USDA / Rural Development M a r ch/April 2008 · USDA / Rural Development M a r ch/April 2008 Page 7...

C O O P ERAT I V E SC O O P ERAT I V E SUSDA / Rural Development M a rch/April 2008USDA / Rural Development M a rch/April 2008

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Cher ry Co-opSt i l l on Top

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Al l- t ime Highs Setby Top 100 Co-ops

Cher ry Co-opSt i l l on Top

Al l- t ime Highs Setby Top 100 Co-ops

E d i t o r ’s note: This commentary is excerpted from USDA UnderS e c re t a ry for Rural Development Thomas Dorr ’s address during theopening session of the Washington International Renewable Energ yC o n f e rence (WIREC 2008), March 4. More conference highlightswill be included in the May-June issue.

Renewable energy has come of age. But for all of ournations, renewable energy is both an urgent challenge and ahistoric opport u n i t y.

First the challenge: Since the fall of the Berlin Wa l l ,between 2 billion and 3 billion people have joined the worldmarket system. The world is an immensely more pro d u c t i v e ,wealthier and a vastly more competitive place. Hundreds ofmillions of people have already moved into the global middleclass, with energy footprints to match.

This is a good thing. But the surge in global energ ydemand, the revaluation of energy and other commodities inworld markets and growing environmental concerns aboutcarbon emissions re q u i re that we adapt.

In this new world ord e r, renewable energy has pro f o u n dnational security and economic security implications. It is ahigh environmental priority. It is creating new markets forf a rmers, generating new jobs and increasing economico p p o rtunity in rural areas around the world.

For all these reasons, the time to act is now. All of usrecognize this imperative. That is why we are here. We maybe on diff e rent paths, pursuing diff e rent strategies, but weseek the same goal.

The United States, by some measures, has come late to thise ff o rt. The United States is a continental nation with anabundance of re s o u rces and the luxury of many choices.Renewables, until relatively re c e n t l y, suff e red as a result.

But if that is the historical re c o rd, the reality today is veryd i ff e rent. The United States, at the beginning of this decade,began a new chapter. Old perceptions sometimes die hard, butthe old perception that the United States is a laggard onrenewable energy needs to die here and now. • The United States today is one of the world’s leading

p roducers of renewable energ y, measured across all sectors.• Since the beginning of this decade, installed wind capacity

in the United States has increased sevenfold. We have ledthe world in new capacity-added for three years running.

• Texas alone, if it were a nation, would rank seventh in the

world in wind energ y. Texas is today America’s leading winde n e rgy state because of a Renewable Portfolio Standardsigned into law by then-Governor George Bush in 1999.The Pre s i d e n t ’s commitment to this cause is longstanding,and continues today.

• The United States today ranks third in the world in solarphotovoltaics, behind Germany and Japan. Annual domesticshipments of photovoltaic cells and modules have incre a s e dm o re than 10-fold, again since the beginning of this decade.

• The United States is also a leader in geothermal, in waste-t o - e n e rgy and in solar- t h e rmal power as well.

• Tu rning to biofuels, U.S. ethanol production hasq u a d rupled since 2000. We are now the world leader in thissector and a leader in bringing cellulosic ethanol to market.

• At the beginning of the decade, U.S. production of biodieselwas virtually zero, just 2 million gallons. Last year, the U.S.p roduced 450 million gallons, placing us second in theworld behind Germ a n y. The development of renewable energy is not a race against

other nations; it is a race against our own capacity. But it is arace to which the United States is today fully committed.While we may have come late to the game, we have in fact,achieved more in the past eight years than in the previous 30years combined. So this is a new day.

We recognize that there are challenges ahead and that theresponses of nations may diff e r. The potential of biofuels, forexample, is already being multiplied by advances in genomics.But not all nations share the readiness of the United States toadopt these new techniques. That is their privilege.

On another front, sustainability is a universally desire dgoal. But sustainability means diff e rent things to diff e re n tpeople. Thanks to ongoing advances in science and to

C O M M E N T A R Y

Renewable energy:common goals, different paths

2 M a rch/April 2008 / Rural Cooperatives

President George W. Bush (center left) and a group of otherdignitaries, including USDA Under Secretary for RuralDevelopment Thomas Dorr (far right), check out a plug-in hybridcar at the WIREC trade show. USDA photo by Ken Hammond

continued on page 42

Rural Cooperatives / M a rch/April 2008 3

Rural Cooperatives (1088-8845) is publishedbimonthly by USDA Rural Development, 1400Independence Ave. 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 U.S. Department of Agriculture (USDA) prohibitsdiscrimination in all its programs and activities onthe basis of race, color, national origin, age, disabili-ty, and where applicable, sex, marital status, familialstatus, parental status, religion, sexual orientation,genetic information, political beliefs, reprisal, orbecause all or part of an individual’s income isderived from any public assistance program. (Not all prohibited bases apply to all programs.) Personswith disabilities who require alternative means forcommunication of program information (Braille,large print, audiotape, etc.) should contact USDA’sTARGET Center at (202) 720-2600 (voice and TDD). To file a complaint of discrimination, write to USDA,Director, Office of Civil Rights, 1400 IndependenceAvenue, S.W., Washington, D.C. 20250-9410, or call(800) 795-3272 (voice), or (202) 720-6382 (TDD). USDAis an equal opportunity provider and employer.

Ed Schafer, Secretary of Agriculture

Thomas C. Dorr, Under Secretary,USDA Rural Development

Dan Campbell, Editor

Vision Integrated Marketing/KOTA, Design

Have a cooperative-related question?Call (202) 720-6483, orFax (202) 720-4641This publication was printed with vegetable oil-based ink.

C O O P ERAT I V E SC O O P ERAT I V E SM a rch/April 2008 Volume 75 Number 2

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O n t h e C o v e r :

Mount Hood rises majestically above the orchards of theOregon Cherry Growers cooperative, which is celebrating its75th anniversary. See page 7. Photo Courtesy Oregon CherryGrowers

F E A T U R E S

4 Largest 100 ag co-ops post record sales, marginsBy David Chesnick, E. Eldon Eversull

7 75 Years Strong: Oregon Cherry Co-opBy Mitch Lies

1 0 Whey to EthanolIs there a biofuel role for dairy cooperatives? By K. Charles Ling

1 2 N o rthwest PassageCo-ops could be trail-blazers for bioenergy industries in NorthwestBy Eric Bowman

1 6 O rganic and Beyond Consumer demand growing for differentiated farm products By Kathleen Painter

1 9 N o rth Wi n dAlaska Village Electric named top wind co-op

2 0 State of the ArtArts and crafts co-ops help members tap markets By Lindsay Atwood

2 9 Ag Versus Industrial Waste for Energ yBy Jessica Ebert

3 5 Alto Dairy sold to Saputo Cheese USABy Dan Campbell

D E P A R T M E N T S2 C O M M E N TA RY

2 5 IN THE SPOTLIGHT: ROY ORT O N3 2 CO-OP DEVELOPMENT ACTION: RIDE SHARING3 4 UTILITY CO-OP CONNECTION: SHELBY

ELECTRIC CO-OP3 7 N E W S L I N E4 4 PAGE FROM THE PA S T


By David S. Chesnick andE. Eldon EversullA g r i c u l t u ral EconomistsU S DA Rural Development

he 100 largest U.S. agriculturalcooperatives had total sales of almost$78 billion and net income of $1.5billion in 2006, both all-time highs(table 1). Total sales grew by more than

4 percent from 2005 while cost of goods sold grew 3percent, helping net income grow by $400 million.

The sales increase of $4 billion in 2006 was due tostronger sales by diversified cooperatives (whichaccounted for $2.2 billion of the gain), farm supply co-ops ($1.3 billion) and livestock co-ops ($1.1 billion).Much of the increase in diversified and farm supplycooperative sales was due to the increase in the price offuels and other energy products that these cooperativessell.

Grain prices increased greatly in 2006, but with co-ops using differing fiscal years, not all price increases for

T

Of the Top 100 agricultural cooperatives:

■ The No. 1 ranked co-op had sales of $14 billion.

■ The 100th ranked co-op had $108 million in sales.

■ Seventeen co-ops had sales of more than $1 billion

■ Thirty co-ops had sales of $108 million to $200million.

■ Thirty-eight co-ops had sales of $200 million to$500 million.

■ All Top 100 co-ops had at least $20 million in totalassets.

■ The Top 100 co-ops accounted for 62 percent ofthe total ag cooperative sales of $127 billion in2006.

Largest 100 agr icu l tu ra l co-ops postrecord sa les and marg ins

Table 1—Consolidated statement for the Top 100 cooperatives, 2006 and 2005

2006 2005 Difference ChangeRevenue ——Billion $—— ——Percent——Marketing 52.88 53.96 -1.08 -2.0Farm supply 25.08 19.81 5.27 26.6Total sales 77.96 73.76 4.20 5.7Cost of goods sold 69.74 66.82 2.92 4.4Gross margin 8.22 6.94 1.28 18.4

Service and other income 1.13 1.59 -0.47 -29.4Gross revenue 9.35 8.54 0.81 9.5

ExpensesWages 3.64 3.36 0.28 8.3Depreciation 0.83 0.83 0.00 0.3Interest 0.53 0.47 0.06 12.5Other 3.10 2.78 0.31 11.3Total expenses 8.10 7.45 0.66 8.8

Net operating margins 1.24 1.09 0.15 13.9Patronage income 0.21 0.19 0.02 13.1Non-operating income 0.18 na na naNet income before taxes 1.63 1.28 0.35 27.3Taxes 0.13 0.12 0.01 6.2Net income 1.51 1.16 0.35 30.2

Na = This information was included in service and other income in 2005.

Table 2—Combined balance sheet for the Top 100 cooperatives, 2006 and 2005

2006 2005 Difference ChangeAssets ——Billion $ —— ——Percent——Current assets 14.93 14.07 0.86 6.1Other assets 4.22 3.03 1.19 39.3Investments 1.56 2.61 -1.06 -40.5PP&E* (net) 7.45 6.86 0.59 8.5Total assets 28.15 26.58 1.57 5.9

Liabilitiesand owner equitiesCurrent liabilities 11.05 10.44 0.62 5.9Total liabilities 17.54 16.64 0.90 5.4Allocated equity 8.16 7.94 0.22 2.7Retained earnings 2.45 2.00 0.45 22.7Total equity 10.61 9.94 0.67 6.7Total equity and liabilities 28.15 26.58 1.57 5.9

* Property, plant & equipment

Rural Cooperatives / M a rch/April 2008

grain co-ops could be used for this analysis. Marketingrevenue for grain cooperatives increased only 4 percent over2005. Dairy prices were low in 2006 and total sales for thesecooperatives fell $1.4 billion (6 percent). Milk prices haveincreased sharply since 2006, so the dairy sales picture willlook dramatically improved when the 2007 version of thisreport is compiled.

Marketing sales for diversified cooperatives (those thatmarket grain and sell farm supplies) fell $1.5 billion, or 12percent, in 2006. This was primarily due to lower grain anddairy sales.

There have been a number of changes in the Top 100 inthe past several years. Four cooperatives converted toinvestor-owned firms, two declared bankruptcies, leading toa sale of their assets, and one cooperative declaredbankruptcy but reorganized and is back in the Top 100. Butnew co-ops that took their place on the Top 100, and highersales by many of the other co-ops that remained on the list,more than made up for these “lost” members.

For comparative purposes and analysis, the same 100cooperatives are in both the 2006 and 2005 data sets. Thereare 10 new cooperatives on the list, primarily grain and farm

supply cooperatives that have grown throughmerger.

There has been a steady growth in sales inthese cooperatives, with sales growing from$55 billion in 2000 to $78 billion in 2006(figure 1). With the changes noted in theprior paragraph, sales in figure 1 are notstrictly comparable, except for 2005 and 2006,as cooperatives were added to the Top 100 listand dropped when their status changed orthey become larger or smaller.

Overall expenses were up about 1 percent,to $8.1 billion. Wages are the largest expenseitem while “other” expenses is a catch-allcategory that covers expenses that are notwage, depreciation or interest related.

Patronage income increased $20 million, to$210 million, a 13-percent increase. Netincome grew 30 percent, or $350 million. Netincome (after taxes) has grown from $500million in 2000 to $1.5 billion in 2006 (figure2).

The Top 100 balance sheet is presented intable 2. Total assets have grown from $22billion in 2000 to $28 billion in 2006. Totalassets grew $1.6 billion, or 6 percent, from2005 to 2006. Current assets comprise morethan half of the Top 100 total assets. Thelarge increase in other assets and decrease ininvestments is due to one cooperativechanging how an asset was reported. Property,plant and equipment investment increased$600 million, or more than 8 percent.

Current and total liabilities both grew morethan 5 percent from 2005 to 2006. Totalliabilities grew to $17.5 billion, an increase ofalmost $1 billion. Allocated equity comprisesalmost 80 percent of total equity. Equitylevels remained low, with equity financingonly 38 percent of assets in 2006 and 37percent in 2005. ■


Figure 2 – Top 100 farmer cooperatives’ net income, 2000-2006

Figure 1 – Top 100 farmer cooperatives’ total sales, 2000-2006


By Mitch Lies

Editor’s note: This article is reprintedcourtesy the Capital Press,www.capitalpress.com.

alem, Ore. — AsOregon CherryGrowers recently closedthe book on its first 75years, it remains a giant

in maraschino cherry production.The co-op today is much more than

that.Oregon Cherry Growers today

annually packs thousands of tons offresh cherries and, in recent years, theco-op has branched into producinginfused dried cherries and blueberries.

The result? The co-op today is asstrong as ever.

“Cherry-growing is a pretty volatilebusiness,” cherry grower and co-opmember Ken Bailey says. “Having theseother products has given thecooperative much needed stability.”

The transition from maraschino

cherries to the diverse portfolio itcarries today went smoothly, accordingto Ed Johnson, president and CEO ofthe co-op. But it wasn’t easy.

Johnson said growers already hadshifted acreage from processingvarieties to fresh cherry varieties whenhe took the company reins in 2001. Theshift created potential problemsregarding company identity.

“We had to decide who we wanted tobe,” he says. “Up to that point, we werea processed company that did somefresh fruit, but we were transitioning towhere we are now. We are now aformidable fresh company, and we’restill a formidable processed company.

“We had to determine if those thingswere compatible,” he says.

Making the transition, Johnson says,was critical to the economic survival ofthe co-op.

“At the bottom of the change wasopportunity,” he says. “The demand hasincreased for fresh because there is aportion of the population that wants toeat more fresh fruits and vegetables.

S

Oregon CherryCo-op’s diverse

portfolio developedsmoothly, but

not easily

75 Years St rong75 Years St rong

The Bailey family is among thefarmer-owners of Oregon CherryGrowers Inc., which iscelebrating its 75th anniversary.Above, processing maraschinocherries in the early days of theco-op.


Our growers see that as an opportunity.”Johnson said the co-op reached a milestone early in the

2000s when, for the first time, it bought briner cherries fromoutside the company.

