rural cooperatives usda / rural development july/august 2000 · ic eggs in more than one basket,...

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lCOOPERATIVESUSDA / Rural Development July/August 2000USDA / Rural Development July/August 2000

S p i r a l o f s u c c e s s :c o - o p s s p i n o f f b e n e f i t s t o r u r a l c o m m u n i t i e s

2 July/August 2000 / Rural Cooperatives

Rural America is far less dependentupon production agriculture today thanit was when I was a girl growing up on afarm in Indiana. In those days, when yougraduated from high school, you hadtwo basic life choices to make: A) takethe steps that would eventually enableyou to assume control of your family’sfarm, or B) kiss the farm goodbye andmove to town to find your future.

Today, for many rural people choicesare increasing. That’s because everyyear, an increasing number of lightindustry, high-tech and service industryfirms are relocating all or some of theiroperations to rural communities.

These businesses have found thatrural America is not only a great placeto live, but a great place to do business.A ready supply of highly motivatedworkers with a strong work ethic is oneof the major attractions. These firmsalso have learned that many suburbanand urban workers are anxious to escapethe “rat race” of city life.

Improvements in the rural infrastruc-ture — telecommunications, water andsewer, transportation, etc.— are helpingto fuel this movement. The programs ofUSDA Rural Development are playing amajor role in accelerating the rate ofbusiness diversification in rural areasand in helping electric cooperatives andothers to finance improvements in ruralinfrastructure. A little more than 65years ago, President Franklin DelanoRoosevelt set the stage for the transfor-mation of rural life when he createdUSDA’s Rural Electrification Admini-stration. A series of articles in this issue(beginning on page 6) provide anoverview that shows how important thisact was to the nation, and how vitalthese programs remain for the future of

the rural population. Few in agriculture would deny that

this trend of rural economic diversifica-tion is a healthy one. It can even helphold families together, as in the casewhere one child stays home to run thefamily farm while her brother buys anearby house and takes a job at anInternet service provider that located inthe county seat. Even if the trendtoward fewer, larger farms stops tomor-row (and few believe that it will), weneed this type of economic diversifica-tion to prevent many rural areas frombecoming de-populated.

But does this mean that the ruraleconomy is no longer heavily dependenton the farm economy? Absolutely not!Without a strong, thriving farm sector,the overall rural economy will sufferseverely in most regions. The fate offarmers and farmworkers is inexorablylinked with the general fiscal health ofrural America.

Value-added processing cooperativesare another vital link in this chain ofeconomic diversification. They repre-sent a way to achieve diversification andvertical integration within the farmingindustry. These cooperatives have thepower to transform a community fromone that is solely a producer of rawcommodities into a producer of finished,or partially finished, goods. These coop-eratives not only generate higherincome for farmers, they create jobs andboost the local tax base. They also helpattract “spinoff” businesses, new hous-ing, schools and community facilities torural communities.

I hope you’ll read the article in thisissue (page 16) based on five case studies,funded under a cooperative researchagreement from the Rural Business-

Cooperative Service of USDA RuralDevelopment. It provides insight intohow cooperatives benefit rural communi-ties. These studies include a look at howSouth Dakota soybean growers — tiredof shipping their raw crop out of townand then buying back the soymeal thatwas processed from it in other states —opened their own soybean processingplant. You’ll also learn why Missouri corngrowers decided to go into the ethanolbusiness and how changes in pork pro-duction methods are helping an Iowafarm supply co-op gain new economicstrength. In each of these and the othercases cited, the researchers found that therural communities have benefited greatlyfrom these new business ventures.

So let’s continue placing our econom-ic eggs in more than one basket, withoutever forgetting that agriculture is still thefoundation of the rural economy — andwill be for a long, long time to come.

Jill Long Thompson,Under Secretary, USDA Rural Development

C O M M E N T A R Y

Putting our eggs in more than one basket

Rural Cooperatives / July/August 2000 3

RURAL COOPERATIVES (1088-8845) is publishedbimonthly by Rural Business–Cooperative Service,U.S. Department of Agriculture, 1400 IndependenceAve. SW, Stop 0705, Washington, DC. 20250-0705.The Secretary of Agriculture has determined thatpublication of this periodical is necessary in thetransaction of public business required by law of the Department. Periodicals postage paid atWashington, DC. and additional mailing offices.Copies may be obtained from the Superintendent ofDocuments, Government Printing Office, Washington,DC, 20402, at $3.50 domestic, $4.38 foreign; or byannual subscription at $15.00 domestic, $18.75 for-eign. Postmaster: send address change to: RuralCooperatives, USDA/RBS, Stop 3255, Wash., DC20250-3255.

