Rur Coop SeptOct04 WEB4-H chapter. Or sponsor a field trip to your co-op and (for ag co-ops) also...

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lCOOPERATIVESCOOPERATIVESUSDA / Rural Development September/October 2004

2 September/October 2004 / Rural Cooperatives

For the 74th time, the nation’s40,000 cooperatives will be celebratingNational Cooperative Month inOctober. The celebration gives us achance to share with the rest of theworld what co-op members know: thatuser-owned and user-governed busi-nesses are made to order for meeting amultitude of needs.

This year the theme is “Co-ops,Owned by Our Members, Committedto Our Communities.” The Co-opMonth Committee is urging co-ops toundertake some educational activity thathelps publicize the impact their businesshas on the broader communities inwhich their members live and work andwhich are served by the co-op.You can cite jobs created, annualpayroll, sales and property taxespaid, civic or charitable organiza-tions supported, scholarship pro-grams sponsored, somethingyou’ve done to benefit the envi-ronment, etc. Brain storm foreven an hour with some of yourstaff or directors and you’ll besurprised at just how many waysyour co-op benefits the commu-nities in its service area.

Add in “big picture” numbers alongwith your “local” numbers to give thepublic an idea of the scope and impactof co-ops in your industry. For example,more than 3,000 farmer and rancher-owned businesses in the United Statescreate more than 300,000 jobs with apayroll of $8 billion. Sales of crops andlivestock, value-added products andfarm supplies and services provided byag co-ops each year total almost $100billion. The utility, housing, credit andconsumer co-op sectors all generatesimilarly impressive figures.

You can access a full toolkit of pub-licity-generating ideas — such as sam-ple editorials, logos, etc. — that willhelp you with your activity at theNational Co-op Month Web site:www.coopmonth.coop.

For activities, you can get handoutsfrom USDA Rural Development bycalling (202) 720-8381, or e-mail:[email protected]. For an overview ofco-ops (best for the general public)request the “Do Yourself a Favor, Join aCo-op” brochure. If you want some-thing more in depth, ask for the “Co-ops 101” booklet. Both of these aregood for all types of co-ops. For a com-plete list of co-op publications available

from USDA, visit:www.rurdev.usda.gov/rbs/pub/newpub.htm.

Co-op Month activities to consider:• Hold an open house at your co-op,

and have members and employeeson hand to lead tours and talkabout the business and why itoperates as a co-op. Where appro-priate, offer product samples. Thelatter can also be done in town, at alocal grocery store, at a fair or car-nival, or wherever appropriate.

• Have a member and/or employeevisit a local classroom, FFA or

4-H chapter. Or sponsor a fieldtrip to your co-op and (for ag co-ops) also have them visit a mem-ber’s farm.

• Write a press release or an op-edcommentary for a local or region-al newspaper (there are excellentexamples on the www.co-opmonth.coop Web site).

• Work with the governor’s ormayor’s office to get a Co-opMonth proclamation signed. Ifyou want the governor to do it,work with other co-ops, possiblythrough your statewide coopera-tive association.

• Have employees and membersundertake some publicservice volunteer activity,such as performingrepairs on the home ofan elderly person orneedy family as a gestureof the “get-it-done-our-selves” mentality ofcooperatives.

Some of you may bethinking, “we’re just asmall grain and farm

supply co-op, everybody alreadyknows what we do.” Remember, evenin a rural town, many people mayknow what you do, but may be woe-fully ignorant of the fact that farmersactually own the business and why.And for most utility co-ops, Co-opMonth is one more great opportunityto help your members realize they arenot just patrons, but that they are theowners who ultimately govern itthrough the board of directors thatthey elect. ■

Dan Campbell, Editor

C O M M E N T A R Y

Committed to our communities

Rural Cooperatives / September/October 2004 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.

Ann Veneman, Secretary of Agriculture

Gilbert Gonzalez, Acting Under Secretary,USDA Rural Development

Peter Thomas, Acting Administrator, Rural Business-Cooperative Service

Pandor Hadjy, Acting 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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COOPERATIVESCOOPERATIVESSeptember/October 2004 Volume 71 Number 5

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

4 California ag tour gives U.S. trade rep crucial insight into state’s export crops

7 Proposed sale of Farm Credit System lenderto Dutch bank ignites controversy

8 Great EscapesAgri-tourism co-op helping Georgia farmers diversifyBy Craig Scroggs

14 Direct Access!AGP has new Pacific port terminal By Jim Rodenburg

18 Backyard powerhouses“Green Tags” spur development of renewable power co-opsBy Stephen Thompson

20 The canning of Tri ValleyWhat went wrong at Tri Valley Growers?By Richard Sexton

26 Signs of LifeHave you checked your co-op’s education pulse lately?By Jim Wadsworth

30 Three honored for communications excellence

D E P A R T M E N T S2 COMMENTARY11 LEGAL CORNER25 FOCUS ON: ACCELERATED GENETICS29 & 40 NEW CO-OP PUBLICATIONS32 NEWSLINE39 PAGE FROM THE PAST

O n t h e C o v e r :

AGP soybean meal is loaded at the Port of Grays Harbor, Wash., for transportto the Pacific Rim. Photo by Marc Sterling, courtesy Port of Grays Harbor. Insetphoto: Peaches are processed for canning at Tri Valley Growers' plant inModesto, Calif. Photo courtesy Modesto Bee.


Cal i fo rn ia ag tour g ives U.S.t rade rep c ruc ia l ins ight in tos ta te ’s expor t c rops

Editor’s note: Portions of this article are excerpted from one byGray Allen in the September/October issue of Blue Diamond’sAlmond Facts member & customer magazine.

he trip from Geneva, Switzerland, to the irri-gated desert valleys of Central California is adistance of some 5,700 miles, although somewould say the two regions are light years apart.For Ambassador Allen F. Johnson, the chief

agriculture negotiator for the Office of the U.S. Trade

Representative (USTR), the two regions are inexorablylinked, because what happens at the trade table in Genevaimpacts all American farmers and ranchers.

To help Johnson better understand one of the nation’s lead-ing export crops — almonds — Blue Diamond Growers host-ed him during August on two days of a four-day tour ofalmond ranches and processing facilities and talks with grow-ers. That’s why you could see Johnson seated behind the wheelof an almond sweeper, gathering almonds into windrows,readying them for pick up by a harvester. Johnson also met

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“Almond crop increases of the magnitude the state has cultivated during the past 25 years represents one of the great agricultural successstories in the nation’s history," says U.S. Trade Ambassador Allen F. Johnson. Photos by Gray Allen, courtesy Blue Diamond Growers


with growers and co-op leaders to update them on the resultsof recent World Trade Organization (WTO) talks in Genevaand to listen to their hopes and concerns on trade issues.

Johnson says the first-hand knowledge he gains from vis-its with farmers and ranchers across America gives himinvaluable insights that increase his effectiveness.

Billion-pound crops The first step in harvesting almonds is to drive a self-pro-

pelled tree shaker into place, attach its “jaws” to a tree trunkand vibrate the tree until the almonds drop to the orchardfloor. In the old days, growers had to manually strike thetrunks with rubber-headed mallets to drop the nuts, catchingthe falling almonds on ground tarps. In a few isolated hilllocations, the old-fashioned methods persist.

Proper “shaking” technique is a must. Shake too lightlyand you leave nuts (called “stick-tights”) on the branches,wasting crop and creating possible homes for over-winteringpests. Shake too vigorously, and you could inflict seriousdamage to the tree.

Undaunted, and after only a brief demonstration fromgrower and Blue Diamond board member Aldo Sansoni,Johnson hooked a shaker onto a tree and gunned the engine.He grinned broadly as fat, ripe Nonpareil almonds raineddown.

The 2004 crop Johnson helped harvest is expected to beAmerica’s third billion-pound almond crop.

California produces about 88 percent of the world’salmonds, and more than 70 percent of the crop is exportedto 95 nations, making almonds the nation’s leading horticul-tural export. Blue Diamond is the nation’s largest processorand marketer of the crop, and about two-thirds of the state’sgrowers belong to the co-op.

Just 60 years ago, Spain and Italy produced 80 percent ofthe world’s almonds. Mechanization of the Californiaalmond industry has helped turn the tables. Spain is now thelargest single importer of U.S. almonds and is expected tohave purchased 130 million pounds of California almonds bythe end of the 2003-04 marketing season. That’s 24 percentmore than the previous year. Spain could import an addi-tional 20 percent next season due to a second year of Spanishalmond crop failures, the co-op says.

The value of California almond exports for the currentmarketing year surpassed $1 billion in July. Almonds —increasingly popular as a garnish on salads, in breakfast cere-als and combined with countless other foods — areCalifornia’s largest food export.

Expanding acreage Some 550,000 acres in California are planted in almonds,

and advances in tree varieties, planting patterns and in thescience of orchard agronomy have made each acre ever-moreproductive. Indeed, as recently as 1989 there were 411,000bearing acres of almonds in the state producing about 488million pounds of nuts.

Almond plantings in the Golden State could increase byanother 250,000 acres by the end of the decade, according tosome estimates. If so, almond export sales would likely sur-pass those of U.S. wheat.