In years past, it was typical for co-op members to sellthousands of tons of briner cherries to other processors aftermeeting its own demand.

Another milestone occurred earlier this year when the co-op agreed to a joint venture with Sage Fruit of Yakima,Wash., to build a 78,000-square-foot, state-of-the-art packingfacility in Wapato, Wash., for its fresh cherry production.

Cost-cuttting changesThe company in recent years has made several smaller

changes that have reduced production costs, includingconsolidating its pitting operation. All pitting now is done atits plant in The Dalles, instead of being split between Salemand The Dalles as it formerly was.

“We are in a continual cost-reduction journey,” Johnsonsaid. “We look at every single link in our chain to determinehow we can lower cost.”

One of the biggest obstacles in the future for the co-op isacquiring adequate labor.

Johnson said the industry closely follows immigration

legislation and regularly submits comments at the federallevel.

“We are challenged,” Johnson said. “Labor is a significantissue and a significant concern both in the orchards and thepacking lines. We have automated as much as we can.”

Oregon Cherry Growers started in1932 when 53Willamette Valley cherry growers founded WillametteCherry Growers. Other cooperatives also formed in theregion at around the same time, including The DallesCooperative Growers and Columbia Fruit Growers.

According to historical accounts, growers formed the co-ops to avoid being at the mercy of processors.

In 1966, The Dalles Cooperative and Columbia FruitGrowers merged under the name The Dalles Cooperative. In1984, in an attempt to be more vertically integrated, TheDalles Cooperative and Willamette Cherry Growers merged,forming Oregon Cherry Growers.

Today the co-op has just under 100 grower-members splitbetween the Willamette Valley and The Dalles/Hood Riverarea.

The co-op sells product in domestic food service and retailmarkets and works at increasing export sales through marketpromotion programs in Pacific Rim countries.

The co-ops’ members typically are on the cutting edge ofproduction techniques, says the co-op’s board chairman,cherry grower Greg Johnson of The Dalles. And many arecertified under different sustainable certification programs.

Ed Johnson said growers opted to certify operations assustainable largely because markets were demanding it.

The co-op also has increased efficiency in recent yearsthrough better utilization of sort-outs.

“Because of our diversification, we’re able to utilize almostall of the fruit that we’re buying,” Johnson says. “We’reflexible and we’ve diversified.”

The company, he says, should be well-positioned to runfor another 75 years.

“We changed our business model, but it was somethingthat needed to happen if we were going to stay in business,”Johnson says. “It’s been a good change. Our balance sheethas been improving.” ■


Snow-capped Mount Hood rises above Oregon cherryorchards. Below, inside the co-op’s processing plant. Photoscourtesy Oregon Cherry Growers


By K. Charles LingAgricultural EconomistU S DA Rural Development

Editor’s note: See page 46 to order theresearch report that this article is based on.

n estimated 90.5 billionpounds of whey wasgenerated as abyproduct of U.S.cheese production in

2006. Besides the liquid carrier, thecomposition of whey is approximately0.3 percent butterfat, 0.8 percent wheyproteins, 4.9 percent lactose, and 0.5percent minerals. So there was 4.4billion pounds of lactose contained inthe whey produced that year.Whey may be made into many

products with various processes andtechnologies. Condensed whey, drywhey, dry modified whey, whey proteinconcentrate and isolates, as well aslactose (crystallized and dried), are allwhey products. There are many othersecondary and tertiary products that canbe derived from whey, but the volume

of whey used in these products isrelatively small.Whey products produced in 2006

were estimated to contain 1.9 billionpounds of lactose. That means therewas about 2.5 billion pounds of surpluslactose not used for whey products.This vast amount of surplus lactosecould be fermented to produce anestimated 203 million gallons ofethanol. This assumes completeconsumption of lactose in fermentationand ethanol conversion efficiency at 100percent of the theoretical yield.Dairy cooperatives’ share of the

whey-ethanol potential could be 65million gallons. There are twoindustrial-scale whey-ethanol plants in

the United States, at Corona, Calif.(although this plant is slated forclosure), and Melrose, Minn. Bothbegan operation in the 1980s and arecurrently owned and operated by dairycooperatives. Together, they produce 8million gallons of fuel ethanol a year.The whey-to-ethanol plant

commissioned in 1978 by Carbery MilkProducts Ltd. of Ireland is believed tobe the first modern commercialoperation to produce potable(drinkable) alcohol. Starting in 1985, ithas produced fuel ethanol as well. TheCarbery process developed by thecompany has been adopted by plants inNew Zealand and the United States.New Zealand started using fuel ethanolproduced from whey in August 2007.

Conversion pro c e s sAll ethanol production processes

share some basic principles and steps.Whey permeate from protein ultra-filtration is concentrated by reverseosmosis to attain high lactose content.Lactose is fermented with some specialstrains of yeast. Once the fermentationhas been completed, the liquid (beer) isseparated and moved to the distillationprocess to extract ethanol.This ethanol is then sent through the

rectifier for dehydration and thendenatured. The effluent (stillage andspent yeast) may be discharged to atreatment system, digested for methanegas, then sold as feed or furtherprocessed into food, feed or otherproducts.To be economically viable, a

dehydration plant (and by inference, anethanol plant) needs to have a minimumdaily capacity of 60,000 liters of ethanol(about 15,850 gallons a day, or 5 milliongallons a year), according to a 2005New Zealand report. The estimated“at-gate” cost (operating and capitalservice costs) of producing ethanol fromwhey permeate at maximum technicalpotential, with a level of uncertainty of+/- 20 percent, was N.Z. $0.6-$0.7 perliter. Using a currency exchange rate ofNZ $1 = U.S. $0.7, the estimated costtranslated to U.S. $1.60-1.85 pergallon.

A

Is there abiofuel rolefor dairycooperatives?

W h ey to Ethanol

This estimate is similarto the costs quoted bysources in the UnitedStates: about $1 per gallonof operating cost and acapital service cost that ispredicated on the capitalcost of from $1.50 to $4per annual gallon for acommercial operation,depending on the scale ofthe plant. The estimatedoperating cost assumesthat whey permeate usedin ethanol fermentation isa free (no cost) feedstock.Capital cost is the cost ofthe plant constructionproject.

There is an opportunitycost of lactose for ethanolfermentation only if thereare competing uses of thesame lactose, such asmanufacturing dry whey,lactose or other wheyproducts. If there is nosuch competition, then thewhey permeate somehowhas to be disposed of andthe opportunity cost oflactose for ethanolfermentation is likely to bezero or even negative.

It would take 12.29pounds of lactose toproduce a gallon ofethanol, if the lactose iscompletely consumed in fermentationand ethanol conversion efficiency is 100percent of the theoretical yield. Forevery $0.01 net lactose value (price oflactose net of processor’s cost), thefeedstock cost for fermentation wouldbe $0.1229 per gallon of ethanol. Iflactose consumption is less thancomplete in fermentation and ethanolconversion efficiency is less than 100percent of the theoretical yield, thenmore than 12.29 pounds of lactose isrequired to produce a gallon of ethanoland the feedstock cost would be higher.

Economic feasibilityWhether it is economically feasible

to produce ethanol from whey permeateis determined by the balance of theproduction costs and the expectedrevenues. Net returns from the ethanolenterprise should be measured againstthe profitability of making other wheyproducts or of other uses, to determinewhether ethanol production is a moreworthwhile undertaking. A furtherconsideration should be deciding whichof the whey enterprises fit better with acooperative’s overall business strategy.

The fact that the two whey-ethanolplants have been in operation for morethan 20 years is an indication that: (1)fuel ethanol production from whey istechnically feasible, (2) whey-to-fuel

ethanol productiontechnologies and processesare mature and capable ofbeing adopted forcommercial operations and(3) producing fuel ethanolfrom whey is economicallyfeasible.

In assessing thefeasibility of a new whey-ethanol plant, the cost ofwhey permeate asfeedstock needs to becarefully evaluated in thisera of whey products priceuncertainties. Otherimportant factors toconsider, beside feedstockcost, are: (1) appropriateplant scale that wouldminimize capital cost andthe cost of assemblingfeedstock, (2) appropriatetechnology and processthat would minimizeoperating cost, (3) bestalternative for using and/ordisposing of the effluent,(4) ethanol price and (5)various governmentproduction incentives.

Dairy cooperatives arecertainly well-positioned

to coordinate wheyassembly for ethanolproduction. However, inview of the current highand unsettled dry whey

product prices, there are greatuncertainties concerning the long-termdevelopment of the whey-ethanolproduction enterprise.

There was a very high attrition rateof fuel ethanol plants during the 1980s.Experiences of that period providesome lessons that may be relevant tofuture commercial whey-ethanoldevelopment. To be successful, a fuelethanol plant should have propertechnology selection, properengineering design, adequate researchsupport, credible feasibility study,adequate financing and personnel withtechnical and managerial expertise inthe biochemical process. ■


This ethanol plant uses whey from the adjoining cheese plant inCorona, Calif., as its feedstock. However, Dairy Farmers of America(DFA) is closing the cheese plant. Photo courtesy DFA

By Eric BowmanCo-op Development SpecialistNorthwest Cooperative Development Centere r i c @ n w c d c. c o o p

Editor’s note: The Northwest Cooperative Development Center(NWCDC) received funding from the Bullitt Foundation andUSDA Rural Development to explore the role of the cooperativebusiness model in emerging bioenergy industries. The Centerproduced a study, Harvesting Northwest BioenergyCooperatives; Mapping the Route to a Cooperatively-OwnedFuture for Emerging Bioenergy Industries available on the web(www.nwcdc.coop/Resources/HarvestingNWBioECoops.pdf), uponwhich this article is based. It examines the past, present and futurerole of cooperatively owned businesses in the budding bioenergyindustry. The conclusions are based on one year of research,including interviews with existing co-ops, surveys of groups seekingto form co-ops and a review of case studies and articles.

ioenergy presents the Pacific Northwest withtremendous opportunities for cleaner energyand economic development. It’s touted asbeing the answer to a variety of regionalproblems ranging from rural out-migration

to diminishing natural resources.The Northwest is a region born through resource

extraction and now defined by a “post-industrial” economy.The traditional economy of resource-based industries andmanufacturing are transitioning into a “new” economy ofhigh-value-added sectors, such as software and biotech.

This economic transition has created new winners, butalso new losers. For example, Microsoft has created manynew millionaires while population and median incomes arerapidly decreasing in many rural towns.

The rise of a renewable energy industry has created hopeand promise that a rural renaissance is on the horizon.


B

N o r t h west Pa s s a g eCo-ops could be trail-blazers for emergingbioenergy industries in Pacific Northwest

Cow manure on the Dan DeRuyter dairy in eastern Washington is being converted into enough methane to generate electricityto light up more than 200 homes.

Renewable energy resources, such as wind and biomass, aredistributed throughout rural regions and hold the potentialfor widely distributed economic benefits. Rural economiesare realizing new potential from pre-existing assets. (Theterm “bioenergy” in this article refers to renewable energymade from biological sources, including liquid “biofuels”(primarily ethanol and biodiesel) and “biopower,” derivedfrom numerous biomass sources, such as anaerobic digestiongeneration.)

The opportunity for economic development should notonly be viewed within the context of jobscreation and commodity prices, but alsothe long-term future of potentialownership and equity. Different ownershipmodels are ultimately designed to benefittheir stakeholders, i.e., the owners. Localownership substantially increaseseconomic benefits compared to absentee,investor-owned businesses.

While the Midwest has offered adynamic example for how to build locallyowned biofuels plants, the situation in thePacific Northwest is much different.Unlike the Midwest, the Northwestdoesn’t have as long of a cultural traditionof farmer co-ops. The Northwest has amore diverse ecology and geography and,subsequently, a broader range of crops.Whereas the agricultural infrastructure ofthe Midwest is based on a surplus of high-volume/low-value commodities, theNorthwest is based on specialty crops (such as apples, wine,etc.) and geared for export. According to data from USDACensus of Agriculture, the produce value per acre in Idaho,Washington and Oregon are four times that of Iowa.

The specific industries perceived as holding the greatestpotential for bioenergy development in the Pacific Northwestare:• Biodiesel • Ethanol • Anaerobic digestion • Combustion of woody biomass

N o rt h w e s t ’s considerable potential The Northwest holds near-term potential for a regionally

based liquid biofuel/biodiesel industry. Oregon, Washingtonand Idaho have the potential to grow substantial oilseedcrops, primarily rotational canola.

Multiple farmer-owned projects are now underway but agreat deal of infrastructure capacity has yet to be developed.Currently, there are few regional crushers to separate themeal and the oil, and more hybrid research is needed toguarantee producers reliable crop yields. Just as with ethanol,oilseed producers (for example, the Pendleton Grain

Growers) can engage in a variety of capacities to capturegreater value for their agricultural products.

The Midwest ethanol industry provides a timely case studyof how a liquid biofuels industry can be developed from thefarm up. Nationally, the ethanol industry is experiencing arapid transformation toward larger, investor-owned facilities.Virtually all current ethanol industry development in thePacific Northwest is investor-owned.

The Northwest’s primary comparative advantages forethanol production are low-cost commodities already flowing

through the region, via rail and barges, to Pacific Rimmarkets. It also has a large, pre-existing feed-mash market tosupply the region’s dairies.

While corn and wheat are grown in the Pacific Northwest,the most abundant biomass feedstocks are forestry andagricultural residues. That said, the future of cellulosicfeedstocks for ethanol is still unclear. Research anddevelopment and the refining of technologies are needed tofully commercialize a cellulosic ethanol industry.

Assuming the production technology will becommercialized, the long-term potential for cellulosicethanol is enormous and could play a major role in the liquidbiofuels industry. Just as an investor-owned firm (such asIogen with Goldman Sachs and Royal Dutch/Shell) cane x p l o re launching a cellulosic ethanol re f i n e ry, so coulda group of agricultural producers explore cooperatingt o :• Jointly market their agricultural residues to a biofuel plant

(i.e., act as a bargaining and supply procurementcooperative);

• Join in a joint venture with an investor-owned or privatelyheld company to operate a plant;

• Launch a producer-owned small- to medium-scale facility.


1. Democratically controlled by those it serves; surplus is distributed equitably.2. Ties to local community mean co-ops are more likely to be socially

conscientious, more accountable and more representative of the broadercommunity.

3. No investors to feed, so more income stays in the community.4. Permanence: co-ops live beyond their founders.5. Self-management, as co-ops are a self-help tool for people to achieve

together what they cannot achieve alone.6. Trusted business partners — most people believe producers to be honest and

reliable individuals.7. Co-ops focus on social, individual and community needs in addition to the

bottom line. Most investor-owned firms focus only on the bottom line.

M a r ketable advantages of theco-op business model


AD power suited to co-ops Anaerobic digestion (or “AD”) promises a niche solution

to a distinct set of problems, from energy production tomanure management. A well-recognized industry in otherparts of the world, AD is quickly becoming more feasible inthe Pacific Northwest because of technical advancements forits cooler climate. A group of farmers in a local area withlarge quantities of animal waste could realize economicopportunities by forming an AD bioenergy cooperative.

