cooperatives - USDA Rural Development

USDA / Rural Development May / June 2012

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lCOOPERATIVESCOOPERATIVES

A Taste of

GoldPage 16

By Dan Campbell, Editor

n May 15, 1862, President AbrahamLincoln signed into law an Act of Congresscreating USDA. His goal was to launch afederal agency that would help create amore prosperous nation by making it one

of the world’s leading producers of food and fiber. Thatmission has been accomplished many times over, asAmerican agriculture today is the envy of the world.

But if Lincoln were to return to USDA as we celebrateits 150th anniversary in 2012, he would undoubtedly beamazed to see how USDA has evolved and grown. Forexample, he would see highly skilled botanists and otherscientists at work in laboratories operated by USDA’sAgricultural Research Service, where they are striving tofind ways to fight a wide range of plant diseases and tobreed new drought-tolerant and insect-resistant plantspecies.

Lincoln would see USDA Forest Service forestersimplementing forest management plans that help ensurethat our national forests provide recreation, wildlifehabitat and an abundant source of timber for the nation.He would also see USDA Foreign Agricultural Servicestaffers studying markets around the globe, constantlylooking for new export opportunities for U.S. farmers.

At USDA’s Food and Nutrition Service, Lincoln wouldsee men and women striving to ensure that no child inAmerica ever goes to bed hungry. At USDA’s NaturalResources and Conservation Service, he would see staffmembers helping farmers and ranchers develop landmanagement plans that protect crucial wetlands and otherfragile land resources. He would see how USDA FoodSafety and Inspection Service workers stationed in meat-processing plants are helping to ensure the wholesomenessof the food that winds up on our dinner plates.

At USDA Rural Development, Lincoln would find anagency with offices across the nation where staff membershelp rural Americans accomplish the dream ofhomeownership and support development of affordablerental housing and community facilities, such as firestations, medical clinics and day care centers. He wouldsee other Rural Development staffers working with local

business developers and lenders to finance promising newbusiness startups and expansions, helping to create newjobs in the process.

Lincoln would see how the Rural Utilities Service ofUSDA Rural Development provides financial andtechnical resources to help the nation’s rural electriccooperatives keep rural America fully charged. Many ofthese co-ops are also using USDA programs to extendbroadband services to all corners of the nation, improvingthe competitiveness of rural communities.

And through the Cooperative Programs of RuralDevelopment, he would find an office that serves as thenation’s leading source for cooperative educationalmaterials (including this magazine), research, statistics andtechnical assistance, all designed to help improve theoperations of America’s cooperatives and to make morepeople aware that the cooperative business-model is theultimate tool for sustainable economic self help.

So, while Honest Abe would undoubtedly be surprisedto see the diverse missions mentioned above (and manymore) that are accomplished daily at USDA, we think hewould be happy with the results of what he started thatspring day 150 years ago. �

2 May/June 2012 / Rural Cooperatives

CommentaryIf only Abe could see us now!

O

Features

Rural Cooperatives / May/June 2012 3

Volume 79, Number 3May/June 2012

Rural Cooperatives (1088-8845) ispublished bimonthly by USDA RuralDevelopment, 1400 Independence Ave.SW, Stop 0705, Washington, DC. 20250-0705.

The Secretary of Agriculture hasdetermined that publication of thisperiodical is necessary in the transactionof public business required by law of theDepartment. Periodicals postage paid atWashington, DC. and additional mailingoffices. Copies may be obtained from theSuperintendent of Documents,Government Printing Office, Washington,DC, 20402, at $23 per year. Postmaster:send address change to: RuralCooperatives, USDA/RBS, Stop 3255,Wash., DC 20250-3255.

Mention in Rural Cooperatives ofcompany and brand names does notsignify endorsement over othercompanies’ products and services.

Unless otherwise stated, articles in thispublication are not copyrighted and maybe reprinted freely. Any opinions express-ed are those of the writers, and do notnecessarily reflect those of USDA or itsemployees.

The U.S. Department of Agriculture(USDA) prohibits discrimination in all itsprograms and activities on the basis ofrace, color, national origin, age, disabili-ty, and where applicable, sex, maritalstatus, familial status, parental status,religion, sexual orientation, geneticinformation, political beliefs, reprisal, orbecause all or part of an individual’sincome is derived from any publicassistance program. (Not all prohibitedbases apply to all programs.) Personswith disabilities who require alternativemeans for communication of programinformation (Braille, large print, audiotape,etc.) should contact USDA’s TARGETCenter at (202) 720-2600 (voice and TDD).To file a complaint of discrimination, writeto USDA, Director, Office of Civil Rights,1400 Independence Avenue, S.W.,Washington, D.C. 20250-9410, or call (800)795-3272 (voice), or (202) 720-6382 (TDD).USDA is an equal opportunity providerand employer.

Tom Vilsack, Secretary of Agriculture

Dallas Tonsager, Under Secretary,USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

Have a cooperative-related question?Call (202) 720-6483, or email:[email protected]

This publication was printed with vegetable oil-based ink.

p. 4

04 Spawning a solutionFarmers, Indian tribes, environmentalists form co-op to restore Washington salmon runBy Stephen Thompson

08 When it comes to local food, co-ops are on the mapBy Kathleen Merrigan

12 World Wide Web goes localHow the Oklahoma Food Cooperative uses the Internet to bring farmers, consumers togetherBy Adam Diamond

16 A Taste of GoldCo-ops’ world-class cheeses help U.S. dominate international competitionBy Dan Campbell

30 Capital IdeasLessons offered by dairy co-ops shed light on important equity capital issuesBy Charles Ling

38 Keep the co-op candle burning!2012 International Year of Co-ops perfect time to gear-up co-op educationBy Jim Wadsworth

Departments02 COMMENTARY

20 CO-OPS & COMMUNITY

24 UTILITY CONNECTION

28 CO-OP DEVELOPMENT ACTION

36 FOCUS ON: CO-ALLIANCE LLP

40 NEWSLINE

p. 20p. 8

ON THE COVER: A judge digs into his work while evaluating cheeseentries in the 2012 World Championship Cheese Contest. U.S. dairy co-ops claimed a number of gold medals in the international competition,held in Madison, Wis. Article on page 16. Photo by Kris Ugarriza,Courtesy Red Wave Pictures

p. 30


Farmers, Indian tribes, environmentalistsform co-op to restore Washington salmon run

Spawningasolution

By Stephen Thompson, Assistant [email protected]

ention of the PacificNorthwest oftenconjures visions ofsalmon leaping incrystal-clear streams.

Unfortunately, the salmon runs aremuch reduced compared to the past,and many once-numerous species arenow listed as “threatened” and even“endangered” in some watersheds.Groundwater contamination and runofffrom farms may be contributing to theproblem.

The issue of agricultural activitiescompromising salmon habitat has longcaused tension in coastal Washingtonbetween Indian communities, for whomthe salmon are a vital cultural heritage,and farmers. Recently, members of thetwo groups have discovered ways to

work together to decrease waterpollution and bring back salmon habitatwithout threatening farmers’livelihoods.

Qualco Energy, a nonprofitcooperative venture of farmers, theTulalip Tribes and conservationists, isoperating an anaerobic digester atMonroe, Wash., in the environmentallysensitive Snoqualmie River watershed.It’s turning dairy manure into electricpower and helping to defuse a hot-button issue in the area.

It’s a win-win for the farmers, theconservationists and for the salmon.The digester allows dairies to expandtheir output while reducing nutrientand bacteria levels in groundwater andthe nearby river. It also greatly reducesodors in comparison to traditionalmanure lagoons — a big concern in anarea with bedroom communities closeto the farms.

Flood control effortsparks project

Dale Reiner runs a beef cattle ranchon the Skykomish, near Monroe, thathas been in his family for over 100years. In 1990, a flood caused majorerosion on the land and the riverthreatened to change course, with thepotential to wipe out a large chunk ofhis property. Reiner wanted to buildflood protection. “I wanted to save whatI got!” he says.

After finding it difficult to get therequired permits, Reiner decided to talkto local conservationists. “I figured if Iworked with the environmentalcommunity, I might get the ball rollinga lot faster,” he says.

A friend put him in touch with JohnSayre of Northwest Chinook Recovery,a nonprofit seeking to reclaim salmonhabitat. On a visit to the ranch, Sayrewas shown Haskell Slough, a backwater


John Sayre (left) of Northwest Chinook Recovery and farmer/rancher Dale Reiner are helping to preserve the Haskell Slough (seen here) as animportant salmon rearing habitat in Washington. Opposite page (bottom): Dairy farmer Andy Werkhoven has reduced the environmental impact ofhis operation by recycling the farm’s manure through an anaerobic digester. Photos by Alan Honick. Salmon photo courtesy U.S. EnvironmentalProtection Agency.

M

of the river that would wash out whenthe river bed “migrated.”

“He said the slough could makeprime rearing habitat for youngsalmon,” Reiner recalls. The problemwas that its current geography cut offthe slough from the river duringperiods of low water flow.

Salmon have been central to theTulalip culture and way of life forcenturies. But population growth andrunoff from industrial activity andfarming have combined to make thelocal waterways less hospitable to thefish, which — along with overfishing —has resulted in a decline in fishpopulations. As a result, Chinooksalmon and steelhead in the PugetSound area are listed as “threatened”under the Endangered Species Act.

Pacific salmon spend most of theirlives in the ocean, but they lay theireggs and spend the early years of theirlives in freshwater streams and rivers.The yearly salmon runs, in which theadult fish return to the places they werehatched to spawn and die, used to seerivers teeming with the large fish, whichprovided livelihoods to humans andwildlife alike.

Saving crucial fish habitatThe reduced salmon run of recent

years is a problem with far-reachingeffects. Research has shown that theupper forests of the Pacific Northwestdepend on the returning salmon foressential plant nutrients: the fish return,spawn and are eaten by animals,including bears, which then spread thenutrients in their droppings.

Together with a neighbor whoowned adjoining property, Reiner andSayre’s nonprofit put together a projectto save the slough from destruction andreclaim it as salmon rearing habitat.This would be accomplished byconnecting several ponds andexcavating a channel to the river.

Local environmental groups, theTulalip tribes and state and federalagencies were involved in the project.Reiner was able to save his property,and Haskell Slough now serves as anursery for thousands of young salmon.

The project was finished in 1999.“When it was opened, we had a bigparty out on the property,” says Reiner.“All kinds of politicians showed up;there was a news helicopter — it was abig deal.”

The project encouraged local Indiansand farmers to stop regarding eachother as adversaries and look for moreways to work together for mutualbenefit. Daryl Williams, the TulalipTribes’ environmental liaison, workedwith Sayre and Reiner on the HaskellSlough project.

Co-op formed, pursuesdigester project

After the success of the HaskellSlough project, Williams says he,Reiner and Sayre realized that theyworked well together, and they lookedaround for other projects. It wasWilliams’ brother, Terry, who got theidea of an anaerobic digester to reducegroundwater and stream pollution fromdairy manure.

In 2000, they set up Qualco Energy,a nonprofit cooperative with threemembers: the Tulalip Tribes; NorthwestChinook Recovery; and Sno/SkyAgricultural Alliance, a local farmergroup named after the Snoqualmie andSkykomish rivers. In the local Indianlanguage, Qualco means “where tworivers come together.” It’s headquarter-ed in Monroe, where the Skykomishand Snoqualmie merge to form theSnohomish River.

The paperwork needed to create thecooperative presented few difficulties.As a nonprofit, “We’re not looking athow to split revenues,” says Williams.Sno/Sky recommended an attorney whodrew up the papers.

Even so, the project took a while toget off the ground. Funding had to befound, first for a feasibility study —which was paid for by a USDA RuralDevelopment grant — and later forcapital. The feasibility study highlightedthe problem of low local power rates,which made it difficult to make theproject pay for itself, says Williams.

That problem was solved by achange in state permitting regulationswhich allows the digester to use pre-consumer food waste for up to 30percent of its feedstock. The higherenergy content of the food wasteproduces more gas for the generator.

Finding a siteFinding a suitable site for the

digester meant that it had to be close toparticipating farms on available land.Luckily, there was a piece of unused,state-owned property in Monroe thatwas close to ideal. It was a formerprison work farm that had operated as adairy — it even had a manure lagoon.

The land had another advantage,too. Unlike most state-owned property,it was not held in trust. That meant itcould be transferred to anothergovernment agency — a requirementwhich the Tulalip Tribes, as a sovereign


Digested manure liquid from the co-op’s anaerobic digester is sprayed on farm fields, providingboth irrigation and nutrients. Photo by Alan Honick


nation, could fulfill. The land wasdonated by Washington state to thetribes, which in turn leases the propertyto the co-op.

Altogether, says Reiner, it tooknearly eight years to overcome all theobstacles. The $2.7 million for capitaland initial operating expenses came

from a low-interest loan from a localbank, made possible by a federal taxbreak. The digester was finished inDecember 2008, began full-scaleoperations the following February andreceived its first payment for powersales in March.

There have been startup problems.The digestion process is complicated byuse of food waste, including blood froma packing house, expired beverages (softdrinks, beer and wine) and grease. Thefood waste is highly liquid, says Reiner.

“Nobody else was combining cowmanure with so much other liquid.” Itturned out that the screw-press used toremove liquid from the digestedcompost wasn’t up to the job, requiring

a switch to roller presses at anadditional $80,000 cost.

The digester currently has manuresupply contracts with three nearbydairies, producing 450 kilowatts ofpower from the resulting biogas. Itproduces more gas than the currentreciprocating generator can handle,

resulting in some of the gas beingflared.

How to use the excess gas is nowbeing studied, says Williams, with onepossibility being a boiler to provide heatfor sale to local customers. A steamturbine would generate electricity attimes when heat demand was low.Another possibility is tri-generation, inwhich heat from a reciprocatingengine’s exhaust and coolant arerecovered and used as energy.

Co-op seeks more dairiesIn the long term, expansion may

allow more local dairies to participate,further reducing the possibility ofnutrient and bacteria contamination in

the rivers and helping the localeconomy.

