Valleyfarmers, but any farmers whowant to transition to organ-ic.” The co-op encouragesfarmers interested in organicfarming to talk to producerswho have already made thetransition.

“This helps them betterunderstand what organicdairy farming is all about andits economic and environ-mental benefits, saysRiesgraf. “Any farmer can do it if thedesire is there. The best thing they cando prior to making the transition iseducate themselves about USDAorganic standards, (for more informa-tion on USDA’s organic marketingprograms, visit:http://www.ams.usda.gov/nop/ProdHandlers/ProdHandhome.html).

Transition rules include adhering toa three-year period with no pesticideapplications on crops or pasture, nouse of antibiotics or hormones in theherd for one year, compiling a log ofall farm invoices and related recordsfor the previous five years, and devel-oping an organic farm plan. There’s

also an annual inspection to verifyorganic standards are being adhered to.

If a cow is organic from birth, it canbe sold for organic meat when culled.But if it was transitioned into organic,it cannot be sold as organic.

Organic Valley is marketing organicbeef, with a 1-pound pack of its brand-ed hamburger now available in mostSafeway stores. Marquez calls beef thetoughest market to crack for organics.

Organic Valley products are made

in 60 plants, including 10 cheesemak-ing plants in Wisconsin. “Our businessis keeping a lot of small cheese plantsoperating, which in turn is importantto the economies of many ruraltowns,” Marquez says. “That too ful-fills our mission, which is about farmore than organic food — it’s aboutkeeping rural communities healthy andkeeping more families on their farms.”

Produce sales totaled just under $1million last year, but that was doublethe year before, and sales are expectedto double again this year. Marquez sayssome exploratory talks are underwayabout a possible produce-marketingfederation with a Central American co-

op to supply year-round produce. But fluid milk remains CROPP’s

main engine. There are two lines ofOrganic Valley fluid milk: ultra pas-teurized (52 percent of all sales) andhigh temperature, slow time (orHTST) pasteurized, which is 12 per-cent of its business. Cheese and butterrepresent 10 percent of sales and eggs6 percent. About 13 percent of its busi-ness is private label.

Organic Valley last year introduced

a soy beverage. It is just a blip on theradar screen at this point — sales areonly 0.2 percent of the co-op’s total.But interest is growing. “We’re notlooking for a huge market share withour soy milk, but we offer it as a com-pliment to organic milk for lactoseintolerant people.” Soy beverage car-tons have a code on them that can betyped onto a Web page, which willthen pull up a page about the farmerwho grew the beans it was made from.

Competition welcomedOne sign of the health of the organ-

ic dairy market is the rising interest oflarge dairy foods corporations in it,

Chart and data provided by Organic Valley/ CROPP


Marquez notes. DeanFoods has acquired theHorizon organic brand,and HP Hood has theStonyfield brand.

“This has pluses and minuses forus,” Marquez says. It is obviously hard-er to set the category price with moreplayers. “But you need players to makea category. So it’s nice to see some bigfirms entering it — it shows that youhave arrived as a real category that ishere to stay.

“Our competition is probably out-spending us 10-1,” Marquez says. “Butwe view competition as healthy. It’sreality and it’s the American way. Ifyou can’t get in there and duke it outwith the best of them, then you proba-bly shouldn’t be in business.”

Right now, the biggest competitionis for farmers. All organic brands arelooking for more milk, Marquez says.“This is the first time demand has out-stripped our ability to convert farmers.It’s an unprecedented time for us —we’ve never hit up against a wall this

hard before. We took on 100 morefarmers last year but can’t convertthem fast enough to meet demand.”

CROPP is in the design stage ofbuilding a 100,000-square-foot distrib-ution center, with occupancy targetedfor January 2007. The same site mayalso become the home of a fluid milkbottling operation in 2010.

It also has a brand new headquartersin LaFarge, which USDA RuralDevelopment helped provide financingfor (see “Inside Rural Development”column, page 43).

Offering farmers &consumers an option

Forgues makes one trip a monthpromoting the co-op and its productsas a member of Cropp’s farmer ambas-sador team. “I love bringing morefarmers into the co-op,” he says.

The fact that organic producers canmake a living on smaller farms helpskeep more farms in business and sup-ports more rural communities, Forguessays. “We’re giving more farm kids —

and I’m one myself — a chance tocome back to farm who might not oth-erwise be able to. We’re offering theman opportunity.”

At this point, rather than growinghis herd, Forgues says there is much heand his father can do to improve theirherd average by trying different for-ages, etc. “That’s the fun part of farm-ing — trying different things and see-ing how the cows respond.

“I don’t feel pressure to have togrow the farm. I’d get out of farmingbefore I’d go down the road of indus-trial farming; it just wouldn’t be worthit. When Dad and I can’t do the work,or if our children don’t want to do this,we’re not going to bring in labor. Dothat, and then you’ve got to milk anextra 50 cows to pay the labor. Andthen you need a bigger parlor —there’s another $200,000 loan. That’sthe trap — they got you.

“I feel very happy and blessed to bein the position we are, being paid likewe are, in a market that is growingwith stable farm prices.” ■

CROPP is directed by a seven-member board, all ofwhom are farmer-members elected at large. Elections arestrictly one member, one vote.

Key to the co-op’s functioning are eight executive com-mittees (ECs), one for each of the primary commoditiesCROPP handles (dairy, eggs, beef, pork, poultry, soy, juiceand produce). The ECs in turn make recommendations tothe board. Representation on the ECs is by region, based on(in the case of dairy) being in one of 24 regional milk pools.

Each dairy pool averages 30 farmers. Their milk is loadedonto the same truck and delivered to the same plant.CROPP’s Dairy EC holds monthly conference calls and meetsface-to-face at least annually, sometimes twice each year.

They discuss everything from farm pay price, to feedcost, to herd health issues, to proposed changes to nationalorganic standards. Co-op Marketing Director Theresa Mar-quez says it is unusual for the board to reject an EC recom-mendation. “But it does happen. Then they go back andforth.”

“It’s like our own House of Representatives,” says TravisForgues, a former Dairy EC member from Vermont. “We talkthings out every month. It really is the voice of the farmersthat makes this co-op run.”

Having both a CEO (George Siemon ) and board chair-man (Wayne Peters) who are active farmers helps buildtrust and understanding between headquarters and themembers, Forgues says. “George came to Vermont andhelped get our first milk on the truck,”says Forgues.

Members’ equity investment in the co-op is one month oftheir estimated annual sales, or 8.3 percent of projectedannual income. “That investment goes into a CD, with theinitial investment earning 8 percent interest,” Marquezsays. Equity is paid to members upon retirement or uponleaving the co-op.

With few physical assets to maintain, the co-op busi-ness philosophy is based on paying the best upfront milkand crop prices it can, Marquez says. Patronage is thusless than with many co-ops.

At the end of each year, 1.25 percent of co-op incomegoes back into the co-op to cover debt service, inventory,etc. Between 1.25 and 2 percent of income goes into patron-age and profit sharing, allotted: 45 percent to farmers, 45percent to staff and 10 percent to the community. Localscholarships and county fairs have benefited from thesecommunity investments, and more than a million dollars hasbeen donated to children’s health organizations. ■

Executive committees key to CROPP governance


Editor’s note: This article isreprinted courtesy Organic ValleyFamily of Farms.

When Organic Valley dairyfarmer Harry Lewis tells the storyof how his family’s 287-acre Texasdairy farm came to be, it’s clearwhy he’s so passionate about pre-serving it today.

It started with a stroke of luckin 1940. The United States govern-ment had purchased about 1,575acres of farmland near SulphurSprings for nine African-Americanfamilies, who would produce foodfor World War II troops.

Harry’s father, a newlywed look-ing to get his own start in farming,happened to be plowing his fami-ly’s land when government officialsdrove up and offered him a farm.

“He got the land, the feed andthe dairy cows,” Harry recalls.

“The only thing he had to buy was sugar and flour. Myfather and his farm were just as much a part of the war. Itwas a service.”

One generation to the nextHarry’s family, including his brother, Robert, survived

the ups and downs of farming in the 1940s, 50s and 60s: awar effort that provided income; larger, mechanized post-war farms that started to squeeze out small family farm-ers; and Texas drought.

Both Robert and Harry left the farm at different times topursue their own careers. Robert moved to California andHarry attended Texas Southern University. But both meneventually returned to the farm, where they workedtogether. Harry also married his wife, Billye, and the cou-ple raised their children: Annette, Angela, Erica and Wyn-ton. Robert passed away in 2000.

By 2001, like many farmers in his community andacross the nation, Harry was frustrated by fluctuatingprices for the conventional milk produced by his 75-cowherd, as well as the increasing role of large corporationsin agriculture, which he feels threatens farmers’ indepen-dence.

Eager to make a change that would keep his family’sfarm intact, Harry had his own stroke of luck.

Organic Valley: ensuringthe future

In 2002, representatives ofOrganic Valley visited Texasto recruit farmers to produceand sell milk in the region.Harry attended the presenta-tion and accidentally leftbehind his tape recorder.

After he arrived home,two men from Organic Valley— CEO George Siemon andWayne Shaker — werestanding on his doorstepwith his recorder. They hadsurveyed Harry’s beautifulland, which for years, inkeeping with the practices ofhis father, had been farmedwithout herbicides or pesti-cides. The men told Harry itwould be easy to transitionhis farm to organic.

“Something in me said‘this is it, this is the right thing to do,’” Harry recalls. “Thenthey explained how I could do it. They didn’t lie, they didn’tmanipulate me, and I liked that.”

By Jan. 1, 2005, Harry’s herd and land were certifiedorganic. Since April, his cows’ milk has been sold under theTexas Pastures™ label throughout most of Texas.

Organic ambassadorThese days, Harry is a proud Organic Valley farmer-

owner and organic “ambassador,” spreading the wordabout the co-op, organics and its environmental benefitsamong his community and the state of Texas.

“I’ll do whatever I possibly can to get organics inTexas,” Harry says. “My county was once called the ‘DairyCapital of the State of Texas.’ My plan is to bring it back asthe ‘Organic Dairy Capital of the State of Texas.’”

Most importantly, Harry is happy knowing that he andWynton, 20, who will someday take over the farm, cancontinue farming the way the family always has. “We putin our work, but we also put in joy,” Harry says. “Andthat’s what we receive — a rewarding, wholesomeorganic lifestyle for my family and grandchildren, Joushand Kandis.”

“We won’t make millions,” Harry continued, “but it’s agreat way of life.” ■

Texas dairy farmer ‘puts joy into his work’

“Something in me said this is the right thing to do,”says Harry Lewis, with his wife, Billye, and grandchild.


Thomas W. Gray, Ph.D.

Rural SociologistUSDA Rural Development

Author’s note: This article draws heavilyupon Growing Home: A Guide forReconnecting Agriculture, Food andCommunities, by Joanna Green andDuncan Hilchey, Cornell Community, Foodand Agriculture Program, Ithaca, N.Y.

he long, historic trend inU.S. agricultural devel-opment has been towardever-fewer, larger farms

— a process some have likened tobeing on a treadmill. Cycle after cycle,fewer farmers on larger farms accountfor increasing proportions of total pro-duction. The process has been fueledin-part by continued adoption of vari-ous mechanical and chemical innova-tions.

These innovations (includingincreasingly large tractors and machin-ery, pesticides, herbicides and fertiliz-ers) permit greater tracks of land to befarmed more intensively by fewerfarmers.