Cooperative ownership is well-suited to address specificproject needs, such as the initial high capital costs of digesterconstruction and the need for large quantities of manure. Asan industry, AD offers promising opportunities to formsynergies between multiple stakeholder groups, i.e., farmerswho need improved manure management and communitiesthat want clean waterways.

Woody biomassThe combustion of woody biomass for heat and power is

an established industry led by wood products manufacturers.Innovation promises that new technologies, such asintegrated biorefineries, are likely just around the corner.Because bioenergy production uses large amounts offeedstock, a co-op of like-producing individuals (such asstraw-producing seed growers) could efficiently support sucha facility. Because of the sheer quantity of available resources,woody biomass promises to play an increasing role in thenation’s renewable energy portfolio.

America now has an opportunity to establish the futuredirection of the bioenergy industry and what it willaccomplish for the nation. There will be costs and benefits,no matter the direction. If we seek a bioenergy economy thatdelivers on its promises to rural America, then we mustincorporate rural economic development priorities.

While every state in the Pacific Northwest is seeking toaccelerate the development of nascent bioenergy industries,there is still much development to occur in order to have thevibrant, regionally based industry people envision.

Forms are constructed to channel the flow of manure at the DeRuyter Dairy methane gas facility. Although this operation is notowned by a cooperative, this technology is well adapted for cooperatives to pursue.


Recommendations for new and existing co-ops:• Normal rules of business apply to co-ops: create a market-

driven enterprise with a well-researched and thought-outbusiness plan, have adequate reserve funds, etc.

• Build partnerships — co-ops represent a broadercommunity than an average limited liability corporation(LLC) and, by definition, must appreciate and incorporatecommunity interests. This is strength for co-ops.

• Identify what differentiates the group, be it feedstockproduction or marketing, and leverage these strengths toensure economic success (see sidebar, page 13).

Co-ops must clearly identify and research their markets,resources and partners to determine if the project justifies thepossible risks.

Key recommendations for local govern m e n t ,policymakers and the general public:• Provide guaranteed markets through contracts, such as the

business relationship the City of Portland is exploring withPendleton Grain Growers and Madison Farms topotentially supply Oregon-grown biodiesel.

• Encourage and support accessible and sizable capitalization,including investment equity, grants and debt availabilitythat provides “gap” financing and loan guarantees.

• Educate about, and advocate for, the benefits of localownership.

• Realize the broader condition of industry development andseek to create what is wanted, be it decentralized, locally-owned or centralized, absentee-owned business.

• Create ownership-based incentives and/or tax benefits, suchas Minnesota’s disincentives for selling off a farmer-ownedfacility.

Time to build equity is nowWhile we may still be at the dawn of the renewable energy

industry, it is important for co-ops to build equity now. Asprivate capital has rushed into renewable energy, theresources are becoming increasingly under contract withwell-capitalized and entrenched firms.

As Under Secretary for Rural Development Thomas Dorrhas pointed out, “This is probably the greatest newopportunity for wealth creation in rural America in ourlifetimes…” It is no secret wealth is generated through theaccumulation and leveraging of assets, not through passivelyproviding inputs.

In the Pacific Northwest, a “gold-rush mentality” has ledto a rapid acquisition of the “low hanging fruit” of renewableenergy resources. For example, look at the wind industry,where much of the easily accessible wind rights haveconsolidated into the possession of just several firms. Whilethere are still niche holes well-suited to communities, familyfarmers and co-ops, the major players are in place.

There would be enormous environmental benefits if allthe manure in the Northwest flowed into investor-owneddigesters of the design-build-own-operate model.

Unfortunately though in that scenario, the priority of local,rural economic benefit risks being decoupled from the otheraims of the renewable energy projects.

Investors will play a powerful role in the rapiddevelopment of these industries, yet it is important for localplayers, co-ops and communities to develop and maintainequity early while opportunities are still available before theseindustries mature (see sidebar, above). These industries willundoubtedly expand and contract, as ethanol hasdemonstrated. Farmers, co-ops and communities will need tobe strategic in their risk exposure.

Usually caused by product innovation or deregulation, thefollowing lifecycle stages are common in emergingindustries:

1. Dormant: low numbers of competitors enjoy high monopolyprofits.2. Takeoff: soaring entry and virtually non-existent exit fromthe market.3. High Turnover: many firms enter and leave the market.4. Shake-out: mass exit via mergers, bankruptcies, etc.5. Stabilization: a stable oligopoly emerges.(Source: Michael Gort, Steven Klepper. Time paths in thediffusion of product innovations. Economic Journal, vol. 92,No. 367. September, 1982).

Industrial lifecycle stages

These units crush canola seed at Pendleton Grain GrowersCo-op. The resulting oil and meal can be used for biodiesel.USDA Rural Development provided a $300,000 Value-AddedProducer Grant for the biodiesel project.


By Kathleen PainterAnalyst Center for Sustaining Ag & Natural Resources Washington State University [email protected]

Editor’s note: This article is based on the author’s research report,An Analysis of Food-Chain Demand for Differentiated FarmCommodities: Implications for the Farm Sector, publishedunder a cooperative research agreement with the CooperativePrograms of USDA Rural Development. To download the fullreport from the Web, or to order a free hard copy, please see page46 of this magazine.

round the country, a growing number ofconsumers are choosing fresh local produce,pasture-raised meats and artisan breads andcheeses. Like organic foods, the attributes ofthese products are not necessarily apparent

— labels may be needed to differentiate them. Consumerdemand for quality food appears to be experiencing aparadigm shift. Consumers want to know where their foodcomes from and how it is produced.

A survey mailed to more than 1,000 randomly selectedconsumers in five coastal California counties revealed that 59percent wanted to know more about their food. Specifically,they wanted to know about food safety, nutritional content,how food animals are treated, environmental impacts,working conditions, wages and how far the food travels(Curlee, 2006).

Consumers are increasingly saying they choose foods forsocial, environmental and long-term health reasons. An

Organic and Beyond

A

Labels that differentiate farm products in the marketplace —such as pasture-raised poultry and organic produce ormeats — can add significant value to a product.


underlying dissatisfaction with conventional fare may explainthe strong growth rate of the organic sector over the past 15years. Recent studies have shown a greater interest in locallyproduced foods than in organic products (Ostrom, 2006). Inone study, consumers preferred food grown locally usingsome pesticides to foods grown organically (Pirog, 2004).

Responding to consumer demand, the Whole Foodsgrocery store chain announced in 2006 that it would greatlyexpand its local organic offerings. A Time magazine articlesuggests that “the new activist slogan on campus is ‘EatLocal’ (Roosevelt, 2005), and reported that 200 universitiesaround the country were purchasing food from regionalfarmers, according to the Community Food SecurityCoalition.

Price still a barrier Price remains the most prominent barrier to increased

consumption of organic products (Hartman Group, 2004).For most consumers, the relative price differential between aconventional and an organic item determines theirpurchasing behavior (Yiridoe et al., 2006). For die-hardorganic customers, price is relatively less important, as theywill purchase organic products without much regard forprice. However, as large discount retailers like Wal-Martbegin carrying inexpensive organic items, a new, larger groupof organic consumers can be expected.

Industry leaders believe that expanding market preferencesand concerns can support multiple certification options (Exo,2006). If consumers are mainly looking for fresh producegrown without pesticides, a certification system could bedeveloped for this attribute. If the overriding concern formilk consumers is hormone usage, another certification could

be developed to address this issue. Pressure from consumers and other groups for bovine

growth hormone-free milk has encouraged several large dairycooperatives to ban the usage of this chemical and label theirmilk accordingly.

Can changing consumer pre f e re n c e shelp family farm e r s ?

Can demand for higher quality foods help family farmersstay in business? Since institutional food service operationscan use fairly large quantities, supplying high-quality food tothis channel holds some hope for mid-scale producers.Focused efforts to bring buyers and sellers together will beneeded to coordinate these types of transactions.

Alternative certification programs such as Food Alliancecertified or FamilyFarmed, both of which have Web-basedbackground information and third-party certification, helpguide businesses and consumers to producers who arecatering to this market.

Demand exceeding supplyDemand for high-quality, differentiated farm products

appears to be outpacing supply (Kirchenmann, 2006; Yee,2006). While there is currently a window of opportunity, thetimeframe may be limited. Large companies such as Wal-Mart, Costco and Whole Foods already contract directly withfarmers, using their house brands to market these products. Farmers need their own branding and marketing systems ifthey want to maintain more control and profit forthemselves, but they may need extensive marketing assistanceplus processing and distribution facilities in order to do this.

Organic Valley provides an excellent example of a market-savvy grower cooperative, with sales of more than $330million and participation by more than 1,000 dairy, vegetable,poultry, beef, citrus and beef farms in 2006.

Dairy has been one of the most rapidly growing segmentsof the organic market. Purchases of organic dairy productscomprised 13 percent of the organic food market in 2003 andis predicted to grow by over 15 percent per year through2008. Substantial conversions to organic production areneeded to supply this growing market. Clearly, there isconsumer demand for hormone-free, antibiotic-free, pastureddairy products. But large organic dairy producers are nowdominating the market for these types of products.

With a 78-percent growth rate, meat represented thefastest growing category of organic food in 2003 (NBJ, 2004).Demand for organic meat, fish and poultry are expected togrow at a rate of 43 percent through 2008. Currently, there is

Consumer demand growing fordifferentiated farm products


a shortage of organic meat dueto the recent rapid rise indemand, the time and cost ofbecoming organically certifiedand shortages of organic feedand a relatively longproduction cycle, particularlyin the case of beef.

Demand for “natural”brands is also very strong inthe meat and poultrycategories. Restaurants andfood service are using naturalofferings, including severalrestaurant chains.

Organic and natural meatsare perceived as safer and“cleaner” than conventionallyraised meats that can useantibiotics, steroids or growthhormones, according to theresults of a phone survey in 2001 of 500 randomly selectedrespondents from Nebraska, Iowa, Wisconsin and Missouri(Food Processing Center, 2001). Other important consumerconcerns include the environment, animal safety, sourcingand traceability. Consumers also state that natural andorganically raised meat tastes better (CDS, 2006).

Strong consumer demand is evident in the organic poultryand egg categories as well. Wholesale prices for organicpoultry averaged more than 350 percent of conventionalpoultry for January 2006 through June 2006, while USDAsays wholesale prices for organic eggs were more than fourtimes higher than prices for conventional eggs for the sameperiod.

F rom organic to otherwise diff e re n t i a t e dWill consumers who buy organic food be interested in

buying farm products that are differentiated in other ways? If products can cater specifically to consumers’ main concerns—such as free of genetically modified organisms (GMO) orgrown without broad-spectrum pesticides —then consumerdemand should be higher. This is especially true if thesecharacteristics can be provided at a lower cost than theorganic product.

If farmers can provide fresh, locally grown, sustainablyproduced products, they should be able to interest thegrowing segment of consumers who are purchasing organic.About two-thirds of the consumers in a recent studypurchased organic foods for health and nutrition reasons(Hartman, 2004). Other reasons included taste (38 percent),food safety (30 percent) and the environment (26 percent).

Consumers are willing to pay more for multiple attributes,such as organic grass-fed beef. Multiple attributes togethermay provide the necessary impetus to sell the product.

Consumers are increasing their consumption of fresh

foods, which they believe providebetter taste, health, and nutrition(Reynolds-Zayak, 2004). In a FreshTrends 2004 report, consumerpanelists reported on their currentuse of fresh produce compared tofive years earlier (Barton, 2004).Overall, consumers reportedpurchasing an average of 18percent more fresh producecompared to five years earlier.Increasingly, fresh fruit isconsumed as a snack, in order toincrease fresh produce intake.

If non-organic farmers cangrow foods without the use ofpesticides, then they may beaddressing one of the consumers’most serious concerns.

A successful example of thistype of approach is the certified

pesticide-free tomatoes produced by Eurofresh, a U.S.corporation which operates the single largest glassgreenhouse system in the world in Arizona. The companyclaims its varieties have more cancer-fighting lycopene thanany others. Its products are certified by the Nutricleanprogram of Scientific Certification Systems, which performsrandom checks and requires stringent recordkeeping.

Another example is the pasture-raised poultry labelGreener Pastures Poultry. This company successfullydeveloped a devoted clientele for its premium, pasture-raisedpoultry. After weighing the costs and benefits of variouscertification schemes, it decided against the use of third-partycertification. Sadly, it ceased operation after five years, due tothe inability to develop a processing facility that would allowit to operate at a sustainable level.

B road appeal of ’locally gro w n ’Differentiated farm products may fill a specific niche

without having to incur the costs of adhering to organicguidelines. A recent poll suggests that the appeal of “grownlocally by family farmers” is very broad, as 75 percent of theconsumers and 55 percent of food business respondents chosethese terms as their first choice for produce or meat products(Pirog, 2003).

“Buying local” is one way for consumers to support localagriculture while eating fresher, less-processed foods andreducing energy spent on transporting food. A Roper pollconducted for Organic Valley, a growers’ cooperativeheadquartered in Wisconsin, revealed that the majority ofAmericans trust smaller scale farms to produce safe,nutritious food in ways that won't harm the environment.

For a detailed list of the references used for this article, pleasesend an e-mail to the author at: [email protected]. ■

" F a rmers need their ownbranding and marketingsystems if they want tomaintain more control andp rofit for themselves, butthey may need extensivemarketing assistance..."

laska Village ElectricCooperative (AVEC) inAnchorage is thewinner of the 2007Wind Cooperative of

the Year award, presented by the U.S.Department of Energy (DOE) and theNational Rural Electric CooperativeAssociation (NRECA). This annualaward, in its seventh year, recognizesAVEC for leadership, demonstratedsuccess and innovation in its wind-power program.

AVEC provides electricity service to53 small, native villages in rural Alaskaand is using wind power to reduce itsdependence on diesel power. Incollaboration with the wind industry,DOE is striving to help developadvanced wind energy technologies tohelp meet the rapidly growing demandfor energy.

“We applaud the Alaska VillageElectric Cooperative for itscommitment to wind powerdevelopment, and for building uponPresident Bush’s commitment todramatically increase the use of thisclean and abundant source of energy,”DOE Assistant Secretary for EnergyEfficiency and Renewable Energy AndyKarsner said. “With Department ofEnergy support, unprecedented growthrates in emissions-free, affordable windproduction will increasingly help meetthe nation’s rapidly growing demand forenergy.”

AVEC currently has 990 kilowatts(kW) of installed wind-generatingcapacity in four of the communities itserves. Two of these communities,Toksook Bay and Kasigluk, representthe first field deployment of theNorthwind 100/20 wind turbine. This

is a 100 kW turbine with a20-meter rotor specificallydesigned for deployment incold, harsh climates. Thisturbine, designed anddeveloped in conjunctionwith DOE, received aResearch and Development100 Award in 2000. AVECwind turbines are producingup to 25 percent of theannual electricity needs of

Toksook Bay and Kasigluk. “Alaska Village Electric Cooperative

is very pleased that DOE and NRECAare recognizing our efforts to meet thechallenges of developing wind power inremote Alaskan villages,” AVECPresident and CEO Meera Kohler said.She also thanked Senator Ted Stevensand the Denali Commission forproviding crucial help. “We see a dropof diesel not burned as a drop of dieselsaved. AVEC will continue to pursuewind as aggressively as we can affordto.”