The cooperative has six directors, allunpaid, two from each of the partici-pating nonprofits. Sayre, representingNorthwest Chinook Recovery, alsoserves as president. Williams is vice-president and Reiner, representing

Sno/Sky Agricultural Alliance, istreasurer. According to Williams andReiner, the co-op is run on a consensusbasis.

“It slows down decision-making, butwe get better decisions,” says Williams.Day-to-day maintenance of the digesteris contracted out to the adjacentparticipating dairy. Any profits not usedby the co-op are to be donated to localconservation efforts.

Williams is optimistic about furtherefforts to preserve the area’s preciousnatural inheritance. He thinks theQualco cooperative shows thatconservation interests and farmers inthe area are both better off workingtogether. �

Members of the Tulalip Tribes fish for salmon in waters protected from dairy manure contamination, thanks to a new anaerobic digester. Thedigester operates on land donated by Washington state to the tribes, which in turn lease the property to a co-op. Photo by Alan Honick


By Kathleen Merrigan, Deputy SecretaryU.S. Department of Agriculture

ooperative models areas diverse as isAmerica’s agriculturalindustry. As consumerdemand for locally

produced foods has boomed,cooperatives have innovated to meetthese demands in many different ways.Today, co-ops are engaged in everystage of the local-foods supply chain —from production to packing, processing,distribution, marketing and retail.

In late February, we launched an

exciting new tool at USDA to supportthis work: the Know Your Farmer,Know Your Food Compass, aninteractive map and accompanyingguide to USDA resources that supportlocal and regional food systems.

Cooperatives receive explicitmention in the infrastructure section of

C

When it comes to local food,co-opsareon themap

The increasing popularity of local and regional food is helping to spur creation of new cooperatives. Children at Dayton Elementary (right)in Dayton, Nev., harvest potatoes from the school's Healthy Communities Garden.


the Know Your Farmer, Know YourFood (KYF) Compass, where thediscussion focuses on how somecooperatives aggregate product fromsmall and midsized producers andmarket them collectively. But really,cooperatives have a place in every oneof the eight Compass sections.

Likewise, many of the dots on the mapare in some way connected to co-ops.

That’s why we hope thatcooperatives and others will use theKYF Compass as a tool to navigateUSDA resources and learn about newbusiness opportunities. Here are someof the ways it can help:

• The Farm to Institution Section ofthe KYF Compass highlights USDA’stechnical and financial resources tobuild strong relationships betweenfarms and institutional buyers.Cooperatives are already engaged indeveloping these relationships. InColorado, for example, the RockyMountain Farmers UnionCooperative Development Centerhelped a group of lamb and beefproducers start Local Brands Farmand Ranch Markets Co-op, whichsells through local farm-to-schoolprograms. With the tools outlined inthe KYF Compass, other producerco-ops can leverage these institutionalmarketing opportunities.

• The Infrastructure Section discussesfood hubs, aggregation centers thathelp small and midsized farms andranches collectively market theirproducts to reach larger buyers. Somefood hubs are organized ascooperatives. They can aggregateproduct through brick-and-mortarfacilities or online. For example, inWashington state, Tom Husmann ofOlympia Local Foods developed anonline food aggregation hub for 50local farmers and is developing ashared kitchen cooperative venture aswell. He’s doing this with the help ofa Value-Added Producer Grant(VAPG) from USDA RuralDevelopment.The Northwest Cooperative

Development Center, which itself wassupported by a Rural CooperativeDevelopment Grant from USDA,helped Husmann secure the VAPG.These types of stories illustrate howdifferent USDA grants can be piecedtogether to support many aspects oflocal food system development.

• The Local Meat and Poultry Sectiondiscusses USDA support for small-scale slaughter and processing


facilities around the country to helplocal meat producers add value totheir products. USDA supports otherfood processing activities as well. Forexample, Local Roots Market andCafé in Wooster, Ohio, is using aUSDA grant to develop a sharedcommercial kitchen. It expects 25businesses to benefit from increasedrevenue and 10 new businesses tostart up as a result of kitchen access.Local Roots began in 2009 as a year-round farmers’ market and hasexpanded rapidly since then,incorporating as a cooperative in2010. Today, it has about 800members and sells food from 150local producers, who take home 90percent of their gross sales.

• The Healthy Food Access Sectiondiscusses USDA support for thedevelopment of farmers markets andother retail alternatives to reachunderserved communities. Bycoordinating the work of severalUSDA agencies on this issue, theDepartment has been able to expandthe number of farmers markets thatcan accept electronic nutritionbenefits such as SNAP (food stamps).The number of markets that acceptthese benefits grew by more than 50percent between 2010 and 2011.Farmers markets that acceptelectronic nutrition benefits often seeincreased customer traffic and higherrevenues as a result.

Cooperatives are again at theforefront of this work. Many farmersmarkets are organized under acooperative structure and have rampedup their efforts to reach new customersin recent years. In Lexington, Ky., theFarm and Garden Market CooperativeAssociation began with fewer than adozen farmer-members in the 1970sand now includes 75 members. In

Indiana, the Indiana CooperativeDevelopment Center is providing aseries of “farmers market boot camps”to help market managers and vendorstrain and collaborate.

Using USDA resources outlined inthe KYF Compass, such as our guidefor market managers on how to acceptSNAP and other benefits, these marketscan become even more successful.

This is just the beginning. Othersections of the KYF Compass willprovide helpful resources as well —about environmental stewardship,career opportunities in farming andfood entrepreneurship, and researchand data to help cooperativesunderstand the market and developsuccessful businesses. There’s even asection on how other federal agencies

Third-generation farmer C.J. Isbell of Rockville, Va., says he is hard pressed to keep up withrising demand for his pasture-raised pork. USDA photo by Lance Cheung


are supporting local and regional foodsystems — a great source ofinformation for cooperatives interestedin securing federal support for a varietyof projects.

Writing the KYF Compass was acooperative venture here at USDA, soit’s fitting that it contains so much ofuse to the cooperative community. Themap and narrative will be continuouslyupdated every few months, so be sure tocheck back regularly for new tools,resources, and dots on the map. Let usknow if you’re doing innovative workwith USDA support that you’d like tobe highlighted as a case study or blog

— simply send us an e-mail at:[email protected].

Explore, share and use the KYFCompass: it’s a valuable guide to helpyou navigate the ins and outs of USDAsupport for the work you’re doing. �

Jo Pendergraph’s (left) family raises specialtyproduce for chefs and markets in centralVirginia. USDA photo by Lance Cheung.Above: Visitors to www.usda.gov can selectthe “Know Your Farmer, Know Your Food”option (middle of USDA home page, right side)to find links to numerous local food-relatedresources.


By Adam Diamond,Agricultural Marketing SpecialistUSDA Agricultural Marketing Service

he Oklahoma FoodCooperative wasestablished in 2003 tohelp consumers buylocally produced food

and enable local producers to earn agreater share of consumer foodexpenditures through direct sales.While building on an earlier wave ofbuying club and retail food cooperativeproliferation in the early 1970s, theOklahoma Food Cooperative’s onlineordering format was the lynchpin thatenabled its success. The co-op couldnot have functioned properly without

the Internet and its ability to connectlarge numbers of geographicallyseparated people in real time at lowcost.

Three core values inspired thecreation of the cooperative, helpeddefine its initial structure and continueto shape its development and growth.The co-op’s articles of incorporationexplain that: “the activities of theOklahoma Food Cooperative aregoverned by its core values of socialjustice, environmental stewardship andeconomic sustainability.”

Together, these values constitute a“triple bottom line” that is becoming anincreasingly common baseline forperformance measures in the world ofsocially responsible business enterprises.

T

World Wide Web goes local

How theOklahoma FoodCooperative uses

the Internetto bring farmers,

consumerstogether

Food orders are assembled on delivery day at the main warehouse of the Oklahoma Food Cooperative. Photo by James Barham

In the case of the Oklahoma FoodCooperative, the following threeprinciples govern its businessoperations:• Participation in the cooperative mustbe financially viable for producers.

• Goods sold through the cooperativemust be produced with methods thatdo not pollute ecosystems orotherwise waste natural resources.

• The economic benefits of the businessshould be distributed equitably andnot flow disproportionately to a smallsegment of those involved in itsoperation.These core values have guided the

cooperative in working towards its goalof building a local food system — anetwork of producers and consumersthat is limited in geographic scope andrich in diversity of product.

Search for localfood launches co-op

The initial impetus for the co-op’sformation grew out of the challenges itsfounder, Bob Waldrop, faced as he triedto buy his household’s food from localgrowers. In 2002, the year prior tolaunching an organizing campaign forthe Oklahoma Food Cooperative,Waldrop tried to buy as much of hisfood as possible from local growers.While he eventually managed to supply80 percent of his household’s food fromlocal sources, he had to drive far andwide throughout Oklahoma to do so.He felt there must be a better way.

Waldrop and other like-minded localfood enthusiasts organized a series oforganizing and outreach meetingsaround the state to gather support forthe creation of a statewide cooperativefocused on Oklahoma foods, which ledto the creation of the Oklahoma FoodCooperative Organizing Committee.

After exploring the possibility ofopening a retail store as a way toincrease the availability of locally grownfood, the committee soon realized thatestablishing a buying club would bemore feasible. It would not need asmuch start-up capital and would be less

risky than a bricks-and-mortar store.The question then became how to

create a buying club that focusedspecifically on Oklahoma foods. Withno model to follow, a database ofOklahoma producers was built upthrough mailings to direct marketingfarmers and ranchers, from a “Made inOklahoma” website, newspaperclassified ads and from people whocontacted the co-op on their owninitiative.

The cooperative paid a softwaredeveloper, who worked at a discountedrate due to his commitment to the co-op’s goals and mission, to develop acustomized online ordering programfor co-op members. Products wereassigned unique codes in the databaseand were then listed online. Consumermembers used the online portal to placeorders on the co-op’s website. Orderswere gathered on delivery day at achurch. From these humble beginningsemerged a dynamic, sophisticated andsuccessful model for marketing locallygrown food.

Social networksas organizing catalyst

Key to Waldrop’s ability to garnersupport for, and participation in, thisincipient local food system was hisposition as the music director atOklahoma City’s Grace EpiphanyCatholic Church. Through his job, hehad developed an extensive network ofchurch contacts from which he recruit-ed the initial core group of co-oporganizers.

People in this core group reachedout to their social networks and grewthe consumer member base of the co-op faster than would have been possiblethrough formal advertising efforts,especially considering the limitedresources the group started with. GraceEpiphany church members supportedWaldrop’s efforts and provided criticalsupport for the co-op in its earlymonths. They made a space availablefor deliveries, administrative work andphotocopying, and also made many in-

kind donations because they believed inthe co-op’s mission.

Financing and Sales GrowthThe value of products sold through

the cooperative grew from $100,000 in2004 to $864,000 in 2010. In the sametime period, the number of consumermembers grew almost 50-fold, and thenumber of producer members grew 10-fold. Product offerings have also growndramatically, from 1,100 in 2006 tomore than 4,000 items now offered forsale each month, ranging from sirloinsteak, to artisanal cheese, vegetables,frozen pizza, flour, botanical soap andplants.

Most of the cooperative’s financinghas come through the sale of lifetimememberships for $50 (for bothproducers and consumers) and fromcommissions charged to buyers andsellers on each transaction. For a $10item, the consumer pays $11 and theproducer gets $9. With the onset of theeconomic recession in 2008, the rate ofsales growth slowed, but sales stillincreased 7.5 percent in 2009 from theprevious year, as demand for local foodcontinued to grow and outpaced growthin overall food sales.

Business structureand operations

During the first five years ofoperation, the cooperative had noformal employees. All work was doneby an all-volunteer board of directors,an unpaid general manager (who diddouble duty as president) and by 50 to70 “volunteer” co-op members, whowere compensated at the rate of $7 anhour in work credits (redeemable foritems sold through the cooperative).Route drivers used their own vehiclesand were paid 36 cents a mile.

The operational structure was, andlargely remains, informal. Any co-opmember can be a route driver on acontract basis. The volunteers areresponsible for setting up on deliveryday, sorting incoming items bycustomer and route, and loading orders



on trucks that transport them to pick-up sites near where customers live.

It is quite a sight to see dozens ofvolunteers quickly assemblingthousands of items to fill orders —everything from lamb chops and kale toeggs. Orders are labeled with thecustomer’s name and route number.There are separate tables for frozen,fresh and nonperishable items. Whilethere is a somewhat chaotic appearanceto it, this assembly process has provento be surprisingly efficient in fulfillingorders. The co-op reports that its lossrate is only about 1.5 percent for the600–700 orders shipped out on 48delivery routes each month, containinga combined total of about 10,000 items.

New-generation buyingclub for Internet Age

In contrast to retail store-frontcooperatives or traditional buying clubsthat rely on printed catalogs or pricesheets, the Oklahoma FoodCooperative relies on the Internet toreach consumers, facilitate themarketing of thousands of highlydifferentiated products, take orders andprocess payments. Computertechnology reduces much of the labor,postage and paper previously associatedwith sending catalogs, writing downorders, mailing and processing checksand notifying consumers of inventorychanges.

Each month, the co-op provides an8-14 day ordering window (from the 1stof the month through the 2ndThursday of the month). During theordering window, producers listproducts for sale on their section of theco-op’s website, complete with detailednarratives about their farm andinformation about the methods andpractices they use to raise animals orgrow crops.

At the beginning of each month,

members can open their orders byperusing the offerings of more than 200producer-members and placing a givenquantity of a particular good in theirelectronic shopping basket. The orderportal on the co-op’s Website is flexible.Customers can change the quantity ofan existing item, add new items or addcomments to their order until the closeof the order window. When they closetheir order, customers have the optionof paying online with PayPal or payingby check when they pick up the order.

Prior to delivery day, each producergets a list of orders. On delivery day —the third Thursday of the month —volunteers sort incoming orders fromproducers by route and load them ontotrucks bound for any of the 48 pick-upsites around the state, where membershave a four-hour window to pick uptheir orders. Co-op volunteers are onhand during this period to collectpayment and handle problems, such asmissing items.

This Internet-based system, inconcert with the network of distributionroutes, reduces producers’ distributionand marketing costs to a bareminimum. In addition, farmers are notrequired to meet any volume thresholdsto sell through the co-op. Consequent-ly, the barriers to entry for smallerproducers are very low.