“Almond crop increases of the magnitude the state hascultivated during the past 25 years represent one of thegreat agricultural success stories in the nation’s history,”Johnson said.

From a marketing stance, development of internationalmarkets is what has made that incredible industry growthpossible, and Blue Diamond is the acknowledged leader inspreading consumption of American almonds around theglobe. Consumption of California almonds has increased byan average of nearly 6 percent annually for the past 24 years. The co-op’s own test kitchen has also played a key role in thegrowth of the industry by pioneering new uses for almonds ina wide variety of foods, from ice creams to frozen dinners,cookies and pastries. The majority of almonds are used as afood ingredient, rather than consumed as snack nuts.

Co-op supports open marketsSansoni hosted Johnson, Congressman Denis Cardoza

and about a hundred almond growers and guests at a lun-cheon in his 104-year-old Delta Farms “Party Barn,” nearLos Banos. Johnson spoke about the work that the agricul-ture arm of the USTR does to increase trade opportunitiesfor U.S. farmers. He expanded on those comments the fol-lowing day at a roundtable discussion with Blue Diamondofficials and guests at the co-op’s main plant in Sacramento.

“We applaud Ambassador Johnson for helping to negoti-ate the World Trade Organization’s break-through frame-work agreement for historic reforms in Geneva,” saidSansoni. He cited expanded market access for U.S. products,including almonds, through tariff cuts that are still to benegotiated. He also praised Johnson for achieving agreementon quota expansion and the elimination of agriculture exportsubsidies.

Johnson’s message emphasized the opportunities forprosperity for all parties engaged in free trade. “Our missionis the global liberalization of trade,” he said, pointing outthat with open markets, everyone grows and prospers.

Blue Diamond, he said, is “extremely effective in bringingimportant trade issues to our attention and supplying us withthe facts and figures that we need to properly and effectivelyrepresent you.” He praised California agriculture for its“ingenuity, creativity and entrepreneurial spirit.” Thealmond industry in particular, Johnson said, “stays on top ofthe issues that affect its trade potential.

“History has not been kind to countries that put upwalls,” he said.

“America has succeeded because we have an open society.We have shown that it is better to have a trade deficit andstrong economy than a trade surplus and weak economy.Closed markets can’t grow. They stagnate. So we are work-ing to open the closed markets of the world to help them


grow their economies. That will helpthem and us because strong and grow-ing economies buy more Americanproduce.”

Growers urged to producehigh-value foods for world

As world population and food con-sumption expands, so will the demandfor high-value products, where theUnited States has a comparativeadvantage, Johnson continued.

Nationwide, exports of agriculturalproducts grew more than three timesas fast as the total of all U.S. exportsin the past year. USDA has forecastrecord agricultural exports of $61.5billion through Sept. 30. The UnitedStates is the Number 1 world exporterof fresh fruits and nuts and second infresh vegetables.

“We are also advancing U.S. inter-ests in the World Trade Organization(WTO) by working to level the play-

ing field for America’s farmers, ranch-ers and growers, who often face highbarriers to our world-class products,”Johnson said. “The WTO frameworkagreement reached July 31 in Genevawill benefit American agriculture,including fruits, nuts and vegetables.Eliminating export subsidies, reducingand further harmonizing trade-distort-ing domestic support and substantiallyincreasing market access will benefit allof American agriculture. Clearly, the$82 billion in subsidies provided by theEuropean Union must be significantlyreduced,” he declared.

“It is in the mutual interest of all ofU.S. agriculture — specialty crops,livestock and program crops — to bemutually supportive and work towardsthese goals. By addressing these threepillars of agricultural trade together, allU.S. farmers and ranchers can win.Only in the WTO can all trading part-ners be brought to the table to secure acomprehensive deal that benefits U.S.agricultural interests by reducing alltypes of trade-distorting policies.”

Enforcing existing trade agreementsis just as important as negotiating newagreements, he noted.

“In the case of fresh fruits and veg-etables, many of our day-to-day activi-ties involve foreign phytosanitary bar-riers — plant health issues,” he said.“Together with USDA scientists andtechnical staffs, we are constantlyworking with the industry to ensurethat measures imposed by foreigncountries on U.S. fruits and vegetableshave a scientific basis and are notunnecessarily trade restrictive. Asneeded and appropriate, we initiatedispute settlement cases.

“California’s rich agricultural val-leys have sustained farmers for morethan 150 years,” Johnson said. “Toextend this rich tradition of steward-ship, we must continue to embrace theoutward vision as the road to thefuture. By developing export marketsand continuing our long-standing agri-cultural heritage, farmers and rancherscan look outward beyond California’scoastline to the rest of the world fortheir long-term prosperity.” ■

Allen F. Johnson sweeps almonds into windrows, to be collected by a harvester.


proposal to sell one ofthe nation’s leading FarmCredit System lenders toa Dutch co-op bank hassent a shockwave

throughout the nation’s farm co-opand ag credit communities. “Can theyreally do that?” has been the frequentquestion asked ever since the proposedsale of Omaha-based Farm CreditServices of America (FCSA) toRabobank Group of the Netherlandswas announced at the end of July.

The charter of the Farm CreditSystem was revised in the late 1980s sothat member associations can exit thesystem. The law was approved whenthere were about 1,200 farmer-ownedlending associations in the FarmCredit System. Today, there are only92 associations and the sale of one ofthe biggest such lenders has raised anumber of policy questions.

Any sale would have to be approvedby a vote of FCSA’s 51,000 stockholdermembers (mostly farmers and ranch-ers), and would also need to bereviewed and approved by the FarmCredit Administration, the regulatoryboard that oversees the 100 or sobanks and associations that comprisethe nation’s Farm Credit System.

Opposition to the deal, whichappears to be considerable, seems to bebased not so much on resentmenttoward Rabobank, but rather towardthe very notion that a key componentof the Farm Credit System could besold to any foreign bank, and whether

that would ultimately lead to thediminishment, or even the disso-lution, of the entire system.

FCSA provides credit tofarmers and ranchers in Iowa,Nebraska, South Dakota andWyoming. It has a loan portfolio ofabout $8 billion, making it the secondlargest of the 92 associations that pro-vide financing to farmers in the $120-billion Farm Credit System. By com-parison, Rabobank has more than $500billion in total assets. Rabobank hascooperative roots, but its members are349 Dutch banks. It does not conductbusiness as a cooperative in the UnitedStates.

Dutch bank bids $600 million Rabobank has offered $600 million

for FCSA, and an additional $800 mil-lion exit fee would be paid to the FarmCredit System. It says it would be ableto offer its patrons a much wider arrayof financial services than is possiblethrough the Farm Credit System. Itwould also be able to provide services,such as home loans, in towns thatexceed populations of 2,500 people(the cap faced by Farm Credit Systemassociations).

Rabobank would select four FCSAdirectors to sit on the initial 11-personboard of the new banking entity thatwould operate as part of Rabobank.FCSA members would stand to collectan average payment of about $11,000,according to some reports. However,actual payments would vary widely

based on the size ofindividual loans.

The Farm CreditAdministration(FCA), FCSA’s federalregulator, has

received a resolution from the FCSAboard that it plans to submit a formalrequest to terminate its status as aFarm Credit System lending institu-tion, and to then merge into a sub-sidiary of Rabobank. Once the requestis submitted, FCA has 60 days to acton the proposal. The agency coulddeny the request if it determines theexit would be harmful to the FarmCredit System as a whole.

“We are very excited about thisopportunity with Rabobank,” FCSAboard chairman Paul Folkerts said.“Over the long term, we believe it willbetter position us to meet the chang-ing needs of our customers and agri-cultural producers, and to provide bet-ter service and more choice in thefinancial products and services theyneed to succeed.”

As of this writing (in late August), itappeared likely that there will beCongressional hearings on the pro-posed sale. Such hearings would try todetermine the likely impact of the saleon farmers and ranchers in FCSA’s ser-vice area, the expected effect on the restof the Farm Credit System and whetherFCSA management and directors havebeen offered any type of financialinducements to recommend the sale.

Proposed sa le o f Farm Cred i tSystem lender to Dutch bankign i tes cont roversy

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By Craig Scroggs, Co-opDevelopment SpecialistUSDA Rural Development, Georgia

outhwest Georgia is bestknown for its pine trees,cotton fields andpeanuts. The main roadsin the area, U.S. 27 and

Ga. 37, take you deep into farm coun-try and into an area that offers aglimpse into the agricultural past ofthe state.

Tall pine trees line the roadwaysaround towns like Ft. Gaines,Arlington and Blakely. In the fall andearly winter months, cotton combinesare part of the scenery. Trucks pullingloaded peanut wagons are also a com-mon sight after harvest.

Agriculture has long been the eco-nomic engine that drives these ruralcounties, but that engine has beensputtering lately. In Georgia, farmershave seen their net farm incomedecrease from $1.94 billion in 1998 to$1.7 billion in 2002, a 12.37-percentdecline in just five years.

As farmers have seen their profitscontinue to decline, some are lookingfor alternative enterprises to supple-ment their income. Landowners nowsay that it is time to look elsewherefor income and to use their naturalresources for something more thangrowing crops.