AVEC was one of six rural member-owned utilities nominated this year forthe award, which was presented at theNational Rural Electric CooperativeAssociation’s TechAdvantage 2008Conference and Expo in Anaheim,Calif. Last Mile Electric Cooperative


Wind turbines are helping the Alaska Village Electric Co-op (AVEC) reduce dependence on diesel fuelto provide power to 53 small villages. Photo courtesy AVEC

A


Alaska VillageElectric namedtop wind co-op

North Wi n d

By Lindsay AtwoodU S DA Rural Development

n a lively citystreet inBerkeley,Calif., well-dressed

shoppers peer into a modern-looking window display ofpaintings and jewelry, admiringthe contemporary storefrontand eclectic collection of artinside. Almost 2,000 miles awayin a remote Alaskan village,Alaskan native women mailtheir exquisitely knitted hatsand scarves to Anchorage forsale to visiting tourists,weathered fishermen and Web-surfing shoppers worldwide.These two businesses maysound very different, but theyshare a key, unifying trait: bothare arts and crafts cooperatives.

Cooperatives are common in manybusiness sectors, and the productionand sale of fine arts and crafts are noexception. But arts and crafts co-opsface some unique challenges.

Liz Bailey, executive director of theCooperative Development Foundationin Washington, D.C., is responsible forconducting an on-line arts and craftsco-op auction during Co-op Month

each October, and she has a wealth ofknowledge about arts and crafts co-opsin general.

Help for new art i s t sBailey says co-ops can help new or

up-and-coming artists develop areputation and get their feet on theground. “I had a member of [a co-op] inCalifornia tell me that for new artistscoming out and trying to get

themselves established, the co-op is the perfect model,” shesays. “It would be absolutelyessential for a starting artist.”

Rural craftspeople withoutan immediate market for theirworks can also benefit frombelonging to a co-op. Co-opsprovide them with access tothe market and act as a magnetto draw in tourists for thegreater good of the ruraleconomy.

“It allows artists who wantto live in rural areas for all thequality of life issues…abusiness link that makes itpossible for them to live thereand be part of the ruraleconomy,” Bailey says.

For any artist, though,whether new or established,rural or urban, a co-opessentially does for members

what a commercial gallery would do: Itgives talented artists a market for theirwork.

Tenacity helps gallerys u rvive and thrive

The Arts and Crafts CooperativeInc. (ACCI) Gallery in Berkeley holdsthe distinction of being the oldest artsand crafts co-op west of the Mississippi.The gallery has persevered through the


O

State of the A r t

From Alaskan villagesto trendy Californiashopping districts,

arts & crafts co-opshelp members tap

markets


Facing page: Urban landscape painter Anthony Holdsworth begins a painting of the co-op gallery building. Thispage, clockwise from upper left: bronze sculpture on granite base by Robert Cantor; Pinzette glass by MichaelSosin; Ceramics by Glenda Jordan. All artists are co-op members. Photos courtesy ACCI


ups and downs of start-up andmaintenance, and last year itcelebrated its 50th anniversary.

Now an established, viablebusiness, ACCI Gallery nolonger has to borrow moneyfrom members to stay afloat.“There have been plenty oftimes when we’ve been in the‘save the co-op’ state,” says Lisah Horner, the gallery’sexecutive director. “We’re not operating in panic mode [anymore]. The members can relax.”

What began as a group of people putting blankets on thesidewalk to sell their wares has evolved into a 130-membercooperative with paid staff and a fully paid for building on abusy Berkeley street.

“We were always on this street,” says Horner of theimmensely popular ‘Gourmet Ghetto,’ as it is known inBerkeley. “We have so much attention from the restaurantsaround us. There is no way we could have done it withoutthe street traffic and foot traffic.”

But location alone was not enough to keep the gallery inbusiness. Horner describes the main contributing factor tothe longevity of the co-op in one word: tenacity. “This wouldnever happen without a large group of people who invested

personally and financially into itand were just determined tomake it happen,” she says.

Recognizing theimportance of the business andday-to-day operations of thegallery, the member artistsorganized a board of directors.“You need business-minded

people involved,” says Horner, who served on the board priorto becoming the gallery’s director. “What I get to do is selectpeople who I think would be ideal candidates — people whohave owned businesses and have corporate backgrounds.”

In addition to their artwork, member artists contribute tothe business side of the co-op with their $250 annual dues, 20hours per year of work for the co-op and 45 percent of theirsales going to pay for the building, staff, advertising andother costs.

Co-op identity a plusSo successful has ACCI Gallery been in managing the

business that unless it actively marketed the gallery’scooperative status, it might be easy to mistake it for acommercial gallery. Co-op leaders are adamant, however, thatthe acronym in the name be spelled out and that people know

Just as with any small business, arts and crafts co-opsoften struggle through the start-up period and get mireddown in management disputes and business problems. LizBailey believes that this is what will either make or break aco-op.

“They have to market their products, and managementmay be one of the few things they don’t do well,” says Bailey,executive director of the Cooperative DevelopmentFoundation. Arts and crafts co-ops can survive “if they canfigure out how to manage the daily business and stay friends,be business colleagues and allow room for each to do theirown artistic work, but then come together as a group to makethat co-op thrive.”

One of the challenges that Bailey has noticed and that

she is working to combat is the fact that arts and crafts co-ops are hard to find unless they have the word “co-op” intheir name. “The one thing that we have found is that theystill don’t self-identify as a co-op community,” she says. “Wehave to find ways to bring them together.”

The arts and crafts focus of Co-op Month in October isone way that Bailey is working to overcome this disconnectwithin the arts and crafts co-op community. Many of the co-ops included in the auction have demonstrated incrediblestaying power. They have overcome management issues andday-to-day business stresses. They have established solidand respectable reputations within their communities andaround the nation. They have benefited hundreds of artistsover the years.

Early disputes can derail co-ops

Children of a member of the Oomingmak Musk OxProducers’ Co-op (OMOPC) learn how their mother knitsscarves, hats and other apparel from musk ox wool.Photos courtesy OMOPC


it is a co-op. After all, “it’s got alife of its own separate from acommercial gallery where yougo drop your art and leave,”Horner says.

Customers appreciate thehands-on, personal approach tothe co-op and have shown greatinterest in understanding thealternative business structure. “In fact, they ask my staffrepeatedly,” Horner says. “They want to know how thewhole operation works.”

Staff are eager to talk about the co-op model, as well asthe artists, while they are selling. “It creates a dialogue, andyou try to educate as well as sell art,” Horner says. This is adimension less frequently found at commercial galleries butimportant to ACCI, and it has served them well. “We have afabulous reputation,” Horner asserts. “It helps [the artists],and they sell.”

Aside from the business, the daily grind, the sales and themanagement pressures, ACCI Gallery has provided a havento Bay Area artists. “This is an opportunity for people to…bea part of a community of artists,” Horner says.

There are members who have been with the co-op for 40years. They stay because of what the co-op does for them.The co-op stays because of what the members do for it. It is acycle that has worked for ACCI Gallery for 50 years andcounting.

Co-op spins musk ox wool into high fashionHalf a continent and a cultural world away from Berkeley,

the Oomingmak Musk Ox Producers’ Cooperative has ahistory as rich as the cultures and heritage of its members. Itsstory began when, more than half a century ago, Harvard-educated Dr. John Teal Jr. began his research on the ArcticMusk Ox, also known by its Eskimo name, Oomingmak. Hisgoal was to determine whether the animal could bedomesticated and used for its fine underwool, called Qiviut.

From his research, the Musk Ox Farm was born and isnow located in Palmer, Alaska. In 1968, not long after thedomestication of these animals began, the Oomingmak MuskOx Producers’ Cooperative came into being. Twenty-fivewomen in a small village on Nunivak Island off the west coastof Alaska took part in a knitting workshop. It was this groupthat comprised the original membership of the Oomingmak

Musk Ox Producers’Cooperative. Today, 40 yearslater, its infant business hasgrown to include some 200 to250 members in villages allacross Alaska.

Almost from the verybeginning, the co-op and theMusk Ox Farm in Palmer have

shared a special relationship. The cooperative buys all of thefiber from the Musk Ox Farm each year, as well as frompeople in Alaskan villages who hunt the musk ox as part oftheir subsistence lifestyles. “It is a very fine and veryexpensive fiber that is bought by the cooperative as a wholeand yet trusted to each member without any cost to them,”says Sigrun Robertson, executive director of the cooperative.

Once they have procured the fiber, the co-op sends it to acashmere mill to be spun into yarn. “From the time we sendthe fiber out until we get the yarn can take a year, maybemore,” Robertson says. “The fiber is very limited. We can’tjust go out and buy more fiber. We have to make sure weprocure enough.”

This incredibly warm, soft and lightweight yarn is thensent to any co-op member who asks for yarn to be knit intohats, scarves, stoles and the co-op’s signature item: thenachaq. Although the hat patterns are universal, each knitterhas a specific pattern for the scarves and nachaqs that isunique to the village or area that he or she is from.

Tapping wholesale and retail markets Back in the co-op headquarters in Anchorage, Sigrun

Robertson handles the business side of the co-op. “Theknitting comes in here. A check is cut the same day andmailed out the next day,” says Robertson.

Each of the items is evaluated in Anchorage for qualityand workmanship. Then the items are all washed, blocked,packaged, labeled and sold, both wholesale and retail. “Weproduce 4,000 to 5,000 items per year at the most,”Robertson says. “They’re beautiful items.”

The Oomingmak Musk Ox Producers’ Cooperative goodsare sold at its store in Anchorage, at David Morgan inSeattle, at the Musk Ox Farm in Palmer and online. “Onewould think it would be people from higher income levelsand people who prefer to save and purchase nice things,” says


The heavy coats that help musk oxen survive the Arcticwinter also provide wool for co-op knitters.


For more than three decades, CabinCreek Quilters Cooperative served ruralcrafts people of West Virginia. It providedincome for many coal mining families,promoted tourism in the area andpreserved the region’s traditions andheritage.

Ten years ago, the cooperative had300 members and was strategicallyheadquartered in an 1840-vintage house.Today, Cabin Creek Quilters still strives topreserve heritage and provide income,but as a privately owned company ratherthan as a cooperative.

President and owner RebeccaStelling was once a member of thecooperative’s board. “You’ve got to getsomeone involved that really understandsmarketing and the business aspects, andthat’s where I came into play,” she says.“The women…came to me.”

Stelling asserts that the cooperativemodel was very effective in the 1960s,1970s and 1980s, but she feels it is nolonger a viable way of doing things. “Froma management perspective, it’s reallyhard to manage it and maintain it withthat kind of structure,” she says. “Now it’sa business that I operate, so I can reallystay on top of things.”

When Cabin Creek Quilters changedfrom a cooperative to a corporation inJuly 2007, there were only about 20 co-opmembers. Stelling still works with theformer members of the co-op to producequilts and she also uses new quilters. “I’minvolving more women, which is truly agoal of something like this,” she says.

Cabin Creek Quilters no longer has aretail location, and West Virginia StateUniversity now owns the historic housethat once served as the co-op’sheadquarters. Stelling markets herproduct by doing special showsthroughout the year, and she providescustom quilts for customers through herWeb site: www.cabincreekquilts.com.

Quilters co-op goes priva t e

Quilting has long provided animportant source of income forcraftspeople in West Virginia.After many years as a co-op,Cabin Creek Quilters nowoperates as a privately ownedbusiness. The co-op’s retail storehas closed. USDA file photos


By Patricia Daughrity

Editor’s note: Daughrity is a freelance agricultural writer based inwestern New York and is the daughter of Roy Orton.

hink of a bib overall-wearing farm boy whorelishes playing practical jokes and shootinghis BB gun more than cracking the books.Think of a persevering inventor who ignoressneers of “It can't be done,” and finally

proves that it can. Think also of a business leader of a fruit beverage

company who has the guts to do what is right — even if itcosts him his position. Think of a cooperative director who,as the dark-suited chairman, helps set the course of asophisticated, $52 billion cooperative bank.

What four people come to mind? In this case, thesedescriptions all apply to one man: Roy Orton, who has ledthree major U.S. cooperatives during his career.

For his 53 years of involvement with cooperatives —including service as president of National GrapeCooperative, and chairman of Welch’s and CoBank — Ortonwas chosen as the 2008 Director of the Year by the NationalCouncil of Farmer Cooperatives (NCFC). The honor goes tofarmer cooperative directors who “take the lead to help theirboard of directors make decisions vital to their cooperative.”

NCFC President Jean-Marie Peltier saluted Orton for his“outstanding leadership” and “dedication to the principles offarmer-ownership.”

“Whoever raised Roy Orton knew what they were doing,”says Ted Wolfe, former executive vice president of Welch’s.

How did Orton go from farming to winning NCFC’sprestigious award? The answer is rooted in purple grapes.

Invention re v o l u t i o n i z e dC o n c o rd grape industry

In 1938, in rural Ripley, N.Y., Joseph Roy Orton was bornto Ross and Martha Orton, the middle of three children.Oblivious to the world’s hardship during this era, little JR (ashe was then called), along with siblings Lois and Donald,

romped with thechickens and playedcowboys andIndians, straddlingde-barked lengths ofsumac that servedfor horses.

As he grew, JRworked alongside hisdad in the chickencoops and orchardsas the family farmgrew into thelargest poultry andcherry operation inthe county.Gathering eggs,hauling chickenfeed and moving10-foot ladders during cherry harvest filled the boy’sweekends, nights and summers. Hard work and disciplinewere served fresh daily on the farm.

At age 20, Orton purchased his first farm — a Concordvineyard next door to his parents’ farm. At that time, thejuicy, thick-skinned grapes were hand-trimmed, hand-tiedand hand-picked, then were trucked to Welch’s forprocessing into juice and jelly.

As in any farming operation, hand-picking grapes issluggish work, weather dependent and costly. Inspired tostreamline vineyard operations, Orton and his Uncle Maxbrainstormed on a faster, cheaper way to harvest the indigofruit. Exploring mechanization, the Ortons knew theircontraption had to be substantially faster than hand-pickingand would have to pick the vines clean.

Making the odds longer was the narrow window ofopportunity in the autumn to test their ideas while still hand-harvesting the crop. They also had to contend withnaysayers. Even Orton’s alma mater, the esteemed agricultureschool at Cornell University felt “…it was impractical to pickthe [single curtain]…vines mechanically,” according to the

T

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

A N ice Guy Who Fin ished Fi r s tRoy Orton’s track record at National Grape and CoBank earns top honors from NCFC

Roy Orton has been honored for his

leadership at National Grape

Co-op/Welch’s and CoBank. Photos

courtesy National Grape Co-op


Finger Lakes Wine Museum newsletter.Nevertheless, the men experimented with an over-the-row

framework, with vibrating internal “fingers” that jiggled offthe fruit. The framework was a cinch. The main challengewas in finding the right material and a shape for the fingers.Converting horizontal motion into vertical motion alsoproved critical to clean-pick the vines.