The sheer volume of products

produced from this system has beenso large that, even in the face of pop-ulation expansion and exports, priceshave tended to remain level ordecline.

Historically, farmers not able, orunwilling, to get on the “industrializ-ing treadmill” have found survival dif-ficult. Many of these farms go fallow,or are bought out by neighboringfarmers.

As an aftermath of these processes,farm families displaced from theirfarms tend to leave the local commu-nity.

Loca l-based, a l te rnat ive-market ing s t ra tegy cou ldhe lp save more smal l fa rms

T

Cut flowers proved to be a popular item at this stall at a New Orleans farmers’ market. USDA photos


An alternative pathMany rural sociologists — includingThomas Lyson, Green and Hilchey ofCornell, Steve Stevenson and FredButtel of the University of Wisconsin,Larry Yee and Gail Feenstra of theUniversity of California-Davis, amongothers — say that an alternative to thistechnologically intensive path of farm-ing began to emerge in the late 1970s,called “alternative agriculture.”

This alternative farming path pro-vides strategies linking local produc-tion to local and regional consump-tion, without employing technologiesthat require an increasing scale of pro-duction. Ultimately, these approachesseek to keep as many family farmersoperating as possible by improvingtheir economic returns.

Less emphasis is placed upon pro-duction of commodities (de-commodi-fication) and on diversification (lessspecialization). It involves findinglocal and regional market niches,rather than national and global mar-kets. This approach is often pursuedwith an emphasis on producing nutri-tious, safe food in a manner that isenvironmentally sound. Explicit con-sideration is given to the social, envi-ronmental and economic links to thelocal community.

This article has a twofold purpose:1) to review some of the marketingstrategies used in these alternativeapproaches, and 2) to draw implica-tions for cooperative organization.

Following are some alternativefarm marketing approaches being usedsuccessfully:

• Community supported agriculture— involves individual consumers in alocal community who pay an annualmembership fee to contract with alocal farmer, or farmers, for a shareof their harvest. Typically, this is forfruits and vegetables, but may also befor meat. This involves forging adirect market link from the farmer tothe final consumer.

Supporters of this approach sug-gest products can be harvested atpeak readiness (for flavor, texture,vitamin and mineral content) forconsumption, and delivered withinhours of being picked. Farmer andconsumer come to know each otherand can develop mutual trust (and apersonal relationship) concerningproduct quality, quantity, consisten-cy and predictability. Those con-sumers wanting special handlingand organic production have muchgreater assurances they are gettingwhat they pay for.

Ideally, the farmer reaps thegreatest return of value from theconsumer, not having to pay whole-salers or retail middlemen.

• Restaurant (or culinary) agricul-ture — refers to a food supply rela-tionship between individual farmers

and managers, owners and chefs ofrestaurants. The relationship is par-allel to that described above betweenfarmers and final consumers. Thislinking can be particularly lucrativefor the farmer when restaurateurs arelooking more for quality and are lessconcerned about price.

However, the farmer must beable to provide products of topquality, on short-notice and in areliable manner. Produce, meat,baked goods and flowers are exam-ples of local goods restaurants maywant.

• Institutional food service & farm-school suppliers — Many commu-nities across the nation have helpedlocal agriculture and their citizenryby developing links between farmsand schools, hospitals, prisons andnursing homes. Emphasis on nutri-tious food, and children’s health, hasbeen particularly useful in forgingdirect links between farm and schoollunch programs.

• Farmers’ markets — Less formallyorganized than farm stores, farmers’markets are generally held at desig-nated locations within a community— such as a community building,village square or parking lot. Localfarmers, processors, artisans andcraftspeople bring their wares to sellat designated times. Farmers’ mar-kets have advantages over supermar-kets in that food grown and harvest-ed locally is likely to be at a peak forfreshness and nutritional value.

Many producerswant to remain infarming, but not if it means industrial-scale farming. Thereare alternatives.


Local farmers retaingreater value by sellingdirectly to the con-sumer. Farmers’ mar-

kets can also provide a test marketfor new products that, if successfullocally, might be expanded to a larg-er market.

• Cooperative farm stores — Moreprevalent in Europe and Canadathan the United States, cooperativefarm stores are small grocery storesoriented to carrying local productsfrom farmers and food processors.Products carried may include dairyfoods, meats, fresh and canned fruitsand vegetables, root crops, mush-rooms, dried beans and otherlegumes, wine and liquors, fresh-baked goods and condiments.These stores are generally ownedby 10 or fewer farmers. Mostnumerous in France, these storesare vehicles for supporting andenhancing the local culture withlocal products, such as Roquefortcheese from Roquefort, France,and Kona coffee from Hawaii.

• Produce auctions — While nota new innovation, produce auc-tions have made resurgence inrecent years, with many filling aniche demand for organic foodsand fresh, local food production.Customers of these auctions are fre-quently roadside stands, grocerystores and restaurants. The auctionhouses typically provide not only thefacilities, but grading services, pre-boxing and/or pallets, as well as col-lections and overall management.They represent an intervening linkbetween producers and consumers,though they seek to emphasizelocalism.

• Cooperative marketing — Greenand Hilchey argue that traditionalagricultural cooperatives (meaningthose formed in the 1930s and1940s) have not been the choice offarmers seeking alternative agricul-ture strategies. In order to compete

with large multinational investmentsfirms, many older cooperativesincreased scale and geographic reach.This has occurred to the degree thatmany have become large, bureau-cratic organizations.

Size and bureaucracy tend tonot easily lend themselves to exper-imentation with new “alternativeagriculture” farm production prod-ucts. However, new and muchsmaller cooperatives (those withless than $500,000 in gross sales,for example) are being formed inresponse to the mutual interestsproducers have in developing mar-kets for crops and products that are

out of the mainstream of usual pro-duction, Green and Hilchey note.This is particularly the case forfruit and vegetable production inthe Northeast.

• Value-added activities — Value-added activity, in which farmersretain ownership of the productpost-processing, can enable farmersto keep more value for their prod-ucts. Value-added activities mayrange from capital-intensiveethanol plants and sugarbeet pro-cessing plants — which require rel-atively large investments fromfarmers and large workforces — tomobile meat processing units and“kitchen incubators,” requiring

much smaller investments and, typ-ically, less than 10 employees.

• New-generation cooperatives —These co-ops are a relatively recentphenomenon, most being formed inthe past 10-15 years. They generallyare formed by farmers who want toprocess locally produced commodi-ties, although not necessarily forlocal markets. Examples includeethanol and corn syrup from corn,biodiesel from soybeans, sugar fromsugarbeets, pasta and bread fromwheat, and beef and bison processingplants. Output of these firms may gointo regional, national and interna-

tional markets. Heffernan of the University

of Missouri estimates there areapproximately 200 of theseplants in the United States.They tend to be associatedwith industrialized agricultureand farming systems that havehistorically involved increasingscale and use of technology. Itis a strategy that seeks to pro-vide outlets for commodityproduction while retainingvalue (obtained from process-ing) for the local farmer.

The local advantage Nearly all of these activitiesinvolve some aspect of local-

ism. Community supported agricul-ture, restaurant agriculture, farmers’markets and farm-to-school and insti-tutional buying programs all typicallyhave strong “buy-local” themes. Buy-local campaigns seek to expand theconsumption of local products, therebybringing greater economic returns tothe local area, rather than sendingthose same consumption dollars “outof town.”

Farmers selling their productsdirectly to consumers do not have toshare value with middlemen. Dollarsspent locally for local products multi-plies the economic benefits of thisspending.

It also draws out the creativity oflocal people. Part of buying locally

Produce auctions, farmers markets and community-supported agriculture efforts are all well-adapted to theproducer-owned, co-op business structure.


may also involve products that arealmost emblematic of shared local val-ues. For example, a rural town may beknown as the “pumpkin or blueberrycapital” of its state; or the highlight ofa town’s annual events calendar maycenter on hosting the state’s sweetpotato, almond or turnip festival. Insome states, these are importanttourism events. Crops can become aprimary focus of community identity— one which the entire populationwants to preserve.

This local identity can sometimesbe expanded to a regional or statewideidentity with a great deal of consumervalue. Green and Hilchey note suchmarketing messages as: your family-farm neighbors; keeping dollars in thelocal community; knowing the farmerwho produced your food; preservingopen space in the community. Thesetypes of appeals may be combined withsuch regional identifiers as:Pennsylvania Dutch, Appalachian, BlueRidge, Low Country, Up-Country,Down East, Eastern Shore, Twin-Lakes, and countless others.

Role for co-opsWhile many of these strategies do

not rely on formal cooperative organi-zation in their development, coopera-tive formation could be quite useful inresolving some of the difficulties andchallenges.

Cooperatives have been successfulin agriculture because relatively smallproducers with similar productionoperations and output had a strongcommon need for marketing servicesand production supplies. Farmers mar-keting to schools, nursing homes, hos-pitals and restaurants face similarproduct assembly, marketing coordina-tion and standardization problems.These market niches require timely,dependable and reliable delivery ofhigh-quality products. They alsorequire a diversity of products —fruits, vegetables, dairy and meats.However, the vagaries of farming —weather being the largest — can makethe best of these links tenuous.

A local cooperative organization canprovide a mechanism for drawing uponseveral farmers for a variety of products,while providing for assembly, deliveryand standardization that ensures quality.This same cooperative might also pro-vide a bargaining function.

The larger the volume, the greaterthe number of customers and coopera-tive members, the more formal rela-tionships become. Beyond a certainsize — often thought to be about 100members in a cooperative — relation-ships become much more “businessonly,” and much less personal.Developing trust with chefs and schooladministrators, for example, becomesmore difficult.

Smaller scale allows for more per-sonal relationships, the development oftrust and true “localism.” However,larger-scale operations may allow forgreater flexibility in terms of bothproduct diversity and processing.

New-generation cooperatives areslightly different from the above activ-ities in terms of localism. They aregenerally organized for much largermarkets than those found locally.They are less experimental, in thatthey focus on the development of newmarkets for traditionally producedcommodities. However, they are ori-ented to capturing more value for thelocal farmer and often do so whileemphasizing the regional and localidentity of the product.

Lyson, and others, argue that any ofthese alternatives should be pursuedfor a number of reasons, not the leastof which are the rural developmentgoals of economic growth and qualityof life enhancement (see sidebar belowon community benefits).

This article has suggested possibili-ties for smaller cooperative organiza-tions. However, larger cooperatives —even if only in support of the activi-ties of others — could help pursuealternatives that are more directedtoward maintaining farmer traditionsand the survivability of farmers as agroup while sustaining small ruralcommunities. ■

Preserving small farms provides numerous benefits forrural America. They help maintain the population base nec-essary to keep local schools, churches, restaurants andretail stores operating. Green and Hilchey summarize thisseries of benefits of alternative agriculture development.They note that local farms:

1) Provide jobs and purchase inputs and services fromother local businesses. They achieve a high “econom-ic multiplier effect” by recirculating dollars in localeconomies.

2) Preserve open space, beautify landscapes and attracttourists, providing further economic benefits.

3) Provide fresh, wholesome foods with excellent tasteand nutrition.

4) Benefit the environment by protecting watershedsand enhancing wildlife habitats and biodiversity.

5) As independent small businesses, they contribute to astrong middle class and a healthy civil society.

6) Provide a wonderful environment for raising families.

7) Connect all people with the rich cultural heritage ofrural communities.