“Southwest Georgia needs to beknown for something other thanpoverty. We do have positiveresources that we need to capitalizeon,” says Tucker Price, coordinatorfor the Quitman County Extensionoffice.

Area rich in amenitiesBordered by the Chattahoochee

River, this area of the state has LakeWalter F. George as a drawing card,and nearby Bagby State Park is richwith natural wildlife. The people hereoffer southern hospitality at its best.

Indications from a tourism surveyshowed that more people want to takedifferent types of vaca-tions, with a growinginterest in agri-tourism. The naturalresources in the regioncould offer families adifferent type of vaca-tion experience andbring needed moneyinto the region, but nocoordinated effort hadever been made tobring this informationto the general public.

A recent study bythe University ofGeorgia Center forAgribusiness andEconomicDevelopment (UGCenter) shows thatagri-tourism has poten-tial in southwest Georgia. In May2003, a group of landowners wasbrought together by the local Co-operative Extension Service to discusspossible solutions to these challenges.

They all had a common concern:farm income was decreasing and theircommunities were slowly dying.Without something to stem this tide,none were sure that they would beable to stay in the business they loved

and in the com-munities where they lived. So theydecided to act.

Southwest GeorgiaEscapes is born

Ten farmers, plantation owners andwineries formed the SouthwestGeorgia Escapes cooperative with agoal of marketing southwest Georgia

as an agri-tourism destination. With assistance from the UG

Center, USDA Rural Developmentand the Southwest GeorgiaCooperative Development Center, theco-op was incorporated, adoptedbylaws and developed a marketingcampaign. The CooperativeDevelopment Center has been instru-mental in the creation of promotionalmaterials. Clay County Extension

Great EscapesAgri-tourism co-op helping Georgia farmers diversify

Charlie Cowart’s family planted its first muscadine grape vine-yard 20 years ago. The family is one of the farm members pro-moting agri-tourism through the Southwest Georgia Escapescooperative. USDA Photos by Craig Scroggs

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Director Amy Winstead worked close-ly with the co-op and developed itsWeb site: http://southwestgeor-giaescapes.com.

Farmer Dan Giles turned 2,000 ofhis 3,000 acres into a hunting preservefor deer, turkey and quail. But adver-tising is very expensive, and exposurehas been difficult to obtain. By work-ing with other co-op members, heshares the cost of advertising andoffers city dwellers a unique experi-ence on his farm.

Giles has a four-bedroom lodge inwhich home-cooked meals are provid-ed to all his guests. A local cook washired to provide the authentic south-ern-style meals at the lodge.

“This cooperative has the potentialto get the word out about our area,”Giles says.

He was also able to use some of hisfarm hands as hunting guides during the time of year that they were notworking on the row crops. The oppor-tunity for continued employment with-out having to lay off some of his helphas turned out to be another positive forhis entrance into the agri-tourism sector.

“I expect to be able to increase theflow of customers into my huntingpreserve,” Giles says.

Winery joins tourism co-opStill Pond Winery owners Charles

and Susan Cowart also wanted to

become members of the co-op in orderto make their winery more visible withtourists. Charlie Cowart began planti-ng muscadine grapes more than 20years ago, expanding his plantings untilhis death. His son, Charles, took overthe vineyards and decided to furtherexpand the offerings.

The Cowarts have supplied grapesto numerous other wineries within thestate and been major suppliers of mus-cadines to area grocery stores for thefresh grape market. The Cowarts knewthat there was additional income forthem in the marketing of their ownproduct, so they decided to open theirown winery with a tasting room. InNovember 2003, that dream became a reality.

Marketing the winerywas still difficult andexpensive. By becomingmembers of the co-op,they were able to joinforces with their neigh-bors and capitalize onthe exposure that thewhole group was begin-ning to receive. Morethan 2,500 visitors —from as far south as

Tallahassee, Fla., to as far north asColumbus, Ohio — have already visit-ed the farm. And all this even beforethe co-op’s main marketing effortshave begun.

“I expect that we will be able to fur-ther market our operation in conjunc-tion with the co-op,” Susan Cowartsays. “Helping each other succeed is ofutmost importance. By working togeth-er, we can do for southwest Georgiawhat north Georgia did years ago.”

Brochures target tourists Membership in Southwest Georgia

Escapes has closed at this time due tothe need to launch the advertising pro-gram for the year. The Escapes co-opis printing 25,000 tri-fold brochures

that will be placed in welcome centersalong I-75 and I-85, in local chamberof commerce buildings and in otherarea businesses. Advertising from otherlocal businesses is being sought andwill be used to offset the cost of pro-ducing the pamphlets. The co-op’sWeb site offers all of the members alink to their own pages.

The group has participated in sever-al trade shows throughout Georgia,

Charles Cowart gives tourists a taste of some of his Still Pond Wineryvintage.

Sportsmen in pursuit of game — including quail, deer and wildboar — can stay in the refurbished Pine Ridge HuntingPlantation house. continued on page 34


he U. S.Department ofAgriculture(USDA) is apotential cus-

tomer for cooperatives andothers engaged in the pro-duction of biobased prod-ucts. USDA is alreadyactively purchasing andusing a wide variety ofbiobased products and plansto expand such efforts.

The USDA ForestService, for example, is buy-ing biobased products for signs madefrom composite-materials and forwatershed-restoration structures.USDA’s Agricultural Research Service(ARS) has already identified and pur-chased biobased products for farmingoperations, grounds keeping and facil-ities maintenance at its GrazinglandsResearch Laboratory in El Reno,Texas, among other uses.

The Farm Security and RuralInvestment Act of 2002 (FSRIA),Section 9002 of Public Law 107-17,mandates the development of aFederal Biobased Products PreferredProcurement Program (FB4P) thatrequires federal agencies to purchasebiobased products. Products classifiedas biobased are those commercial andindustrial non-food products that arecomposed — in whole or significantpart — of biological and/or renewabledomestic agricultural or forestrymaterials, including plant, animal andmarine materials.

Agriculture Secretary Ann M.Veneman says the FB4P, “builds uponPresident Bush’s commitment to pro-

mote energy independence while pro-tecting the environment. This programwill improve environmental health byusing renewable resources from ourfarms and forests to produce products,that have been derived from fossilenergy sources. This program willenhance the development of high per-forming and environmentally friendlyproducts.”

One example of a product beingpurchased by the Forest Serviceinvolves a patented, fortified-woodcomposite product called Altree™,which is being used to make road andinterpretive signs. The product con-sists of small-diameter trees and woodybiomass combined with recycled plas-tic containers. It was developed in col-laboration with the Forest Service’sown Forest Products Laboratory andother groups.

All parts of the tree are used,including the bark, branches, needlesand berries, resulting in no residualslash upon harvest. Characteristicswhich make it desirable include a den-sity higher than wood, longevity of 35-

50 years plus —depending on the application— stain resistance, water-proof, UV resistant, impervi-ous to insects and no leachingof harmful chemicals into thesoil.

Juniper trees have littleother use, and are considereda nuisance, robbing the soilof moisture so that it cannotsupport other vegetation.

USDA/ARS’Grazinglands ResearchLaboratory is purchasing

bio-trans hydraulic tractor fluid, bio-two-cycle engine oil, bio-bar andchain oil, bio-grease, bio-penetratinglubricant, biodiesel fuel conditionersand biofuels. ARS’ level of commit-ment is so high that the SouthernPlains Area has created an annualaward: the “Southern Plains AreaGreening Award,” which recognizeslocations that have demonstratedcontinued effort, progress andachievement in making environmen-tally friendly choices. TheConservation and ProductionResearch Laboratory in Bushland,Texas, was this year’s award winner.

For additional information on theSouthern Plains Area BiobasedProgram, contact Mike Downing at(979) 260-9446 or e-mail at [email protected].

For additional information on FB4Pcontact Mike Green at (202) 720-7921,email at [email protected], orvisit the Biobased Products InitiativeWeb site at:http://www.biobased.oce.usda.gov/public/index.cfm. ■

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USDA is actively purchasing a wide variety of biobased products,including these National Forest signs. They are made in part fromJuniper trees, which are considered a nuisance because they robmoisture needed by other plants from arid soils.

USDA purchas ing b iobased products


By Donald A. Frederick Program Leader for Law, Policy & GovernanceUSDA Rural Developmente-mail: [email protected]

ooperatives have won an important victory inthe battle to remain competitive in the global-ized agricultural markets of the 21st Century. Afederal district court in Massachusetts has heldthat foreign members do not jeopardize a coop-

erative’s antitrust protection under the Capper-Volstead Act.Capper-Volstead provides agricultural producers with a

limited exemption from the antitrust laws that allows themto market their production on a cooperative basis. Privateparties, as well as antitrust enforcement agencies, can suecooperatives for relief from anti-competitive conduct theybelieve is outside the scope of protection provided byCapper-Volstead.

An ongoing case in this area was initiated by NorthlandCranberries, a non-cooperative competitor of Ocean Spray, acranberry marketing cooperative, claiming the cooperativeengaged in conduct illegal under the antitrust laws. The coop-erative answered that its actions were protected by Capper-Volstead. The competitor then asserted that the cooperative isnot entitled to Capper-Volstead protection because a numberof its producer-members are foreign producers.