A resolve to succeed At the time, Orton was (and remains) a member of

National Grape Cooperative, the growers’ co-op that ownsWelch’s. As word of Orton’s experiment spread, manyresponded with cynicism. But the doubters did not shake hisresolve.

By age 26, Orton had built a slick prototype harvester andreached a deal with a licensee-buyer for his patent on hismechanical grape harvester. In 1967, Chisholm Ryder Co.built a model using Orton’s patented machine.

The new machines slashedharvest costs. Grower returnsballooned.

One farm worker would dowell to harvest a ton of grapesper day, whereas the big blue,self-propelled machines thatused the Ortons’ technologycould harvest four or five tonsper hour. This huge advanceprompted more acres of grapesto be planted, because growerscould now manage more vines.

“No new product of ours hasever had such immediateacceptance, and no other newproduct seems to have fewermechanical problems,” LeeTowson, of Chisholm Ryder,said at the time. Sales of theharvesters shot up like achampagne cork and thenaysayers quickly moved on,raining on someone else’sdream.

Reflecting on the innovationthat revolutionized the grapeindustry, Orton, withcharacteristic humility, says “Wedidn’t know any better.”

Past CoBank Chairman OtisMolz remarks, “One of the veryprominent characteristics of Roy is he isn’t afraid of change.He’s always willing to try something new if there is a chanceof improvement.”

In 1970 he was elected to the National Grape board. In1981 he became chairman of the two-board system of

National Grape and Welch’s, a position he held for 13consecutive years.

Do what is right, not what is popularOrton instinctively knew that the popular vote is often

aligned with a short-term (often financial) gain. But the votefor what is right for a co-op is often based on theorganization’s long-term health. Leadership favoring theformer may flicker briefly, and such decisions may provequite popular. By contrast, leadership that promotes the long-term good of the business will often face strong resistance.

Colleagues say Orton earned a reputation for leadershipbased on his integrity. He favored what was right for themembership, regardless of how it impacted his short-termpopularity. Ironically, it was that philosophy that probablycost him re-election to his 14th term on the board in 1993.

One of the toughest challenges the dual, NationalGrape/Welch’s boards faced in the years before that election

was the issue of declining qualityand yields from Arkansasgrower-members. The co-opmaintained a facility in Arkansasto receive the crop, but overtime the economics there grewworse. One year production inArkansas dropped to less than2,000 tons (about the productionof one large grower in a high-production region). In additionto low yields, the Arkansas croprepeatedly did not meet the co-op’s rigorous quality standards,according to Everett Baldwin,former Welch’s CEO.

The directors andmanagement resolved it was inthe best interest for the co-op topull out of Arkansas. But thepopular opinion pushed formaintaining the status quo.Emotions ran high in Arkansas,and growers there filed a lawsuit,naming Orton and Baldwin asdefendants.

Orton recalls this periodbeing made even more difficultbecause “they were some of themost loyal members I ever metin my life.” The litigation lasteda year, the end result being that

the growers there were dropped by the co-op, although theywere awarded a small settlement.

“Roy was never afraid to take on an unpopular cause if hefelt it was in the best interest of Welch’s, and, by extension, inthe best interests of the membership,” says Dan Dillon,

These bottles of Welch’s grape juice will soon be boxed

and shipped to supermarkets.


former Welch’s CEO. Asupsetting as the lawsuit was,Orton “grew in stature,composure and [in his] ability toask tough questions,” says Welch’sTed Wolfe.

S e rvice with CoBankOrton’s accomplishments with

National Grape led to his electionto the board of the SpringfieldBank for Cooperatives (inMassachusetts) in 1992. Two yearslater the bank merged into CoBank, which was initiallyformed in 1989 when 10 of the 12 Banks for Cooperatives(part of the Farm Credit System) were reorganized andstreamlined to cut administrative costs and better serve thefinancial needs of agricultural cooperatives.

In 2002, Orton was elected chair of CoBank, in part dueto his proven ability to build consensus from a table ofdiverse thinkers.

Humility is unlikely to have its own chapter in a leadershiptextbook, but it is clearly one of Orton’s secret weapons.Consistently downplaying his own contributions, he strove toshift the limelight toward others, enhancing his rapport withother directors, management and stakeholders.

Jack Cassidy, CoBank’s secretary and senior vice presidentof board and government relations, notes that Orton isknown for “lack of ego and uncommon humility.” The values

he exhibits that come from being afarmer from a small town in ruralNew York are refreshing in thefinancial world, he adds.

Orton’s “what-you-see-is-what-you-get” persona didn’t alwaysmesh with those who are lessforthright. “You can get cynical inthis business,” Cassidy confides,pointing out that Orton foundways to work with people withdifferent value sets and still getresults.

“You know the saying that ‘nice guys finish last?’ Royproved that statement wrong. He kept his values,” Cassidyadds.

Striving for inclusivenessWhile a dictatorial leader imposes his/her beliefs on

others, the inclusive leader works with others to developoptions and reach consensus. “Roy always gave every directora chance to voice his or her opinion,” says Stan Dean, formerCoBank director, adding that Orton earned a reputation forbeing fair to both sides of an issue.

“He doesn't keep information to himself as a way tocontrol other people,” says Cassidy. A case in point was the1994 Springfield Bank merger into CoBank, and how hehandled the resulting need to reduce the board size. After the


Proving the naysayers wrong, Roy Orton (seen below with his original prototype in the 1960s) invented a grape-harvesting machine that

revolutionized the industry. The basic technology he developed is still being used today (above).


Feedstock availability, consistencyare challenges to development

of waste-to-energyprojects

A g r i c u l t u r a l Versus


By Jessica Ebert

Editor’s note: This article is reprinted courtesy Biomass Magazine,www.biomassmagazine.com.

ny conversation about the challenges ofconverting waste into energy — regardless ofwhether the source of the feedstock isagricultural or industrial, and regardless ofwhether the end products are solid or liquidfuel or electricity — comes down to an issue

of feedstock availability.“I don’t care what technology you have. If you don’t have

the feedstocks, you don’t have anything,” says Steve Flick, a

Missouri farmer and chairman of the ShowMe Energy Cooperative board of directors.“We say it’s like having the prettiest girlask you to the dance. If you can’t dance, thenyou might as well not embarrass yourself.”

The cooperative, which is made up ofmore than 400 farmers, is just nowstepping out on the renewable energydance floor with a flexible business modelbetting it will garner admiration, ratherthan embarrassment.

Show Me Energy has its origins in

west-central Missouri, where a group offarmers and producers with a vision ofusing cellulose for energy productionbegan meeting monthly until 2004, whenthey officially organized under the state’sNew Generation Cooperative law. At thattime, the group sanctioned a feasibilitystudy, which in turn determined that themodel the group envisioned would be agood fit for producers in western Missouriand eastern Kansas.

“Missouri was a prime state because wehave all these dichotomies of scale,” saysFlick, a seed-company owner and farmerwho will be planting six acres ofmiscanthus this spring. “We have cornfarmers in the north, grass-seed farmers inthe south, wheat farmers in the west andsoybean farmers in the central part of thestate. It’s a really good fit.”

In-house technology usedAt the center of the cooperative’s model is technology

developed in-house that converts agricultural residues intobiomass fuel pellets. The farmers who invest in thecooperative sign a market agreement committing them toproduce a certain amount of biomass each year.

In addition, co-op members must adhere to high standardsof environmental stewardship, Flick says. For corn stover,producers must leave about 30 percent of the residue on theirfields. For native grasses, farmers must harvest in the late fallafter a killing frost and leave rows around waterways andtributaries.

“We are adamant about making this business model notonly profitable, but realistically environmentally friendly,” hesays.

A

Indust r ia l Wa s t e fo r Energy


The farmers that abide by these rules collect and store theresidue on their farms in round bales, which are eventuallytrucked to the cooperative’s new pellet-production facility inCenterview, Mo. This is the main drawback to usingagricultural residues as an energy feedstock: they are bulkyand transporting them becomes economicallydisadvantageous after a certain distance.Show Me Energy pays each farmer a certain amount per

ton for residue and also pays for the hauling costs within a

100-mile radius of the plant.Farmers outside this areaaren’t discouraged fromparticipating, but they mustpay the transportation fee forany additional distance(anything over 100 miles).

100,000 tons of pelletsThe pellet-production

facility will produce 100,000tons of biomass pellets eachyear. This fuel source will beco-fired at a local utility; fivepounds of pellets will be co-fired with every 100 poundsof coal burned.But that’s just Phase One

of the cooperative’s vision. InPhase Two, Show Me Energy has teamed with Clean EnergyTechnologies LLC, a Black and Veatch Corp. company, tobuild a biomass-to-liquid fuel facility next door to theCenterview plant.This second plant would demonstrate the gasification of

biomass pellets for the production of liquid fuels such asethanol, methanol, synthetic diesel, aviation or other fuels.The team hopes to win a U.S. Department of Energy grant

before moving forward with the project.Flick hopes other producer groups will embrace the basic

tenets of the co-op: sustainability, flexibility and availability.“We’ve always felt that our model is a very economically

adaptable model because it’s the farmers who work reallyhard to make it work,” he says. “It’s better than the ‘contract-production’ model that some people have been deciding todo, where they go out and have a technology and contractthe feedstock. We feed the cow [the cooperative] with home-

grown energy produced onlocal farms.”

Feedstocks that fitAnother way to think about

this is to use a feedstock thatmakes sense for your localeand process. For ruralproducers such as those ofShow Me Energy, that meansagricultural residues.For those in urban settings,

a more fitting feedstock isindustrial waste, which couldtake the form of plastic,rubber, process heat,municipal solid waste or foodprocessing debris.These are the feedstocks

targeted by Changing World Technologies Inc. (CWT), aNew-York based technology developer that aims to identifyand commercialize energy-efficient and eco-friendlyemerging technologies. The company’s thermal conversionprocess technology converts wastes ranging from mixedplastics to post-consumer tires, food processing waste andmunicipal solid waste, to solids, renewable diesel andspecialty chemicals.

The Show Me Energy cooperative plant in west-central Missouriis processing ag wastes into biomass fuel pellets. Photo byChuck Limach, Show Me Energy Co-op

Transported waste is crushed, screened and mixed into a water-based slurry.

The slurry is prepped for separation by applying extreme heat and pressure

The breakdown of this organic matter ultimately separates organic and inorganic matter inthe slurry.

Larger particles are removed and later recombined with smaller mineral particles.

The thermal reactor further breaks down both liquid and solid materials under greater heat and pressure.

The result is a mixture of renewable diesel, nitrogen-rich water, and mineral particles.

These components are separated by conventional means.

Recombined solid minerals,renewable diesel and nitrogen-rich water (fertilizer) are each stored separately for sale and distribution.

COLLECTIONCONVERSIONSEPARATIONPREPARATION

In terms of agricultural residues, thecompany has done work with manure andcorn stover, as well as a combination ofthose types of wastes. The company hasn’tfinished any kind of demonstration plantdesign for that material because it’s beenfocusing on food processing wastes.

However, it has generated lots of gooddata and it will be something they willbuild on in the future, says Brian Appel,chairman and CEO of CWT. The key willbe finding a “champion” to shepherd theprojects forward.

Appel points to the company’s successin processing food wastes to define whathe means by a champion. “When wedeveloped the food processing technology,ConAgra Foods was one of the larger foodslaughter houses in the world, and thecompany aggressively was trying to find analternative to feeding animals back toanimals,” Appel explains. “ConAgra wasthe champion. Instead of taking thismaterial and turning it back into animalfeed, it was diverted away from the foodchain so we would minimize anytransmittable diseases like BSE (bovinespongiform encephalopathy).” BSE ismore commonly known as mad cowdisease.

When it comes to the agricultural sideof things, those champions are a littleharder to find, Appel says. “A lot of theseare still individual family farmers, and it’smuch harder to get someone who wantsto be the champion of just that area. Ithas to be someone who understands thebig picture in agriculture and has theresources to go from pilot-plant to acommercial-demonstration facility.”

Consistency big issuefor industrial waste

In terms of industrial waste — which Appel classifies as asub-set of municipal solid waste — the biggest challenge isnot so much finding a champion as it is finding consistentfeedstocks. “With municipal solid waste, you never knowwhat you’re going to get,” he says. “It’s always changing asconsumer and manufacturing habits change and as efforts torecycle intensify.”

To circumvent this inconsistency, CWT is working withlarge industrial shredder companies — also referred to asmetal recyclers — to design a demonstration plant for theconversion of shredder residue to fuel.

“Shredder residue is a more consistent feedstock,” Appel

explains. “If you take a refrigerator or a car and send itthrough a giant shredder, those companies collect the metaland the glass.” The leftover material — plastic and rubberfrom the tires or the hoses under the hood, or the vinyl seatsand the stuffing in the cushions — is what CWT is focusingon because it’s more identifiable, he says.

In addition to identifying a consistent source of feedstock,another challenge to overcome is the hype, Appel says.

“Alternative fuels have been hyped worldwide. One of thebiggest challenges that we’ve had is coming behind otheradditives and other alternative fuels,” he says. Therefore,fixed-energy markets are the first target for CWT. “We’vebeen a proponent of making fixed energy as the place to learnhow to use these fuels because it’s a logical progression tothen go into transportation.” ■

Rural Cooperatives / March/April 2008 31

Vision Statement:Show Me Energy Cooperative has as its guiding vision a commitment to

establish an innovative, profitable, leading model for production of biomass-based fuels which may be replicated across the country by small producer-owned cooperatives that will provide a positive economic impact on the regionswhere they are located.

Mission Statement: Show Me Energy Cooperative is a nonprofit, producer-owned cooperative

founded to support the development of renewable biomass energy sources inWest Central Missouri through the following actions and efforts:A) Establishment of suitable conditions in the field of energy development which

incorporate the efforts, products and goals of local agricultural biomassproducers;

B) Provide additional revenue streams for farmers and producers for theirproducts by utilization in biomass energy production;

C) Support and reinforce the local economy and community through employmentand development of renewable, sustainable technologies;

D) Keep member-owners informed about their co-op business, economic,political, charitable and social environments;

E) Help to improve the quality of life, both now and in the forseeable future, in theareas where Show Me Energy Cooperative has a business, purchasing ordistributing presence.

Co-op Vision & Mission

To promoteenvironmentalstewardship, ShowMe Energy Co-opmembers must leave30-percent of cropresidues on theirfields.


By Jane Livingston C o o p e ration Wo r k s !

Editor’s note: Livingston is a Maine-based writer, editor,marketing consultant and community organizer for cooperativedevelopment.

e're talking about a new look at a very oldidea,” says Frayne Olson of the Iowa Alliancefor Cooperative Business Development atIowa State University. “Sharing machineryand labor has been around a long time.”