■

How small farms benefit communities


By Pamela J. Karg

Editor’s note: Karg is a Baraboo, Wis.-based communicator who specializes inagriculture and cooperatives. She alsoserves as the Sauk County volunteer citi-zen on the Southwest Badger ResourceConservation & Development Council.

hile on a business tripfor her off-farm job,Laurie Moore wasreading an airline mag-azine when she came

upon a restaurant review of an eatingestablishment back home. When shereturned home to Woodland, Ala.,Moore stopped to see the chef and talksome business. The meeting was the

start of a business relationship thatallows Moore and her husband, Will,to sell fresh farm produce directly tohigh-end restaurants, where chefs arecommitted to “slow foods” cookedfrom scratch with the freshest, locallygrown ingredients.

In fact, the Moores grew their busi-ness to the point where Laurie quit heroff-farm job to work full-time on thesixth-generation, 65-acre farm and cat-tle operation that has three acres plant-ed to produce. By 2003, their incomehad reached about $10,000 per acre forthat portion of the farm planted toserve the specialty produce marketplace.

Production did not keep up withdemand, however. That’s when theydecided to form a cooperative —

Farmer’s Fresh Food Network — tohelp small Alabama and Georgia farm-ers tap into this growing, niche-mar-keting trend.

Co-op spreads benefits Proprietary businesses have their

advantages: no board; no bylaws. Aperson can see a need and respondquickly. Owners can retain earnings.There are many other reasons theMoores could have kept the businessfor themselves.

W

Laurie and Will Moore wash andbag ‘certified naturally grown’produce from their farm fordelivery to restaurant chefs whoappreciate the quality, flavor andnutritional value of their crops,often delivered within hours ofharvest. Photo by Von Williams,courtesy Birmingham News

A Fresh Advantage Co-op helps small farms marketproduce to high-end restaurants


“We’ve thought about the decision to form a cooperativemany times while developing bylaws, electing a board andso on,” she says. “There are times when another [business]option would have been personally easier for us. But Ithink the cooperative was the right way to go because itwill benefit local farmers. What we’vegone through so far are just the initialsteps of putting everything together,but once we’re through that, we thinkit will prove to be a good move,” sheadds.

The Network is just one example offarmer cooperatives forming acrossAmerica to meet the needs of smallfarmers who want to serve specific mar-ket niches. In fact, the Network itselfgrew out of several local initiativesspecifically started to help the area’ssmaller farmers deliver their goods tounique marketplaces.

Marketing bolstersfarmland preservation

In a region where agriculture is expe-riencing pressure from urban encroach-ment, higher property taxes and limitedmarketing opportunities, there is atrend of farmland loss, says CindyHaygood, executive director of Rolling

Hills Resource Conservation and DevelopmentCouncil, which operates under USDA’s NaturalResources Conservation Service. Farmers inthe area, especially those with small operations,say they want to keep farming.

This trend resulted in the creation of alocally led farmland preservation effort. It hasmade great strides in preserving farms and edu-cating people on the importance of farmlandpreservation.

“But once you preserve farmland, thenwhat?” asks Haygood. “The group decided italso needed to create marketing opportunitiesfor local producers.”

That’s when they created Cotton MillFarmer’s Market, in Carrollton, Ga., whichtoday attracts hundreds of customers. With itssuccess came more discussions and brain-storming ideas that led to the Moores cooper-ating with other producers to create theNetwork to serve their growing list of Atlanta-based chefs.

Through the Network, farmers pool prod-ucts to market to restaurants, as well as educa-tional and medical institutions. Farms eligible toparticipate in the cooperative are located in andaround the Carroll County region, including

some counties just over the state line in Alabama. Moore says the farmers involved tend to have between

three and five acres of produce crops in production. Thegoal of the Network is to “keep it local,” she adds.

Atlanta Chef Joey Masi shares cooking tips with the Green Market at Piedmont Park.Photo courtesy Green Market at Piedmont Park

Amy Bentoski of D & A Farms is one of many farmers who market fresh Georgia-grown pro-duce to urban consumers through Green Market at Piedmont Park, Atlanta. Photo courtesy ofGreen Market Piedmont Park


‘Smart farms’Moore describes these

small farms as ‘smartfarms,’ and says they are

being operated by a new breed offarmer. “We use technology that willallow us to make a living from theland, even when we get to be 70 andolder, without killing ourselves. Onour farm, for example, we literally haveno tractor. We use a mulch compost-ing system and have a very low impacton the environment. That’s how manyof these farms are operating.”

Moore says members are reducingtheir household living cost and simpli-fying their lives. “We believe you can-not just look at the land and the soil aswhat it can do for you today withoutputting anything back into itfor the future. So our over-riding goal with the Networkis to allow small, sustainablefarms to make a living bysupplying the communitywith quality products.”

The farmers trade food tofeed their families. In addi-tion, they’re working withhuman services departmentsto allow low-income familiesand the elderly to use existingfood stamp vouchers to pur-chase fresh fruits and vegeta-bles through the farmers’market or Network.

The Moores have alsojoined the Pepper PlaceSaturday Market inBirmingham, Ala., a farmer’smarket which attracts up to3,000 people weekly. Thatgives Laurie 200 to 300 addi-tional customers per week.Through the Network, theMoores and other coopera-tive members also continue toparticipate in the PiedmontPark Greenmarket in Atlanta.

USDA, other funds bolster co-op

In early 2004, the RollingHills RC&D acquired a

$2,500 grant from the West GeorgiaCommunity Foundation to get theNetwork started. In the fall of 2004,Rolling Hills acquired a $105,000grant from USDA’s CommunityFoods Grant Program. The fundinghelped meet start-up needs for theNetwork for the first three years.Purchases included a refrigeratedtruck, walk-in coolers, a commercial-grade salad spinner and other equip-ment.

The RC&D Council administersthe funds for the Network. In addition,the Network uses the services of theUniversity of Georgia’s Center forAgribusiness and EconomicDevelopment to provide board train-ing to its directors.

Combined with the increasing num-ber of farmers’ markets inthe area, along with trad-ing between producers,the Network has added acommunity-supportedagriculture (CSA) compo-nent to the mix to allowsome producers to extendtheir seasons. Under theCSA arrangement, cus-tomers buy subscriptionsin the farms for fall orwinter; subscribers sharein the bounty as crops areharvested.

Moore says theNetwork has also attract-ed a few farmers with pas-ture-fed beef, eggs andgreenhouse operations.These allow the Networkto market a greater vari-ety of products for alonger timeframethroughout the year.

In its first year ofoperation, the Networkmarketed some $30,000in products. As the newlyhired project manager forthe Network, Mooreanticipates that figurewill grow to $100,000this year.■

Wendy Crager, who owns Crager/Hager Farm in Bermen, Ga., growsstrawberries, garlic, lettuce, mesclun greens, potatoes, tomatoes, blue-berries, peas and beans which are marketed through Farmer’s FreshFood cooperative network. The Cragers plan to make Gonzo GourmetPesto and other sauces when the area’s certified kitchen is built at theagriculture center in Carrollton. Photo courtesy Farmers Fresh Food Co-op

“Our over-ridinggoal with theNetwork is to allowsmall, sustainablefarms to make a liv-ing by supplying thecommunity withquality products.”

By Stephen A.Thompson

Assistant Editor

any mainstream farmers see organic growers as littlemore than hobbyists, depending on ladybugs, manureand luck to grow crops. But successful organic pro-ducers make their own luck. They are coming intotheir own by using innovative agricultural techniques

to protect their crops while also developing their business skills.Many are finding small, but profitable, niches by growing high-qual-ity crops and catering to restaurant chefs and other customers whodemand the best.

Pennsylvania is home to a growing number of such farmers whohave joined forces to make their operations work with the help ofniche-marketing cooperatives. The Tuscarora Organic GrowersCooperative, based in Hustontown, sells mainly in the Baltimore-Washington area to restaurants and some small high-end retail out-lets. Growing for markets in the Pittsburgh area are the members ofPenns Corner Farm Alliance, a co-op that does not exclusively sellorganic produce, but which shares Tuscarora’s commitment to high-quality products and sustainable agriculture.

Harvesting coordination crucial to co-op successTuscarora Organic Growers Cooperative was organized in 1988,

when Jim Crawford, the owner of an organic operation called NewMorning Farm, decided to spin off his produce wholesaling busi-ness, and to build new markets for his crops and those of his neigh-bor organic producers.

In the beginning, members had little idea how to make the opera-tion work. The cooperative puttered along for a few years, selling “afew cases of this and that,” says Tony Ricci, sales and marketingmanager. What was needed was a comprehensive marketing andorganization plan. They got it when they hired Chris Fullerton asgeneral manager. Fullerton’s efforts turned the co-op into a profes-sional organization with a constantly-growing customer base andsales.

The heart of the operation is a system under which each of the 17member farms commits to supplying a certain amount of a givencrop at a given time. During the winter, Fullerton talks with eachfarmer; together they draw a plan based on the producer’s pastrecord, preferences, projected demand, etc. A grower’s commitmentmay include new crops, and it may make up only a portion of hisprojected output, since each member is free to sell produce through

M

Heirloom variety tomatoes, such as these, are in demandby a number of chefs who look to co-ops such asTuscarora and Penns Corner in Pennsylvania for theirsupply. Photos courtesy Tuscarora Organic Co-op


Sl ice of the marketPenns Corner, Tuscarora co-opstarget growing restaurant trade

other channels. Growers’ commit-

ments are loaded into acomputer relationaldatabase, which every

week generates a list of the cropsexpected from each grower. “We hadto get the database developed especial-ly for co-op,” says Ricci. “Nobodyoffered a database system that did whatwe needed.” Off-the-shelf systemswere centered on keeping track ofavailable produce, but didn’t keep trackof individual growers.

The custom-built database was putinto service 10 years ago, but wasgiven an overhaul beginning in 2002,using lessons learned in the interim.The revamped system was inaugurat-ed the following year. The new data-base has turned what used to be aheadache into easy work. “We used todo everything using spreadsheets,”Ricci says.

Once commitments are entered intothe system, they are not carved instone. The co-op keeps in constanttouch with members, and figures areupdated as necessary.

“We have to be flexible,” says Ricci,“so we can deal with changes in themarket and with our own changingconditions.” If the co-op is unable tosell all of the committed produce, theloss is split evenly among the growers.

Quality, reliabilityare co-op’s lifeblood

The ability to present customerseach week with a list of available prod-ucts is a big advantage. Another is thehigh quality of the co-op’s produce.“We sell quality, not quantity,” Riccisays.

The co-op’s focus on building close,one-on-one relationships with its cus-tomers is another strong point. As theperson in charge of marketing, Riccispends much of his time cultivating hisrelationships with chefs and otherbuyers.

Part of building those relationshipsis providing what they ask for, even ifthe co-op doesn’t currently have it. “Ifwe don’t have what they want, we get

it from somebody else,” says Ricci.The decision to keep the co-op

open all year has also been key inmaintaining its customer base, saysRicci. “Staying open means we keepthe trucks running, and our customersloyal.”

The problem is what to sell duringthe lean winter months. Winter root

crops take up some of the slack, andsome of the members have greenhous-es. The co-op also sells mushroomsfrom a Pennsylvania grower, citrusfruits from Florida and even organicolive oil.

The ultimate goal is to run the co-op in the black in the winter — a goalthat remains unmet. But last winter’sfigures were conspicuously better thanthose of the winter before, with saleshigher every week — and one weekshowing an increase of 40 percent overthe same week a year before.