Both parties agreed on the facts relevant to this issue:Northland admitted that the members in question were “pro-ducers,” Ocean Spray that they were Canadian and therefore“foreign.” So the trial court judge used a special procedure(cross-motions for summary judgment) to let the partiesargue the issue and have it determined before trial.

The judge referred the issue to another court official,called a Special Master, to sift through the arguments of theparties and prepare a recommended decision. The SpecialMaster recommended the court reject all of the competitor’sarguments and decide that the inclusion of foreign membersin an agricultural cooperative does not deprive that coopera-tive of its Capper-Volstead protections. The court agreedand adopted the Special Master’s recommended opinion aspresented (Northland Cranberries v. Ocean Spray Cranberries,

Civil No. 03-CV-10734-JLT (D. Mass. June 10, 2004) (orderadopting Special Master’s Recommendation)).

Background factsThis case has an interesting origin. Northland Cranberries

was formed in 1987 through the merger of five partnershipsgrowing cranberries in Wisconsin. Northland purchased sever-al more cranberry farms and quickly became the largest growermember of Ocean Spray. In the early 1990s, cranberry grow-ers and marketers enjoyed several successful years. Northland’sowners apparently determined that they could earn higherreturns as an independent firm, so, in 1993, Northlandresigned from Ocean Spray. It constructed duplicate processingfacilities and became a competitor of Ocean Spray.

As frequently happens in agriculture, the good yearsattracted new production, from both established cranberrygrowers and new producers. Beginning with the 1997 crop,cranberry supply began to exceed demand on an annual basisand the market price of cranberries fell precipitously.Northland began to suffer significant losses. In late 2001,faced with impending bankruptcy, Northland’s owners soldmost of the company to Sun Capital Partners, a leveragedbuyout firm headquartered in Boca Raton, Fla.

Shortly after acquiring Northland, Sun Capital made twomoves. First, it filed this lawsuit alleging a variety ofantitrust violations by Ocean Spray. Shortly thereafter, itmade an unsolicited takeover bid for Ocean Spray’s juicebusiness and brand name.

Ocean Spray promptly rejected the takeover bid. So thiscase involves a leveraged buyout firm that owns a competitorof a cooperative, pursuing a lawsuit against that cooperativethat, if successful, would likely cripple the cooperative. Atthe same time, the firm is trying to buy the cooperative’sassets, including a highly respected brand name, for the low-est possible price.

The court’s reasoningThe Capper-Volstead Act never mentions the word “coop-

erative.” Rather, it extends limited antitrust protection to“persons engaged in the production of agricultural prod-ucts....” (emphasis added). The term “persons” is not defined

L E G A L C O R N E R

Capper-Vols tead protects co-ops wi th fo re ign members

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in the act. So the issue before the courtwas whether the word “persons,” asused in this statute, means only UnitedStates producers, or if it also includesproducers in other countries.

First, the court made general obser-vations about the term “persons” in thecontext of the Capper-Volstead Act:

• When interpreting a statute, theplain and unambiguous meaningof a word prevails in the absenceof clearly expressed legislativeintent to the contrary. No limita-tion on the ordinary meaning of“persons” is stated or implied inthe Capper-Volstead Act. As peo-ple in other countries are consid-ered “persons,” the term shouldbe read to refer to foreign farmersas well as American farmers.

• The conclusion that “persons”includes foreign producers is con-firmed by Congress’ purpose inpassing the Capper-Volstead Act.In 1922, Congress adoptedCapper-Volstead to provide agri-cultural cooperatives having capi-tal stock the same status underantitrust laws that Congressgranted to non-stock cooperativesin 1914, under Section 6 of theClayton Act. The Clayton Actdefines “persons” as including“corporations and associationsexisting under or authorized bythe laws of either the UnitedStates, the laws of any of its terri-tories, the laws of any state, or thelaws of any foreign country.”15U.S.C. Sec. 12 (emphasis added).Our primary antitrust law, theSherman Act, defines “persons”the same way. 15 U.S.C. Sec. 7.

The court continued that a basicrule of interpreting statutes is thatwhere Congress uses the same term inthe same way in two statutes withclosely related goals, the presumptionis that it intended the term to have thesame meaning in both contexts. Areview of the Clayton Act as a wholedemonstrates that the exemption inSec. 6 applies to cooperatives with for-eign members. So likewise, theCapper-Volstead Act applies to coop-

eratives with foreign members.The court then addressed and

rejected Northland’s key contentions:• Northland argued that segments

in the legislative debate overCapper-Volstead demonstrate thatCongress intended to exclude for-eign farmers from the definitionof “persons.” The court foundthese statements did not supportNorthland’s position. At most,they show that certain legislatorsargued that foreign competitionwas likely to prevent protectedcooperatives from achieving amonopoly position.

• Northland asserted that exemp-tions from antitrust laws must benarrowly construed. The courtresponded that this rule neitherrequires nor permits a court todisregard the plain language ofthe statute when interpreting anexemption.

• Northland said the court shouldconclude “persons” under Capper-Volstead does not include foreignpersons, because in another simi-lar statute, the Fisherman’sCollective Marketing Act,Congress included a territoriallimitation in the definition of“aquatic products.” 15 U.S.C. Sec.521. The court turned that argu-ment around, finding that ifCongress intended to impose asimilar limitation on agriculturalproducers in Capper-Volstead, itwould have done so.

• Northland claimed the courtshould adopt a presumptionagainst extraterritorial applica-tion of United States law. Thecourt held that United Statesantitrust laws apply to conductoutside our borders that affectscompetition within the UnitedStates, and Northland itselfalleges that the conduct at issuehas had a substantial effect withinthe United States. Furthermore,the presumption applies where aUnited States law imposes stan-dards of conduct on persons inother countries, not where the

statute at issue is an exemptionfrom U.S. law.

• Northland charged that interpret-ing “persons” to include foreignfarmers would permit producersaround the world to join togetherto cartelize any agricultural prod-uct to the detriment of U.S. con-sumers. The court determinedthis argument was also specious. It noted that in spite of urgingfrom USDA to cooperatives toconsider including foreign mem-bers, few have done so and noneapproaches a monopoly position.The court also cited the authorityin Sec. 2 of Capper-Volstead forthe Secretary of Agriculture tobring proceedings against anyfarmer cooperative that “monopo-lizes or restrains trade in interstateor foreign commerce to such anextent that the price of any agri-cultural product is undulyenhanced....” 7 U.S.C. Sec. 292(emphasis added).

ConclusionWhile this lawsuit continues over

other issues, the court has clearly stat-ed that foreign memberships in farmercooperatives are permissible under theCapper-Volstead Act. In the economicenvironment of the 21st Century, itappears that globalization and concen-tration among processors, distributorsand retailers is the norm rather thanthe exception.

To bolster their market strengthtoday, producers must have the abilityto do more than negotiate with thelocal canner or grocery store. Theymust deal effectively with internationalconglomerates that can purchase agri-cultural products from any countrywhere a product can be grown.

This gives buyers the power to playproducers in one country against thoseof another, if effect creating a reverseauction wherein the price received byproducers is driven steadily downward.U.S. producers may well need theoption to develop international mem-berships to deal with buyers with thisdegree of market power. ■


By Stephen ThompsonAssistant Editor

he viability of ethanol asan alternative fuel con-tinues to improve. Newresearch by USDA econ-omist Hosein Shapouri

shows a marked improvement in theenergy efficiency of ethanol from fiveyears ago.

In the July-August 2004 issue ofRural Cooperatives, we reported thatShapouri’s research had refuted claimsby ethanol opponents that it costsmore energy to produce ethanol thanit yields. His study showed the netenergy balance of ethanol at 36 per-cent in 1996, an improve-ment on the 24 percentfigure reported in 1991.That means that 1.36BTUs worth of ethanolrequires only one BTU ofenergy to produce.

The results ofShapouri’s latest research,using data from 2001,were released in June.They show an evengreater improvement thanthat of the previous five-year period, with ethanol’snet energy balance grow-ing to an impressive 67percent. The continuingimprovement, he says, isdue to technologicaladvances both in farmingand manufacturing.

“Crop yields per acre have increased,fertilizer is more energy efficient andethanol plants are more efficient,” hesays. “So the net energy value ofethanol improves.”

Shapouri’s calculations included theamount of energy used to grow andharvest the crop; to transport feed-stock, byproducts and the finishedproduct; energy used in the productionof seed, pesticides and fertilizer; andenergy consumed in the manufacturingprocess.

He is critical of studies that havedisputed the USDA findings, includingone by Dr. David Pimentel, an ento-mologist, in 2003. Shapouri says thePimentel report is deeply flawed, using

questionable and unsupported infor-mation, especially on energy expendi-tures in the production of secondaryinputs, such as farm equipment and theconstruction of ethanol plants. “I don’tknow how they come up with thesefigures,” he says.

Shapouri’s research does not includesuch calculations because, he says, thelatest figures on energy costs in thoseareas are 25 years old. In any case, hesays available information indicatesthat energy used in production of sec-ondary inputs is much lower. “Thisstudy,” says Shapouri, “unlike thePimentel report, is based on straight-forward methodology and highlyregarded quality data.”