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The United States Department of Agriculture (USDA)prohibits discrimination in all its programs and activities on the basis of race, color, national origin,sex, religion, age, disability, political beliefs, sexualorientation, and marital or family status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means forcommunication of program information (braille, largeprint, audiotape, etc.) should contact USDA’s TARGETCenter at (202) 720-2600 (voice and TDD).

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Dan Glickman, Secretary of Agriculture

Jill Long Thompson, Under Secretary,Rural Development

Dayton J. Watkins, Administrator,Rural Business–Cooperative Service

Gladys Rodriguez, Director of Public Affairs

Dan Campbell, Managing Editor

Vision 2000/Kota, Design

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

This publication was printed with vegetable oil-based ink.

United States Department of Agriculture

COOPERATIVESRura

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COOPERATIVESJuly/August 2000 Volume 67 Number 4

O n t h e C o v e r :

Pasta spirals down a loading chute for loading and shipping from Carrington,S.D., to food ingredient customers across the nation. Cooperatives such asDakota Growers Pasta Co. spin off numerous economic and social benefits torural communities, according to a new USDA-sponsored study. Story on page16. Photo courtesy Dakota Growers Pasta Co.

F E A T U R E S

6 When the lights came onUSDA program brought electricity and a better way of life torural AmericaDan Campbell

Pamela J. Karg

16 Generating rural progressStudy finds that new-generation and traditional co-ops havemajor beneficial impacts on rural communitiesPatrick Duffey

25 How well are dairy cooperatives performing?Carolyn Liebrand

D E P A R T M E N T S

2 COMMENTARY

15 IN THE SPOTLIGHT

22 MANAGEMENT TIP

28 NEWSLINE SPOTLIGHT

23 N


Dan Campbell,Managing Editor

ri Valley Growers, for68 years one of thenation’s premiere fruitand vegetable coopera-tives, filed for Chapter

11 Bankruptcy on July 10 after accu-mulating more than $200 million indebts during the past three years. Eventhough the co-op’s financial status hasbeen precarious for several years, thebankruptcy announcement sent shock-waves through California’s agricultureindustry and could have severe conse-quences for the co-op’s 500 grower-members, 11,000 seasonal and year-around employees, businesses thattrade with the co-op, and farm-depen-dent business throughout the state.

Tri Valley announced that it plans toidle two of its tomato-processingplants. That move would leave some500,000 acres of processing tomatoeswithout a home. With the cannedtomato industry in an over-supply situ-ation, much of that crop may have tobe disked under.

Tri Valley will also process a reducedamount of its members’ fruit crops thissummer. It will accept only 70 percentof its members’ pear crop, 85 percentof their peaches, 33 percent of theirtomatoes and 85 percent of theirgrapes. Growers were also told thatthey would only receive 70 percent ofthe payment they had expected fortheir 1999 crops, and would receiveonly 60 to 70 percent of the marketprice for the reduced percentage oftheir 2000 crop processed by the co-op.

“This will definitely put some grow-ers out of business. It’s going to cost

many low-income work-ers their jobs and set off achain reaction that willhurt farm-related busi-nesses throughout thestate,” said RobertHansen, manager of theSuisan Valley FruitGrowers cooperative, afarm supply co-op withmany members who shiptheir fruit to Tri Valley.The impact of so muchfruit and tomatoes enter-ing the market “without ahome” could cause com-modity prices to drop to“fire sale” levels, hewarned.

The state’s cling peachgrowers associationresponded with a plan to pay membersto pull out some orchards. Industrygroups also launched an effort to urgeUSDA to ease the situation by buyingmore fruit and tomatoes. At press dead-line for this issue, USDA had justformed a special task force underDeputy Secretary Richard Rominger tostudy the situation.

Jeffrey P. Shaw, Tri Valley presidentand CEO, said the Chapter 11 filing“is our best path for the continuationof our company’s operations and ser-vices.” Unlike a Chapter 7 bankrupt-cy, which provides for the liquidationof a failing business, Chapter 11 ismeant to provide protection fromcreditors to allow time for a businessto reorganize its operations, includingplans for paying creditors as much aspossible. Shaw’s letter to member-growers cited examples of other well-known corporations that have

emerged successfullyafter a Chapter 11 fil-ing, including Texaco,TWA, America West,Continental Airlines,Toys ‘R’ Us and 7-11stores.

However, accordingto a report in the July12 Modesto Bee newspa-per, Shaw told growersat a private meeting thatthere is no hope of sav-ing the co-op, which isinstead gearing itsefforts to process asmuch of this year’s cropas possible and thenseek a buyer for itsoperations. Indeed, thecredit plan being

worked out with the bankruptcy courtreportedly stipulates that the companymust be sold by this Feb. 1.