Along with the professionally-runmarketing operation, the growers usethe latest in certified organic pest- anddisease-control methods. “People don’tknow it,” says Ricci, “But organicfarming is one of the most innovativesectors of agriculture. There are newproducts coming out all the time.”

The secret to successful organicfarming, according to Ricci, is tomaintain a proper environment in the

fields, and to not depend on “quickfixes.” Instead, he says, organic farmersmonitor the conditions of their fieldsand attempt to keep things in balance.When problems do occur, there areproducts available, such as a hydrogenperoxide mixture, that control bacteriaand fungus while still meeting organicstandards.

“A lot of people think we just howlat the moon and hope for the best,”Ricci chuckles. “But we just use differ-ent tools.”

Ricci believes that operations likeTuscarora can offer desirable alterna-tives for farmers who today find them-selves caught in the price-cost squeezeendemic to mainstream farming.“There are too few options for farmersdue to all the consolidation and cen-tralization,” he says. “We don’t dependon government guiding the market; wetake the risks ourselves.”

So far, the approach seems to beworking.

Penns Corner co-oppleases choosy chefs

About 70 miles to the north, themembers of Penns Corner FarmAlliance are using a similar approach.Penns Corner was founded after cur-rent president Pam Bryan and otherproduce farmers in the State College,Pa., area attended a meeting held bythe Pennsylvania Association forSustainable Agriculture (PASA) to dis-cuss a proposed local farmers market.

The upshot of the meeting was thatsuch a market would be about fiveyears away. Bryan and her friends weredisappointed. “We wanted to sellthings now,” she remembers.

They found start-up funding fromPASA, but with a catch. PASA wouldnot fund a purely organic organization.The result was that, while most of thecooperative’s members are certified asorganic, the co-op is open to otherfarmers that practice sustainable agri-culture.

After the co-op’s launch in 1999, thenext step was pure serendipity. At aPASA meeting, Bryan met the execu-tive chef for a large Pittsburgh restau-


“Organic farming isone of the mostinnovative sectors ofagriculture. Newproducts are comingout all the time.”

—Tony Ricci


rant chain called (The Big Burrito.).Bill Fuller was looking for a source ofhigh-quality fresh produce. Trained inCalifornia, Fuller had returned to hishome state only to run into troubletrying to find good-quality vegetablesfor his dishes. It was a match made inheaven.

Fuller, says Bryan, “took us by thehand.” He suggested crops to grow,and offered business advice. They alsoreceived technical assistance from theKeystone Development Center — acooperative development service,which, among other things, paid forTuscarora’s manager, Chris Fullerton,to come out and talk about his co-op’s

marketing database system. The co-op offers an interesting

variety of produce in addition to thefamiliar vegetable staples. Edible flow-ers are produced by one operation,including nasturtiums and squash blos-soms. Bryan sells young whole plantscalled “micro-greens” and “demi-

greens.” Growing and packaging thetiny plants is labor intensive she says,but customers pay a premium for thesetop-quality additions to salads andother dishes.

Customers request new cropsOther items sold by the co-op

include free-range eggs, turkeys, grass-fed lamb, honey, blueberries, aspara-gus, and even pasta and tofu, whichalong with mushrooms are supplied byoutside sources. Some of the cropswere originally unfamiliar to co-opmembers when asked for by customers.

Others were all too familiar. “Wefound that people were asking for

things we thought of as weeds,” Bryansays. Those edible “weeds” includechickweed, lambs quarters and stingingnettles.

About six years after its founding,the cooperative has 14 members locat-ed in nine counties surroundingPittsburgh. The co-op’s customers are

a little more varied than Tuscarora’s.They include about 19 restaurants andother establishments — some of themmembers of the “slow food” movement— and the Pittsburgh Food Bank.

But the co-op also sells through akind of “produce basket of the weekclub.” Part of a nation-wide movementcalled Community SupportedAgriculture (CSA), the program allowsindividuals to buy subscriptions to fouror eight weekly deliveries of fresh pro-duce, usually beginning in June. Othersales venues include a farmers marketin College Station, begun when afriend of the co-op invited members touse the parking lot of building he

owned, and local countryand golf clubs.

Like the Tuscaroraco-op, Penns Corner staysopen in winter, and for thesame reason. “We original-ly wanted to close duringthe winter, but Big Burritoconvinced us that stayingopen would help us keepcustomers,” says Bryan.Some members sell most oftheir produce through theco-op; others use it mainlyas a backup when they’reunable to sell their entireoutput to regular customersor other venues.

Bryan believes thatfuture growth will comemainly from CSA subscrip-tions. “We can drop off alot of boxes at one point,she says, “and if we have acrop failure — say, due todeer — we can substituteanother crop.” The mainproblems with the pro-gram, she says, are thelogistics of putting the

boxes together and keeping everythingrefrigerated until delivery.

Things are going well enough thatPenns Corner recently hired a full-time manager, with an eye to expand-ing sales. “If we can sell all we grow,”she says, “we can double our sales.” ■

Eric Lichty, a member of Tuscarora, based in Hustontown, Pa., delivers his organic watermelons to cus-tomers throughout the Baltimore-Washington, D.C.-area.


By Paul Williams, ATTRA

Publications Editor

n Amishfarmer in Iowadrives hisbuggy to thenearest pay

phone and orders the latestfree publications aboutorganic pest control for cornand soybeans. A peanutgrower in Georgia dials thesame number to find outhow to get by using fewerpurchased inputs, such aspesticides, herbicides andfertilizer.

In Oklahoma, a group ofCherokee ranchers goes on-line at www.attra.ncat.org tolearn how goats can be usedto reclaim grazing land. InCalifornia, Montana, NewYork — all across the UnitedStates — farmers and ranch-ers are looking for reliableinformation on sustainableand organic agriculture, onhow to qualify for govern-ment programs that rewardland stewardship andresource conservation, or onhow to pursue profitableniche markets, such as organic meatsand grains or ag tourism.

The answers to these and many simi-lar questions are theirs free from theATTRA National SustainableAgriculture Information Service — aproject of the nonprofit National Centerfor Appropriate Technology (NCAT),headquartered in Butte, Mont.

Since 1987, ATTRA has been pro-viding American farmers, ranchers,Extension personnel, educators andothers involved in commercial agricul-ture with information and researchservices related to low-input, sustain-able and organic production. Thanksto continued support from USDARural Development, ATTRA can offer

all its publications and services forfree.

How ATTRA worksNCAT employs about two

dozen specialists in agronomy,horticulture, animal science andhealth, soils, water, food systems,agricultural energy and econom-ics. These specialists research andwrite ATTRA publications thatfeature the latest developments insustainable agriculture, leading-edge research and the results ofstudies and practical innovationsfrom America’s most progressivefarms. Many of NCAT’s ag spe-cialists are themselves farmers andmarket gardeners who apply thepractices and information on theirown farms that they suggest toothers.

While ATTRA’s publicationsand other services are only offeredto American producers, the scopeof ATTRA research is worldwide.Its specialists travel to Europe,Asia and South America to studyadvances being made there and todetermine how these practicesmay be adapted to the needs ofAmerican farmers and ranchers.

ATTRA has about 250 publi-cations and other materials (such

as PowerPoint slide shows and CD-ROMs) that cover a wide variety oftopics, including horticultural crops,field crops, soils and composts, pestmanagement, water quality and con-servation (including irrigation), andlivestock (cattle, hogs, small ruminants,and poultry). Other publicationsaddress grass farming, marketing and

Who you gonna ca l l?ATTRA output helps low-inputagriculture expand its market niche

Sheep ranchers can learn about controlling noxious weeds fromATTRA. USDA photos

A


business strategies, risk managementand agricultural energy. All of thesepublications share a com-mon perspective: sustain-able farming for a sus-tainable future in ruralAmerica.

While these publica-tions are ATTRA’s main-stay, there is anotherATTRA service that isunique: a toll-free helpline —1-800-346-9140 (English); 1-800-411-3222(Spanish) — that producers can call totalk to an ATTRA agriculture special-ist. Often, a caller’s question can beanswered by one of the ATTRA publi-cations. But when it cannot, a specialisttakes the question, researches it, andsends the client a report on the find-ings, including sources ofmore information. Theprocess usually takes aweek or less.

ATTRA has a Web site,www.attra.ncat.org, whichwas redesigned two yearsago, and has evolved into arobust, interactive Webresource. You can read ordownload all the ATTRApublications, find breaking news andsources for grants and other fundingand find announcements for confer-ences. It contains hundreds of links toother ag-related resources. You can

even submit questions about sustain-able agriculture on-line, through the

“Ask a SustainableAgriculture Expert” feature.

In 2004, the NCATstaff working on theATTRA project wrote orupdated more than 50 oftheir publications andresponded to some 35,000questions and requests for

materials, while visitors downloadedmore than 300,000 publications fromthe ATTRA Web site.

Other NCAT activitiesIn addition to publications and

research, NCAT’s ATTRA project canprovide speakers (English, Spanish andLaotian) for conferences and work-

shops. ATTRA is also translat-ing many of its publicationsand field-ready pest manage-ment materials into Spanish.

Research projectsinclude whole-farm planningfor grass-based beef produc-tion and how to protect waterquality while using chicken lit-ter fertilizer. NCAT’s ag-ener-gy program is researching

issues that surround the emergingmarkets for biofuels (ethanol,biodiesel, methane) and what theymean for rural development and sus-tainable farming, with plans underway

for a national conference on agricul-tural energy in 2006.

To find out more about ATTRA’spublications, research services, andother NCAT resources, call (toll free)1-800-346-9140, or visit the ATTRAWeb site, www.attra.ncat.org. ■

Cattle waiting to be rotated to a fresh grazing paddock.

Low-tech hoop houses help vegetablefarmers extend their growing season.


By Jennifer J. Keeling

and Colin A. Carter

Editor’s note: Keeling is a Ph.D. candidatein the Dept. of Agricultural and ResourceEconomics, University of California, Davis.Carter is a professor in the Department ofAgricultural and Resource Economics,University of California, Davis.

fter nearly 80 years ofoperation in California’sCentral Valley, the RiceGrowers Association ofCalifornia (RGA) closed

its doors in August 2000. Once a dom-inant cooperative that handled morethan 70 percent of the total Californiarice crop, RGA’s market share haddwindled to just 5 percent in its lastyear of operation.

While RGA’s performance and mar-ket share began to decline in the early1980s, the cooperative’s primary com-petitor and sometimes ally — Farmers’Rice Cooperative (FRC) — steadilyincreased in size and significance inCalifornia. This article is based oninterviews with members and manage-ment of the failed RGA and the surviv-ing FRC. In addition, historical docu-ments and comparative financial analy-ses were used in recounting the storyof two cooperatives and explainingwhat factors may have contributed toFRC’s success and RGA’s closure, whileoperating side-by-side.

Shared historyIn the spring of 1912, USDA sent

agriculturalist Ernest L. Adams toCalifornia’s Central Valley to develop acommercial rice variety. By 1915, a

strain of short grain rice was profitablygrown in California, and regional ricegrowers had formed a marketing coop-erative known as the Pacific RiceGrowers Association (PRGA).Fractionalization of the membershipeventually led PRGA to reorganize in1921 as the Rice Growers Associationof California (RGA). In its first year ofoperation, RGA marketed 43 percentof the California rice crop; by 1926,nearly 75 percent of the California ricecrop was grown by RGA members.