Shapouri believesthat the energy effi-ciency of ethanol willcontinue to improve,due to continuingincreases in cropyields and improve-ments in ethanol pro-duction technology.“Inputs of pesticidesand fertilizers in cropproduction are contin-uing to fall,” he says.

“And in India, anew molecular filter-ing technology isremoving the last bitof water from ethanolfor a much lower costthan the process wecurrently use.”

■

USDA study boosts fue lconvers ion e f f i c iency ra t ing fo r e thanol

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The ribbon-cutting ceremony in August 2002 at Glacial Lakes Energy inWatertown, S.D., drew a crowd of co-op directors, community leaders and build-ing contractor representatives. Improved operating efficiencies of such plantshave prompted USDA to boost its estimate of the ethanol energy conversionyield. Photo courtesy Glacial Lakes Energy and the Watertown Public Opinion


By Jim Rodenburg AGP Communications Director

idwest soybean produc-ers and their coopera-tives now have theirbest-ever access toPacific Rim customers,

thanks to AGP’s new export terminalfacility at the Port of Grays Harbor inAberdeen, Wash. Last December,Omaha-based AGP, a federated soy-bean processing and marketing coop-erative, loaded its first vessel at GraysHarbor with 23,000 tons of soybeanmeal bound for Australia. Since then,numerous other shipments of soybeanmeal, non-GMO (genetically modifiedorganism) soybean meal and other spe-cialty grain products have been export-ed to international customers throughthe new terminal.

The Grays Harbor facility will helpkeep AGP competitive in exportmarkets, with reducedcosts and shippingtime to the

Pacific Rim, as com-pared to transportationthrough the Gulf ofMexico and otherPacific Northwest ports.The terminal also hasthe ability to handleidentity-preserved prod-ucts, which are becom-ing increasingly important in interna-tional markets concerned about foodsafety and traceability.

“We’re very pleased with the facilityand proud of the partnership we haveat the Port of Grays Harbor,” saysPete Mishek, AGP’s international trademanager. “The feedback from cus-tomers has been very positive.”

Recently, Mishek and Greg Twist,AGP’s vice president for marketing,soy and corn processing, led a trademission to the port, which was attend-

ed by buyers and brokers fromIndonesia and

directorsfrom

the Iowa Soybean Promotion Board(ISPB). Dick Vegors, marketing man-ager of grain and grain co-products,International Office, Iowa Departmentof Economic Development, also joinedthe group.

First meeting at portThis was the first time a soybean

association and customers had met atGrays Harbor, during which Mishektold the ISPB farmer-directors that thefacility is an investment in their mar-kets. “We want our customers to knowthat AGP and Midwestern farmers aretrying to reach them in more efficientways every year,” Mishek stressed,adding that

Di rect Access!AGP’s new Pacific port an investment in Midwest soybean farms & facilities

M AGP’s new international port terminal in Washington has theability to handle identity-preserved grain shipments. Photosby Marc Sterling, courtesy Port of Grays Harbor


AGP has been shipping soybean mealthrough the Pacific Northwest forabout 15 years.

The importance of PacificNorthwest exports has been height-ened by two developments, accordingto Mike Zahn, a commodity analyst

who gave the group a briefing on thegrain markets and industry trends:

• The ascension of China as a majorimporter of goods such as steeland grain. This strong demandhas resulted in ocean freight ratesreaching record levels, magnifyingthe advantages of the most cost-effective terminals.

• U.S. soybean production headingwest, with dramatic increases insoybean acreage in Minnesota,Nebraska, North Dakota and

South Dakota over the past sever-al years.

“These factors set up a real oppor-tunity for West Coast shipments,”Zahn says.

AGP’s custom-built facility onTerminal 2 at the port is the closest,

most direct route from its processingplants in the Midwest to Pacific Rimcustomers. Gary Nelson, executivedirector of the Port of Grays Harbor,says the deep-water port is two hoursfrom open sea, compared to 12 hoursfrom other Pacific Northwest exportfacilities located on the ColumbiaRiver.

The Port of Grays Harbor madeseveral modifications at Terminal 2 tohandle AGP’s design criteria forPanama Canal-sized vessels. These

included berth expansion, a heavierfender system and upgraded mooringdolphins to secure larger vessels thanthe logging ships the port has tradi-tionally handled.

Rail system key to operationThe rail system is an integral part of

the operation. The Puget Sound andPacific Railroad, a short-line railroadserving the port, connects with boththe Burlington Northern Santa Fe(BNSF) and Union Pacific (UP) rail-roads. A new, 8,000-foot looped trackwas built around the terminal in orderto move cars continuously through theunloading facility without switching.AGP also has a staging area that willhold approximately 300 railcars priorto the arrival of a vessel.

During unloading, Nelson pointsout that product is fully covered fromthe receiving building to the ship,helping maintain product quality.Railcars are emptied two at a time overa 100-foot-long receiving pit, and theproduct moves along on air-supportedconveyors to a scale and automaticsampler. This high-speed conveyingsystem has no cracks or crevasses toretain product, while brushes and airjets continually clean the belt.

A mobile loader that traverses thelength of the dock to load the ship isanother feature of the terminal. Thisallows the ship to remain stationary,saving on fuel and crew costs, as wellas reducing loading time.

The terminal is equipped to meet orexceed international standards forweights and grades, and can be washed

Midwest-grown soybeans, soybean meal and other grain products will get to Pacific Rimcustomers faster, thanks to AGP’s new port facility.


and cleaned after each shipment tomeet requirements for identity-pre-served products.

Market success hinges onquality and timeliness

“What makes the wholething work is the people here atthe port,” says Mishek. “Thework ethic and commitmentfrom the longshoremen andport management is superb. Wehave great partners.”

Those partners includeMidwest soybean producers, who arerepresented by associations such as theIowa Soybean Promotion Board(ISPB).

“The ISPB has been very interestedin the Grays Harbor project from theearly stages, as exports are extremelyimportant to the soybean industry,”

says Grant Kimberley, market develop-ment manager. “For U.S. producers tostay competitive with South America,

we must guarantee consistency, qualityand timely service. And that’s what thisnew port facility can do.”

The ISPB has worked with AGP to

A new, 8,000-foot looped track was built around the terminal to move cars continuouslythrough the unloading process without the need for switching.

In addition to gaining greater access to foreign mar-kets for its members, AGP is also striving to add valueto its products by encouraging farmers to enroll in itsApproved Variety Program, which promotes plantingsoybean varieties that produce higher-than-averageyields of oil and protein .

Leon Wojahn, a northwest Iowa soybean producer,has planted 200 acres of soybeans with AGP-approvedvarieties, a four-fold increase from his participationlevel last year.

“I contracted 50 acres in the program last yearthrough my local cooperative, MaxYield Cooperative, totry it out. I had a good experience,” says Wojahn.“Those nickels add up.”

By planting and contracting AGP-approved varietiesthrough participating member cooperatives, producersare guaranteed component premiums of at least 5cents a bushel. These soybean varieties have histori-cal data showing potential for achieving desirable oiland protein levels.

“I think we’ve proven that it’s a fairly easy program[launched in 2003] to comply with, as producers are notnecessarily required to make big shifts from whatthey’re already planting,” says Greg Twist, AGP mar-keting vice president for soy and corn processing.“We’re starting to make some headway in raising pro-

ducers’ awareness of what they’re putting in the field.They’re asking questions about oil and protein content,which is now becoming a front-burner issue for seedcompanies as they develop new soybean varieties andwork on their genetics.”

While some varieties on the approved list for 2003failed to make the grade for 2004, Twist says even morenew varieties have been added, giving producersincreased planting options under the program.

“A good feature of the program is that some of thevarieties already popular in this area are included,”says Gary Strube, general manager, Great Lakes Coop-erative in Everly, Iowa. “It’s an easy way for a producerto pick up $2.50 an acre, based on 50-bushel beans. Wethink it’s a good program for soybean farmers and ithas helped boost our seed sales.”

Cooperative managers of participating coopera-tives are taking the opportunity to report to theirboard not only about local earnings, but also addition-al premiums that their members receive for contract-ing approved varieties. “This revenue doesn’t neces-sarily show up in the cooperative’s bottom line, but itis having a positive economic impact on its mem-bers,” said Twist. ■

— By Jim Rodenburg

Co-op boosting yields of protein, oil through approved variety program


bring in potential international cus-tomers so they can see the wholeprocess from the very beginning onthe farm, to the elevator, to the proces-sor and then on out to the port facility.

“We are trying to show customersthat we are serious about meeting theirneeds, listening to their concerns andshowing them what we can accom-plish,” says Kimberley.

Vegors was equally enthused aboutthe opportunities the port terminalrepresents for Iowa and Midwest agri-culture. “As we get to see more genestacking and specialty traits of grainthat companies in foreign countries are

desiring, the ability to clean out thefacility and turn it from one product toanother makes it ideal for the IPprocess,” Vegors says.

During the visit to the port, GregTwist told the Indonesian contingentabout AGP’s success working withmember cooperatives and their farmerowners to produce, process and deliveridentity-preserved products, such asnon-GMO soybean meal. He also saysthe quality of soybeans can be raisedthrough AGP’s approved variety pro-gram.