Producers can start by selling a verysmall amount and increase sales overtime as growing conditions, supply andconsumer demand allow. Producershave complete autonomy in settingtheir prices and pay only a 10-percentcommission to the co-op. Consumersalso pay 10 percent to the co-op forshipping and handling.

Co-op infrastructureTo accompany the dramatic growth

in the co-op’s sales and its increaseddependence on paid professional staff,the organization has substantiallyincreased its infrastructure in the lastfour years. It has leased a new, 12,000-square-foot warehouse as its operationscenter and, with support from theUSDA Agricultural Marketing Service’sFarmers Market Promotion Program,has purchased three trailers — two ofthem refrigerated — to transport goodsto customers.

Prior to leasing the warehouse, theco-op’s delivery day was held in a largewarehouse-like structure on the campusof Oklahoma State University inOklahoma City. The same facility wasalso used for a weekly farmers market.While the space was large enough, theco-op’s limited access to it createdlogistical problems. Everything neededfor delivery day had to be brought inand taken out the same day.

With the leasing of the newoperations center in May 2009, the co-op gained permanent storage space fortables, coolers, trailers, refrigerators andfreezers. Producers can now drop offitems before delivery day. Items leftbehind can be put in storage for laterpickup, while set-up and take down ofequipment for delivery day does not allhave to happen in one day.

Having the warehouse allowed theco-op to streamline delivery day sortingwith separate, permanent shelving areas

Localcommunityparticipationwas key to

developmentof the co-op.


for perishable and nonperishable items.With a more efficient sorting process,the number of volunteers has heldsteady, at around 65, even as total saleshave increased more than eight foldfrom its first full year of operation in2004, through 2010.

In conjunction with leasingwarehouse space, in 2008 the co-oppurchased five trailers for use ondelivery day to pick up orders fromfarmers and drop off customer ordersfrom the central operations center tothe various pick-up sites. Before thetrailers were purchased, most producermembers of the co-op were obliged torent trailers from a U-Haul dealer,picking them up and dropping them offeach delivery day to bring their productto market.

Obligations of producers:Product quality and integrity

The Oklahoma Food Cooperativeplaces restrictions on what can be sold,in line with the organization’s corevalues of environmental sustainability,social justice and economic viability, aswell as its goal of creating a local foodsystem. These marketing restrictionsinclude the following:• All products offered for sale throughthe co-op must be grown or producedin Oklahoma.

• Producers must conform toproduction standards set by the co-

op’s standards committee.• No hormones can be administered tolivestock.

• The routine use of antibiotics inlivestock is banned.

• Grains and crops containinggenetically modified organisms areprohibited.

• Reselling of farm products is notallowed; producers are only allowedto sell farm products they haveproduced themselves.

• Processed and prepared foods may besold through the co-op, but suchitems must incorporate significantalteration of the original ingredients,not just repackaging for resale. Forexample, a baker may sell frozenpizzas using cheese, tomatoes andflour purchased from Oklahomaproducers, but a butcher would not beable to cut someone else’s cuts of beefinto smaller packages and resell themas his/her own.To enforce these restrictions,

Oklahoma Food Cooperative arrangesfor intermittent inspections of the co-op’s producer-members by fellowfarmers to verify that they are, in fact,producing the crops or animals they areselling through the co-op in accordancewith the guidelines. In Waldrop’swords: “We go to everybody’s farm, notnecessarily on any schedule, because it’svolunteers who are doing it, [but] wemake sure that if they sell tomatoes,

that they have tomato vines…inproportion to their sales.”

Quality, price setting,and competition

The intense commitment of co-opmembers to obtaining locally grownfoods produced with sustainableproduction methods has led them tovalue quality and process attributes ofthe products they buy more than price,allowing producer members of the co-op to become “price makers” ratherthan “price takers.”

The strong bargaining position ofproducers within the co-op is evidencedby the fact that when the co-op hasraised the commission levied onproducers to fund increased overheadcosts, the vast majority of producershave raised their prices to compensatefor the higher commissions, withoutsuffering a decline in sales.

With no restrictions on price settingor volume requirements, the OklahomaFood Cooperative provides anaccessible and responsive environmentwithin which producers and consumerscan interact. The Internet-basedordering system allows consumers andproducers to interact across widedistances in real time, adjusting theirpurchases and product offerings inresponse to changes in productavailability and consumer demand.

In general, the combination of thesoftware interface, the freedom ofproducers to set prices, the month-longopen order window and the largenumber of producers (200) andconsumers (3,800) allow for a fluid,functional marketplace in which buyersand sellers are able to meet their needsin a highly transparent trading system.To learn more, visit the OklahomaFood Cooperative website at:http://www.oklahomafood.coop/. �


Co-ops’ world-class cheeses help U.S. dominate international competition

A Taste of Gold


By Dan Campbell, [email protected]

or a college basketballteam, making it into the“Sweet 16” round ofthe annual NCAAbasketball tournament

is a mark of excellence. So it is for thecheese industry, which has its ownversion of “March Madness” in whichcheese makers from around the globecompete every other year in the WorldChampionship Cheese Contest. (In theodd number years, the contest is a U.S.-only affair.) Shifting the sports analogyto professional baseballand the World Series,this contest could beviewed as the dairyindustry’s “WorldCheesies.”

There is a lot morecompetition in thecheese contest, however.Rather than 68 collegebasketball teams at thestart of the NCAAtournament, or 30professional baseballteams, the WorldChampionship CheeseContest this yearattracted more than2,500 entries that competed in 82categories of cheeses and butters. Thesecategories range from the“heavyweight” divisions — such as thevarious Cheddar, Swiss and Provolonecategories — to much more highlyspecialized niche cheeses.

Among the gold medal winners inthis year’s contest — held in Madison,Wis., in early March — were a numberof U.S. cooperatives (see sidebar). Thecontest has grown in recent years tobecome a “must-see, ticketed event for

cheese lovers the world over,” saysCabot Creamery spokesman Jed Davis.This year’s contest sold out almostimmediately, and the 400 ticket holdersnot only witnessed the competition, butwere also able to nibble on some of theyear’s best cheeses while “talking shop”with other attendees and the inter-national panel of judges.

Better CheddarsCabot Vintage Choice Cheddar was

named world’s best in the “Cheddaraged two years or longer” class. The co-op also won third place in that samecategory. Cabot Creamery (a subsidiary

of the Agri-Mark cooperative) also wonthird place for best reduced-fat cheesefor its 50 percent reduced-fat Cheddar,as well as a third place for Cabotcottage cheese.

While winning those awards wasvery gratifying for the co-op, Davis says“it was an even bigger thrill to make itinto the Sweet 16.”

That’s right, the gold medal winnersin those 82 classes also go head-to-headin a playoff round that results inselection of the cheese world’s own

version of the Sweet 16. These 16finalists are then tasted and re-tasteduntil the judges have selected theworld’s top three cheeses.

This year, the top three prizes allwent to European cheeses (see below).But overall, U.S. cheeses dominated thecontest — especially in the“heavyweight” categories, where U.S.dairy co-ops tend to concentrate theirproduction. Overall, U.S. cheesemakers earned 55 of the 82 gold medalsup for grabs.

Switzerland came in second withseven gold medals, while Canada wasthird with six gold medals. Denmark

struck gold five times,the Netherlands fourtimes, Germany andSpain two times each andAustralia and Austriaeach captured one goldmedal.“Every medalist should

be extremely proud oftheir accomplishment,”says John Umhoefer,executive director of thenonprofit WisconsinCheese MakersAssociation, which hoststhe biennial competition.Since its inception in1957, the contest has

grown rapidly, and this year was “thelargest technical cheese competitionever held,” Umhoefer says.

Practically perfectTo win a gold medal, there isn’t

much room for error. Like MaryPoppins, a cheese or butter has to bepractically perfect in every way.

Explaining the judging process,Davis says each cheese starts with aperfect score of 100. “The judges lookfor technical defects, which results in

F

Judges in the World Championship Cheese Contest get final instructions before tasting, sniffing, feeling and visually examiningsome 2,500 cheese samples, as Tim Czmowski is doing (opposite page). U.S. cheese makers dominated the overall contest,

winning 55 of the 82 gold medals awarded. All photos by Kris Ugarriza, Courtesy Red Wave Pictures


deductions from your score.”Associated Milk Producers Inc. (AMPI),

based in New Ulm, Minn., took home thegold medals for salted butter and for mildwhite Cheddar. To underscore how incrediblyfine the margin of victory can be, considerthat AMPI’s winning salted butter scored99.9. Its winning Cheddar, made in Blair,Wis., received three technical deductions of .1each, resulting in a winning score of 99.7.

“We lost .1 of a point for a tiny wrinkle inthe package, .1 of a point for a slight bittertaste, and .1 of a point for a rounded corner,”says Joe Ganske, who has 40 years of serviceas a cheese maker and grader with AMPI. InWisconsin, cheese makers like Ganske mustbe licensed in order to practice a craft that isheld sacred in the state. After all, in whatother state do people attend sporting events,proudly wearing hats that look like blocks ofcheese?

“The judges evaluate samples for flavor,appearance, texture, body, color, packagingand safety,” Ganske explains. AMPI’schampion Cheddar was made in one of 18new cheese-making vats the cooperativepurchased last fall. Ganske notes that thecooperative is the first U.S. cheese maker toinstall this type of innovative vat, whichfeatures advances in technology andautomation that are making more and bettercheese from the same volume of milk.

In addition to the many U.S. and Canadianentries in the highly competitive Cheddarcategories, AMPI faced competition fromJapan, New Zealand, South Africa and theUnited Kingdom, among other nations.AMPI also won second and third place awardsfor a hot-pepper flavored and Americanpasteurized process cheese, made at itsPortage, Wis., plant.

As is also the case with a number of otherU.S. dairy co-ops, most AMPI cheese is soldto co-packers and to the broader foodindustry, not directly to consumers under itsown brand. Food industry customers relyheavily on the quality of the co-op’s cheese tohelp them get an edge in an ever morecompetitive food industry.

Experienced staff is keyLand O’ Lakes bagged a trio of first place

awards for: Cheddar aged 1-2 years, forMonterey Jack and mild Provolone. Thewinning Cheddar and Monterey Jack cheeses

Strong showing for co-op cheeses

Forty cheese experts — representing 17 nations and 10 U.S. states —judged more than 2,500 entries from around the world during the 29thbiennial World Cheese Championships in Madison, Wis., in March.Among the cheese and butter classes in which U.S. dairy co-ops wongold medals were:

� Mild cheddar — AMPI;� Cheddar, aged 1-2 years — Land O’ Lakes;� Cheddar, aged 2 years or more — Cabot Creamery;� Monterey Jack — Land O’ Lakes;� Mozzarella, part skim milk — Foremost Farms USA;� Provolone, mild — Land O’ Lakes;� Baby Swiss — Swiss Valley;� Cottage cheese, Upstate Niagara Co-op;� Salted butter — AMPI;� Unsalted butter — OATKA Milk Products Co-op Inc.For more information on the contest, as well as complete results for

all entry classes and contest photos, visit:www.worldchampioncheese.org.

Judges evaluate samples forflavor, appearance, texture, body,color, packaging and safety.


were made at the co-op’s plant in Kiel, Wis.,while the Provolone was produced inDenmark, Wis. The co-op also picked upsecond place for Cheddar aged 6-12 monthsand third place for medium Cheddar aged 3-6months.

The keys to Land O’ Lakes’ track recordfor excellent cheese is the high-quality milkused, as well as the deep experience of its plantemployees, according to Kevin Schwartz, plantmanager at both the Denmark and Kiel cheeseplants. “We average 17 years of experiencewith our staff at the Kiel plant, and 14 years atDenmark. Our people know how to makegreat cheese, and they take a ton of pride inour product.”

The co-op’s own cheese graders taste everysingle vat produced. “They are so good thatthey can sample a cheese after seven days topredict the flavor and quality for aging,ranging from 2-3 years,” Schwartz says. Thecheese samples Land O’ Lakes enters in thecontest are pulled straight from normalproduction — no special “fancy treatment” isused to prepare contest samples, Schwartzstresses. That is also the policy of the otherco-ops contacted for this article.

Cheese makers say there is a marketingvalue for winning awards. Most blue ribbonwinners issue press releases, place ads in tradepublications and trumpet the good news intheir own publications and websites.

Swiss Valley Farms — which won first placefor Baby Swiss cheese — issued a press releasesoon after the contest and is placing anadvertisement in the June/July issue of DeliBusiness magazine, a trade publication read bymany of its customers. The co-op will alsoinclude an article about the contest inDairyman, its member magazine.

Swiss Valley Farms Baby Swiss cheese —characterized by numerous small, shiny “eyes”— stood out in part because of itsexceptionally creamy texture and a flavor thatis milder than traditional Swiss cheese. It alsowon best of class for Baby Swiss in the 2008competition.

More than pride at stakeWinning isn’t just a matter of pride and

marketing. The scores and feedback fromjudges in contests can help cheese makersperfect their product and their art. And cheese

continued on page 46


Editor’s note: This article was provided byWalton EMC, an electric cooperative basedin Monroe, Georgia. The “Co-ops &Community” page spotlights the efforts ofco-ops that fulfill the mission of“commitment to community.” Whetherthese efforts make a co-op’s hometown abetter place to live, or are helping people onthe other side of the world, co-ops arereaching out to make a difference. If youknow of a co-op, a co-op member or co-opemployee whose efforts deserve to berecognized on this page, please contact:[email protected]. Reprintarticles from co-op publications are welcome.

ould you go to acounselor named King,Sabo or Merlin? Thechildren helped byWalton EMC

Operation Round Up’s beneficiaryDream Quest sure would — and do.

King, Sabo and Merlin are horses inDream Quest’s equine-facilitatedpsychotherapy and therapeutic ridingprogram, located in suburban Atlanta’sGwinnett County, which is served bythe cooperative. The organizationprovides services for individuals withbehavioral, emotional, social,intellectual or mild physical challengesthrough the use of horses and riding.