The young cooperative experiencedtough times during the Depression,when RGA lost its first mill to a fire.To complete a second mill, growerswere charged higher fees, resulting inthe defection of many Depression-weary members. Once the new mill

was brought on line, RGA began anadvertising campaign to increasedomestic demand for its rice. Thecampaign only met with limited suc-cess. Most consumers preferred thefluffy, long-grain rice that was pro-duced in Southern states, to the stickymedium- and short-grain rice grown inCalifornia’s Central Valley.

Following the unsuccessful domesticpromotion attempts, the co-op beganto focus more attention on Pacific Rimmarkets, Puerto Rico and Hawaii, aswell as the domestic brewery andbreakfast cereal markets. These chan-nels would eventually become impor-tant market outlets for RGA.

Following the end of theDepression, RGA experienced severalyears of sales and membership growth

Trad ing p laces Fortunes of California rice co-ops took opposite trajectories; as RGA faded, FRC ascended

A

Farmers Rice Cooperative (FRC), with the Sacramento skyline on the horizon, is California’slargest rice processor and marketer. Photo by Don Satterlee, courtesy FRC


that eventually prompted RGA’s boardto cap the cooperative’s membership.In part due to these restrictions, agroup of RGA members left the co-opin 1944 and formed the Farmers’ RiceCooperative (FRC), along with otherCentral Valley rice growers. Throughthe 1950s, RGA built or purchased anumber of rice processing facilities.However, it was RGA’s purchase of theS.S. Rice Queen vessel in 1960 thatmarked the cooperative’s integrationinto the shipping industry.

Model of successBy 1965, then RGA president and

San Francisco mayor Joseph Aliotoreported that “RGA’s sea-going vesselshave transported 9.3 million hundred-weights of milled rice” and contributedto the creation of “the largest millingorganization in the world” (Westlund,1968). Affirmation of RGA’s influencecame in 1971, when Eric Thor, thenadministrator of the FarmerCooperative Service of USDA said“RGA is one of the leading coopera-tives in the United States today. Theleadership of RGA is a model for allcooperatives to follow” (Westlund,1971).

Rumors of a possible RGA/FRCmerger surfaced in mid-1970.Reportedly, only informal conversa-tions between management and boardmembers of each organizationoccurred, but a joint statementreleased by management of both coop-eratives initially seemed to express afavorable view: “For some years wehave been making shipments of rice inthe same vessels and, by arrangement,have been using the same loading andunloading facilities. As a result of thisclose association, it is only natural thatsome thoughts should be directedtowards merging operations”(Grundmand, 1970).

In addition to sharing facilities andshipping expenses, RGA and FRC rou-tinely brokered their rice through thesame agent, Grover Connell ofConnell Rice & Sugar. However, nomerger occurred, and the two coopera-tives remained separate entities.

War, drought and flood-damagedcrops in Asia during the 1973-74 and1974-75 crop years ensured RGA ofgood export sales through the Food forPeace, or PL-480, program. In fact,

demand for rice was so great that, inhis 1973 annual meeting address, RGAExecutive Vice President RobertFreeland said “demand far exceedssupply.”

However, the elimination of U.S.domestic acreage controls in 1975resulted in an estimated California sur-plus of 18-23 million hundredweight —or more than 50 percent of total U.S.medium-grain rice production. By1980, RGA’s members were againenjoying good returns and prices thatwere described by one manager as “Thebest we’ve had. The best in the indus-try. The best in the world”(Kirk, 1981).

Surpluses create challenges Without acreage controls, however,

large rice surpluses accumulated onceagain in the early 1980s. RGA enteredthis critical decade by warehousing ricein whatever space was available. Attimes, these locations included a vacantSafeway shopping center and an idledLibby’s canning plant.

Piles of rice contributed to the

development of an international scan-dal that became known as “Koreagate.”Comet Rice, a private mill in ColusaCounty, contracted with the SouthKorean government to deliver 370,000tons of medium-grain, 1981-crop rice,but the firm only had 120,000 tonsavailable. The only other firms thathad sufficient stocks of this type of ricewere RGA and FRC.

The two cooperatives refused to sellrice to Comet unless Grover Connellwas allowed to act as their agent.However, the Korean governmentdeclined to do business throughConnell because he had earlier accuseda high-ranking Korean official of tak-ing bribes.

A two-year stalemate ensued, end-ing in 1983 when Ralph Newman, thenewly hired president and CEO ofFRC issued a public apology to theKorean government and brokered adeal through a third party. By breakingranks with RGA and negotiating thesale of rice without the involvement ofConnell Rice & Sugar, the tradition ofcollaboration between FRC and RGAended and a new era of competitionbegan.

Soon after the resolution of the sit-uation in Korea, RGA purchased thefacilities of Pacific International RiceMillers Inc. (PIRMI) of Woodland,Calif. However, an anti-trust suit filedby the Department of Justice “(sought)to prevent RGA’s acquisition of thePIRMI rice milling facility and otherassets.” The Department of Justiceargued that RGA and PIRMI repre-sented two of the five largest rice millsin California and RGA’s purchase ofthe PIRMI facilities would “substan-tially increase concentration in thepurchase of paddy rice in California”(U.S.A v. RGA). RGA lost the case ongrounds that it had violated Section 7of the Capper-Volstead Act and wasforced to promptly divest itself of themill.

FRC’s new strategyWhile RGA dealt with the fallout

from antitrust violations, FRC devel-oped a new strategic direction that

Former managersoften said the RGAboard was passiveand ill-equipped toscrutinize the com-plex business deci-sions it was chargedwith supervising.


focused on providing higher returns toits membership. To meet that goal,FRC’s management implemented newprograms in marketing, finance,accounting, manufacturing, field ser-vices and communications.

As part of the renaissance at FRC,the cooperative eliminated its depen-dence on the Calrice Transport (CRT)vessel that it jointly leased with RGA.This proved to be a sound move, asthe ship became increasingly troubledby maintenance problems. FRC alsoended “costly and ineffective discountprograms,” increased emphasis onmedium- and short-grain rice produc-tion and “established direct sales rela-tionships with all international tradingfirms and major foreign buyers of U.S.rice” (FRC Annual Report 1983-1984).

Over the next few years, FRC pros-pered and was compelled to limit itsmembership in 1985 as “any significantadditional volume will potentially haveto be allocated to lower return mar-kets: it could also require additionalplant capacity” (FRC Annual Report1985-1986). In contrast, RGA closed alarge mill in Biggs and, as a result ofpoor sales, bills were issued in lieu of afinal pool return for growers’ 1985crop. By 1987, RGA’s managementannounced a change in its marketingfocus from bulk to value-added pack-aged rice products. Shortly after thestatement was made, RGA defaultedon a $1.4 million lease payment on theCRT shipping vessel.

By 1989, RGA’s deteriorating finan-cial condition and shrinking member-ship numbers obliged the cooperativeto mothball or sell facilities inWilliams, West Sacramento, Westsideand Willows. Meanwhile, FRC decidedto close an unprofitable operation inPuerto Rico, which was consistent withthe cooperative’s stated goal to changefrom being “primarily an export-ori-ented seller…to a sophisticated market-ing firm concentrating in stable, value-added, high-volume U.S. markets”(FRC Annual Report, 1989-1990).

In this same year, as the last CRT-related lawsuits were resolved, RGAwas sued by PIRMI for trademark

infringement and Cal Rice Bran Inc.sued the co-op for contract violations.In 1989, David Long replaced outgo-ing president and CEO Mike Cook.

The next year, RGA was nearlyforced into receivership when thecooperative’s major lender, CoBank,

moved to close the firm after stating,“We believe it would be better to havean outside party assume control of thecompany” (Martin, 1990). RGA’s lineof credit was cut off, preventing RGAfrom paying dozens of employees andleading to a protest outside the Sacra-mento CoBank offices. CoBank allegedthat RGA owed $42 million in overduedebt and interests. In order to stave offimminent closure, RGA sold assets inPuerto Rico, West Sacramento, Biggsand Cheney.

Bill Ludwig assumed the presidencyof RGA in 1993 after David Long wasterminated. RGA’s workforce was sub-stantially cut and the cooperative wasestimated to control just 5-10 percentof the California rice crop, down from70 percent just 10 years earlier. RGA’smembership now numbered 250, com-pared to 2,200 in early 1986. In con-trast, FRC’s membership had grownover time from an initial base of 60members in 1944 to 1,350 in the coop-erative’s 50th year.

RGA clings on with niche plansIn 1996, a new Farm Bill stipulated

an end to “government-bankrolledcrops and direct grower subsidies by2002” (Gardner, 1996). Growers at theFRC’s annual meeting were warned byRalph Newman to reduce planting byat least 25 percent or “go out of busi-ness” (Gardner, 1996). At the sametime, Central Valley rice farmers weredealing with increased costs of ricestraw disposal, decreased water avail-ability and sagging world prices.

While market conditions eroded,RGA tried to stay alive by exploiting aniche-marketing strategy. In February1997, RGA announced that it wouldform a business, Ap-Rice, with AppliedPhytologics Inc. (API) of Sacramento.As part of the agreement, some RGAgrowers would produce geneticallymodified (GM) rice that would bemilled and malted so that proteinscould be extracted for industrial andmedical use. Amid controversy, RGAreportedly ended the agreement forundisclosed reasons, but API contin-ued to contract with independentgrowers in the Sacramento Valley.

Over the next three years, RGA’smembership base continued to decline;by May 2000, only 120-150 membersremained. During this time, RGAmaintained its focus and marketingefforts on supplying niche markets. Inmid-2000, the cooperative announcedthat it had reached a series of noveltrade agreements with the Philippines.The deal had two parts, the first partstipulating that RGA would help thePhilippines grow organic rice, whichRGA would then buy and resell in theUnited States. The second part of thedeal required RGA to ship processedrice to the Philippines, where it wouldbe traded for canned fruit, fruit juices,tuna and other agricultural products,which RGA would then sell in America.

Benefits from the trade agreementlikely came too late for RGA. InAugust 2000, RGA announced that ithad missed payments to employees dueto credit-line problems. Later thatmonth, Bill Ludwig announced thatthe cooperative was going to be dis-

If others are ableto identify andaddress these prob-lems and issues intheir own coopera-tives, they mayavoid the samefate as RGA.


solved and restructured as a “for-prof-it” company, a move managers of thecooperative had reportedly been con-sidering since 1997.

Ludwig said that the cooperativewas simply unable to compete in themarketplace and he aimed to re-openthe new company in November of2000. However, prior to the proposedrestructuring, several lawsuits wouldneed to be resolved. Among the pend-ing lawsuits were claims by L&SDistributors, RGA’s largest Californiadistributor, that it was owed $51,000.The California Rice Commission alsoalleged that it was owed more than$100,000 in back assessments from the1995-96 crop years. Takenaka andCo., an investment-consulting firmfrom Los Angeles, also sued the coop-erative for $15,000 in unpaid expenses.

In November, Pacific Basin Rice

Products LLC agreed tobuy RGA’s Woodland milland rights to the Hinodebrand name. Upon thedissolution of the cooper-ative he had run since1993, Bill Ludwigsummed up the strugglesof RGA stating, “There isno future and no abilityto truly make a profit inthe rice industry inCalifornia” (Ferraro and Schnitt,2000).

Financial consequencesEffects of the very different goals

and business strategies pursued by theRGA and FRC boards and manage-

ment are evident when financialrecords for the two cooperatives arecompared. Analysis of financial state-ments from the critical 1980s showsthe different paths that the coopera-tives embarked on.