“Spending time developing face-to-face relationships with international

buyers — such as the Indonesians, whorepresent some of the largest con-sumers of soybean meal in the world— is a very valuable investment,” Twistsays. “I think they were very impressedwith the port facility and realized thatU.S. farmers take a real interest in sup-plying quality and meeting or exceed-ing their needs. It’s all about bringingvalue to our customers in order toincrease exports, and that valueincludes a competitive and efficienttransportation system.”

For more information about AGP’sexport terminal, go online to:www.agpportofgraysharbor.com. ■

To help it better provide wholesale dealers withcrop nutrients, Agriliance has signed a lease with thePort of Galveston to operate a general-purpose bulkcargo terminal. Agriliance, a joint venture owned byCHS Inc. and Land of Lakes, will enter a 15-year leasewith the port, with an option for seven additional three-year renewal periods.

By mid-2008, Agrilianceexpects to ship more than800,000 tons of cargo annuallythrough the terminal.

“With the Port of Galveston,we’re enhancing our crop nutri-ents distribution capabilitiesacross all U.S. markets, espe-cially for rail shipments to west-ern regions,” says GeorgeThornton, Agriliance presidentand chief executive officer. Hesays Agriliance also anticipatesthat moving shipments throughGalveston will allow the compa-ny to divert some rail loads fromMississippi River terminals,thereby helping ease river bot-tlenecks.

“We began importing bulkproduct in 2003 through a portin Louisiana,” he continues.“Expansion into Galveston is anintegral part of our company’simport strategy, which isexpected to increase signifi-cantly in the near term.”

Steven M. Cernak, port director, says “This agree-ment will allow the Port of Galveston to increase ourcargo throughput, which will result in increasedemployment at the facility and at other ancillary com-panies servicing the new terminal.”

Agriliance will operate as a general-purpose bulkcargo terminal that will initially receive only inbound

products. The longer-term goalis to make improvements toallow for both import andexport operations. Potentialcargoes include bulk fertilizerproducts, bulk agriculturalproducts, bulk grains and grainsubstitutes, non-hazardousbulk minerals or mineral prod-ucts and non-hazardous chem-icals.

Pier 35/36, the old ImperialSugar Docks, was previouslyleased to River Materials LLC.With the signing of the agree-ment, Agriliance acquires theuse of the terminal and pur-chases the assets of RiverMaterials.

Agriliance LLC marketscrop nutrients, crop protectionproducts, and seed and croptechnical services to farmersand ranchers through localcooperatives and independentdealers in all 50 states, Canadaand Mexico. ■

Agril iance to operate major terminal at Port of Galveston

Bucket cranes unload bulk materials from ships anddrop them on this conveyor belt, which terminates ina warehouse. More conveyor belts carry them fromthe warehouse to rail cars. Photo courtesy Port ofGalveston


By Stephen ThompsonAssistant Editor

enewable power is thebasis for a new kind ofco-op developing in thePacific Northwest. InMontana and

Washington, farmers in OurWind Cooperative are pro-ducing power from relativelysmall, “backyard-style” windturbines. In Oregon andWashington, owners ofsmall, home-size photovolta-ic arrays — or solar-electricpanels — have bandedtogether in the NorthwestSolar Co-op. Both co-opsare using a new concept toencourage the use of renew-able energy, while puttingdollars in their members’pockets at the same time.

The concept is simple:sell the environmental benefits ofrenewable energy to customers whowant to help reduce the consumptionof conventionally produced power.

Doug Boleyn, a solar power consul-tant in Gladstone, Ore., wanted to finda new way to help clients recover someof the costs of a home solar-powerinstallation. He found the answer in a new project by the BonnevilleEnvironmental Foundation, a non-profit organization based in nearbyPortland that seeks to promote the use of renewable energy sources.

Perfect matchThe foundation had developed a

new way to sell environmental bene-

fits, through certificates called “GreenTags” (see sidebar), and was looking toexpand into small solar systems. It wasa perfect match.

Photovoltaic systems provide envi-ronmentally clean power, but theiroutput is intermittent: when the sun

goes down, so does the power.Overcast days reduce output consid-erably. For this reason, home solar-power systems are almost alwayshooked up to the local power grid.(For an example of stand-alone solarsystems, see “Isolated Navajos tapsolar power,” Rural Cooperatives,March/April 2002, page 6; currentand back issues are accessible on-lineat www.rurdev.usda.gov/rbs/pub/openmag.htm.)

An electronic inverter converts thedirect-current power from the solarpanel to usable house current. Whenthe sun is out, the system routes anysolar power not being used to thepower grid; when the solar system isn’t

making power, electricity from thepower utility is used. A meter measurescurrent both ways, and the utility paysthe user a rebate for the excess power.

Members of the co-op are requiredto have their solar systems hooked up tothe local power utility to ensure that all

the power they produce isused, either by the owner orby the utility’s other cus-tomers. The amount of solarpower output is measured,and at the end of each yeareach member sends his or hermeter reading to the co-op.The total of all members’solar production is added upby the co-op and sent in tothe Bonneville EnvironmentalFoundation, which pays forthe Green Tags and distrib-utes them to customers. Theco-op then sends the mem-bers the checks for theirGreen Tags production.

Utility gets the energy;co-op sells Green Tags

Each member is required to sign an“attestation” form every year, confirm-ing the amount of green power pro-duced and that it meets all criteria forbeing renewable and non-polluting.The Green Tags are certified as validby an independent third-party entity,the Green-e Renewable ElectricityCertification Program.

A typical home solar-power systemputs out a maximum of about 1 kilo-watt, and costs about $13,000 to$20,000, according to Boleyn. Theamount of money each co-op memberreceives is comparatively small —

Backyard powerhouses“Green Tags” spur development ofrenewable power co-ops in Northwest

A wind turbine is erected in Liberty County, Montana. Local supportershope it is the first of many such installations. Photo courtesy NW Seed.(Above, right) The Gray family of Medford, Ore., with their photovoltaicarray. Photo courtesy Doug Boleyn. Both sell the environmental benefitsof their green power through a new kind of co-op.

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about $200 to $250 per year. But, hesays, the added funds help in making asolar installation cost effective, andselling the tags gives others who don’thave access to a green power source achance to participate in the productionand use of renewable energy.

“While $250 isn’t that much,” hesays, “sometimes it seems to make thedifference when people are consider-ing purchasing a solar-power unit.Salesmen for photovoltaic systems arenow using Green Tags as a ‘sweetener’for potential customers.”

Making money from the wind

Like the Northwest Solar Co-op,Our Wind Cooperative promotesgrassroots production of green power.Our Wind members run small, 10-kilo-watt wind turbine generators — pro-ducing more power than NorthwestSolar’s solar panels, but a far cry fromthe enormous turbines erected by utili-ties, the largest of which can produce asmuch as 4,200 kilowatts (see “Catchthe wind,” Rural Cooperatives,March/April 2002, page 4).

The co-op was launched bySeattle-based Northwest SustainableEnergy for Economic Development(NW SEED), Last Mile ElectricCooperative, Northwest CooperativeDevelopment Center and other non-profit organizations seeking to pro-mote customer-owned wind poweramong farmers and rural landownersin the Pacific Northwest.

NW SEED used a number of feder-al grants and loans to do the ground-work for the co-op. A contract awardof $300,000 from the Department ofEnergy’s National Renewable EnergySystems Laboratory helped get theeffort off the ground by financing asurvey of wind characteristics in thetarget area. A Value-Added ProducerGrant (VAPG) of $50,000 from USDARural Development was used to con-duct a feasibility study and to planstudies of various possible turbine sites.

The Bonneville Foundation helpedby making upfront payments for pro-jected Green Tags production, and alsomade available a low-interest loan.

The initiative had no problem find-ing potential participants: it received

over 300 applications. Each wasscreened according to criteria, includ-ing availability of financing, local windcharacteristics and access to powertransmission facilities. Ten sites werechosen for the initial installations.

Five turbines installedThe cooperative was incorporated

in November 2003. So far, five tur-bines have been installed, and one isunder construction.

“Each site is different,” says NWSeed project manager Jennifer Grove.Not only do geographic characteristicsdiffer, but so do local regulations andpermit requirements.

In addition, incentives for installingwind generators are different in eachstate as well. In Montana for example,the co-op took advantage of fundingfrom state renewable energy incentiveprograms and a streamlined permittingprocess.

The co-op found a different kind of success in Washington. Financialsupport from Seattle City Light andKlickitat Public Utility District com-

Green Tags are certificates of environmental benefitthat can be sold and traded. In effect, they allow a per-son or entity to support a renewable energy source,without regard to where both the producer and thepurchaser are located. Green Tags provide additionalincome to owners of renewable-energy generators,apart from that derived from the sale of the actualpower or the savings derived by consuming home-made power.

Green Tags function on the principle that electricalpower is fungible — that is, one unit of it is identical inuse to another, regardless of its source.

They work like this: • A producer of “green” electricity — from a wind

turbine, solar array, or other renewable source —records the amount of power produced by thegreen source. Through a cooperative or other enti-ty, the producer sells certificates for that amountof energy — Green Tags.