The co-op recently granted $6,200to the charity through its OperationRound Up program.

Dream Quest founder Kay Watsonexplains why horses are a vital part ofher counseling staff. “This programworks where traditional therapy maynot. The kids see it as having fun ridinghorses, not going to a counselingsession,” she says. “The horses help kidsconnect with us. They look at us as ahorse person, not a counselor.”

Co-ops & CommunityGeorgia electric co-op supports equine therapyprogram, other community causes

W


“There’s something about the horsesthat lets kids connect,” says JackieGriswold, Dream Quest ridinginstructor. “They like the idea that theycan control a 1,000-pound animal. Andthey enjoy grooming and taking care ofthe animals as much as they do ridingthem.”

Griswold adds that the sessions givesome children a chance to get awayfrom their everyday situations filledwith strife and uncertainty. Kids asyoung as five take part in DreamQuest’s activities.

Besides one-on-one sessions, DreamQuest runs a summer camp whereseveral children experience a week ofequine bliss. Besides riding andgrooming, campers get to do things likedecorate the horses with paint andglitter.

That means not just any horse issuitable for work at Dream Quest.

“The horse has to be calm and quietwith a medium energy level,” saysGriswold. “Horses are naturallyclaustrophobic, so they have to be OK

with people walking close beside and infront of them.

“The work for the horses is not veryphysically demanding, but it’s reallymentally demanding,” Griswold adds.“It’s confusing. Horses respond tomovements and pressure from therider’s body. The kids are all over them,so they have to try to figure out what todo.”

Walton EMC began OperationRound Up in 1997. Participants allowthe co-op to round their monthlyelectric bill to the next dollar with theresulting change going to a trust thatdisburses the funds.

A 15-member volunteer board madeup of co-op members from across itsservice territory governs the trust. Theboard meets at regular intervals toreview applications from bothindividuals and organizations in thecommunity. No funds can be used topay electric bills, ensuring the programis not self-serving. The co-op picks upall administrative costs, so every pennydonated goes back to the community.

Serving on the board is not aceremonial position. Board members dobackground work and investigateapplicants. They bring their findingsback to the entire board for smartgiving decisions.

“Round Up is a cooperative of sorts,”says Greg Brooks, Walton EMCCommunications Coordinator. “Itaggregates the tiny donations from tensof thousands of members to make ahuge impact in the community. It’s anatural extension of the seventhcooperative principle — Concern forCommunity.”

Other recent grants made by the co-op include:• The Cottage — $478 to buy amultimedia projector for a ClarkeCounty children’s advocacy center.

• Northeast Georgia Council BoyScouts of America — $5,000 forfinancial assistance to allowunderprivileged youth to participatein its programs.

• Shepherd’s Staff Ministries —$2,475 for emergency and transitionalhousing in the Loganville area.

• The Next Step Foundation —$3,000 for project “KitchenEducation Support Group” formentally challenged adults inGwinnett County.

• Lilburn Cooperative Ministry —$10,000 for various types of assistanceto those in need.

• Butterfly Dreams Farm — $7,500to improve the grounds andequipment for its Oconee Countytherapeutic riding program.

• Gwinnett Environmental andHeritage Center Foundation —$2,500 for a field study program.

• Rainbow Community Center —$1,500 for food and education inWalton, Morgan, Rockdale andNewton counties.Additionally, five families received

$14,715 for various needs.Walton EMC is a customer-owned

electric utility that serves 118,000accounts over its 10-county service areabetween Atlanta and Athens. �

Dream Quest founder and counselor Kay Watson, center, reassures first-time rider Rylee whileMargaret Korges tends her mount. A bit apprehensive at first, most children quickly becomeconfident once they mount the calm horses. Opposite page: Ready to ride! Photos by GregBrooks, courtesy Walton EMC

24 March/April 2012 / Rural Cooperatives

Uti l i ty Co-op Connect ionSurging oil industry sparks economy,but also creates challenges for co-op

By Angela Schepp,Business Development ManagerNorthwest Communications Cooperative

he opening of theBakken Oilfield has hithome like a sonic boomin North Dakota,creating a parallel

economic boom that is affecting mostaspects of life in the region. NorthDakota is reaping a billion-dollarbudget surplus thanks to the oilfielddevelopment and all the related growthit has triggered; unemployment hasdropped to less than 4 percent.

The Bakken formation underliesabout 200,000 square miles of parts ofMontana, North Dakota andSaskatchewan. More than 550,000

barrels of oil are being producedfrom it daily.

There are more than 200 drillingrigs working the oilfield. Each rig drillsfor about 30 days, then a pump isinstalled and the drilling rig moves onto another site.

While new income and job growthlike this would be the envy of much ofrural America, it is also creatingchallenges for businesses andgovernment agencies that are hardpressed to keep up with new demand.The strain is being felt on watersupplies, sewage systems andgovernment services.

Many businesses are enjoying awindfall of new demand for goods andservices, but are also struggling to keepup. Northwest Communications

Cooperative is one of them. It is addingstaff and taking related actions to try tokeep up with the rapid expansion ofdemand for its telecommunicationsservices.

Two-edged swordMost people here are excited about

the economic prosperity the boom iscreating for communities. Home andproperty values are rising, businessesare growing and new neighbors arriveevery day. Even the most remote areasare seeing more traffic than ever before.

When a rural region grows this fast,there are bound to be growing pains,and the Bakken Oilfield is mostdefinitely affecting every aspect ofcommunity life. Housing, traffic, locallaw enforcement and emergency

T

More than 200 oil drills are at work inthe Bakken Oilfield, which underliesportions of North Dakota, Montanaand Saskatchewan. Photo courtesyJournal Publishing Inc., Crosby andTioga, N.D.

The economic boom sparked by oilproduction has resulted in a strain onthe region’s infrastructure, including ahousing shortage, despite efforts tokeep up with demand (opposite page).Photo by Angela Schepp, courtesyNorthwest Communications Co-op


services, hospitals, schools and utilitiesare all impacted.

Increased vehicular traffic has causedroad quality to deteriorate and resultedin an increase in the number of trafficaccidents. Semi-truck traffic hasskyrocketed as big rigs haul inequipment, fresh water and sand for theoil drilling. They then turn around andhaul out salt water as a waste.

The result of all that heavy trucktraffic has taken a toll on road quality.

Most gravel roads, and even manypaved roads, are scarred with holes,many of them huge. County road crewsare simply not able to keep up with allthe needed repairs.

The workload for law enforcement isrising along with the numbers ofaccident and crime reports. Fire andambulance departments, most of whichare staffed by volunteers who haveother full-time jobs, are being taxed tothe maximum; many are being calledout more than once each day to dealwith emergencies.

Telecom co-opsees demand soar

Northwest CommunicationsCooperative (NCC) is a small ruraltelecommunications cooperative locatedin the heart of the Bakken Oilfield. Itserves an area of 5,000 square miles innorthwest North Dakota. This serviceterritory is very rural, historicallyaveraging just over one customer persquare mile, although that ratio may

well have doubled with all the economicactivity of recent years.

The co-op has seen major increasesin demand for most of its services. In anindustry that has seen telephonelandlines decline by 5 to 20 percentnationally in recent years, NCC hasseen an increase of almost 6 percent.The number of Internet subscribers,NCC’s most popular service, has grownalmost 25 percent in only 18 months.

Requests for new data circuits to

individual businesses have gone“through the roof.” Demand for cableTV, another popular service of the co-op, has increased by almost 13 percentin three years.

The co-op, which has functionedwith about 30 full-time employees formany years, has added 11 full-timeemployees in just the past year. It iscurrently advertising for an additionalfive employees.

But the area is facing a severehousing shortage, so finding homes forthe new staffers is a big challenge. It hasalso become difficult for the co-op andother local businesses and governmentsto compete for needed employees vs.the higher paying oilfield jobs.

The need for construction projectsto extend services to customersrequesting telecommunications servicesis growing exponentially. Buildingfacilities to new locations is importantfor the co-op to grow its revenue base.NCC is continually looking for ways tofind revenue to fund infrastructure

needs.Most of the new businesses that have

opened have done so due to the oilfield.Many of them need to communicatewith a home office in another state andcannot conduct business withoutcommunication services.

With so many newcomers lookingfor places to live, communities innorthwest North Dakota have beenbusy building townhomes, apartments,hotels and single-family homes.Virtually all of them want moderntelecommunication services.

Higher crime is undoubtedly themost unwelcome “hitchhiker” thatcomes with rapid growth. In responseto higher crime rates, NCC recentlyintroduced a new line of securitymonitoring services. In addition toround-the-clock monitoring for break-ins, the co-op’s security service canmonitor temperature and carbonmonoxide levels, and even detect firesor water leakages at a home or business.

Maintaining existing facilitiesWhile striving to meet new demand

for services, NCC must also continue toreinvest in its current plant andequipment. Portions of some cable linesthat have been providing service formore than 30 years must be replaced inthe near future.

NCC has replaced cable in a smallportion of its service area with fiber-to-the-home (FTTH) service. FTTHbrings a single strand of “glass” to eachhome, providing unlimited bandwidth,television service and telephone service.

NCC’s plans for the next three yearsinclude replacing cable with FTTH insix additional areas of its serviceterritory, at a cost of about $10 million.Financing is being sought via a loanfrom the Rural Utilities Service ofUSDA Rural Development.

Demands on the co-op to locate andmark (with flags) its underground cableand fiber lines have been soaring due tothe oilfield work and the large numbersof building contractors needing to digin the area. Even after the co-op flagsits underground lines, many times acontractor will delay a project, or


change its plans. This may then requirethe co-op to send out yet another teamto mark the lines again.

Even marked lines sometimes get cutby accident. Other times contractorsget in a hurry and don’t call utilitycompanies first, as required. In NorthDakota, they must call a state-maintained number, which in turnnotifies all utilities in the area of theplanned work. For some oil companies,it is actually faster and cheaper to cutcable or fiber lines, rather than to calland wait to have the co-op mark thelines.

When this occurs, it can interruptservice to co-op members and result inhigher costs to the co-op. NCC has

thus had to make changes in some of itspolicies and fees to keep its membersfrom absorbing the costs. Theseinclude:• A 50-percent surcharge is beingassessed for the time, materials andequipment costs to repair NCCcable/fiber lines that are cut.

• Calling the co-op a second time (orthird time, etc.) to mark the samestretch of line (known in the trade asa “re-spot”) is now being charged aminimum of one-hour flat rate, or forthe actual time incurred. If excavationdoes not take place within thespecified amount of days from thefirst marking, the site is required torequest a re-spot.

• Cost for locating NCC undergroundlines are being billed at the co-op’sactual hourly rate for “design only”jobs (meaning a contractor is workingup a bid for a job, and thus needs toknow where utility lines are located;excavation in these cases may neveroccur).“In these and other ways, NCC is

striving to keep pace with the increaseddemand for services,” says co-opGeneral Manager/CEO DwightSchmitt. “While we like the potentialfor growth and welcome theopportunity to serve more customers,we must do so in a way that is beneficialto our cooperative members.” �

Workers operate an oil drilling rig in Divide County, N.D. Photo courtesy Journal Publishing Inc. Opposite page: A Northwest Communications Co-opcable truck evidences service being extended to another new development. Photo by Angela Schepp, courtesy Northwest Communications Co-op

By Sarah [email protected]

Editor’s note: Sarah Pike is an associate ofCooperationWorks!, a national organizationof cooperative development centers andpractitioners. These co-op centers provideexpertise across all aspects of co-opdevelopment, including feasibility analysis,business plan development, business launchand training for operational success. Formore information visit:www.cooperationworks.coop.

ooperative developmentcenters continue toinvest time andresources to buildeconomic sustainability

across rural America. Supported byUSDA’s Rural CooperativeDevelopment Grant (RCDG) program,these cooperative development centersare further leveraging federalinvestments through collaboration. Theresult is multi-regional developmentcapacity in several different economicsectors.

One recent example is the work ofRCDG-funded co-op centers withROC USA, a national nonprofit thatprovides certification and financialassistance to help convert existingmanufactured home communities intoresident-owned communities.

ROC USA’s mission is to makeresident ownership of good qualityhousing possible nationwide. “Ourreason for being is to help homeownersgain economic security throughresident ownership of their ‘mobilehome park,’ or manufactured homecommunity (MHC),” says Paul Bradley,ROC USA president. “We are focusedon doing one thing really well and

doing it time and again for no otherreason than to preserve and improveaffordable communities and build valuefor homeowners in MHCs.”

ROC USA achieves its mission “onthe ground” by training and supportingregional nonprofits in completing co-opconversions. To date, at least threeRCDG-funded centers have achievedthe status of certified technicalassistance providers.

New Englandco-op conversions

In the fall of 2009, the CooperativeDevelopment Institute (CDI) became acertified technical assistance provider,covering the territory of Connecticut,Rhode Island and Massachusetts. CDI’sstarting budget consisted of thestandard $50,000 grant from theCorporation for EnterpriseDevelopment (CFED), a sponsor ofROC USA, $10,000 of which CDI paidto the network to gain the neededtraining and materials.

“The support of both ROC USAand USDA has meant a great deal toCDI’s success,” Noémi Giszpenc,

executive director of CDI, explains.“Four of the five parks that we haveconverted to cooperative ownershiphave been in rural areas, which allowedus to use RCDG resources to pay for aportion of staff time and travel.” Thatstaff time has included the work ofCDI’s housing program manager, AndyDanforth, who has made a five-yearcommitment to the program, deferringhis compensation until the programcould cover his salary.

In its first two years, the CDI ROCprogram operated with $30,000annually of RCDG support throughUSDA. This was used to leverage about$9 million in capital investment forresident ownership and improvedinfrastructure. As the number ofconverted communities in CDI’sportfolio climbs, the ratio of RCDGsupport to program income willcontinue to drop, and the program willbecome self-sustaining as well asgenerate income for general operations.

“Our initial success has allowed us toexpand into Vermont in 2011 and nowMaine in 2012, supported by a $60,000two-year award from a local philan-


Co-op Development Act ion

C

USDA co-op funds leveragedto create resident-owned communities

thropist,” says Giszpenc. The growth ofthe program has also led to jobcreation. The program staff has grownfrom the equivalent of one half-timeposition to three full-time employees,with the addition of two new part-timeco-op organizers in the spring of 2012,she adds.