A measure of net proceeds — theamount of money received from salesafter deducting all transaction costs —is regularly used to evaluate coopera-tive performance; it is the closest co-opfigure to business profits. In Figure 1,net proceeds for both FRC and RGAare compared from 1983 to 1991.After 1983, RGA’s net proceeds contin-ually decreased as the co-op lost busi-ness and gave-up market share inCalifornia to FRC.

In 1990, RGA’s net proceeds werejust 1/16th the size of a decade earlier.During the same period of time, FRC’snet proceeds steadily increased at an

annual rate of 10.82 percent, andremained relatively stable compared toRGA. Increases in net proceeds atFRC were driven by gains in net mar-keting pool proceeds, a term analogousto RGA’s net sales, indicating thatgrowth in net proceeds at FRC were

driven by increased sales and marketshare gain. Continued decreases inRGA’s net proceeds may in part beattributed to the co-op’s decision toimplement a capital-intensive, niche-marketing plan in 1987.

Prior to RGA’s decision to changeits marketing focus to serving value-added markets, the cooperative’sdebt/equity ratio was relatively stableand low. To illustrate, between 1964and 1982, RGA’s average debt/equityratio was 1.63, with a standard devia-tion of .79. However, in the decadethat followed, RGA’s averagedebt/equity ratio more than doubled,to 4.95, with a standard deviation of3.9. Major sources of variation in thedebt/equity ratio can be attributed tofluctuations in liabilities. RGA accrueda large amount of debt that was used tofinance the co-op’s value-added mar-keting plan.

A big jump in the debt/equity ratiooccurred in 1989 when RGA divesteditself of two valuable assets, one inColusa County and another in WestSacramento, without paying down asignificant portion of the co-op’s debt.In addition, the cooperative lost severallawsuits, the most expensive of whichrequired RGA to pay $4.5 million tosettle a suit involving the CRT ship-ping vessel. These factors, in addition

to an over-valuation ofRGA’s inventory, result-ed in a very highdebt/equity ratio that,among other things,prompted CoBank toattempt foreclosure ofthe cooperative in 1990.

FRC’s debt/equityratio between 1983-1991is reminiscent of anRGA of earlier years, asthe ratio was both rela-tively stable and low,

averaging 2.73 (with an average stan-dard deviation of .51). During the past25 years, FRC’s average debt/equityratio has generally declined as strongsales have allowed the cooperative topay down debt and an increased mem-

continued on page 40


By Pamela J. Karg

Even large farms and organizations are finding theyneed to make changes to adapt to new market realities.Influences such as population patterns, transportationcosts and weather trends were among the factors Cooper-ative Agricultural Services (CO-AG) in Kansas startedto examine in 2001. This study eventually led the co-op toadd a soybean extruder to its operations to produce its ownfeed and oil. This not only helps to boost producer income,it is helping strengthen the local economy.

“Farmers were aging and retiring, and the next genera-tion was moving elsewhere for non-farm jobs,” says CO-AGfeedmill manager Mike Bucher. “We needed to make somechanges to keep farming viable in our area and to keep theeconomic infrastructure that was slowlycrumbling away.” He worked diligently onthe project to bring it to fruition.

Soybeans are a good clean-up cropafter corn. However, corn requires morewater than soybeans. With parts of thearea experiencing nine years of drought,the Ogallala aquifer (the undergroundwater supply) is showing signs of decline.Water restrictions make the future of irri-gation here iffy, at best, explains DuaneCheney, coordinator for the WesternPrairie RC&D Area Council.

“I think we all saw a need for a change,” Cheney says.“Even though there’s an ethanol plant just down the road,we needed an alternate crop to corn that required lesswater as well as a way to add value to what we were pro-ducing here. With the majority of the soybean crop beingexported from the area for processing, we needed to addsomething that would keep the dollars in our community.”

The cooperative has always transported its members’soybeans 300 miles to a terminal. It then hauled soybeanmeal from 400 miles away to meet the needs of cattle feed-lots, corporate hog farms and large-scale dairies in north-western Kansas and eastern Colorado, explains Bucher.

At a board retreat, he suggested adding a soybeanextruder to make soy meal and oil. The cooperative hadroom in its existing Grinnell, Kan., feedmill, which made iteasier and less expensive to construct. But more researchwas needed to determine if it was the right investment forthe area.

The co-op turned to the Western Prairie RC&D for assis-tance, which eventually garnered the cooperative nearly

$1.2 million from a USDA Rural Development’s Value-AddedProducer Grant, and funds from the Kansas State Depart-ment of Commerce, and a local utility. About half the $1.2 million — $520,000 — came from USDA.

The money was used in part to study the market as wellas the feasibility of converting an unused portion of thecooperative’s existing processing facilities for bean crush-ing. The studies determined that soybean processing couldbe a solid business venture for the co-op.

Bucher and Cheney agree the extruder has not onlyhelped the cooperative, but the economy of the entire area.

First, it helped farmers changetheir thoughts about what crops toplant at an important time. Now, withsoybeans that require less irrigationand rain, farmers are hoping the oddsare in their favor.

Second, the extruder allows pro-ducers and the cooperative to lowertransportation costs and create jobs —it initially added four jobs in this townof 339 people. Bucher, the son of aretired truck driver, notes that whilecorn needs little or no processing for

use as livestock feed, soybeans must be converted into amore edible form. Locally grown soybeans are now deliv-ered to the local mill for processing.

“One of our concerns was how to slow down the out-migration we were seeing in this area,” Cheney says.“Could we draw in big industry? That would be hard to dowith little water to support it.” But it can certainly supportsmaller, less-water-demanding industries.

Third, the extruder created more agricultural infrastruc-ture to serve the livestock farms already here, as well asthose looking to expand or even relocate to the area. As anexample, Bucher points out that the cooperative’s fleet ofsemitrucks now haul finished soy meal — rather than rawsoybeans — 300 miles to eastern Colorado’s expandinglivestock farms.

“I don’t know if this one project is saving the familyfarm,” says Bucher. “It’s going to take more than just this —like getting a break in the weather pattern around here. ButI think the cooperative’s move to put in the extruder is partof the solution for a lot of issues we’re facing.” ■

Soybean extruder opens new doors for Kansas co-op

“We needed to makesome changes to keepfarming viable inour area …”


Record-breaking year for DFA Dairy Farmers of America (DFA)

payments to members increased 29percent, to a record $5.8 billion in2004, up from $4.5 billion in 2003.DFA also reported a record $8.49 bil-lion in sales, up from $6.93 billion in2003, for an increase of 23 percent.DFA marketed 57.2 billion pounds ofmilk for member and non-memberdairy farmers in 2004.

For the sixth consecutive year,DFA’s members shared in its earnings.Members received $25.1 million inpatronage, with $6.6 million of it paidin cash to 16,501 farmers. The finan-cial results for 2004 “demonstrate thatwe have the right strategy in place, andthat it is being solidly executed by ourtalented, farmer-focused managementteam,” DFA Chairman Tom Camerlotold delegates attending the co-op’sannual meeting Kansas City.

Other financial highlights include:• Cash flow generated from opera-

tions increased to $90.2 million,compared with an $800,000 use ofcash from operations in 2003.

• Selling and administrative expens-es decreased 9 percent, to $76million, down from $83.1 millionin 2003. As a percentage of rev-enues, selling and administrativeexpenses declined 30 basis points.

• Net savings grew 17 percent,from $55.6 million in 2003 to

$65.1 million in 2004.• Total members’ equity

increased 5 percent, to$691.1 million, comparedwith $656.5 million at theend of 2003. In 2004, DFAretired $21.1 million of equi-ty.

• For the fourth consecutive year,DFA issued a special allocation todairy farmers of $10 million fromthe gain on the sale of SuizaFoods Group, L.P., one of the co-op’s fluid milk joint ventures.

• DFA ended 2004 with invest-ment-grade credit ratings ofBBB+ from Standard & Poor’sand BAA1 from Moody’s InvestorServices, ensuring access to capitalat competitive interest rates.Camerlo challenged dairy farmers

to tackle three new bridge-buildingprojects in the coming years. The firstis understanding and meeting theneeds of the diverse DFA membership.He also challenged dairy farmers tolead the industry in creating alternativeways to price milk, acknowledging thatthis is a controversial issue. Heexpressed concern over the role worldtrade multilateral agreements will playin the way milk is priced and productsmarketed.

Cheese sales drive record AMPI revenue

Cheese sales drove a record $1.3billion in total revenue for the mem-ber-owners of Associated MilkProducers Inc. (AMPI) in 2004. AMPIproduced a record volume of naturalcheese, AMPI General Manager MarkFurth said. “That volume, coupledwith a record-setting cheese market,resulted in strong milk prices for our

members — the highest ever,” he toldmore than 500 AMPI member-dele-gates at the co-op’s annual meeting inBloomington, Minn.

The cooperative earned $4 millionand revolved $10.6 million in equity,according to the audited financialstatement. Earnings were impacted bya Dec. 1, 2004, fire that shut down thecooperative’s butter processing andpackaging plant in New Ulm, Minn.Construction of an improved facilityon the same site is expected to beginthis spring. The butter plant is one of13 manufacturing facilities across theMidwest owned by AMPI members.The cooperative manufactures 80 per-cent of its members’ milk and marketsa growing share of it in consumerpackages.

“We know the work to securestrong milk prices doesn’t stop withdairy products,” said AMPI PresidentPaul Toft, a dairy producer from RiceLake, Wis. “AMPI is active in thedairy policy arena. Curbing milk pro-tein imports and securing a betterdairy price safety net are top priori-ties.”

Cairo Co-op building new elevator Cairo Co-op Equity Exchange is

building a new, 300,000-bushel grainelevator about seven miles north ofZenda, Kan. Co-op Manager Ed Laingsays the new facility should be operat-ing by July 1. It replaces an older ele-vator, the Cairo Co-op Calista facility,about seven miles further north.

“The old facility was on the edge ofgrass country, whereas the new one isright in the heart of wheat country,”Laing says. “We’re very excited aboutit. It’s a fantastic place for an elevator.”The new location is closer to Cairo

N E W S L I N ECompiled by Dan Campbell

Send items to: [email protected]

Work is progressing on the new DFA /Glanbia PLCcheese plant in New Mexico .


Co-op customers, and can facilitategetting grain trucks back into the fieldsfaster.

The elevator will handle wheat andcorn and can load 15,000 bushels perhour. It will employ five during harvestseason. The new facility will bring theCairo co-op’s total storage capacity to3.7 million bushels. Its elevators han-dle wheat, corn, soybeans, milo andsunflowers. The Cairo co-op has about1,400 members and does about $25million in annual sales. It operates inthree counties in Kansas.

Dakota Prairie Beef to dissolveHampered by drought and the

impact of the Canadian border closureon the calf market, the Dakota PrairieBeef Cooperative feedlot in Gascoyne,N.D., is dissolving, according toAgweek magazine. It reported thatLance Larsen, a board member fromDunn Center, N.D., confirmed thatthe membership voted unanimously todissolve the cooperative in a Feb. 23annual meeting. The 6,500-headcapacity feedlot was launched to feedcattle with local feed, thus keepingmore value in North Dakota, ratherthan shipping cattle to the Corn Beltfor fattening. About 130 membersbought some 8,000 shares at about $60a share.