Given the rising profitability of growing most commoditycrops during the past couple of years, one might think Iowafarmers would have little interest in learning how to set upmicro-cooperatives or partnerships for sharing andpurchasing equipment and labor.

Think again.While many farm sectors are currently doing quite well,

that picture can change quickly, Olson notes. As such, smartfarmers look for every possible way to sustain their success ingood times and bad.

The equipment Olson is talking about isn’t an old, saddle-seat tractor with a bunch of attachments. Farmers seeking toexpand or upgrade operations today are often looking atcombines, sprayers and row-crop planters. These are costly,big-ticket items. A new combine and headers, for example,can cost upward of $250,000. If two, three or more farmerscan share a piece of equipment such as this, they can save alot of dollars.

L e a rning to work together“Farming is not just a one-man show any more,” says

Olson. “And farm labor, especially skilled labor, is hard tocome by.” Justifying the purchase cost of a major piece offarm equipment also creates the need to coordinatesupporting activities to make full use of a machine’s time inthe field. Sharing the workload among partners can result insignificant gains in efficiency. One farmer may specialize indriving the combine while others may haul the crop tomarket or a storage facility.

Hammering out the actual agreements between partnerscan be a daunting task, however. That’s why the IowaAlliance created a workshop to introduce interestedproducers to the concept of shared-equipment and shared-labor co-ops, as well as other types of “sharing” partnerships.

The first thing workshop participants do is review a seriesof case studies the Alliance has compiled. These studies focuson groups of producers who have formed, or tried to form,similar associations. They give a perspective on what othershave done and provide a good starting point for discussion.

“Farmers are really concerned about the nuts and boltsstuff,” Olson says. “So we hit them right away with thequestion: How do you divide the costs? We give them somespread sheets and other information, even offer someaccounting procedures to help them make it more equitable.”

But that’s only a start. Participants are then asked todescribe their farm operations, their skill sets and workhabits. They also identify their own personality traits andwhat they are looking for in an ideal partner.

Some farmers want a partner with similar skills and needs,figuring that will make for a smoother working relationshipand easier communications. Others prefer to find someonewith different skills that will complement and expand ontheir own. Both types of partnership/co-ops have value.Being able to arrange a mutually agreeable work schedule is,of course, also crucial.

“W

Ride Shar ing Equipment- and labor-sharing co-opscan help farmers save on rising costs

C O - O P D E V E L O P M E N T A C T I O N

Expanding the pieAt this point in the workshop, the topic of business

structure is introduced. There are many ways to draft anoperating agreement, each with potential advantages anddisadvantages. Partners or co-op members may decide toshare only one piece of equipment and agree only toshare use and costs of that one machine. Others maywant to share labor or share multiple pieces ofequipment. Farmers can also form a co-op orpartnership to purchase equipment and inputs — even tojointly market their crops (if they are not alreadymembers of a marketing cooperative).

Once prospective partners havegone through the process ofidentifying what they want fromone another and what each has tooffer, Olson says they should havea pretty good idea about whetherthey want to work together.

The important thing for peopleto take away from the workshop,Olson emphasizes, is therecognition that they can worktogether if they are willing to lookat equipment- and labor-sharingrealistically and remain somewhatflexible in planning day-to-dayactivities. They also need toclearly define what it is they cando together better than they can

do individually.“Our whole objective is to make the pie bigger,”

Olson concludes. To learn more about the Iowa Alliance, visit:

www.extension.iastate.edu/coops. For more informationon the workshops, visit: www.machinerysharing.info.

Six community developers from New Orleans were among the26 professionals enrolled in the fall session of “The Art andScience of Cooperative Business Development,” a five-daytraining program conducted by CooperationWorks! The NewOrleans contingent was experienced in conventional businessassistance but was unfamiliar with the co-op business model. In

light of the enormous rebuilding needs that still exist in their homecity, they were awarded scholarships by the CooperativeDevelopment Foundation and CooperationWorks!

“By working together through cooperative ventures, residentsof the Gulf region will have a much stronger voice in rebuildingtheir communities and their lives,” says Audrey Malan ofCooperationWorks!

The Mississippi Center for Cooperative Development (part ofthe Mississippi Association of Cooperatives) is helping a NewOrleans nursing home’s employees create a worker cooperative tooffer laundry, cleaning, food preparation and other services toelderly residents of Saint Margaret’s Daughters’ Nursing Home,located in a former hospital in the city's Lower Ninth Ward, andother local people in need of assistance.

To apply for the upcoming spring 2008 training, call 1-800-600-7682 or e-mail [email protected].

N ew Orleans group attendsco-op development training

Participants in a workshop for co-op development specialists tour theWilly St. Food Co-op in Madison, Wis.


Farmers hit the books at a workshop where they explored thepros and cons of farm equipment-sharing co-ops.


By Anne Mayberry U S DA Rural DevelopmentUtilities Pro g rams

emand management.What it’s not: Thelatest corporateleadership trend. Whatit is: A way for your

electric utility to better manage poweruse.

Generally reserved for commercialand industrial customers, ShelbyElectric Cooperative in Illinois hastaken the demand-management practiceto a new level by including smallbusinesses and residential customers inits distributed-generation program.

Shelby’s small business- andresidential-demand managementprogram originated in April 2006, aftera tornado caused power outages. Thecooperative had difficulty restoringelectricity to customers served by aninvestor-owned utility substation.Applying principles of its distributedgeneration program — created forl a rg e commercial and industrialcustomers to smaller customers —Shelby delivered a unique program tomeet rural needs.

Distributed generation is the practiceof electric utilities working withcustomers interested in installing theirown electric power generation units togenerate their own power, whennecessary. This additional powergeneration can then be tapped by theutility during outages or periods of peakuse.

Incentives establishedShelby’s program includes incentives

that encourage residential member-customers to purchase natural gas andpropane-powered generators. If theyallow the cooperative to interrupt theirservice during peak demand, theyqualify for a 15-percent reduction intheir electric bills.

This ability to interrupt customerservice can help utilities better controlelectric load and increase reliableservice during high-demand periods.Shelby uses technology that providestwo-way communication to electricmeters that provides load control anddemand response, in addition to outagedetection and automated billing.Generators begin providing powerwithin 30 seconds after an outage. Onceservice is restored, they automaticallyturn off.

The advantages for customers arelower electric bills, peace of mind that

they will have electricity during powerfailures and knowledge that they areparticipating in a program that couldreduce carbon dioxide emissions.Advantages for the cooperative includereductions in power costs, increasedability to meet customers’ demandsduring peak periods of power use andgreater system reliability.

As a result of the tornado-causedpower outages, “we realized thatoffering generators to these customersmade sense,” says Kevin Bernson,Shelby’s vice president of media andpublic relations. “We decided to helppeople with the financing, then createdan interruptible-rate program for smallbusinesses and residential customers.We reduce the electric bill by 15percent for customers who participatein the demand management program.”

The program had an additionaladvantage when the cooperative wasasked to curb power use last summerwhen hot days increased demand forelectric power.

P rogram pays during ice storm An unforeseen benefit of the

program was realized during an icestorm that hit the co-op’s service area inDecember 2006.

“The ice storm really created a spikein requests for the generators,” Bernsonrecalls. “More recently, the eight- toten-inch snowstorms this winter alsotriggered calls. One of the biggestadvantages of this program for ourcustomers has been peace of mind.”

L ower ing the Pe a k

D

Tornado impact prompts Illinois co-opto expand demand-management program

Installation of 100 of these generators athomes and small businesses will help theShelby Electric Cooperative during peak-demand periods and during poweroutages.


U T I L I T Y C O - O P C O N N E C T I O N

Al to members approve sa leto Saputo Cheese USA

By Dan Campbell, editor

lto DairyCooperative,operated as afarmer-ownedcooperative in

Wisconsin for 114 years, hasannounced that its members haveapproved the sale of its assets toSaputo Cheese USA Inc. in a dealworth $160 million. Thetransaction, which wasunanimously approved by AltoDairy’s board in January, wasapproved by 98 percent of thecooperative’s members fromacross Wisconsin and the UpperPeninsula of Michigan. Theyvoted during a special meeting inFond du Lac, Wis., on Feb. 27.

“Although it is hard to see anend to the cooperative form ofbusiness at Alto, our board ispleased that we were able toprovide an economic return toour members for their investmentand loyalty to the cooperative,”said Howard Zellmer, Alto’s boardchairman.

The $160 million from Saputo is reportedly about 40percent above the market value for the co-op’s assets, andmeans members will get their full equity from the co-op.Saputo will be paying each former co-op member a premiumfor continuing to ship to its plants.

Robert Cropp, professor emeritus with the University ofWisconsin Center for Cooperatives, said the sale of the co-opcomes “as a real disappointment” to proponents of farmerownership of value-added facilities. He said he hopes the saleof Alto Dairy will “serve as a wake-up call” to the UpperMidwest dairy industry about the need to address some of theserious structural challenges facing it.

The overall challenge is: How can the Upper Midwestbetter compete with the growing dairy industry in the Westand Southwest? Dairy industry growth in the West is being

fueled by investments in new plantsand the lower cost of procuringmilk. Cropp blames “a ratherirrational milk-pricing system,which requires payment ofunjustified premiums” to producersin the Upper Midwest for furthertilting the market in the directionof the West.

Another major challenge, Croppsays, is for the Upper Midwestdairy industry to invest more infacilities that produce value-addedcheeses and that process dairy wheyinto high-protein food ingredients,as is occurring in the West. Hethinks such an effort might best bepursued as a joint venture by theregion’s remaining dairy co-ops.

The roots of the sale go back tothe fall of 2006, when the Altoboard of directors and managementbegan looking at ways to acceleratethe co-op’s strategic plan. “As partof this process, the offer fromSaputo surfaced,” Alto spokespersonKaren Endres said. “It was ourobligation to bring this offerforward to our members.”

“Alto Dairy’s members overwhelmingly supported the saleof assets to Saputo Cheese USA Inc.,” Rich Scheuerman,Alto’s president and chief executive officer, said in the co-op’sannouncement of the sale. In it, he called the sale a “historicday for the cooperative,” adding that “the sale will strengthenthe business by improving the long-term viability of ourmanufacturing facilities, providing job stability and a long-term purchaser of milk for dairy producers in Wisconsin.”

Alto’s cheese plant near Waupun, Wis., is the largest andnewest cheese plant in the state. The co-op also owned acheese plant at Black Creek, Wis.

Alto had annual sales of $378 million in 2007, with a profitof $5 million. However, Cropp said it lost money in four outof the past six years, and has had difficulty with timelyredeeming of member equity for several years.

A

After 114 years as a farmer-owned cooperative,Wisconsin’s Alto Dairy will soon transfer to corporateownership. Photo courtesy Alto Dairy




Ed Schafer was sworn in as the 29th Secretary of the U.S.Department of Agriculture (USDA) on January 28. Schafer

brings a record as aninnovative, two-term governorof North Dakota to USDA alongwith extensive private-sectorexperience as both anentrepreneur and a businessexecutive.

Schafer served as NorthDakota’s governor from 1992 to2000 and made diversifying andexpanding North Dakota’seconomy, reducing the cost ofgovernment and advancing

agriculture his top priorities inoffice. He worked to normalizetrading relations with China and

develop that nation as an export market for North Dakota farmproducts. Schafer led efforts to upgrade North Dakota’scommunications infrastructure and make high-speed voiceand data networks available to farmers, ranchers and ruralbusinesses.

To expand the state’s job base, he encouraged the growthof value-added agricultural industries such as pasta and corn-sweetener manufacturing. As chair of the Western GovernorsAssociation, Schafer led regional efforts to demonstrate howtechnology could improve the efficiency and lower the cost ofdelivering government services such as health benefits andfood stamps. He also worked to make telemedicine moreavailable and affordable in rural areas.

Schafer co-founded and co-chaired the GovernorsBiotechnology Partnership to increase public understandingand support for the benefits of agricultural biotechnology.

He has had a lifelong interest in conservation, helping toarrange the USDA Forest Service’s purchase last year of the5,200-acre Elkhorn Ranch in North Dakota — where TheodoreRoosevelt had a home and operated a cattle ranch in the 1 8 8 0 s.

Born and raised in Bismarck, N.D., Schafer graduated fromthe University of North Dakota in 1969 with a bachelor’s degreein Business Administration and earned an MBA from theUniversity of Denver in 1970. Secretary Schafer’s grandfatherimmigrated to North Dakota from Denmark and homesteadedland in Hettinger County that he turned into a wheat andlivestock farm. Schafer spent summers there while growingup. He helped his uncles with chores, tinkered with enginesand learned firsthand about agriculture.

Before entering public life, Schafer was an executive withthe Gold Seal Co. in Bismarck, a consumer productsmarketer.

Ed Schafer takes reins at USDA

The large vote in favor of the sale isprobably an indication both of the co-op’sstressed financial situation and the factthat Saputo “made a very sweet offer,”Cropp said. Some earlier managementdecisions hurt the co-op, including amoney-losing venture with a partner inTexas to produce ingredients for the pizzaindustry, as well as a very competitiveoperating environment, Cropp said.New management was brought in

about four years ago, and major cost-cutting steps were taken, including a 25-percent reduction in labor expenses and moves into highervalue-added cheese products. But such steps apparently werenot enough.On the bright side, the deal does show that Saputo

believes in the continued viability of the Wisconsin cheesemarket, Cropp noted. Saputo also recently bought a Land O’Lakes cheese plant in California.All employees will be offered employment by Saputo,

including all management, with the exception of the CEO,said Endres, adding that the co-op’s field-service team and

state-certified labs will also be maintainedand acquired by Saputo.

“Our members were never requiredto sign contracts (they could leave on anyday) and they won’t be required goingforward,” said Endres. “Dairy producersin the state have many options of where toship milk. These options includecooperatives and proprietary operations.”

“All equity holders in the business,including current and past milk shippers,will receive 100 percent of their equityshortly after the transaction closes,” she

said. “There are additional payments to active shippingmembers, based on their patronage to the cooperative.”Saputo is one of the top 20 dairy processors in the world,

the largest dairy processor in Canada and is among the topfive cheese producers in the United States.Challenges facing the Upper Midwest dairy industry,

including the sale of Alto, will be among the topics addressedApril 2-3 during the Minnesota-Wisconsin Dairy PolicyConference and the Dairy Directors’ Leadership Conferencein La Crosse, Wis.

Secretary of AgricultureEd Schafer

The sale of AltoD a i ry “should serv eas a wake-up call tothe Upper Midwestd a i ry industry.”