Midwest sees new co-ops formNorthcountry Cooperative

Foundation, a recipient of RCDG fundsfrom USDA and a ROC USA certifiedtechnical assistance provider, isconverting rural manufactured homecommunities into resident-ownedcommunities in the Midwest. To date,NCF has assisted five communities inMinnesota convert into cooperatives.

One example is Madelia MobileVillage Cooperative, in Madelia, Minn.,a community of 2,300 in south-centralMinnesota. The cooperative wasorganized by residents as a strategy to“take control of the community,”

provide for its improvement, stabilizelot rents and help residents create aplatform for income- and asset-buildingin a resident-owned, manufacturedhome community.

The community was purchased by itsresidents in December 2008 for$460,000. The state housing financeagency and a community-orientedlender provided the financing for thepurchase.

At the time of purchase, about 75percent of the households of MadeliaMobile Village had incomes at or below50 percent of Watonwan County’s area-median income. The other 25 percenthad incomes at or below 80 percent ofthe county’s area-median income. Thecommunity is made up predominantlyof recent Latino immigrants.

Co-op conversionsin Pacific Northwest

The Northwest CooperativeDevelopment Center (NWCDC)

expanded its co-op developmentservices in 2008 to includemanufactured home communities.NWCDC joined the ROC USAnetwork to leverage expertise andresources, including co-op financing, tohelp meet its customers’ needs.

“We really value the opportunity ofworking with ROC and our nationalnetwork of colleagues,” says BenDryfoos-Guss, NWCDC’s specialist.“We are able to use well-testedprocesses and resources in our workwith local residents, brokers andowners.”

In its first two years, the NWCDCROC program operated with RCDGsupport of about $25,000 each year.This was used to leverage about $4.6million in additional private and publiccapital investment for residentownership.

To date, NWCDC has assisted threecommunities in successfully convertingto nonprofit co-ops. One example isHidden Village, in an unincorporatedpart of Thurston County, Wash.Through co-op conversion, NWCDChelped homeowners avert an imminentthreat of community closure andhomeowner displacement. Today, thecommunity offers good quality,affordable manufactured homes for itspredominately senior residents.

Stabilizing housing for seniorsThe mission of the MSC Fund of

the Cooperative Development


Members of Sunrise Villa Cooperative in Minnesota — a resident-owned community that wasassisted by the Northwest Cooperative Foundation — accept a commemorative gavel during thepurchase ceremony for their manufactured home community. Opposite page: The Madelia MobileVillage in Madelia, Minn., where another co-op was organized to help residents take control oftheir community.


By Charles Ling, Ag EconomistCooperative ProgramsUSDA Rural [email protected]

cooperative faces many challenges insourcing and maintaining an adequate levelof capital for financing its operations. Being acooperative, its equity capital is provided bymembers and is therefore dependent on

members’ willingness to support the cooperative’sundertakings.

Members’ equity retained by the cooperative represents asubstantial sum of their money and competes with the capitalneeded for operating their farms. Most members thereforeprefer to have as little of their equity retained by the co-op as

possible, and for a short equity-revolving period. Co-ops usea variety of means to redeem member equity in ways thatmeet both the needs of the co-op and its members.

When a cooperative’s business is doing well, somemembers may perceive that its market valuation is higherthan the book value and want to have access to the gain. Thismay stoke the pressure to “sell off” the cooperative orconvert it to a public corporation.

To overcome these challenges and shore up an adequateequity level, alternative capital financing methods have beenused by some cooperatives. These methods include: issuingpreferred stock; accumulating (unallocated) retained earnings;capitalization using a “new-generation” cooperative model;and allowing non-member capital to be invested in coopera-tives (which usually requires a change in state co-op laws).

Capital


A

Lessons offered by dairy co-ops shed light on important equity capital issues

Ideas



The experience of dairy cooperatives can serve as anexample for answering some frequently asked questions(FAQs) regarding cooperative equity financing, including thefollowing, grouped by specific financing alternatives.

Member equitiesQuestion: Cooperative equities are furnished by

members and therefore are limited. How does a cooperativegain access to capital without incurring long-term debt,without selling off the cooperative, or without going public inthese situations:• When the cooperative needs more capital?• When members agitate to gain access to the perceived

high market value of the business?• When pressure mounts to shorten the equity-revolving

period?Answer: Members organize or join a cooperative to

market their farm production. They should provide thecooperative with capital at a level that is commensurate withthe functions they want the cooperative to perform and thebenefits they want to derive from it.

If market value of the cooperative is higher than the bookvalue, it means the cooperative’s earnings and potentialfuture earnings are higher than can be expected, given itslevel of equity capital. Members gain access to this higherearning ability by receiving higher pay prices, premiums andpatronage refunds. Selling off the cooperative to gain thevalue of the business is tantamount to “killing the goose thatlays the golden egg.”

Eventually, it is up to members to decide if they want thecooperative to be viable or if they prefer other alternatives.

Preferred StockQuestion: What effects might issuing preferred stock

have on a cooperative’s practice?Answer: Preferred stock may specify nearly any

conceivable right for shareholders. What effects preferredstock may have on a cooperative’s practice depend on whatrights are specified. Preferred stock that pays dividends andhas preference in assets over common stock in the event ofthe dissolution of the cooperative — the most common typeof preferred stock — probably would not have any impact. Ifthe preferred stock confers certain voting rights, the effectwould depend on what specific issues the preferred stock-

holders are entitled to vote on.

Retained earningsQuestion: Many cooperatives expand non-member

businesses to accumulate retained earnings as permanentequity. What might be the long-term effects of this practiceon governance?

Answer: Cooperatives may have non-member businessfor various reasons. In any case, retained earnings belongto the cooperative and thus are jointly owned by members.Disposition of retained earnings is at the discretion of theboard of directors.

However, a marketing cooperative would not beconforming to the Capper-Volstead Act requirements if itsnon-member business were to exceed 50 percent of totalsales. Moreover, by accumulating permanent capital, thecooperative may actually increase incentives for membersto sell off the cooperative or convert it to a publiccorporation.

New-generation cooperativesQuestion: Are new-generation cooperatives the answer

to co-op financing issues?Answer: A new-generation cooperative requires

members to pay equity up front to acquire the deliveryrights. While this attribute may address the issue of raisingcapital, the cooperative model introduces new issues,mainly relating to delivery rights and property rights(Torgerson).

Furthermore, many new-generation cooperatives areorganized for business opportunities that resemble venture-capital investment. They tend to process one product or anarrow range of products. This presents additional risks ascompared with a cooperative that is organized to marketmembers’ product(s) through a variety of marketingchannels.

Outside (non-member) capitalQuestion: What changes in governance, organizational

structure and practice may be brought about by the newcooperative laws enacted by some states that allow outsideequity capital?

Answer: There is a large variation regarding votingpower and earning distribution, etc., among the few statelaws that allow cooperatives to have investors. Differencesin governance and earning distribution rules will influencecooperative organizational structure and practicedifferently. It is better to analyze them on a case-by-casebasis. Furthermore, not every cooperative newlyincorporated under these state laws has outside (non-member) investors. �

Equity financing issues:

F A Q s


This article focuses on the equity financing practices ofdairy cooperatives in the hope that it can help all types of co-ops better understand capital financing issues.

Dairy co-op equity capitalJust as for any other type of business, dairy cooperatives

require an adequate level of capital to market members’ milk.Besides bargaining (negotiating for milk prices and terms oftrade), co-ops may have diversified operations, including:owning and operating milk-handling facilities, performingvalue-added processing, and/or providing milk marketing-related and other member services. Member equities are thesource of capital to support these operations.

The four basic categories of dairy cooperative equity are:• Common stock — Common stock of cooperatives isusually issued to prove membership, although it typicallyhas only nominal value. Based on the complete financialdata of 94 dairy cooperatives for the fiscal year ending in2007, common stock only accounted for 0.1 percent oftotal equities. (All numbers cited in this article are 2007data, the year of USDA Cooperative Programs most recentdairy survey (Ling, 2009). The survey is done every fiveyears; new statistics will be available after data collection ondairy cooperatives’ 2012 operations is completed.)

• Preferred stock — Some dairy cooperatives issuepreferred stock, mostly to members to document retainedpatronage refunds or their additional investment in thecooperative. Preferred stock owned by members may beconsidered as allocated equities. In 2007, preferred stockwas reported to be 7 percent of total equities.

• Retained earnings — Retained earnings can be derivedfrom non-member businesses which, in most cases, areincidental to a cooperative’s dairy operation. Retained

earnings may also include allocated equities that are notseparately specified in the financial reports, net savings thatare yet to be allocated, or earnings that are difficult toattribute to specific member transactions. Therefore,retained earnings that are not likely to be subject toallocation (or considered by some to be “permanent”equity) should be less than the 10.8 percent of total equitiesreported for 2007. In any case, retained earnings belong tothe cooperative and thus are owned by members.

• Allocated equities — The 94 cooperatives surveyedreported that 82.1 percent of their equities were allocatedto members. Allocated equities are members’ capital fromone or more of these sources:Retained patronage refunds — Retained patronage

refunds are net savings that are allocated to members basedon patronage, but which are retained to finance thecooperative’s operations after a cash portion has been paid tomembers.

Capital retains — Some cooperatives use capital retains tofinance the operations or, more often, for special projects,such as building new plants. Money is withheld frommilk payment at a certain rate per hundredweight of milk.

Members must treat patronage refunds (both cash andretained) and capital retains as income for tax purposes.Cooperatives usually revolve retained patronage refunds andcapital retains back to members after a certain period of time.

Base capital plan — Some larger dairy cooperatives withdiversified operations have adopted base capital plans toestablish a more stable equity pool. Under such a plan, atarget base capital level is set at a rate per hundredweight ofmilk marketed during a representative period. The basecapital may be funded by retained patronage refunds and/orcapital retains, or by other means of member contribution.

Bags of dehydrated milk powder fill a co-op warehouse. USDA photos by Lance Cheung


Once a member attains the prescribed base capital level,future patronage earnings allocated to the member are paidin cash.

In summary, almost all equity capital of dairy cooperativesis supplied and owned by members, including: commonstock, preferred stock, retained earnings and allocatedequities. By obtaining equity financing internally frommembers, cooperatives do not incur the cost of solicitinginvestment capital in the capital market.

Member loyalty is keyFor an average member-producer delivering 3.1 million

pounds of milk in 2007, total allocated equity retained by thecooperative was estimated at $59,000 per member($1.91/cwt), quite a large sum of capital committed byindividual members. (Because retained equities also includethose yet to be revolved back to retired members and inactive(former) members, equities actually retained for activemembers should be somewhat less than this estimatedamount).

Members must treat retained capital, when allocated, asincome for tax purposes and pay taxes out of their own funds.Although the retains are revolved back to members aspermitted by the cooperative’s earnings after a few years, thepresent value of the retained capital is diminished becausetaxes on them have to be paid upfront and the revolvingfunds to be received in the future are discounted.

Members’ perceptions and attitudes towards retainedequities may vary with their respective membership status —active members, retired members or inactive (former)members — even though they all usually receive the revolvedequities on the same revolving schedule, which is determinedby the board of directors. These perceptions may include:

Active members — Active members may realize thenecessity to adequately capitalize the cooperative’s operationsto ensure that their milk is effectively and efficientlymarketed. Still, retained equities compete with capital neededfor members’ dairy farming operations, which is verysubstantial because of the type of inputs used and assetsowned.

Members are usually supportive of a co-op’s need forfinancing if the capital requirement is for the cooperative tocarry out basic milk marketing functions. A cooperative mayface some dissension if it attempts to invest in what somemembers consider to be extraneous businesses, unless theyare convinced that the new ventures will:• solidify the market for members’ milk, or• help market members’ milk, or• add value to members’ milk, and• benefit members the most among all available alternativesof investing the capital.Retired members — Retired members may be content

with receiving retained equities that are revolved on a steady,regular basis. They may consider such payments assomething akin to retirement annuities. However, some mayexpress dissatisfaction that no dividend is paid on the retainedequities and the cooperative uses their capital free of charge— especially if the revolving period is long. If equityrevolving becomes erratic — usually due to the cooperativeencountering certain financial difficulties — they maybecome disgruntled.

Inactive (former) members — Inactive members may befarmers who have discontinued membership in thecooperative and made other milk marketing arrangements, orwho have exited from dairy farming and transitioned intoother farming enterprises or have discontinued farming


altogether. Conceivably, they are the least satisfied withequities being retained, because they may need the capital foruse in other endeavors. As their loyalty to the cooperative haswaned or becomes nonexistent, they may deem itmeaningless to have the retained equity sitting idly (fromtheir perspective) in the cooperative.

Equity financing alternativesSome dairy cooperatives have tried alternative financing

methods to leverage members’ capital. Examples include:structuring subsidiaries as public stock corporations or aslimited liability companies, entering into joint ventures withother firms, or organizing as a new-generation cooperative. Afew have issued preferred stock, mostly to members.

Public stock corporation — There is one known case ofa dairy cooperative converting its fluid business subsidiaryinto a publicly traded stock company. The idea was to useinvestor financing and stock as tools for expansion andgrowth, while members maintained the majority ownershipof the business. However, in less than three years, thecooperative bought back all outstanding stock from minorityshareholders.

It can be difficult for a cooperative to operate a publicstock corporation subsidiary because there are fundamentalconflicts between benefits for member-producers andinvestors’ focus on returns on investment. In the dairybusiness, the conflict between producer milk pay price andprofit for investors may be difficult to reconcile.Furthermore, with investor capital, the subsidiary and eventhe cooperative may lose Capper-Volstead status in inter-statecommerce.

Preferred stock — A cooperative may issue preferredstock to raise more funds from members or to tap non-member capital. The most common type of preferred stockpays dividend and has preference in assets over commonstock in the event of the dissolution of the cooperative. Somepreferred stock may be considered as equity capital whileothers may look more like debt capital, depending on howthe rights of the shareholders are specified.