• The actual power that is produced by the greensource is consumed at the site or sold to the localutility. The sale of Green Tags is thus separatefrom the sale and use of the power produced bythe green source — in this case, solar arrays andwind turbines.

• Customers who want to use green power buy thecertificates. The actual physical power that thecustomer consumes is not produced by the greensource. But by buying Green Tags, the customertakes ownership of the “green” characteristics ofthe green producer’s power. Doing so offsets theenvironmental damage done by the production ofthe conventional power the customer uses — thatis, the customer’s consumption of power does notadd overall to the pollution being produced togenerate power. Conversely, having sold theGreen Tags, the owner of the green power sourcecan’t claim to be using green power. ■

— By Stephen Thompson

How Green Tags work

continued on page 36


By Richard Sexton, ProfessorAgricultural and Resoures EconomicsUniversity of California, DavisHimawan Hariyoga, Ag Economist

Editor’s note: Many questions have beenraised regarding the causes of the demise ofone of California’s leading food processingcooperatives. A recently completed studyconducted for the University of CaliforniaGiannini Foundation provides someanswers. USDA Rural Development pro-vided support for the study under a cooper-ative research agreement.

ri Valley Growers (TVG)was a California agricul-tural cooperative ownedby more than 500 mem-ber-growers and was

California’s largest fruit canner, with$782 million in sales during 1998.Members — who delivered primarilytomatoes, peaches, pears and olives tothe cooperative for processing andmarketing — held $125 million ofequity in the co-op in 1998. TVG wasalso a major Central Valley employer,with more than 9,500 seasonal and1,500 annual employees.

But severe financial difficultiesforced TVG to file a voluntary petitionfor reorganization under Chapter 11 ofthe U.S. Bankruptcy Code in July2000. Its assets were subsequently soldto various buyers. Although a numberof factors contributed to its downfall,perhaps the major one was the cooper-ative’s failure to adequately position itstomato processing operations to reflectthe restructuring the industry hadundergone. Weakness in the tomato

operation — including under-utiliza-tion of plants and failure to meet theexplosion of demand for pasta saucesand Mexican food salsas — led totomatoes being subsidized by the co-op’s much more successful fruit can-ning operations, to the detriment ofthe latter. Other negative factorsincluded lack of strong membershipcontracts requiring crop delivery, ahigh debt-to-assets ratio and poormanagement decisions, ranging fromover-paying members for crops insome years to the termination of toomany experienced plant supervisorswhen new management took over theco-op in the mid-1990s.

A noteworthy finding of this studyis that Tri Valley’s business structure asa cooperative did not contribute to itsfailure.

Essentials of TVG’s operationsTVG was formed in 1963 when two

existing co-ops, Tri Valley PackingAssn. and Turlock CooperativeGrowers, merged. In 1964 Oberti

olives joined TVG, while in 1978TVG purchased S&W Fine Foods.TVG also grew through acquisition ofthe assets and members of other finan-cially distressed or failed processingcooperatives. This list includesGlorietta Foods in 1981, Cal Can in1983, and Sacramento Growers Co-opin 1993.

By the mid-1990s, TVG operated10 processing plants — nine inCalifornia and a tomato reprocessingfacility in New Jersey. TVG procuredraw products from growers on both amembership and a cash-contract basisand converted them into a wide varietyof processed products. As time passed,the percentage of product, especiallytomatoes, procured through cash con-tracts increased. For the products itacquired on a membership basis, TVGreturned revenues to growers throughcommodity pools. Prior to 1983, TVGoperated a single pool, whereby allrevenues and costs flowed into a singleaccount, and surplus in excess of eachcommodity’s “established value” was

The cann ing of Tr i Va l leyWhat went wrong at Tri Valley Growers, and what can other co-ops learn from it?

T

Peach and fruit crops were increasingly forced to subsidize TVG’s processing tomatooperations in the final years of the co-op. Photo courtesy Modesto Bee


returned to members in proportion totheir patronage with TVG. Establishedvalue, in turn, was usually set in accordwith industry prices that were discov-ered through bargaining between thecommodity bargaining associations fortomatoes, peaches and pears, and themajor independent processors of thosecommodities.

In 1983, TVG established the“50/50” pooling concept, wherebycommodity-specific pools were estab-lished, and 50 percent of revenuesderived from each commodity flowedinto its own pool, while 50 percentwent to the general pool. In 1996,TVG restructured itself as a “new-generation cooperative,” whereinmembers’ equity was converted tocapital stock, and the 50/50 poolingconcept was replaced by a complicat-ed alternative that essentially repre-sented a return to the single-poolconcept.

TVG’s tomato operationsTomatoes comprised about 40 per-

cent of TVG’s revenues in the 1990s.

The industry had undergone majorstructural changes by then. Productionhad relocated from coastal areas to theCentral Valley, causing a mismatchbetween production and processingcapacity, and the processing technolo-gy had come to emphasize low-cost,bulk-paste manufacturing undertakenin the producing areas, with remanu-facturing into specific products doneelsewhere.

Processed tomato products sell in aglobal market, and prices are subject towide fluctuations and are stronglyinfluenced by inventories carried for-ward from the prior crop year. Onboth a nominal and a real basis, pricesdeclined on average from the period1974-2000.

TVG joined the paste revolution in1974, when it built a paste manufactur-ing facility near Volta and secured afavorable 10-year, cost-plus paste con-tract. In 1984 TVG acquired a pasteremanufacturing facility in New Jersey.However, TVG also adopted a non-strategic approach to expansion in the1980s through acquiring the member-

ship and facilities of two failed co-ops,Glorietta and Cal Can.

The result was that TVG’s tomatofacilities were not well aligned geo-graphically with its production, caus-ing it to have higher shipping coststhan the competition and, in somecases, its facilities lacked state-of-the-art technology. Its production capabil-ities were also not well aligned withthe market’s needs, as then-CEO andboard chair James Saras himself notedin 1993.

These circumstances suggest thatTVG needed to make investments inplant modernization and relocation,but it was constrained during the late1980s and 1990s from doing sobecause it was already carrying a highdebt-to-equity ratio, and its memberswere themselves suffering from adver-sities in the raw-product market, mak-ing it difficult to collect more equityfrom them.

TVG’s inability to compete in thegrowing but cost-driven bulk-pastesegment of the market caused it torefocus on producing peeled products

Tomatoes comprisedabout 40 percent of TriValley Growers' revenuein the 1990s, which was aperiod of major changefor the tomato processingindustry. Photo courtesyModesto Bee


and branded product sales in the1990s, but this strategy was con-strained because TVG’s brands wereweak and the value-added strategybrought it in to direct competitionwith larger, financially stronger rivals.TVG’s major market channels wereretail (mostly private label), 44 percent;food service, 30 percent; and contract,12 percent.

Overall, TVG produced awide variety of low-valueand/or low-margin products.During this period, it manu-factured 435 tomato productitems or labels, including 154peeled products, 148 reman-ufactured products, 61 pasteitems, 22 sauce products and17 puree items. For the mostpart, TVG missed the explo-sion in demand in the 1990sfor pasta sauces, Mexican sal-sas and barbeque sauces.

Very low raw productprices in 1991-92 causedreduced grower shipmentsto TVG in subsequent years,leading to underutilizationof plant capacity — toma-toes processed in five plantscould have been consolidat-ed into three. Poor align-ment of production withprocessing capacity, inefficient tech-nology and under-utilization of plantcapacity combined to make TVG ahigh-cost tomato processor relative tomost competitors. Stagnant processedproduct sales in the early 1990s alsoled to high inventory costs.

Indeed, tomato market adversitiesled to low grower returns and persis-tent subsidization from fruits to toma-toes under the 50/50 pooling arrange-ment. Most TVG growers were multi-cannery growers and lacked loyalty toTVG. TVG lacked strong member-ship contracts that would haverequired delivery and instead wasforced to offer tomato growers specialdeals — cash contracts, acceleratedpayments and low rates of equityretention — to retain the patronage oftomato growers in the 1990s. Only 54

percent of tomatoes were acquired ona membership basis in 1996.

Tomatoes were a growth industryrelative to canned fruits and TVGgained marketing synergies by sellingboth tomato and fruit products. Butthe co-op was not competitive in thebulk-paste market, lacked strongbrands and resources to compete withmajor branded-product producers

and faced stiff competition andincreasingly powerful retail buyersfor private-label sales. Its severeproblems and limitations in the toma-to market caused TVG to activelycontemplate an exit strategy fromtomatoes in 1994. But a new boardand management team took oversoon thereafter and recommittedTVG to the tomato market.

TVG’s fruit andolive operations

Fruits comprised about 53 percentof TVG’s revenues in the 1990s, withcanned peaches and fruit cocktail rep-resenting the lion’s share. Prior to itsbankruptcy, TVG was the largest fruitprocessor in California, with about a40-percent aggregate share of themarket. TVG had its own brands,

such as Libby and S&W, but sold amajority of its product under privatelabels.