— R o b e rt Cropp


Agri-Mark has re c o rd earningsAgri-Mark dairy cooperative in 2007

had a record, after-tax profit of $17.6million, easily surpassing the previousrecord of $11.4 million set in 2003. Co-op leaders say the earnings werewelcome news for dairy farmers whohave been struggling the past few yearswith low market prices and hugeincreases in production costs —especially for energy.Agri-Mark’s profit allocation will be

50 cents per hundredweight. Thisrepresents allocated earnings of roughly$9,000 for the average Agri-Markmember milking 100 cows andproducing 1.8 million pounds of milkper year.The Methuen, Mass.-based co-op,

owned by 1,300 dairy farmers, had salesof about $836 million and marketedmore than 300 million gallons of milk.Co-op officials say the continuedstrength of the cooperative's Cabot andMcCadam branded businesses, strongdemand for the whey proteins andpowder produced by the co-op and costreductions due to changes Agri-Markmade in its business during the pastyear, all worked to boost profits. Inaddition, Agri-Mark members alsoreceived several million dollars inmonthly premiums for overall milkquality and other incentives that the co-op was able to return to its dairy farmfamilies.“Last year was finally a good one for

farm prices, but milk production costsalso climbed to record levels,” saysBoard Chairman Neal Rea, a dairyfarmer from Cambridge, N.Y. “That iswhy I am so pleased that Agri-Mark isable to generate these year-end profitsand also earn money for the farm in theform of monthly premiums.”

The co-op’s whey protein plant inMiddlebury, Vt., continues to generatestrong revenues from processing wheyinto more value-added products. Theco-op’s whey proteins and powders aremarketed both nationally andinternationally and are used asingredients in hundreds of products,including sports nutrition drinks andbaby formulas.“Our brands continued to grow and

the commercial side of our business wasstrong as well,” says Paul Percy, whomilks 350 cows near Stowe, Vt., and hasserved on the Agri-Mark board sincethe co-op was formed in 1980. “I seethe potential for many good yearsahead.”Paul P. Johnston, Agri-Mark

president and CEO, says he recognizesthe challenges of sustaining such high-profit levels year to year, especiallygiven the volatility of both national andinternational dairy markets and farmmilk prices. Still, Johnston says Agri-Mark is stronger financially and betterprepared today to face the future.“Northeast dairy farmers need to

market a larger percentage of their ownhigh-quality dairy products directly tothe consumer so they can capture alarger portion of the dollars they spend

on those products,” says Johnston. “Wewill continue to work to expand ourbranded sales in 2008 and explore everyopportunity to stabilize farm milk pricesat levels above the cost of productionfor our farmer-members.”

Snokist expanding pro c e s s i n g ;will exit fre s h - p roduce sectorSnokist, Yakima, Wash., will exit the

fresh-fruit packing business in early2008 to fully concentrate efforts anddirect its resources to the processed-,canned- and aseptic-fruit product lines.Snokist says it has a fruit-bowl linewhich produces fruit blends, high- andlow-acid products and gelatins. Co-opofficials say all of these products havetremendous growth opportunities forsingle-serve packaging and as value-added ingredients for the food industry.Snokist has made a significant

research and development investmentand has set a goal to add four newproducts each year and distribute tocustomers.Snokist President Jim Davis said the

co-op is committed to continuouslytaking steps to improve efficiencies andensure that it remains competitive forthe next 100 years. “The new directionand vision is very clear: to be a

N E W S L I N E

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Record profits at Agri-Mark in 2007 willhelp dairy farmers hard hit by rising costsin recent years.

Snokist will now be putting all of itsenergies into its processed fruit-productsbusiness.


profitable, grower-owned, packaged-fruit company,” he says. “Snokist willstrengthen the ongoing commitment tothe private-label programs of ourcustomers with unique products,partnerships and personalized customerservice.”Exiting the fresh division requires

changes to both the co-op’s businessinfrastructure and its properties. Thelatter includes selling the Mead Avenuelocation and the Grandview Portproperty. Both Grandview plant No. 1and No. 2 will be leased, with an optionto purchase. The Sawyer facility will beretained for future needs.Snokist has been a prominent leader

in the fruit industry since 1903 and amajor worldwide producer and shipperof fresh cherries, pears and apples aswell as one of the largest canners in theworld.

Sioux Center ethanol plantto double fuel pro d u c t i o nSiouxland Energy and Livestock

Cooperative in Sioux Center, Iowa, hascompleted a major expansion of itsethanol plant, more than doublingannual production capacity from 25million gallons to 60 million gallons.The plant can now process more than20 million bushels of corn annually andwill market about 400,000 tons of wet

distillers grains and 140,000 tons ofcondensed distillers soluables syrup.The plant opened in 2001, making it

Iowa’s oldest operating farmer-ownedethanol plant. Co-op Manager BerniePunt said the plant “has a newperspective today in the extremely fast-changing ethanol industry. Ourexpansion project helps keep our plantcompetitive so that we can continueadding value to the farming operationsin Northwest Iowa.”

New biodiesel facilityopens in ColoradoA new biodiesel blending and storage

facility has opened in Aurora, Colo.,increasing the availability of thecleaner-burning fuel for the area.Pipeline company Magellan MidstreamPartners L.P. owns the facility, which islocated at an existing petroleumterminal. CHS Inc., a Minnesota-basedenergy and grain-based foodscooperative, will market and distributethe fuel.“By combining a biodiesel blending

and storage facility with Magellan’sexisting infrastructure, we can getblended fuel to our customers faster andmore efficiently,” says Drew Combs ofCHS. “Rack blending as opposed tosplash blending provides more accuracyand higher quality as well as one-stop

loading with a single bill-of-lading.”Company officials say the move

demonstrates biodiesel’s increasedintegration into the nation’s petroleuminfrastructure. The recently passedfederal Energy Bill includes anexpanded Renewable Fuels Standard,which for the first time will requiremore renewable fuel to be incorporatedinto the U.S. diesel market. Biodieseland other renewable fuels depend onpetroleum infrastructure, such as theMagellan terminal, for easy distribution,they noted.The new biodiesel-blending facility

has an 84,000-gallon tank and will makebiodiesel blends available to petroleumdistributors. Those customers will likelyinclude area truck and car fleets andcould lead to more public pumps.Current Colorado biodiesel usersinclude Jefferson County PublicSchools, the City of Lakewood, NewBelgium Brewery in Ft. Collins,Safeway and Aspen Ski Resort.

Oemichen tells Senate panelabout rural healthcare co-opsTestifying before the U.S. Senate

Small Business and EntrepreneurshipCommittee, Bill Oemichen, presidentand CEO of the Minnesota Associationof Cooperatives (MAC) and WisconsinFederation of Cooperatives (WFC),described ways for small businesses toaddress healthcare needs. Specifically,Oemichen addressed support for federalreforms that would help smallemployers, including farmers, gainaccess to affordable, quality healthinsurance coverage.“We believe the member-owned

cooperative model that puts consumersin charge of their own health decisionsis the perfect fit for health care,” saidOemichen.With the support of its member

cooperatives, MAC and WFC created aproject called “Co-op Care” to allowsmall employers, including farmers, tojoin together to purchase healthinsurance as a large group. Theysuccessfully sought passage of enablinglegislation in both Minnesota andWisconsin to provide a Co-op Care

Production will more than double at Siouxland Energy’s ethanol plant (seen here prior torecent expansion).


model, and have since worked toestablish healthcare purchasingcooperatives in both states aimed atfarmers and small businesses.“When compared to the large group

market, small employers — especiallyfarmers — buying health insurance facegreater challenges: stricterunderwriting, fewer choices, lowerquality benefits and little or no dataupon which to base informeddecisions,” he testified. “Bringing smallemployers together under thecooperative umbrella allows the co-op…to negotiate directly with insurersor providers similar to a large employer.This, in turn, allows the cooperative tonegotiate higher quality coverage,improve benefit choices, relaxunderwriting criteria — if it so chooses— and utilize cost and quality data toeducate members about cost drivers andensure that rate increases are in linewith claims experience.”MAC and WFC serve more than 800

member-cooperatives owned by morethan 6.3 million Minnesota andWisconsin residents.

ACE unveils new Web siteThe Association of Cooperative

Educators (ACE) has unveiled a new,improved Web site to help improvecommunication and connections amongACE members and the cooperativeeducation community (www.ace.coop).ACE says it is striving to use its Website and newsletter to “make linksbetween ideas, people, programs andgeographical regions.” The ACEnewsletter, “Update,” is also posted tothe Web site.The importance of cooperative

communications is stressed in“Communications — A MovableFeast,” an article in a recent ACEnewsletter by Ian MacPherson of theBritish Columbia Institute for Co-operative Studies at the University ofVictoria, Canada.ACE is a membership organization

that brings together educators,researchers, cooperative members, andcooperative developers from acrosscooperative sectors and national

borders. The resulting cross-pollinationof ideas enhances cooperativedevelopment, strengthens cooperatives,promotes professionalism and improvespublic understanding of cooperatives.ACE benefits cooperative education

and the cooperative movement by:• Promoting cooperative research;• Developing linkages betweenuniversities, cooperatives andsupporting organizations;• Building capacity to support thedevelopment of innovation andacumen in cooperatives;• Spreading the word by providingresources on cooperative education.ACE holds an annual institute where

members and guests gather to sharecooperative education studies, ideas,endeavors and thought. The 2008Institute will be held in Ottawa,Ontario, July 29-Aug. 1, where thetheme will be: “The SustainableCooperative: Vision, Leadership,Education.” For more details, visit theACE website: www.ace.coop.

Tennessee Farmers Co-opsets new sales re c o rdConsolidated sales for Tennessee

Farmers Cooperative (TFC) and its

subsidiaries reached an all-time high of$584 million in 2007, an increase of $63million from 2006. In a year full ofchallenges — including a late-springfreeze, summer drought, short haysupplies and higher input costs — thesales record was welcome news forTennessee farmers.TFC’s subsidiaries include ADI, ADI

Agronomy, Fort Loudoun Terminal,Co-op Vet Health, Risk Managementand Stockdale’s.Net income (before taxes and

member programs) was $15.8 million,compared to $10.4 million in 2006.TFC alone had income of $11 million,up from $9 million in 2006. Alloperations departments were profitablein 2007, and both ADI and ADIAgronomy had their best year sinceTFC purchased them in 1992.The cooperative returned $8 million

to member co-ops in patronage andallocated reserves in October. Thatmoney will eventually flow back aspatronage payments to the farmers whoown the local co-ops. CEO Bart Krislesaid TFC has paid $204 million inpatronage and reserves to member co-ops during the past 25 years. In turn,local co-ops have distributed $185

Tennessee Farmers Cooperative CEO Bart Krisle tells members how the co-op set a newsales record in 2007.


million of that amount in cash to theirfarmer-owners.“These figures represent the

cooperative system at its finest — asystem that is a very relevant andeffective form of business today,” saidKrisle, who is completing his secondyear as CEO. “The co-op system keepsmoney in our state, in our agriculturalcommunity, in our local economies andin our farmers’ hands.”While higher prices of inputs, such

as fertilizer and fuel, played a majorrole in the sales figures, Krisle said salesvolume was up in these areas as well.Systemwide fertilizer tonnage increased22 percent from last year.Manufacturing records were broken

at TFC’s metal fabrication plant inLaVergne, Tenn., where co-op productssuch as feeders, hay rings and gates aremade. TFC’s Jackson Feed Mill had itsbest production year, at 85,000 tons.“Whether it was making fertilizer

available when farmers needed it most,or providing livestock feeds formulatedto help stretch low hay supplies, oursystem pulls together best when thechips are down,” said Board ChairmanRoss Via, a Crockett County row-cropfarmer. “It is the difficult times — notthe ideal ones — that show us the truevalue of our cooperative system.”Via’s seven-year service on the TFC

board ended with the 2007 annualmeeting, and Stephen Philpott ofShelbyville, Tenn., was elected by fellowboard members as the new chairman.Bill Mayo of Tennessee Ridge wasselected as vice chairman.TFC, established in 1945 as a

regional farm supply cooperative,provides products and services to 60member co-ops, which serve some70,000 farmer-owners and more than500,000 other customers acrossTennessee and in several neighboringstates.

Co-ops to expand oilseed-c rushing capabilityProducers Cooperative Oil Mill

(PCOM), a 63-year veteran inprocessing cottonseed in the SouthernGreat Plains, is expanding its operation

to include the processing of canola,sunflowers and other oil seeds for foodand biofuels. PCOM has signed anagreement with the recently formedPlains Oilseed Products Cooperative(POP) to jointly promote and crushcanola, sunflowers, cotton seed andother oilseeds.“We want our cotton-growing clients

in the Southern Plains and Mid-Southto know we will continue to providethem with the same quality service wehave given for more than a halfcentury,” said Gary Conkling, oil millpresident and CEO.The unusual alliance of agricultural

producers — including an oilseedcrusher, state universities, a nationalseed supplier and American Farmersand Ranchers Mutual Insurance Co.(Oklahoma Farmers Union) — willprovide agriculture producers in theSouthern Great Plains with a newmarket for current and future oilseedcrops.PCOM will retrofit current

cottonseed-crushing capacity to allowadditional capacity and infrastructurefor crushing winter canola andsunflowers for oil to be used in thefood industry and for biofuelproduction. POP will continue to workwith grain handlers across the SouthernGreat Plains to establish additionallocal delivery points for growers’oilseed.Oklahoma Farmers and Ranchers

Energy Enterprise (OKFREE), formedby Oklahoma Farmers Union, wassupported through a Value-AddedProducer Grant from USDA RuralDevelopment to study the feasibility ofprocessing oilseed and to understandthe market opportunities for oilseed inthe food and biofuels industry.

F o n t e rra delaysf a rmers’ sale voteFonterra Cooperative Group Ltd.,

the world’s largest dairy exporter, hassaid it needs more time to persuade theNew Zealand farmers who own thecooperative that they should support astock sale. It has delayed a vote on theproposal, according to a report carried

by Bloomberg News Service. “We'vegot a lot more work to do to winmembers’ support,” Fonterra ChairmanHenry van der Heyden said. Thepostponement of the vote, initially setfor May, was announced Feb. 15 in aletter to members.The farmer-shareholders were to

vote on a new structure for thecompany as the first stage of a sale ofshares in 2010 that could have raisedabout $2 billion, Bloomberg reported.Fonterra, based in Auckland,announced the plan in November,citing the need to access outside capitalto fund expansion. “Farmers areconservative people and they’ve built upthe company to what it is,” said AlanMoore of Milford Asset Management inWellington, N.Z. “Maybe they think:‘Why should we give that up?’”

N C B A’s Paul Hazen addre s s e sU.N. on co-ops and job growthPaul Hazen, president and CEO of

the National Cooperative BusinessAssociation (NCBA), told a UnitedNations panel in New York City inFebruary about the role of cooperatives

About 150,000 coffee growers in EastTimor are being helped by a cooperativeformed with assistance from theNational Cooperative BusinessAssociation.


in reducing poverty throughemployment generation. Hazenaddressed the 46th Session for theCommission on Social Development.

In East Timor, for example, NCBAhas helped create employment for morethan 150,000 farmers selling coffeethrough assisted entities. CooperativaCafé, which sells its coffee to Starbucks,has grown to be the largest privateemployer in the country since thisproject began in 1995. Hazen cited thisas one of several examples for theCommission. “At NCBA, we have aconsistent track record of showcasingwhy cooperatives are a better businessmodel. One obvious benefit is theamount of jobs they create in localcommunities to allow people toimprove the quality of their lives,” saidHazen.