Two co-ops semifinalistsfor prestigious award

Harvard University’s John F.Kennedy School of Government hasannounced the top 50 programs for the2005 Innovations in AmericanGovernment Awards. The School ofGovernment released the list of “50 ofthe most creative, forward thinking,results-driven government programs atthe federal, state, county and city levels.”

The awards are often referred to asthe “Oscars” of government prizes.Eighteen finalists will be chosen fromthe 50; on July 27 six winners willeach be awarded $100,000 grants. Twocooperatives are among the 50 semifi-nalists, including the TeacherProfessional Partnership in the LeSueur-Henderson Independent School

District, Minn. This is an unconven-tional program that challenges the tra-ditional role of teachers as employees;it empowers teachers to organize andmanage their school as a collegialgroup.

Cooperative Care, WausharaCounty, Wis., is a worker-owned homecare cooperative that provides depend-able, cost-effective care to the elderlyand disabled while assuring the work-ers’ living wages and access to benefits.Margaret Bau, USDA Rural Develop-ment’s cooperative specialist in Wis-consin, has played a major role in thedevelopment of the cooperative.

USDA offers $22.8 million for renewable energy projects

Agriculture Secretary Mike Johannsin March announced the availability of$22.8 million to support investmentsin renewable energy systems and ener-gy efficiency improvements by agricul-tural producers and rural small busi-nesses. “Enhancing our energy effi-ciency is a key goal of the BushAdministration,” said Johanns.

“Renewable energy is an excitinggrowth frontier for American agricul-ture. Implementing an innovativeenergy policy, which the President hasproposed, provides an opportunity tostrengthen both our national securityand the rural economy.”

Section 9006 of the 2002 Farm Billestablished the Renewable EnergySystems and Energy EfficiencyImprovements loan and grant programto encourage agricultural producersand small rural businesses to createrenewable and energy efficient sys-tems. The funds will be available tosupport a wide range of technologiesencompassing biomass (includinganaerobic digesters), geothermal,hydrogen, solar, and wind energy, aswell as energy efficiency improve-ments. To date, the Bush Admin-istration has invested through thisprogram nearly $45 million in 32states.

The $22.8 million will be madeavailable in two stages. One-half, $11.4million, is available immediately forcompetitive grants. Renewable energygrant applications must be for a mini-mum of $2,500 and a maximum of$500,000. Energy efficiency grantapplications may range from $2,500 to$250,000. The grant request may notexceed 25 percent of the eligible pro-ject cost. Applications must be submit-ted to the appropriate USDA RuralDevelopment state office, postmarkedno later than June 27, 2005. Detailedinformation about application and pro-gram requirements were included inthe March 28, 2005 publication of theFederal Register.

The remaining $11.4 million willbe set aside through Aug. 31, 2005,for renewable energy and energy effi-ciency guaranteed loans. Final detailson how to apply for these funds willbe published in the Federal Registerlater this year. Any funds not obligat-ed under the guarantee loan programby August 31 will be reallocated tothe competitive grant program as ofthat date. Further information onrural programs is available at localUSDA Rural Development offices, or

Wind power, biomass, geothermal, hydro-gen and solar are all among the technolo-gies eligible for funding under USDA’sRenewable Energy Systems and EnergyEfficiency Improvements loan and grantprogram.


by visiting USDA’s Web site: http://www.rurdev.usda.gov.

Foremost sets sales/earnings recordForemost Farms USA closed its

tenth year of operations with recordsales and earnings for fiscal 2004. Netincome after taxes was $28.3 million,compared to $7.6 million in 2003. TheBaraboo, Wis.-based dairy cooperativeposted sales of $1.4 billion in 2004compared to $1.2 billion in 2003.

Duaine Kamenick, vice president-finance, cited “unprecedented highmarket prices, a stronger economy and

the business decisions of prior years,”as contributing the co-op’s strongshowing. The cooperative’s currentdebt-to-asset ratio was $1.48 in assetsto $1 in liabilities.

Foremost issued $23.9 million in2005 patronage refunds, with $7.2 mil-lion in cash to member-owners whomarketed milk through the cooperativein 2004. The remainder will be distrib-uted in the form of allocated equitycredits. The cash payments represent30 percent of total patronage refunds.This year’s patronage allocation is 3.04percent of gross milk receipts.

“Our 2004 returns have allowed usto move more dollars into the handsof our present and past member-own-

ers,” President Dave Fuhrmann said.“We will continue to put emphasis onproducing the right mix of dairy prod-ucts for the marketplace and growingthe cooperative’s diverse business intothe market of choice for dairy produc-ers.” Foremost manufactures a widevariety of cheese (representing 54.2percent of sales in 2004), fluid andcondensed milk products (20.3 percentof sales), packaged milk products (15.8percent) and whey and whey ingredi-ents (6.3 percent). It also producessour cream, butter and chilled, ready-to-serve fruit juices.

The cooperative operates 20 manu-facturing facilities and one milk trans-fer station for its 3,600 dairy farmer-members in Wisconsin, Minnesota,Iowa, Illinois, Indiana, Michigan andOhio. Foremost employs 1,487 people.

Colorado local co-ops merge M&M Cooperative Inc. and

Horizon Co-op Inc. merged opera-tions on April 1. The merger wasapproved by 89 percent of M&Mmembers and 84 percent of Horizonmembers, according to the Brush(Colo.) News & Tribune. The paperquoted M&M executive Ben Weitzelas saying that many thousands of dol-lars in cost savings is expected to result

from the merger, as well as additionalmarketing opportunities. He notedthat the agriculture world continues tochange, and that it is necessary to posi-tion the locally owned cooperativesbeneficially to ensure its members withcompetitive prices and a more finan-cially healthy company.

Court approves MCP settlement A judge has approved a $5.75 mil-

lion settlement of a class action lawsuitbrought by farmers against executivesof Minnesota Corn Processors, accord-ing to a report in the St. Paul PioneerPress. The suit alleged the executivesbreached their responsibilities to theco-op’s shareholders and misled themregarding the worth of Marshall,Minn.-based ethanol co-op during itssale to Archer Daniels Midland in2002. The suit alleged that sharehold-ers were not provided full details ofhow eight executives would personallybenefit from the sale. The executivesagreed to pay $5.75 million to end thedispute. Nine farmers had filed objec-tions to the settlement.

Walnut growers to voteon co-op conversion

For 93 years, Diamond ofCalifornia has been a processing andmarketing co-op owned by Californiawalnut growers. Today, its 1,800 mem-bers account for about half the state’scrop. Later this summer members willbe asked to vote on a proposal to con-vert the co-op into a publicly tradedcorporation. Backers of the proposalhope it will raise $70 million to $85million through the sale of more than5.3 million shares of stock at $14 to$16 per share; members will be offeredan additional 6.7 million shares.

Members will have to weigh theincentive of a payout in companystock, which they could sell to “cash-out” of the co-op, vs. the prospect ofhaving outside stockholders take con-trol of a company they have directedfor nearly a century. Filings with theSEC indicate that an estimated $18.6million will go to growers who wantcash rather than stock.

Holstein-suited Foremost Farms USA volunteers pass out samples of Golden Guernseychocolate milk. The Baraboo, Wis.-based co-op had record net income of $28.3 million, andrecord sales of $1.4 billion in 2004. Photo Courtesy Foremost Farms USA


A letter to members from BoardChairman John Gilbert and CEOMichael Mendes says “the conversionto a corporation will allow Diamond tobuild a financially stronger companyand issue equity to grower owners. Itwill enable Diamond to improve ourability to get the financial resources weneed to meet the challenges of thefuture, to convert the ownership inter-ests into transferable and marketableshares of stock in the new Diamond,and to provide cash to members.”

Papers filed with the Securities andExchange Commission say proceedsfrom the possible stock sale would alsoprovide funds to pay down debt, devel-op new products or acquire other com-panies.

Diamond reported sales of $359million for its last full fiscal year. Itrecently launched the Emerald line ofsnack nuts, which it hopes can com-pete against Planters for a larger shareof the snack nut market. The co-oprecently settled one of the longest pro-tracted labor disputes in California his-tory by agreeing to certify the

Teamsters union to present employeesat its plant in Stockton, Calif.

A series of member meeting wereheld in April to explain the proposal tomembers. Press reports out ofCalifornia show mixed reaction by co-op members. The Stockton Recordquotes Diamond member KennyWatkins, of Linden, Calif., as saying“It is all going to come down to dollarsand cents, and the faith the growershave in the leadership.” The Recordalso quotes Stockton pro-ducer Jon Brandstadas saying “I went upto Linden to thehardware store andthere were aboutfour growers outsidetalking about that, andevery one of them was against it.”

The Fresno Bee quotes RichardCarstens of Fresno, a co-op memberfor more than 40 years, as saying“What bothers me about this wholething is that if it happens, what say willthe growers have? I’ll be a stockholder,but will they listen to me anymore?”

Others have noted that the worse-casescenario would be growers losing con-trol to outside investors who couldchoose to source walnuts from cheaperoverseas suppliers, or even move theentire operation offshore.

Ocean Spray taps former PepsiR&D chief to push innovation

Ocean Spray has chosen one of thefood and beverage industry’s leading

product innovators — Dr. GeoffreyWoolford, who has held

the top research anddevelopment postsat Pepsi-Cola andMead Johnson

Nutritionals — tohelp write its brand’s

recipe for a new genera-tion of healthy beverages and snacks.

Woolford joined Ocean Spray as vicepresident of research and development.

Woolford, a native of Great Britainwho began his career at Quaker Oatsin the late 1970s, was a driving forcebehind Pepsi’s “total beverage compa-ny” strategy in the 1980s and ‘90s. He

bership base contributed to the coop-erative’s growing equity.

Why did RGA fail as FRC succeeded? By studying the history and finances

of RGA and FRC, great differences inthe management style and strategicdirection become evident. The conse-quences of pursuing divergent plansare clear as one cooperative was suc-cessful while the other failed.

However, questions still remainabout what specific factors led to theclosure of RGA and how the same fatemay be avoided at other cooperatives.For answers to these questions, formermembers and management of RGAwere interviewed and surveyed.

Interestingly, several of the mainreasons cited for joining RGA aredirectly related to what members per-

ceive to be the causes of RGA’s failure.This indicates a fundamental gapbetween what growers expectedthrough cooperative membership andwhat was borne out in reality. Forinstance, some members indicated thatRGA had an appealing, differentiated-product strategy. Ironically, formermembers cite poor decision making bymanagement and the board — includ-ing the decision to pursue a differenti-ated-products strategy — as a chiefcontributor to RGA’s failure.

Former affiliates also identify thehigh cost of maintaining both thecooperative’s assets and the contractwith the CRT ship as key factors inRGA’s failure. Expenses from main-taining numerous assets and the prob-lematic shipping vessel no doubtdiminished the higher-than-industry-

average returns that initially attractedmembers to RGA. Consequently, manymembers left RGA after realizinghigher returns could be earned bymarketing through competitors such asFRC, or through private mills.

Lack of attention by the board ofdirectors was reported as anotherimportant contributor to RGA’sdecline. This survey finding was sup-ported by interviews with former man-agers, who said the board was passiveand ill equipped to scrutinize the com-plex business decisions it was chargedwith supervising.

Moreover, both members and for-mer directors acknowledged thatRGA’s board was in need of greatermanagement and financial expertise.Furthermore, our survey findings indi-cate that RGA’s management was per-

Trading Places continued from page 35


led the development of Aquafina, thenation’s No. 1 brand of bottled waterand oversaw product innovations andintroductions for Pepsi’s domesticbrands, including Lipton Iced Tea. In1999 he went to Mead JohnsonNutritionals, where he led a series ofinnovations in infant formulas, othernutritional products and specialtypackaging.