On balance, TVG was better posi-tioned in fruits than tomatoes, and fruitproducts on average generated a highermargin than did tomato products. Onthe downside, per capita consumptionof canned peaches and pears declinedrather consistently from 1970 through

the 1990s, as fresh fruitalternatives becameincreasingly available.Despite its large share ofCalifornia production,TVG lacked large nationalmarket shares or dominantbrands for any of itsprocessed products and wasessentially a price taker inthese markets.

Things were also morefavorable on the member-ship side for fruits than fortomatoes. Most of TVG’sfruits were procured on amembership basis and —perhaps because they hadfewer selling options thanthe tomato growers —TVG’s fruit growers weregenerally loyal to the co-op. However, the persis-tent subsidies from peach-

es to tomatoes through the 50/50pooling arrangement from the mid-1980s through the mid-1990s causeddiscontent among the peach growers.

Although olives were a high-mar-gin item for TVG, they caused manyproblems. Movement of olives as apercent of production was consistent-ly the lowest of any TVG commodity,the percent of non-member purchasesincreased rapidly to 71.5 percent in1996, and costs in excess of $10 mil-lion were incurred due to environ-mental contamination of the oliveprocessing plant in Madera.

As with tomatoes, acquisitions andjoint ventures involving TVG’s fruitand olive operations appear to havebeen happenstance (such as the acqui-sitions of failed cooperatives), notstrategy. Unlike its major competitors,

A bidder signals his offer for equipment being auctioned at one ofTVG’s processing plants, following its bankruptcy. Photo courtesyCalifornia Farm Bureau


Pacific Coast Producers, a pear co-opthat focused on low-cost, private-labelproduction, and Del Monte, whichfocused on value-added brands, TVGtried to perform in both market seg-ments. However, despite many prob-lems, TVG’s fruit operations (exclud-ing olives) were competitive to thevery end.

“New-Generation” restructuringIn April 1995, Joseph Famalette was

hired as CEO and president of TVG.Famalette had been the architect of arestructuring plan for his previousemployer, American Crystal Sugar, andpresented a similar plan to TVG mem-bers in June 1996. TVG’s equity basewas hemorrhaging at this time due toloss of members and increased use ofcash contracts, which presented noopportunity for a retain.

The restructuring plan included con-verting existing equity to a capital stockissued by commodity class. The capitalstock conferred both a delivery rightand obligation and could only be trans-ferred, with board approval, to anotherCalifornia producer of the commodity.For example, 1.8 million shares oftomato stock were authorized, implyingdelivery of 1.8 million tons, but less

than 800,000 shares were issued. The 50/50 pooling concept was

replaced with a “profitability target”concept that was closely akin to theold, single-pool concept. Therestructuring was also accompaniedby a purge of many employees fromthe pre-Famalette era who werereplaced with executives who had lit-tle prior experience with cooperativesor food processing. A retired TVGexecutive noted wryly, “They firedeveryone who knew where the lightswitch was at.”

Final downward spiralIn 1996, TVG changed its defini-

tion of operating income and rede-fined its fiscal year. The new manage-ment also raised prices after the 1996pack, in market conditions that werenot supportive of higher prices. Thismove resulted in declining sales andrising inventories. Long-term debtrose from $30.1 million in fiscal 1995-96 to $145.6 million in fiscal 1996-97.In August 1997, TVG’s auditor,Deloitte & Touche, warned TVG ofan increased risk of inaccurate finan-cial reporting, in part because theposition of chief financial officer hadbeen eliminated in the downsizing.

In August 1998, TVG announced anet loss of $78 million and fired CEOFamalette. About 50 percent of thisloss resulted from paying growers 129percent of the established value vs. the90 percent that was guaranteed. TVGended fiscal 1998-99 with a loss inexcess of $120 million. These losseswere carried forward on TVG’s books,effectively depleting the cooperative’sequity, and making it functionallybankrupt even before the official filingin July 2000.

Analysis of TVG’s demiseThe seeds of TVG’s demise were in

place prior to the 1990s in the form ofhigh inventories, low productivity ofassets, high operating and transporta-tion costs relative to the competitionand a high debt-to-equity ratio, whichinhibited needed investments in mod-ern plant and equipment. TVG wascompetitive in fruit processing, but notin tomato processing. TVG needed tobecome competitive in tomatoes byeither finding a market niche where itcould thrive, or else jettisoning itstomato line.

Using fruit revenues to cross subsi-dize tomatoes was not a viable long-term strategy. It will never be known

• David Long, CEO of Signature Fruit (which nowruns TVG’s fruit canning plants): “TVG had toomany products in too many packages, which endedup in inventories. It made a mistake pursuingbranded products when its strength was in privatelabels.”

• Jeff Boese, president, California League of FoodProcessors: “TVG was not a low-cost producer.(Joe) Famalette brought in people who were notfrom the food business.”

• Mike Machado, California assemblyman and formerTVG board member: “TVG lacked capital to makeneeded improvements in plant and equipment.”

• Larry Clay, CEO of Pacific Coast Producers: “The

board was at fault for failing to discipline growers,lacking a strong business orientation, displayingfavoritism towards certain growers and lackingcontrol over management. Acquiring failed com-petitors was a bad strategy, and accounting tricksand manipulations were used….”

• Chris Rufer, Morningstar CEO: “Acquired facilitieswere in poor condition and unproductive. TVGpostponed making the right decisions, lackedstrong leaders and was run by a board [of farmers],not entrepreneurs.”

• Bill Allewelt, former TVG CEO: “The company wastaken down by the ruinous decisions from a board ofdirectors that seemed blinded to economic realities. ■

What went wrong? Some opinions


whether TVG could have survived as afruit processor, if it had divested itstomato lines in advance of the disas-trous last years of its operation.

The new-generation cooperativerestructuring was largely unsuccessful,in that it failed to stabilize either theequity base or the base of raw product.However, this move had little, per se,to do with the bankruptcy. Rather, therestructuring was a desperate responseto severe problems that were already inplace. The cost-reduction measuresimplemented at this time were coun-terproductive because they were tooradical and ill-targeted, so as to nega-tively impact TVG’s ability to generaterevenues. The long-standing problemsof poor internal controls and lack of acentralized information system werenever addressed.

Some have viewed TVG’s bank-ruptcy as a sign that co-ops are ill-suited to succeed in 21st century mar-kets. One way to address this concernis to ask which of TVG’s problemswere due to its cooperative structurevs. being due to market conditions orinternal problems.

We view the acquisition of ineffi-cient capital from defunct co-ops asboth a co-op (due to a sense of obliga-tion to help fellow co-ops) and a man-agement problem. The high debt-to-equity ratio that TVG experienced iscommon among cooperatives, and isdue to the limited pool from whichthey can draw equity (namely, themembers), and members’ reluctance to

contribute to long-lived projects,known as the “horizon problem.” Theunwillingness to terminate growerswho were no longer viable producers

for the cooperative and the dramaticgrower overpayments in the final yearsprobably also trace to the grower-own-ership dimension of a cooperative.

Market problems were fundamentallytwofold, but neither was insurmount-able. The tomato market, though grow-ing over time, was very volatile, and thecanned fruit market was in decline.

There were several internal prob-lems related to management and theboard. Non-strategic acquisitions offailed competitors has already beennoted, and failure to adopt an integrat-ed management information systemwas a critical error. So, too, was the

Famalette-era purge of employees whowere knowledgeable about the foodprocessing business.

Other internal problems attributableto the co-op’s leadership include failureto come to grips with the grower endof the tomato business, including over-reliance on cash contracts. Finally,TVG had a persistent lack of focus onthe selling side — for example, whetherto emphasize brand or private labelsales and whether to emphasize pasteor value-added products in tomatoes.

Ultimately, we do not think thatTVG’s cooperative structure was themajor factor in its bankruptcy. The factthat peer cooperative Pacific CoastProducers continues to experience suc-cess supports this view. We do thinkthe TVG experience offers lessons forcooperatives.

A multi-product marketing co-op isdesirable in the sense that modernmarkets prefer “full-line” suppliers.But marketing multiple products hasthe potential to create significant inter-nal problems in terms of pooling anddirector loyalty and responsibility.TVG’s experience with its tomatogrowers emphasizes the importance oflong-term grower contracts to encour-age member loyalty. However, loyaltyto other cooperatives should notreplace sound business judgments.

Finally, TVG was probably slowerin responding to changing marketforces than its competitors, perhapsdue to a cumbersome cooperative deci-sion-making process. ■

Ultimately, we donot think thatTVG’s cooperativestructure was themajor factor in itsbankruptcy.

• The seeds of TVG’s demise were in place prior tothe 1990s, in the form of high inventories, low pro-ductivity of assets, high operating and transporta-tion costs relative to the competition and high debtto equity, which inhibited needed investments inmodern plants and equipment.

• TVG was competitive in fruit, especially peaches,but not tomatoes. TVG either needed to becomecompetitive in tomatoes by finding a market niche,

or else jettisoning its tomato line. Using fruit rev-enues to cross subsidize tomatoes was not aviable long-term solution.

• The new-generation co-op restructuring waslargely unsuccessful, as it failed to stabilize eitherthe equity base or the base of raw product. How-ever, it had little to do with the bankruptcy. Rather,the restructuring was a desperate response tosevere problems already in place. ■

General conclusions about co-op’s downfall


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