Tri Valley cans about half of thenation’s peaches and apricots, and a sig-nificant share of the canned tomatoes,fruit cocktail, pears and other fruit andvegetable products. There is no wayother processors can absorb so muchtonnage this season, so an immediatecessation of Tri Valley operations wouldbe “a catastrophe for California agricul-ture” and could even impact crop pricesin other states, said Randall Torgerson,deputy administrator for USDA’s RuralBusiness-Cooperative Service. Even thereduced operations being contemplatedat press time will exact a heavy toll onthe industry, he said.

As recently as May, press reportsfrom California indicated that thestruggling co-op was finally beginningto see some signs of improved opera-

T r i V a l l e y G r o w e r s f i l e s C h a p t e r1 1 b a n k r u p t c y

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tions. In late June, the co-op was stilldenying rumors of impending bank-ruptcy. But then the co-op’s main sup-plier of canning material — Crown,Cork and Seal — declined to continuedoing business with the co-op after itcould not obtain a secured debt posi-tion equal to the co-op’s banks. Thataction, in turn, caused the co-op’sbanking consortium to reduce a loanpackage for the 2000 canning seasonfrom $325 million to $270 million. Theresult “was like offering seven bags offeed to a hungry horse that requires 10bags of feed to work efficiently,” saidTerry Barton, president of the Califor-nia Pear Growers association.

These two actions came as a shockto co-op leaders, who, until that point,had been pleased with the progressbeing made to put their house back inorder. “We had reduced our short-termdebt by $60 million, cut inventory by$70 million and significantly improvedour levels of service,” Shaw said. But,he noted, “Clearly, the problems asso-ciated with the canned tomato markethave hampered our progress.”

Barton, Hansen and other represen-tatives of the pear industry traveled toWashington, D.C., in mid-July to seek

USDA help in easing the crisis. Theysuggested that USDA purchase120,000 tons of raw pears and 1 millioncases of canned pears, and that it offernon-recourse loans to cover the $30million shortfall their growers sufferedon the 1999 crop. They also urgedUSDA to help secure a loan guaranteeto cover the $55 million shortfall incredit TVG had been seeking.

On July 21, Vice President Al Goreannounced that USDA would pur-chase 1.4 million cases (64 millionpounds) of pears to help strugglingfarmers. Purchases are made on alow-bid process (call 202-720-4517for details). The canned pears will bedonated to domestic food assistancePrograms, including the NationalSchool Lunch program, which pro-vides meals to 27 million school chil-dren each day.

“Many growers are decidingwhether it makes sense to pick thisyear’s crop given uncertainties in themarketplace,” Gore said. “This pur-chase will reassure growers and makesure the pears are used to providenutritious meals for schoolchildren andneedy families rather than simply goingto waste.”

The Tri Valley situation has alsoleft “an enormous surplus of toma-toes,” according to John C. Welty,executive vice president of the Cali-fornia Tomato Growers Association(CTGA), a member-owned bargain-ing association. CTGA has requestedthat USDA agree to make an emer-gency purchase of $40 million to $50million worth of surplus cannedtomatoes under its Section 32 pro-gram. A purchase of this size would“effectively remove surplus tomatoes,provide a degree of relief to Tri ValleyGrowers and improve overall condi-tions in the industry,” said Welty. Cal-ifornia supplies 95 percent of thenation’s processed tomatoes and 40percent of the world’s supply.

Shaw, who in March 1999 succeededJoe Famalette and an interim manager,said the co-op’s attempts to return toprofitability have been stymied in largepart by unfavorable, long-term con-tracts, an industry-wide oversupply oftomatoes, and processing plants run-ning under capacity. Despite thesechallenges, he said the co-op had beenmaking major progress in key areas thisyear prior to the cutback on its operat-ing loan. ■

Don Muhm, retired farm reporter forthe Des Moines Register, has written abook that chronicles the history of theNational Farmers Organization from itsinception in the mid-1950s through theclose of the 20th century. The book, TheNFO: A Farm Belt Rebel, The History ofthe National Farmers Organization,” ispublished by Lone Oak Press, Red Wing,Minn.

Muhm’s book covers events surrounding the organizationthroughout his career covering the farm beat in Iowa and nearbyMidwestern states. This includes the NFO’s origins as a farmprotest movement, and later maturation into a combination farmorganization/cooperative led by Missouri farmer Oren Lee Staley.It advocated massive public demonstrations to drive the plight offarmers home to the public.