Limited liability company (LLC) — An LLC is a state-approved, unincorporated association, just like a partnershipexcept that it protects its owners and agents from personalliability for debts and other obligations of the LLC. Earningspass through to the owners (there are no non-qualifiedretains) and enjoy single-tax treatment. An LLC may operateon a cooperative basis or it may allocate earnings and assignvotes among its owners any way they want. Some producersbelieve that an LLC provides greater flexibility for tappinginvestor capital. However, the combination of producers andinvestors in an LLC would result in the same conflictingbenefit issues as in a publicly traded subsidiary operated by acooperative.

Joint venture — An LLC may be a useful model forestablished cooperatives to form joint ventures with othercooperatives or firms. On the marketing side, a joint venture

LLC may be used by a cooperative and its partner to developand market certain dairy products. The cooperative suppliesdairy inputs and the partner provides technical or marketingknow-how to the LLC.

The joint-venture partners share the financing and the riskof the business activities of the LLC. This organizationalmodel reduces the cooperative’s capital requirement and riskexposure, while a market outlet for milk is secured. Manyrecent joint ventures formed by cooperatives with otherbusiness entities are organized as LLCs.

New-generation cooperative — Interest in the new-generation cooperative model surged in the 1980s and 1990s,largely in response to the market condition prevailing duringthat time. It was believed that this form of cooperativeorganization would solve the problem of depressed farmincome by engaging in value-added processing.

However, the attributes of the new-generation cooperativemodel also have created some problems, mainly related todelivery-right and property-right issues (Torgerson). After theturn of the 21st century, interest in forming new-generationcooperatives has cooled down substantially.

A distinct feature of the new-generation cooperative is itsequity financing method. It is unique even amongcooperatives:• It requires significant equity investment as a prerequisite tomembership and delivery rights to ensure that an adequatelevel of capital is raised.

• The delivery right is in the form of equity shares that canbe sold to other eligible producers at prices agreed to bythe buyer and the seller, subject to the approval of theboard of directors to satisfy members’ desire of having thefreedom to “cash in” on the hoped-for increases in thevalue of the cooperative.Only one dairy cooperative is known to have been

organized using the new-generation model. In 1995, acooperative in South Dakota was established to makespecialty cheese. But its remote location, the investmentneeded to renovate its plant and the skill required to makeand market specialty cheese posed major problems. The new-generation model proved no help. It suffered the same fate asthe struggling cooperative it was formed to replace andceased operation four years later.

Purpose and MeansDairy cooperatives are prime examples of the traditional

model of a cooperative that is owned, controlled, financedand used by members. Focusing on the business of marketingmembers’ milk, dairy cooperatives benefit members byenhancing returns to their milk production efforts; memberssupply equity capital needed for the cooperative to carry outits function as their collective milk marketing arm.

The cohesiveness between member purposes andcooperative functions makes dairy cooperatives, as a group,perhaps the most prominent agricultural marketingcooperatives. This is because milk is highly perishable and its


daily production must have an assured, ready market.Most dairy farmers (84 percent of U.S. total in 2007) rely

on marketing services provided by their cooperatives. It is forthis reason that equity capital financing, in general, is not acontentious issue for dairy cooperatives if the funds are usedfor the core business of marketing members’ milk. Dairycooperatives are seldom used as a vehicle for investing inventures that are unrelated to member business (Ling, 2011).

The close bond between producers and their dairycooperatives may or may not be replicated in otheragricultural commodity sectors, depending on thecharacteristics of the commodity and its market. Because notwo commodities are the same, the needs of respectiveproducers in marketing them also vary.

Cooperatives may be more essential to producers ofcommodities that have to be marketed shortly after beingproduced (such as vegetables, fruits and, of course, milk), orthat have no ready market outlet other than the cooperative,than they are to producers of commodities that are storableand have a longer marketing season (such as grains and oilseeds) or that have multiple market outlets.

It stands to reason that raising or retaining equity capital ismore challenging for a cooperative that is regarded by itsmembers as but one of the competing market outlets for theirproducts than for a cooperative that is indispensible tomembers.

It can be even more challenging for a farm supplycooperative that has to compete with other supply stores inthe local market. There are hundreds, or even thousands, ofsupply items, and it is unlikely that the cooperative can be thebest-value provider of every piece of merchandise. “Cherry-picking” by members in making purchases is inevitable.However, it is difficult to raise equity capital from membersin this circumstance. (A food cooperative competing withother stores may encounter the same issue.)

Regional farm supply cooperatives may have economies ofscale in product sourcing or in operating manufacturingfacilities, especially for major supply items such as seeds, feed,fertilizer, chemicals, and petroleum products. They couldpass along cost-savings derived from scale economies tomembers and thus better meet competition.

However, operating upstream manufacturing plants has itsown risks (such as volatile raw material prices) that requirethe cooperative to have ample capital to cushion the shocks.The challenge for these cooperatives is to have a solid andbroad membership base that sees the value of supporting thecooperatives with adequate equity capital.

All these factors point to the fact that the cooperativecapital financing issue is really a reflection of a certain gap, ordisconnect, between member purposes and cooperativefunctions. If this gap is narrow, it tends to be less of an issue;if the gap is wide, it becomes a more serious issue.

The solution to the issue lies in assessing what memberswant the cooperative to do and whether they are willing tofinance it with equity capital in the amount commensurate

with the benefits they expect to receive from a cooperativethat operate for members’ best interests. In some cases,members may have to decide whether the cooperative is themost suitable business model for what they want toaccomplish.

In recent years, the cooperative model has gained newattention from social entrepreneurs and economicdevelopment practitioners. Being owned, controlled and usedby members for mutual benefits, cooperatives are anappealing tool to empower people to work toward their owneconomic destiny. They can be adapted to be community-based organizations to serve economic opportunity-deprivedor service-deprived areas.

Because such cooperative organizations are formed toaddress public policy or social issues, it is appropriate to haveinitial capital funding assistance from public or philanthropicsources. Over the long term, however, they must be self-sustainable in order to be economically viable. Someexemplary precedents are rural electric cooperatives and theFarm Credit System.

References

• Farm Credit Administration. History of the FCA and theFCS,http://www.fca.gov/about/history/historyFCA_FCS.html.

• Ling, K. Charles. Marketing Operations of DairyCooperatives, 2007, USDA Rural Development, ResearchReport 218, July 2009.

• Ling, K. Charles. Cooperative Theory, Practice, andFinancing: A Dairy Cooperative Case Study, RBS ResearchReport 221, April 2011.

• National Rural Electric Cooperative Association. History ofElectric Co-ops, http://www.nreca.coop/members/History/Pages/default.aspx.

• Torgerson, Randall E. “A Critical Look at New-Generation Cooperatives,” Rural Cooperatives, United StatesDepartment of Agriculture, January/February 2001, pp.15-19.

• U.S. Department of Agriculture. Rural Development,Business and Cooperative Programs Public Meeting onResearch Transcript: September 27, 2005, http://www.rurdev.usda.gov/rbs/pub/ResearchPublicMeetingTranscript.pdf �

By Laurel Mann,Communications CoordinatorCo-Alliance LLP

f it sounds too good tobe true, it probably is.”We’ve all heard thatwarning. Jerry Werner,a farmer in LaPorte

County, Indiana, certainly has.But some things really do live up to

great expectations. Case in point, saysWerner, is Co-Alliance LLP (limitedliability partnership), a progressive newco-op enterprise which is deliveringnumerous benefits to the producer-owners of its five member cooperatives.

Werner, a loyal member of severalco-ops, and his son, Adam, farm mostlyirrigated acreage near the smallcommunity of Union Mills. Severalyears ago, Werner and the otherfarmers who own LaPorte County Co-op were invited to join Co-AllianceLLP, now owned by Midland Co-op,IMPACT Co-op, LaPorte County Co-op, Frontier Co-op and Excel Co-op.

“Today, my farming neighbors and Iare in a position where our patronagerefund checks are significant,” saysWerner. “Our equity is being redeemedmore aggressively. We are offeredcompetitive incentives to purchaseseed.”

Through Co-Alliance, farmers haveaccess to valuable proprietarytechnology. “That couldn’t havehappened for us just a few years ago,”Werner says. “At first, we thought, thisis too good to be true. But it is true,” headds. Werner, like many farmers, islearning what the LLP businessstructure can offer their localcooperative.

Delivering return on investment“Joining the partnership is one of the

best decisions farmers here could havemade,” says Werner, who now serves asboard vice president of Co-Alliance.“We have a strong balance sheet. Weare diversified. We are positioned wellfor the future.”

Almost immediately, local producersgained a higher rate of return on theirco-op investment (and a higher returnon equity) than before.

For the business year ending Aug.31, 2011, Co-Alliance achieved $1.01billion in supply sales and marketing,had a net income of $26.7 million andall five co-op members returned arecord level of patronage — about $10million — to shareholders acrossIndiana, Ohio and Michigan.

Investing in futureMore than 100 miles to the south,

Kim Ames has similar feelings aboutCo-Alliance. Ames 4K Farm is a multi-generation/multi-family farmingoperation that has long been an activemember of Midland Co-op. Ames’family has seen many changes over thecourse of his farming career in PutnamCounty, Indiana.

One transition Ames fully supportedwas the first collaborative effortbetween the Midland and IMPACTcooperatives. Through their LLP, thetwo co-ops gained the strengths,resources and leadership talent neededto better serve customers and grow.The three other local co-ops soonsought to join the fold, resulting in theformation of Co-Alliance as a five co-opmember business venture, of whichAmes is board president.

As a result, Ames and other PutnamCounty farmers have seen significantinvestments being made to improveservices and products — such as thenew, liquid 28 percent fertilizer hub ona rail location not far from Ames 4KFarm. The facility is one of two hubsCo-Alliance operates. It is an assetAmes knows will help the companymeet the demands of larger growers inthe future.

When the partnership was initiallyproposed, Ames and other votingfarmers did their research. They knewthat the unique structure of a limitedliability partnership offers someadvantages over a traditionalpartnership or merger. That has provento be true in this venture, he says.


Focus On: Co-Al l iance LLPPartnership delivers returnsfor members of five co-ops

“I

Co-Alliance LLP is providing access to valuable proprietary technology and otherbenefits to the members of the five cooperatives that own it. Above is the Malden grainand agronomy facility in Porter County, Indiana.


Producers have seen the board andmanagement team drive increasedefficiencies, bring home more advancedtechnologies and represent localgrowers in negotiations, wielding theclout of a much larger organization.

“The definition of synergy is whencooperative action gains results whichare actually greater than the sum of itsparts,” says Co-Alliance CEO Kevin A.Still, who has more than 27 yearsexperience managing local cooperatives.Still and John Graham, chief financialofficer of Co-Alliance, were instru-mental in developing and implementingthe LLP business structure for theventure.

Guided by the board’s vision and thesupport of a talented senior manage-ment team, the five partner co-ops nowmarket under one brand. That meansfive main offices, five accountingsystems, five employee groups, fivecompany cultures and five balancesheets and operating statements havebeen assimilated into one. Not an easytask, but one that has proven to beworth the effort.

New opportunities continue to beevaluated, including possible additionalpartners. “Our objective is smartgrowth — not to be the biggest, but tobe the most efficient, innovative andlocally invested supplier for areafarmers,” Still says. “Size helps us‘negotiate large’ with our suppliers, butour intent is to remain ‘small’ and localfor each customer.”

Ames is pleased with the results hesees as a co-op customer and owner. “Itis not difficult to convince someone todo business with our partnership today,”he says. “We are competitive.”

Retaining local controlIn addition to a strong balance sheet

and the ability to invest in the future,Clinton County farmer Dan Coapstickbelieves that the partnership structureoffers a third significant benefit tofarmers that traditional partnershipsand mergers don’t: the retention oflocal control.

“The ag economy is strong,”Coapstick says. “As we push for growth,

we’re always mindful of the balancebetween doing what is good for growersin one area, and doing good for co-opmembers as a whole.”

His opinion is widely shared by the7,500 farmer-members who continue tohold stock, vote and can serve as

directors on the still-existing boards ofthe five partner co-ops. “The LLPstructure keeps the best features ofthose partner co-ops intact and allowsus to keep decision-making as close tothe customer as possible,” says Still.

IMPACT Cooperative member-farmers in Coapstick’s area wanted togain the efficiencies and economies ofsize and scope, but were independentenough that they also wanted to retain

local roots, local talent and localcontrol, he recalls. Local growersunderstood they would receiverepresentation and ownership in theLLP, based on the assets they broughtinto the partnership.

Income and patronage aredistributed the same way, based on theproportion of ownership in the LLP.Simply put: when they vote to join theLLP, growers exchange 100 percentownership of a smaller pie for theopportunity to own a piece from amuch larger pie.

Lead, grow, give, rememberThe synergies generated by Co-

Alliance LLP are at work in 2012.According to Still, those synergiesinclude significant economies of scale,risk management, diversification ofbusiness, employee expertise,information systems and capital access.The challenges ahead for Co-Alliance— as for any agribusiness supplier —include consolidation and competition,rapid technological advances, capitalrequirements, the need to recruit andretain excellent staff and the increasingregulation of the industry.

“When we began the LLP, wereduced our mission statement from aparagraph to just four words: Lead,grow, give and remember,” says Still.“In everything we do, we want to leadour markets, grow member profitability,give back in communities andremember our cooperative roots.”

The team at Co-Alliance continuesto seek ways to add value to therelationships with the farmer. “Thebeauty of a co-op is that all advantagesstay local. We serve the farmer, and wealso invest locally as an employer; wepay taxes; we give time and financialdonations; we’re good neighbors andgood stewards,” Still says. “The beautyof the LLP structure is that it allows afarmer-owned co-op to do all thosegood things in the most competitive,effective ways. That’s why we createdthe LLP.”

For more information about this co-op partnership, visit: www.co-alliance.com. �

Co-Alliance LLP fact file:

• Leadership: 40 directorsrepresenting five co-ops;

• LLP Leadership: 13representatives from five co-opboards;

• Business units: Power fuels,propane, agronomy, grainmarketing, swine/animalnutrition;

• Area served: Dozens offacilities in Indiana, Ohio andMichigan;

• $1.01 billion supply andmarketing sales;

• $343 million in assets;• $26.7 million net income;• $10.6 million in patronage paid

in 2012;• 500 team professionals on staff.• More than 54 million gallons of

gasoline and diesel and 16million gallons propane sold.