Ocean Spray has been the top-sell-ing brand name in the bottled juicecategory since 1981. The co-op,owned by 800 cranberry growers, posted fiscal 2004 sales of $1.4 billion.

Sunkist marks 111th yearwith higher sales, grower pay

Citrus co-op Sunkist Growers’ totalrevenues in 2004 topped $975 million,up 3.5 percent from 2003. The co-opmarketed 71 million cartons of fruit,down 3 million cartons from the previ-ous year. Payments to grower-ownersjumped more than 11 percent.

In 2004, returns for most citruscrops were substantially higher.“While Mother Nature helped, to mymind this accomplishment was largelydue to the improved sales and market-ing, accomplished by Sunkist manage-

ment pulling the industry together,”Sunkist Chairman David W. Krausetold the more than 800 Sunkist grow-er-owners attending the citrus cooper-ative’s 111th annual meeting in Visalia,Calif. “The success can be seen ingrower returns; in record royalties forSunkist licensed products; in a growinglist of customers, and in extremelystrong market shares in major exportmarkets. The Sunkist brand is thecenterpiece of our cooperative, themost valuable asset we own.”

Sunkist President and CEO JeffGargiulo cited four new initiatives thecitrus marketing cooperative is imple-menting: more consistent product

quality; uncompromised food safetysystems; aligning growers, customersand end consumers, and unitingSunkist and the industry to grow thecitrus category.

“Radical changes in the retail busi-ness — globalization, consolidation,technology-driven innovations, shiftingbuyer-seller relationships — requirenew business models to seize competi-tive advantages,” Gargiulo said.“Sunkist is on the move with a newvision — making strategic changes to

leverage its brand,expand global marketshare and increasegrower returns.”“Long-term,” he said,

“Sunkist is dealingwith the politicaldynamics of our world.We have completed astudy of citrus produc-tion in China and aredeveloping ways toaddress the opportuni-ties and challenges

there. We are sourcing global productto keep our customers supplied yearround.” 2004 saw the united effort ofthe California Citrus Growers

ceived to have been deficient in theskills necessary to guide the coopera-tive through tough times that includedperiods of low world rice prices, indus-try scandals and high costs of main-taining the co-op’s assets and shippingvessel contract.

Ultimately, the survey and inter-view findings support the notion thatRGA’s closure was primarily the resultof a lack of board oversight andexpertise coupled with an ineffectivemanagement. Other cooperativesmay empathize with the experience ofthe Rice Growers Association.However, if these organizations areable to identify and address the aboveproblems and issues in their owncooperatives, they may avoid the samefate as RGA.

BibliographyGardner, Michael. “Rice Grower GetWake-Up Call: You Must Adjust toSurvive.” Chico Enterprise-Record 24Nov. 1996: E4.

Farmer’s Rice Cooperative. AnnualReports 1983-1990.

Ferraro, Cathleen, and Paul Schnitt.“Troubled Rice Co-op to Restructure,RGA Will Be For-Profit, MayDiversify Products.” Sacramento Bee 31Aug. 2000: E1.

Kirk, Ray. “ ’80 Rice Prices Are Tops;But ’81?” Chico Enterprise-Record 23Nov. 1981: A6.

Martin, Patricia. “RGA Sues BankOver Debt Spat.” Sacramento Union 30May 1990: Page 1.

Grundmand, J.E. “Merger Rumor

Denied.” Willows Daily Journal 19 June1970: Page 2.

Rice Growers Association. AnnualReports 1922-1991.

United States of America vs. RiceGrowers Association of California,Pacific International Rice Mills, Inc.,Wallace and Anderson, Inc., and YoloPetroleum, Inc. No. S-84-1066 EJG.US District Ct. for the EasternDistrict of California. 31 Jan. 1986.

Westlund, Harold. “Alioto Reports:Big Rice Sales Made to Korea,Okinawa.” Chico Enterprise-Record 3Sept. 1968: A10.

Westlund, Harold. “Top Cooperative:RGA Praised by USDA Official.” ChicoEnterprise-Record 22 Nov. 1971: D2.

■

Fruit shipments were down marginally, but Sunkist revenueclimbed past $975 million and grower payments were up 11percent in 2004. Photo courtesy Sunkist Growers


Association (CCGA) benefit both theconsumer and the industry, Gargiuloadded. The California citrus industrycooperated in strategically marketingthe season’s orange crops.

ACE Institute set for N. Virginia “Cooperative Education:

Understanding Cooperation as aStrategic Business and CommunityAsset,” is the theme for the 2005Association of Cooperative EducatorsAnnual Institute, to be held Aug, 3-6,in Alexandria, Va. The ACE Instituteis the only annual conference dedicat-ed solely to highlighting innovativeprograms in cooperative education.

The conference provides a unique

opportunity to network with educatorsacross cooperative sectors and nationalboundaries. The institute results in asynergistic sharing of programs, expe-riences and ideas in the cooperative

education arena. The event willinclude workshops, study tours and anawards banquet

The Institute is attended by about100 cooperative educators and mem-bers; university faculty, researchers andgraduate students as well as develop-

ment specialists and government offi-cials from Puerto Rico, Canada andthe United States. The program issimultaneously translated in Spanishand English.

ACE is a membership organizationthat brings together educators and oth-ers across cooperative sectors as well asnational boundaries. For more than 40years, the resulting cross-pollination ofideas has enhanced cooperative devel-opment, strengthened cooperatives,promoted professionalism andimproved public understanding.

For more information about ACEand attending the 2005 Institute go to:http://www.wisc.edu/uwcc/ace/ace.html■

and graduate assistants from theUniversity of Arkansas School of Law’sGraduate Program in Agricultural Law.

The Center’s Web site offers a vari-ety of resources that will be useful toboth the lawyer and the non-lawyerlooking for information on develop-ments in agricultural and cooperativelaw. Key components of the libraryare described below.

Reading roomsThe heart of the new Web site is a

series of subject-based “readingrooms” that provide access to a com-prehensive list of electronic resourceson agricultural and food law topics.The Cooperatives Reading Room,one of 28 such “rooms,” provideslinks to 11 major statutes governingcooperatives, the regulations forSubchapter T of the Internal RevenueService, Federal Register rules openfor comment, recent court decisionsimpacting cooperatives, Centerresearch papers on cooperative lawand a variety of reference resources.Other reading rooms provide similarinformation on topics important tocooperatives, such as farm credit, foodsafety, international ag trade and mar-keting orders.

National AgLaw ReporterThe National AgLaw Reporter is a

regularly updated electronic newslettercovering developments of interest tocooperatives and others in the agricul-tural and food law communities. Itcurrently has four sections:• In the News contains summaries and

analysis of recent developments inagricultural and food law.

• Case Summaries describe recentjudicial opinions in agricultural andfood law.

• Federal Register Digest providesbrief summaries and links to some ofthe more significant regulatorychanges affecting agriculture pub-lished in the Federal Register sinceJan. 1, 2002.

• Judicial Officer Decisions links the

user to all major decisions renderedby the Office of the USDA JudicialOfficer since January of 2002.

Other featuresThe library contains other sections

that lead to legal research prepared byboth the Center and other scholarsworking on agricultural and food lawissues.• Reference Desk has links to bibli-

ographies, glossaries, law journals,trade associations, and other lawschool Web sites. It has a GeneralAg Resources area with links to addi-tional federal agency and universitysites, news sites, publications andsources of statistics.

• Farm Bills provides the text of allUnited States Farm Bills since 1933,legislative history of Farm Billssince 1973, and other resource linksfor the 1996 and 2002 Farm Bills.

• Congressional Links offers directaccess to Web sites for the U.S.Senate and House ofRepresentatives, the CongressionalRecord and other Congressionalresources, including theCongressional Research Service andthe General Accountability Office.

■

Legal Corner continued from page 10

USDA-supportedWeb site offers 28legal ‘reading rooms.’


By Peter J.Thomas, Administrator

Business and CooperativeProgramsUSDA Rural Development

ne of the foundationsthat helped buildAmerica has been coop-eratives. The Pilgrimswho settled in Plymouth,

Mass., formed a cooperative to harvestthe land in which the first Thanks-giving was celebrated.

Cooperatives have come a long waysince the days of the Pilgrims, butwhat has not changed is the value thateach cooperative brings to the localeconomy.

One such cooperative that USDARural Development’s Business &Cooperative Service division has pro-vided financial support to is CROPP(the Cooperative Regions OrganicProduction Pools Cooperative).Featured on the cover and page 15 ofthis magazine, CROPP was founded in1988 by a group of seven family farm-ers who had a love of the land andbelieved in sustainable agriculture.

It has grown into the largest organicco-op in the United States, with 689farmer members — including morethan 500 dairy farm members — in 17states. Its Organic Valley brand milk,cheese and other foods are sold nation-ally. What a success story CROPP hasbecome!

On the dairy side of CROPP’s busi-ness, farmers currently average $20 percwt, far more than conventional farm-

ers average. Co-op members areactively involved with the directionand decisionmaking of the company.

USDA Business & Industry (B&I)Guaranteed loans financed about 70percent of the capital needed to con-struct CROPP’s new headquarters.

The first loan, for $4.2 million, wasmade in 2001 for working capital andrefinancing of working-capital debt.The co-op had been experiencingrapid growth, but needed a long-termsolution to its working capital needs. Itrequested a seven-year term loan toassist with these needs.

The second loan was made in 2004for the construction of a new officebuilding. As the co-op grew, it addedpersonnel and rented more office spacein LaFarge. The co-op offices werespread throughout LaFarge in variousbuildings and trailers.

Co-op leaders desired a more cen-tralized location, and thus decided tobuild an office building to bring every-thing under one roof. The facility is a70x200-foot, two-story building with awalkout basement. It gives CROPP45,000 square feet of space.

The facility encompasses just underthree acres and can accommodate up

to 279 employees, which is the expect-ed staff growth through 2008. Thereis ample parking.

USDA also provided a $500,000Value Added Producer Grant in 2001to the Organic Meats Co., a CROPPsubsidiary.

In 2004, Rural Development made463 loans worth $972 million in B&Iguaranteed loans to support new andexpanded rural businesses. This pro-gram stimulates rural economies andcreates jobs. Under it, business owners(including cooperatives) arrange a B&Iloan through a local, participatingfinancial institution. USDA RuralDevelopment then can guarantee up to80 percent of the loan amount.

Loans of up to $10 million (more insome cases) can be guaranteed byUSDA under the B&I program.

For more information on the B&Iprogram and other USDA financialprograms for rural businesses andcooperatives, I encourage you to visitour Web site at: www.rurdev.usda.gov,then click the “Business-Cooperative”program buttons. Or call (202) 720-4323 to be connected to your USDARural Development state office.

USDA Rural Development is com-mitted to providing determined leader-ship to increase economic opportuni-ties and improve the quality of life forcitizens living in America’s rural com-munities. With 47 state offices and 800field offices, we look forward to work-ing with you to bring opportunities toyou, your cooperatives and businesses,and to your communities. ■

USDA B&I p rogram suppor ts g rowth of o rgan ic cooperat ives

USDA helped finance the new CROPPheadquarters in LaFarge, Wis.

I N S I D E R U R A L D E V E L O P M E N T

O


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