Hazen spoke on behalf of theInternational Cooperative Alliance(ICA), an independent, non-governmental association whichrepresents socially responsiblecooperatives worldwide. Hazen is amember of the organization’s board.“By bringing the cooperative enterpriseto more communities both in theUnited States and around the rest ofthe globe, we give some of the world’spoorest people the keys to a better life,”Hazen said.

USDA renewable energ ystudies on Web

Four studies commissioned byUSDA Rural Development to helpfocus attention on crucial strategicissues facing the nation’s renewableenergy industry have been posted tothe Internet. The four studies, whichwere summarized in the January-February issue of this magazine, can beaccessed by selecting “Spotlights” at:w w w.rurdev.usda.gov/rbs/coops/csdir.htm.

The studies focus on:• Ways to better integrate wind and

solar power into the nation’s powergrid;

• How new investment models couldhelp reverse the decline in localownership of biofuels plants;

• Business-ownership models mostapplicable for biofuels plants;

• A look at major obstacles limitinggrowth of the renewable energyindustry, such as the need forimproved transportationinfrastructure.The issue of USDA’s Rural

Cooperatives magazine with the studysummaries can also be viewed online (ascan the past 10 years of the magazine)at: www.rurdev.usda.gov/rbs/pub/openmag.htm.

Bill Davisson namedc h a i rman of NCFC

Bill Davisson, chief executive officerof GROWMARK Inc., a farmercooperative headquartered inBloomington, Ill., was elected chairman

of the National Council of FarmerCooperatives (NCFC) during theorganization’s recent annual meeting inLake Buena Vista, Fla. Davisson takesover leadership of the association fromJohn Johnson, CEO of CHS Inc., whocompleted his second one-year term aschairman in 2007.

Davisson has served as CEO ofGROWMARK since 1998, havingworked his way up through the

GROWMARK system over the courseof his career.

NCFC also elected a new vicechairman at the meeting, DouglasYoungdahl, president and CEO of BlueDiamond Growers of Sacramento,Calif.

“I know that both Bill and Doug willwork tirelessly to ensure that NCFCcontinues to represent the interests offarmer cooperatives and their membersin a dynamic business and policyenvironment,” says NCFC PresidentJean-Mari Peltier. “I, along with theentire staff at NCFC, look forward toworking with them over the comingyear.”

Tobacco lawsuit endswith $100 million payment

Nearly 200,000 burley tobaccogrowers in four states will share anestimated $100 million under a finaljudgment entered in December 2007 intheir lawsuit against the Burley TobaccoGrowers Cooperative Association,Lexington, Ky. Each farmer will likelyget about $430, according to a report inthe Lexington Herald-Leader.

The plaintiffs asked the court toorder the co-op to pay members fromwhat they deemed to be excessivereserves, held since at least 1992. Theco-op contended that it was required bythe federal government to keep a largereserve to protect the federalCommodity Credit Corp. from losseson loans made by the co-op.

The co-op issued a statement sayingit was pleased with the judgmentbecause it would restore growers’confidence in its future, and because itavoided being dissolved, as requested bythe plaintiffs.

With the end of the federal tobaccosupport program, a smaller volume ofburley tobacco is being sold at co-opauctions and the number of growers hasdeclined sharply. Many of those whoare left grow under contract withcigarette makers, the Herald-Leaderreported. “We have been working hardto attract foreign buyers for burleytobacco,” says co-op President RogerQuarles.

Bill Davisson

Robertson of the co-op’s clientele. “ButI have found that you don’t know.There are young people. There arefishermen. It’s such a variety. A goodpart of our purchases are, of course,made by summer tourists to Alaska, and

that’s how the word gets spread.”Despite its limited marketing, the

word does continue to spread.Robertson credits two things for thishigh demand: the fine quality of the

fiber, and the hands-on, personalapproach and story behind the items. “Ithink the fact that this is truly meant tohelp the people in the villages…is a bigdrawing point,” Robertson says.

The Oomingmak Musk OxProducers’ Cooperative stands out, notonly because it is structured differentlythan a typical business, but because itexists solely for the benefit of thepeople living in remote Alaskan villages.“These are villages you could not get toby car,” Robertson says. “It really istruly way out there. You don’t go thereon a whim,” she says, adding that thereare very few jobs in such villages.

The beauty of thecooperative is that itprovides a way forthese people to makemoney but is flexibleenough to allow themtime to live theirmostly subsistencelifestyles. “It’ssomething that you fitin with the other partsin your world, liketaking care of yourchildren, preservingthe things that youneed to pick andpreserve in thesummer or dryingfish,” Robertson says.

Robertson admits that the co-op haschanged very little since its beginning,other than incorporating computers atheadquarters, developing a Web siteand increasing the number of members.Unlike other businesses and co-ops thatwork to stay on top of, and even aheadof, the next big thing, Robertson makesclear that Oomingmak Musk OxProducers’ Cooperative’s goal is verydifferent: “We’re not a mover and ashaker type of business. We are steepedin tradition, and that’s where we intendto be.” ■

State of the Artcontinued from page 23


i m p roved farming techniques, Americanf a rmers have steadily increased yieldswhile at the same time reducing ero s i o n ,reducing the need for irrigation andreducing fert i l i z e r, herbicide andpesticide intensity while pro t e c t i n ghabitat.

We have done all this withoutinfringing on the private pro p e rty rightsof farmers as they seek new markets andto convert acreage to higher value-added crops. Producers will continue toapply these skills to the many issues thatwill arise as we build out the biofuelsi n d u s t ry, provided that we do not place

a rtificial barriers in the way.Sustainability can be dynamic, as well

as static; we must not be paralyzed by afear of change.

Nations differ also in their opennessto markets. The United States iscommitted to the rapid build-out ofrenewable energ y.

But we are committed as well tominimizing costs to consumers — to as t rong, pro - g rowth economic policy andto moving renewable energy industriesf rom subsidies to the market as rapidlyas possible. Other nations may strike ad i ff e rent balance.

Let us respect our diff e rences andl e a rn from each other while notconstraining the ability of the world

market to trade in these new energ yre s o u rces.

After this conference, we will leavewith a renewed appreciation of theglobal scope of this cause — hopefullywith a deepened understanding of thechoices we face and the diversity of thestrategies open to us, and with newenthusiasm for the work ahead.

Nearly 30 years ago, the late JulianSimon argued that “the humanimagination, coupled with the humanspirit was, indeed, the ultimatere s o u rce.” I believe that this is tru e .To g e t h e r, we can build a cleaner, moresustainable, and more productive energ yf u t u re. That is the goal of WIREC2008. Let’s get to work. ■

C o m m e n t a rycontinued from page 2

A sampling of the co-op's scarves,hats and nachaqs (a tubular garmentworn as a hood or about the neck).

Hundreds of miles of Arctic tundra may separatethem, but Alaskan villagers market their knitted goodsunited in a co-op.

and Wolverine Power SupplyCooperative were also honored for theirinnovation and contributions to windtechnology.

Last Mile is developing the 300-Megawatt (MW) White Creek windproject in Washington state. Whencompleted, it will be the largest publiclydeveloped wind project in the United

States. Wolverine, located in Cadillac,Mich., has developed the state’s firstmulti-megawatt wind project, HarvestWind Farm in Huron County.

Previous awardees include AssociatedElectric Cooperative Inc., Illinois RuralElectric Cooperative, Western FarmersElectric Cooperative (Oklahoma), HolyCross Energy (Colorado), BasinElectric Power Cooperative (NorthDakota) and Great River Energy(Minnesota).

DOE’s Wind Powering Americaprogram aims to help the nationachieve targeted regional economicdevelopment, enhance powergeneration options, protect theenvironment and help increase ourenergy security. In 2007, the UnitedStates installed 5,240 MW of new windpower, a 45-percent increase over 2007.The United States has the fastestgrowing wind-power capacity in theworld. ■

merger, the bank’s board ballooned to39 directors — far from the leangovernance structure Orton and othersdeemed in the best interest of themembership.

According to Cassidy, downsizing“was in the best interest of theorganization,” but it would have beenmuch easier to delay such action.However, “Roy wanted to address itnow.”

Although the board overwhelminglyagreed to reduce the number ofdirectors, no one wanted to eliminate

his or her own seat, and tension ensued.Orton appointed a committee, withhimself as chair, which ultimatelyrecommended a plan to reduce theboard in phases over three years. Eachdirector was able to serve out his or herterm, although the seat would not befilled after that.

“It took honesty, integrity and a lotof leadership to pull this off,” recallsDean.

“His leadership in governance atCoBank has led to changes in boardstructure that puts CoBank at theleading edge,” says Everett Dobrinski,CoBank's new chairman. He praisedOrton for leading by example,voluntarily giving up his own seat by

not seeking reelection.“I didn't think it was right for me to

promote downsizing, chair thecommittee and then stay on,” Ortonrecalls. The board has now beenreduced to 12 elected and fourappointed directors.

CoBank CEO Robert B. Engelcommends Orton for his vision, sayinghis key contribution to the financialinstitution was his solid “understandingof good governance before it wasvogue.”

Baldwin borrows from famed NFLcoach Bill Parcell to describe Orton:“You are what your record says youare.” Orton’s track record shows that heis bowing out at the top of his game. ■

A Nice Guy Who Finished Firstcontinued from page 27

Another advantage for the cooperativeis the revenue for the cooperative’spropane subsidiary, Shelby Energy,Bernson says. Shelby won a 2007Expanding Excellence Award from CSWeek, an electric utility customerservice organization, and Electric Lightand Power magazine. The awardrecognizes outstanding contributions,innovations and excellence in utilitycustomer service.

For every 100 generators installed,the cooperative can increase peak-demand control by 1 megawatt (MW).Every MW of controlled demand canresult in about $50,000 in annual power

cost savings. These savings can bepassed on to customers and increasesystem stability. During a 10-yearperiod, the net benefits are expected toexceed initial project implementationcosts, according to the cooperative.

$500,000 annual savingsThe cooperative’s goal is to install

enough generators to achieve 10 MWof interruptible capacity, which couldsave more than $500,000 in annualpower costs — nearly 5 percent ofShelby’s total power supply costs.Installation of enough generators couldreduce the need to turn on peakingunits, used when electric power is inhigh demand.

Bernson noted that Shelby’s farmand residential customer-members whoare participating in the demand-

management program enjoy thebenefits of knowing that during poweroutages, their generators will continueto supply electricity to meet their needs.

“One of our customers, a farmer,told us that now he doesn’t need toworry about making sure he hassomebody check his property if he’saway when an outage occurs. He nolonger has to mess with generator fueland fuel storage, or manage generator-safety concerns, such as extension cordsand proper ventilation. He doesn’t needto deal with the elements to get hisgenerator started during outages.

“It’s a safer way to go,” Bernsonnotes. “Best of all, our members whoparticipate can save money each monthand we keep peak load costs down.” ■

Lowering the Peakcontinued from page 34


N o rth Wi n dcontinued from page 19

50 Years A g o . . .From the March 1958 issue of News for Farmer Cooperatives

Burlington Consumers Cooperativeexceeds goal in 20th year

In its 20th year, 1957, Burlington (Wis.) ConsumersCooperative handled sales of more than $1.5 million, itshighest volume in five years. During its 20 years, the co-ophas refunded nearly $567,000 to members, almost $280,000 incash as dividends and interest on stock and bonds, patro n a g erefunds, and redeemed stock.

Other outstanding co-op re c o rds set include: • An increase in assets to a new high during the past 10 years,

without the aid of additional member capital.• A favorable ratio of assets to liabilities, indicating a sound

financial condition.• Tremendous quantities in tonnage and gallons handled in

the four departments: feed, farm, machinery, petroleum andh a rd w a re .The year 1957 was outstanding, too, because the co-op

reached and exceeded its sales goal projected five years ago; itstepped up its public relations work and it organized anddeveloped a credit union, besides adding other new serv i c e sand facilities.

30 Years A g o . . .F rom the April 1958 issue of News for Farmer Cooperatives

F a rmland disposal system meets1985 pollution standard s

The future is now for a waste disposal system justc o n s t ructed at Farmland Foods’ beef slaughtering plant inG a rden City, Kan. The system meets govern m e n tre q u i rements set for 1985. “The ‘land application system’designed specifically for the Garden City plant meets 1985Z e ro Pollution Discharge re q u i rements set by the FederalWater Pollution Control Act,” John H. We s t e rh o ff, Farm l a n dFoods president, explained.

The new system complements the existing waste watert reatment facility at the beef plant.

N i t rogen-rich effluent from the waste treatment plant isnow transferred to two newly constructed 18-acre storageponds. The two ponds have a total capacity of 130 milliongallons of water. The effluent had formerly been discharg e d

into the Arkansas River. The huge quantities of water useddaily at the Garden City plant are provided by Farm l a n dFoods from its own wells.

Those unseen attributes Roger Baccigaluppi, president of the California Almond

G rowers Exchange, Sacramento, touched upon the “margin ofg reatness” his cooperative has — a margin that is a keyattribute to many of this country ’s cooperatives. “In the midstof buildings and machinery,” he observes, “the typical visitormisses several all-important elements that allow thecooperative to produce Blue Diamond quality products andretain its leading position in the almond industry.”

The unseen elements he cites include the growers’ work,investment and planning to provide the harvest, the board ofd i rectors’ and members’ concerns over quality (his cooperativein 1976 had about half the insect damage of all otherC a l i f o rnia handlers combined), the cooperative board andmanagement teamwork on strategy, and the cooperative’semployees’ skills that pre p a re and see products through tom a r k e t .

10 Years A g o . . .F rom the March/April 1998 issue of Rural Cooperatives

Wo m e n ’s crab meat co-op helps re v i v eChesapeake Bay island economy

Five years ago, the hardy people of Ty l e rton, Md., weres t ruggling to pre s e rve a way of life that for generations hasrevolved around the harvesting of the sea. Crabbing andfishing — the only industries in this 75-person village onSmith Island in the Bay — had fallen on hard times. Seacatches had been falling, with many species disappearing fro mlocal waters. Tough new state crabbing regulations weremaking it even harder for Ty l e rton watermen to stay inb u s i n e s s .

To save their crab-picking industry, island women formed acooperative in 1993. After a 3-year struggle, Smith IslandCrab Meat Cooperative Inc. secured funding for a newpicking and packing facility, raising $283,000.

To d a y, the co-op’s facility is in its third operating season ina licensed, state-of-the-art building. In 1997, it sold 19,000pounds of crab meat. The co-op has buyers for the meat evenb e f o re it’s picked. Co-op members are looking for otherbusiness possibilities as well. Says Janice Marshall, founderand president, “This small co-op of women is combiningbusiness basics and an excellent product into a success wenever expected.” ■

P A G E F R O M T H E P A S T

F rom the archives of Rural Cooperatives




Unit ed Stat esD e p a r tment of Agri cultureWashi ngton, DC 20250

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