• 375,000 tons of fertilizer sold;• $44 million in crop protection

products sold;• $37 million in seed sold;• 59 million bushels of grain sold;• $96 million in feed and animal

health products sold;• 260,000 hogs marketed.


By Jim Wadsworth,Education and Outreach SpecialistCo-op ProgramsUSDA Rural Development

Editor’s note: This article updates andrevises portions of an article that appearedin the March/April 2001 issue of “RuralCooperatives.”Many co-ops heeded the callto action sounded in 2001, but more stillneed to do so, and 2012 International Yearof Cooperatives (IYC) is a good opportunityto strengthen co-op education and memberrelations.

ounger members arenot as loyal to thecooperative as theyneed to be.”“I don’t feel that some

members fully appreciate what our co-op offers them in service and benefitscompared to non-co-op businesses.”

“Why should I support the co-opwhen it’s really just like any otherbusiness?”

Sound familiar? Comments such asthese can provide stark evidence that acooperative’s member relations need atune-up, if not an overhaul.

When such perceptions becomeprevalent at a co-op, improved memberrelations through stronger educationand communications efforts are anecessity. If a lack of loyalty andcommitment becomes pervasive and isnot adequately addressed, your co-op’sfuture is not bright, regardless of wherethe markets go.

Without proper attention to member

relations, member loyalty will usuallydeteriorate over time. Under thesecircumstances, members’ use, controland ownership of the co-op will slip.Most members need to be regularlyreminded that they are the most criticalasset of their cooperative, and that theircooperative is critical to their futuresuccess.

Even when the need for a strongmember relations program is wellunderstood by co-op leaders, too oftenit does not get the kind of resources orsupport needed to do the job. Whilesome cooperatives are doing a terrificjob with member relations andcommunications, others are struggling,allowing an environment to persistwhere members (especially youngerones) do not show the commitment to

“Y

Keep theco-opcandleburning!

2012 International Year of Co-ops perfect time to gear-up co-op education

Candlegraphicby

StephenThom

pson

their co-op as did previous generations.2012 International Year of

Cooperatives makes this the perfecttime to step up to the plate and spreadthe word about your co-op and co-opsin general. Promote the member-ownership aspect of your business andthe products and services it provides.Member pride and loyalty is most likelyto swell if the impact of the cooperativebusiness is seen and felt by many.Motivated members further instill thatsame pride and loyalty in others and apositive momentum spreads throughthe membership.

Pattern of “fall-off”New cooperatives tend to have

vigorous member relations, withmember loyalty and optimism abouttheir new business running strong inthe early years. But this is an era ofcontinuous economic and structuralchange in all business sectors. Manycooperatives are restructuring theiroperations (via mergers, acquisitions,joint ventures, and other strategicmeasures) to meet changing conditions.Some co-ops are seeking new businessopportunities in increasingly complexdomestic and global markets.

The bottom line is that manycooperatives have complex operationsand/or serve expanding geographicareas. Under these circumstances,members may feel they lack localcontrol. Other co-ops may havecontinuity in structure and operations,but still find themselves facingsignificant challenges. Whatever thecase, it is common for members to feeldisconnected from their cooperatives.

Many co-op leaders believeproviding quality service and productsis their best member relations tool.While essential, quality service aloneisn’t always enough to createcooperative loyalty. Given the intensecompetition they face, cooperativesmust do more. They need to be moreassertive in building member relationsin other ways. If members becomedissatisfied, the cooperative’s future willbe endangered.

Even if a co-op can’t always

implement the suggestions of members,it is critical to let them know that theyhave been heard and that their ideaswill be considered. For example, amember may want to know why the co-op can’t open at 6 a.m. The memberdeserves a note or call back explainingthat there simply isn’t enough demandto justify opening prior to 7 a.m., andthat the cost of staffing and “poweringup” that early would lose money for theco-op and its members. A thoughtfulresponse to customers is important forany business, but is especially vital forco-ops.

The more members feel they have avoice in the co-op through democraticcontrol, the stronger their commitmentwill be. All members should be stronglyencouraged to vote in board electionsand attend the annual meeting. Thecreation of advisory committees orboards provide an excellent way for co-ops to gain a broader perspective ofmember needs and opinions while alsoforging stronger links with themembers who participate on them.

Continuous effort neededA good member relations effort

should include:• Communicating regularly withmembers (this is vital);

• Educating members about their co-op, its mission and co-op principles;

• Promoting the co-op continuously inmany ways to enhance its image;

• Motivating members by talking aboutmember responsibility, loyalty and thebenefits of cooperation.Effective communications channels

are necessary in cooperatives fordisseminating timely information tomembers, to educate, promote andmotivate. Strong communication buildsa cooperative connection to members.Cooperatives that talk to their membersmake them feel more connected andmore apt to be loyal.

Communications with membersshould regularly include informationabout:• The cooperative’s background,objectives, organization and generaloperations.

• Cooperative principles and practicesand the benefits that members receivefrom the co-op.

• Cooperative policies — especiallywhen adopting new ones or changingold ones. Members must know whypolicies are being developed orchanged and be kept apprised of howpolicies affect them.

• Co-op products/commodities — whythey meet or exceed members’expectations, how they should be usedand handled;

• Services — what’s offered, what’s newand how these services are designedbased on member input;

• Cooperative plans — changes inoperations, equipment, services andoverall strategic direction.

• Future outlook — for business, thegeneral competitive environment andfor members.

• Cooperative finances — includingsales, savings and losses; overallbudgets and future financial plans;development of newproducts/services; and equityredemption plans.Member communication can be

accomplished through traditional means— including the annual meeting, localmeetings, workshops, open houses,tours, newsletters, bulletin boards,informational leaflets and promotions.Today, communication is occurringmore and more through electronicmeans: e-mail, websites and socialmedia, as well as the long-establishedelectronic media of radio and television.All methods are important andmanagement, directors and employeesneed to take an active role incommunicating with members.

No member should be left in thedark about important aspects of his orher business. Communicate withmembers in good and bad times. Helpthem understand their cooperative’sunique principles and practices andremind them of their responsibilities inthose respects.

Strong communications should bethe foremost goal for improvingmember relations in cooperatives. Well-




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Co-op developments, coast to coast

Organic Valley reportsrecord sales year

Organic Valley reports that its salesrose to a record $715.6 million for2011, a $95.9 million increase over2010, for an overall growth rate of 15.5percent. The nation’s largest organicco-op made a profit $13.3 million, upfrom $12.1 million in 2010. It alsowelcomed 212 new members in 2011.

Additional highlights discussed atthe co-op’s annual meeting in LaCrosse, Wis., in March included:• Recent completion of an expansionproject at its headquarters in LaFarge, Wis.;

• Construction is progressing on theCashton Greens Wind Farm,Wisconsin’s first community windproject;

• Launch of Organic Valley AmericanCheese Singles, unprocessed, 100-percent real organic cheese slices;

• Organic Valley Grassmilk, an organicspecialty milk produced from cowsthat are 100-percent grass-fed.USDA Deputy Secretary Kathleen

Merrigan addressed the co-op’ annualmeeting, highlighting USDA efforts topromote organic agriculture. Shediscussed the Know Your Farmer,Know Your Food program andidentified challenges ahead for theorganic community.

“USDA is committed to helpingorganic agriculture grow and thrive bystrengthening USDA’s NationalOrganic Program and betterintegrating support for organicproducers across the Department,” shesaid. “We also continue to supportcooperatives, a business model that’sbeen very successful for organic andother producers.”

There was plenty of good news from 2011 for Organic Valley member-producers, suchas Matt Fendry, who farms near Eau Claire, Wis. Record sales of $715 million showed anincrease of nearly $96 million from 2010. Photo courtesy Organic Valley


“2011 was a unique year of recoveryafter the previous recession years,”CEO George Siemon says in the co-op’s annual report. “We saw sales climbback up to pre-recession growth levels,which proves how vibrant the organicmarketplace is. This increase in sales isdriven by educated consumers,especially by women who are makinglifestyle changes.”

Siemon says the co-op’s growth lastyear largely resulted from other poolsof organic milk seeking membership.“Most of these groups brought marketswith them as they saw the benefit ofbeing part of a bigger pool of organicmilk with diverse markets. Some of thegroups that joined us were the LOFCOgroup from Pennsylvania last spring; 10North Coast producers in Petaluma,Calif., in August; two groups of organicdairies in Oregon in late fall; and theHumboldt producers in December.”

Survey: Americans rateconsumer co-ops highly

A large majority of Americans, 72percent, believe that consumercooperatives — such as credit unionsand rural electric co-ops — are “helpfulto consumers.” Only 11 percent say co-

ops are “unhelpful,” according to a newnational survey developed by theNational Cooperative BusinessAssociation (NCBA) and ConsumerFederation of America (CFA).

Nearly one-third of Americans (29percent), say they belong to a consumercooperative, the survey found.

“This survey illustrates that the29,000 cooperatives in this countryoffer a much-needed alternative thatconsumers appreciate,” says Liz Bailey,interim president and chief executiveofficer of the NCBA. “At a time whenthe entire business community isfocused on demonstrating shared valueand social responsibility, it’s gratifyingto know that Americans continue toplace their trust in member-owned,democratically governed cooperativebusiness enterprises.”

Survey respondents rated consumercooperatives more highly than for-profit businesses on a number ofmeasures of quality and service. Theseinclude: running their business in atrustworthy manner; commitment toquality service; keeping the best interestof customers in mind; and offering fair,competitive prices, among otherattributes.

“The Consumer Federation ofAmerica has long believed thatcooperatives offer pro-consumerservices and enhance pro-consumercompetition in the marketplace,” saysStephen Brobeck, executive director ofCFA. “It is gratifying to learn from thissurvey that consumers agree with us.”

A representative sample of 1,008adult Americans was surveyed in Aprilby Opinion Research CorpInternational (ORC). Consumercooperatives are owned and demo-cratically controlled by their members— the people who use the co-op’sservices.

For more details, visit: www.ncba.coop.

Blue Diamond beginsplant construction

Blue Diamond Growers, acooperative owned by more than half ofCalifornia’s almond growers, brokeground in April for a new manu-facturing plant that will occupy an 88-acre site in Turlock, Calif. The firstphase of the project is scheduled to becompleted in May 2013.

The new plant will provide about200,000 square feet of building spacefor manufacturing almond products that

An artist’s depiction of what Blue Diamond Growers’ new almond processing plant in Turlock, Calif., will look like upon completion.Graphic courtesy Blue Diamond Growers


are exported worldwide. The three-phased project will create about 500,000square feet of building space over thenext 15 years.

“There’s no doubt that BlueDiamond will bring numerous benefitsto the Turlock community, includingjobs,” says Mark Jansen, Blue Diamondpresident and CEO. Blue Diamondopened its last new plant in 1968 inSalida, just outside Modesto. At thattime, California was producing 140million pounds of almonds. This year’scrop is expected to come in at about 2billion pounds.

“We have kept pace with upgradingnew technologies in our plantoperations over the last 44 years, buttoday we are celebrating the largestsingle investment in the 102 years ofthe almond industry’s existence,” Jansensaid during the ground-breakingceremony. The co-op will also sooncomplete work on a state-of-the-artresearch and development complex atits headquarters in Sacramento.

“I would like to thank our growersfor entrusting their almonds to us tomake this investment,” Board ChairmanClinton Shick added. “It will reap thelargest incremental returns to almondgrowers who seek a secure future in thealmond business.”

Banner sales yearfor sugar co-op; Contrerassucceeds Wedgworth

After seven years of hurricanes,droughts and freezes, the Sugar CaneGrowers Cooperative, Bella Glade, Fla.,achieved a banner season this year,according to a report in the Palm BeachPost. The 46-member co-op harvested3.1 million tons of sugar cane, one ofthe top five years in the co-op’s 52-yearhistory. It produced 374,266 tons of rawsugar and 18 million gallons ofblackstrap molasses.

A freeze the previous seasondevastated production, with the 265,682tons of raw sugar produced being thesecond-lowest yield in the cooperative’shistory, according to co-opspokesperson Barbara Miedema.

Cooperative President and CEO

Antonio Contreras said more than 10new production performance recordswere set this season, including thehighest tonnage of sugar cane hauledand processed in a day, and the highestoverall recovery of sugar from the cane,the Post reported. While weatherconditions were ideal this season, thecooperative’s members also farmedmore land, growing sugar cane on68,456 acres, up from 61,650 acres ayear ago.

Contreras succeeded GeorgeWedgworth as CEO in January.Wedgworth had been at the helm of theco-op, of which he was a founder, for52 years. He remains as boardchairman.

Wedgworth was credited as theguiding force behind the co-op, from itsinception a half century ago to a“world-class, vertically integrated sugarcane operation that jointly owns thelargest sugar refining company in theworld,” according to John Hundley, co-op vice president and secretary-treasurer of the board. The co-op co-owns (along with West Palm Beach-based Florida Crystals Corp.) AmericanSugar Refining (ASR) Inc. in Yonkers,N.Y. ASR is the world’s largest canesugar refining company, with globalproduction capacity of 7 million tons ofrefined sugar annually. ASR brandsinclude Domino, C&H, Redpath, Tate& Lyle and Sidul.

“From the novel idea of organizingthe cooperative to overseeing itsconstruction, the expansions andintegration into the sugar cane refiningbusiness, George was the driving force,”Hundley says. “His leadership andlegacy are the basic foundation of thecooperative, and will be carried out bythe new leadership.”

Contreras had been serving asexecutive vice president for marketingand refining operations for the co-op. Anative of Cuba, Contreras earned a BSin business administration from theUniversity of Miami and a Masters ininternational marketing from theThunderbird School of GlobalManagement in Glendale, Ariz. JoseAlvarez has been named as chief

operating officer and general manager.

Jacobs to fill keyco-op role at Iowa State

An Iowa State University facultymember has been appointed to aresearch and extension position focusedon the economics of cooperatives andworking with Iowa co-ops to address

emerging issues. Keri Jacobs, anassistant professor of economics, willbegin serving in the position on Aug.15. Jacobs joined the ISU faculty in2010 with interests in economics relatedto agricultural business, land-usedecisions and agricultural policy.

The Iowa Institute for Cooperatives,which represents 150 cooperatives inthe state, has expressed its commitmentto support Jacobs’ research andextension program. The nonprofitassociation currently is undertaking afundraising project with a goal of $1million.

“This is one of the most excitingperiods in history for Iowa agriculture,”says David Holm, executive director forthe institute. “Cooperatives play asignificant role in Iowa agriculture andwe enthusiastically look forward toworking with Dr. Jacobs to address ourmembers’ needs today and in thefuture.”

The cooperative economist positionis similar to one held for 31 years byRoger Ginder, an ISU professor of

Keri Jacobs


Flint Energies, a user-owned electriccooperative serving central Georgia, iscelebrating its 75th anniversary. The co-opreceived its charter from the RuralElectrification Administration (REA) on April23, 1937.

“Today brings back a lot of greatmemories,” Sr. Vice President Jimmy Autrysaid in April during an event marking theanniversary. “But the most importantmemory is that of members workingtogether to create a lasting organization tomeet their own needs.”

From a modest beginning, serving just 90 members, Flinttoday has 240 employees and serves more than 84,400meters. Flint’s physical plant consists of more than 6,406miles of distribution line and 50 substations to provideenergy services to residential, commercial, industrial andagricultural members in parts of 17 central Georgia counties.

Like all cooperatives with such deep roots, Flint Energieshas benefited from the dedication of countless members andstaff. It is the people, after all, that define a cooperative.

One colorful example of the type of people it takes tobuild a successful co-op is mentioned in the co-op’s historybook: “Flint hired Sam Hobbs, who worked with theconstruction contractor, as a service and maintenance manin February 1938. A little-known fact about Sam Hobbs, agruff and crusty man, is that he had a heart of gold. Manytimes when going out to collect an overdue electric bill, hewould find sickness or other trouble in the home. He wouldreturn to the office and pay the bill out of his pocket.”

Flint expects revenues to surpass $190 million in 2012, andthrough their elected board, the members now direct acorporation with more than $300 million in assets.

“What really sets us apart is our payment of capitalcredits,” Autry said. “They are the retained margins left overat the end of each year and are the most significant sourceof equity for most cooperatives. Capital credits aresomewhat similar to the dividends that investor-ownedutilities pay to their shareholders.

“The difference is that the cooperative’s ‘shareholders’are also the people that it serves and the ‘dividends’ (capitalcredits) are distributed to those member/consumers. Capitalcredits reflect each member’s ownership in thecooperative,” said Autry. “Flint has paid back to its membersevery dollar of patronage earned from our first day in 1937through a portion of 1984.”

Flint is the eighth largest of Georgia’s 42 electric co-opsand ranks as the 36th largest of the nation’s nearly 1,000rural electric cooperatives. �

Flint Energies turns 75


Moark LLC, a Land O’Lakes subsidiary, donatedmore than 1 million eggs to nine food banks acrossthe United States in time for the Easter holiday. For thefifth year in a row, egg producers have teamed upwith Feeding America’s network of food banks in thefight against hunger.

Moark’s contribution marks the second eggdonation in the third year of the First Run program. Aspart of the First Run program, Land O’Lakes and itssubsidiaries have committed to donating truckloads offresh product to food banks quarterly to help alleviatehunger nationwide.

“As a national, farmer-owned cooperative, LandO’Lakes is committed to helping the growing numberof people struggling to put food on their tables,” saysLand O’Lakes Foundation Executive Director LydiaBotham. The First Run program is part of LandO’Lakes’ larger Feeding Our Communities initiative – aprogram dedicated to helping alleviate hunger locally,nationally and internationally. �

Moark donates1 million eggs

Part of a shipment of 1 million eggs is loaded onto a truck for distribution to a number of community food banks around thenation. The eggs were donated prior to Easter by Moark LLC, a Land O’ Lakes subsidiary.


economics who retired in 2010. Ginderwas a nationally recognized expert incooperative finance and strategicmanagement.

In her new position, Jacobs will focuson the role of cooperatives in theevolving industrial organization of:agricultural markets; verticalintegration; innovation and productdevelopment; contracting; ownership,control rights and governancestructures; organizational strategies;finance and the equity structure ofcooperative firms; regulation andtaxation of cooperative entities; and riskand risk-sharing in commodity markets.

Jacobs, a native of Monticello, Iowa,earned a doctorate in economics fromNorth Carolina State University andbachelor’s degree in businessadministration and economics from CoeCollege.

AMPI reports$2 billion in sales

Associated Milk Producers Inc.(AMPI) says that staying focused onmaximizing members’ returns helped itachieve positive results in 2011. Leadersannounced at the co-op’s annualmeeting in March that the dairymarketing cooperative, owned by 3,000Upper Midwest dairy farmers, achievedsales of $2 billion last year.

Although weak milk volumechallenged all dairy manufacturers in itsregion last year, the cooperative’sdiversified manufacturing networkincreased returns in key areas. “Ourcheese-packaging plant in Portage,Wis., and the New Ulm, Minn., butterplant contributed stellar returns to thebottom line,” AMPI President andCEO Ed Welch told some 400delegates and guests at the meeting inBloomington, Minn.

The 2011 performance marks thefifth consecutive year of growth in bothconsumer-packaged butter and cheese.The cooperative’s butter businessincreased 22 percent and packagedcheese sales climbed 43 percent in fiveyears.

Operational highlights include:• A $7.5 million investment was made

to purchase and install 18technologically advanced cheese vatsto improved production efficiency andcheese yield.

• The co-op’s three consumer-packaging plants all achieved SafeQuality Food certifications; all 12plants will have the designation in2012.

• For the third consecutive year, thenumber of members earning theAMPI Milk Quality Award increased.More than 450 producers received theaward for consistently achieving thecooperative’s high milk standards.

USDA rural-sociologistreceives honor

Thomas W. Gray, Ph.D., a ruralsociologist with the Cooperative

Programs office of USDA RuralDevelopment, received an award foroutstanding service from the SouthernRural Sociology Association (SRSA) onFeb. 7, at the association’s annualmeeting in Birmingham, Ala. Gray hasheld a series of offices in theorganization, most recently serving aspresident.

SRSA is a professional social scienceassociation oriented to enhancing theviability and quality of rural life,communities and the environment inthe South and to encourage similar

work nationally. The organization isinclusive of other social sciences andincludes practitioners at the university,community, government, and non-government organization levels.

Gabriel new chiefeconomist at FCA

The Farm Credit Administration(FCA) has appointed Steve Gabriel asassociate director of the Agriculturaland Economic Policy Team and asFCA’s chief economist. He succeedsJohn Moore, who retired after 40 yearsof federal service.

“FCA has benefited from Steve’sknowledge, skills and experience formany years,” says FCA Chairman andCEO Leland A. Strom. “And I knowthat he will provide outstandingleadership as the agency’s chiefeconomist.”

Before his appointment, Gabrielserved as a senior financial analyst andprogram manager for systemic riskanalysis in the Risk SupervisionDivision of FCA’s Office ofExamination. He began his federalgovernment career as an agriculturaleconomist at USDA’s EconomicResearch Service. He joined FCA in1989, leaving it in 2000 to serve for sixand a half years as a senior financialeconomist at the Federal DepositInsurance Corporation. He came backto FCA in December 2006.

Gabriel has a B.A. in economicsfrom Loyola University of Chicago, anM.S. in finance from the University ofIllinois and a Ph.D. in agriculturaleconomics from the University ofIllinois.

The FCA is the safety and soundnessregulator of the cooperative FarmCredit System and the FederalAgricultural Mortgage Corporation(Farmer Mac). It charters, regulates andexamines the 95 banks, associations,service corporations and special-purpose entities of the Farm CreditSystem, which makes loans toagricultural producers and theircooperatives nationwide. �

Thomas W. Gray


makers agree that producing a topcheese is both a science and an art, notunlike producing fine wine.

While winning first prize is a greathonor, Davis says for Cabot the maingoal is to consistently make a strongshowing. “You aren’t going to alwayswin the blue ribbons, but we want tomake sure that our cheeses are always inthe hunt.”

The awards are usually displayed byco-ops in places where the publicand/or employees can view them all

year. Cabot, for example, will put itsawards on display at the CabotCreamery Visitor Center in Vermont,which attracts a heavy flow of tourists.

“The members love it when theircheese wins a prize — it’s a great sourceof pride on the farm,” Davis says.“They know you can’t make greatcheese without great milk, and that allstarts on their farms.”

Among the states, Wisconsin wastops with 30 gold medals, while NewYork was second with nine gold medals.California and Vermont each earnedthree golds, while Idaho and SouthDakota earned two gold medals each.Illinois, Indiana, Iowa, Minnesota, Ohioand Utah each took home one gold

medal.The FrieslandCampina cheese

factory in Steenderen, Netherlands,emerged from the Sweet 16 with theoverall top prize for its Vermeer semi-soft, reduced-fat cheese, which earned ascore of 98.73 in the final round ofjudging. First runner-up, with a score of98.55, was Winzer Kase, a smear-ripened, semi-soft cheese made byKaserai Grundbach in Wattenwil,Switzerland. Second runner-up wasAppenzeller Kase, made by KarlGermann, of Appenzell, Switzerland,which scored 98.34.

The winning cheeses in the contestwere auctioned off, raising $140,000 forcharitable causes. �

A taste of goldcontinued from page 19

informed members are usually moreloyal to their cooperative.

Education efforts should focus oncooperative principles, practices andbenefits. “Education is a social process.... Education is growth.... Education isnot a preparation for life; education islife itself.” Those words of philosopherand theorist John Dewey, convey thateducation is a vital lifelong process.Education is the lifeblood of acooperative and must be a continuingpriority. Members use, control andbenefit from their cooperatives. Theyneed to be reminded of it and hear itregularly.

While co-op members are the mostimportant “audience” for co-ops tocommunicate with, the general public— especially the young — should alsobe communicated with on a regularbasis. Creating a favorable impressionof your co-op in the community canpay huge dividends for the co-op thenext time you are seeking communitysupport for a project, such as for achange in a zoning classification or anew business permit needed for afacility expansion.

Directors need to be educated on

understanding financial statements andmany other important aspects of the co-op business to successfully meet theirresponsibilities. Organizations such asthe National Council of FarmerCooperatives and state co-opassociations conduct excellent director-training programs that co-ops can takeadvantage of. Cooperative employeesalso should be well-schooled incooperative principles and shouldunderstand that they have a role to playin improving member relations

Members can also serve as co-opeducators, talking to new or potentialco-op members about the benefits theyreceive from membership. They cantalk to students, including theirchildren’s classmates and friends, aboutwhat a co-op is and what they do fortheir members and communities.

Some co-ops (such as CabotCreamery/AgriMark, Organic Valleyand Florida’s Natural, among others)have tailored their regional and nationaladvertising efforts and/or packaging tohighlight the fact their company is“farmer owned.” Marketing studieshave shown this message resonates withconsumers.

Not “just another business”The United Nations-declared 2012

International Year of Cooperatives is an

exciting opportunity to communicatewith members and the public aboutyour co-op – why it is special and not“just another business.”

Keep the co-op candle burningbrightly. If your member relations andpromotion efforts are flickering or haveeven gone out, it is time to re-lightthem. Communications must be a corefunction of every cooperative.

If as manager or director of amedium or small co-op you don’t havetime to focus on communications asmuch as you should, consider adding astaff communications specialist ordesignating a staffer to spend at leasthalf their time on communications andeducation. If the co-op is too small foreven that, consider using the services ofa public relations firm that works withco-ops, or forming a membercommittee that can develop somecommunications or promotion projects.

For more ideas about promoting co-ops during IYC, visit:http://social.un.org/coopsyear. TheCooperative Programs of USDA RuralDevelopment can also provide co-opeducation publications for hand-outs.See pages 22-23 of this issue for a fewideas, and visit: www.rurdev.usda.gov,then follow the “cooperatives” links. �

Keep the co-op candle burning!continued from page 39


Foundation is to find cooperativesolutions to the issues facing seniorcitizens in rural America. In manycommunities, senior citizens make up amajority of the residents inmanufactured home parks. They areparticularly vulnerable should theirparks be put up for sale.

Since 2006, CDF has granted morethan $230,000 to support technicalassistance for co-op conversion work byorganizations such as ROC USA, theNew Hampshire Community LoanFund, Rural Community AssistanceCorporation, and the Twin PinesFoundation.

“Our recent grants to ROC USAhave been particularly effective,” saysKevin Edberg, a member of the

advisory committeefor the MSC Fund.“ROC re-grantsfunding to certifiedtechnical assistanceproviders (CTAP)

that are in the process of finalizingdeals, helping to push those projectsover the finish line, resulting in new co-ops and dozens of new units of co-ophousing.”

CDF hosted a forum in March,“Cooperative Solutions for AffordableRural and Senior Housing,” to shedlight on the importance of convertingrental communities to housingcooperatives in order to achievefinancial stability, especially for ruralseniors. Speakers included JudyCanales, administrator for the RuralBusiness-Cooperative Programs ofUSDA Rural Development; TerrySimonette, president and CEO of NCBCapital Impact; Stacey Epperson,president & CEO of Next Step; U.S.

Representative James Clyburn of SouthCarolina, and Mike Sloss, managingdirector of ROC USA Capital, amongothers. For more information about theforum, visit the Senior Resource Centersection of CDF’s website: www.cdf.coop.

The partnership between the ROCUSA network and the nation’scooperative development centers isproving to be an effective one. Bradleyexplains that “co-op developmentcenters really get both theorganizational development and thebusiness development aspects of ourwork.”

Cooperative development centers,RCDG funding and ROC USA all playessential roles in promoting cooperativehousing development. By combiningthe skill and financial resources theyeach offer, and continuing to identifynew partners and leverage additionalfunding, a stronger, thriving ruralAmerica will emerge. �

Co-op Development Actioncontinued from page 29

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