Muhm’s pictures of hog shootings and milk dumping areincluded. Others show mass meetings and organizationalleaders who have served the organization. Later cooperative

marketing initiatives in the post-Staley era are also discussed,along with financial challenges the organization has constant-ly endured.

USDA Rural Development supported writing of this man-uscript through a cooperative agreement with the Depart-ment of Economics at Iowa State University.

“Students of group action in agriculture will welcome thisaddition to their library. It provides insights into a period inAmerican agriculture marked by swift structural change in themakeup of farm operations and the marketing institutions serv-ing them,” says Randall Torgerson, deputy administrator ofUSDA’s Rural Business-Cooperative Service.

Copies are available through Lone Oak Press, 1412 BushStreet, Red Wing, MN 55066. A limited number of copiesare also available from the USDA Rural Business-CooperativeService at $25 hardcover and $17 softcover. Checks, payableto “U.S. Department of Agriculture,” and accompanied byyour name and address, should be sent to: USDA RuralDevelopment, Attn.: Dan Campbell, Stop 0705, 1400 Inde-pendence Ave. SW., Washington, D.C., 20250-0705. ■

H i s t o r y o f N F O c h a r t s f a r m p r o t e s t m o v e m e n t


Dan Campbell, Managing Editor

ixty-five years ago, Ameri-ca was is in the grips ofthe worst economicdepression of the 20th

century. In rural areas, the situationwas particularly bleak — especially forthe 6 million Americans who earnedtheir living as farmers. At a time when90 percent of the urban population hadelectricity in their homes, only one in10 rural Americans had electric service.The power companies felt the low pop-ulation densities of the nation’s ruralheartland simply would not yield thetype of profits they needed to justifyextending service to 95 percent of thenation’s land mass.

President Franklin D. Rooseveltrealized that living standards in ruralareas would continue to lag behindurban areas without electric service,and that it would take bold, decisiveaction to help rural Americans get it.So on May 11, 1935, he signed an exec-utive order creating the Rural Electrifi-cation Administration (REA) withinthe U.S. Department of Agriculture.This federal agency helped rural Amer-icans all across the nation form user-owned cooperatives and provided themwith loans needed to build a rural elec-tric infrastructure. These co-ops, inpartnership with USDA/REA, broughtelectric service to even the mostremote corners of the nation.

Electricity was the fuel for the eco-nomic engine that revolutionized rurallife. In pre-electricity days, farm choreswere often done by the dim light ofkerosene or coal-oil lamps. Thoseflickering lights all too often illuminat-

ed faces of rural people crushed in theirprime by the rigors of rural life, Agri-culture Secretary Dan Glickman saidduring an event in Washington, D.C.,marking the 65th anniversary of thecreation of the REA.

Glickman recalled the daily strug-gles of rural people in those pre-elec-tricity days by quoting Senator GeorgeNorris, one of the co-sponsors of theRural Electrification Act: “I had seenfirsthand the grim drudgery andgrind...I had seen the tallow candle inmy own home, followed by the coal-oillamp. I knew what it was like to takecare of farm chores by the flickering,undependable light of the lantern inthe mud and cold rains of the fall, andthe snow and icy winds of winter. Irecall the...scenes of harvest and the

unending, punishing tasks performedby hundreds of thousands of women,growing old prematurely; dying beforetheir time....”

President Roosevelt found theseconditions unacceptable, Glickmansaid. “If private utilities wouldn’t find away to wire rural America, he wouldsee to it that the government loanedthe money necessary to make it hap-pen.” Within just a few years of thatorder, 300,000 rural Americans hadelectrical power, an increase of 25 per-cent. The rate of “wired” farms contin-ued to climb with each passing year.

Electricity eased many of the bur-dens for rural life. Work could be donemuch more efficiently and safely withelectric light. Electricity meant thatrefrigeration systems — which helped

W h e n t h e l i g h t s c a m e o n USDA program brought electricity and a better way of life to rural America

S

USDA used posters such as this to spread the word about the benefits of electricity for farmers and other rural people. USDA photo


keep food supplies safe and created newopportunities for the production andshipment of perishable commodities —became far more widespread. Electrici-ty helped mechanize many tasks thathad previously been done by hand.

Electricity was notsimply an added con-venience for ruralAmericans. It helpedmake them the world’smost productive pro-ducers of food andfiber and dramaticallyimproved their livingstandards.

Breaking the bondsof poverty

“The day the lightsfinally came on at ourfarm, I remember mymother cried,” formerAgriculture SecretaryBob Bergland recalledduring the anniversarycelebration. They weretears of joy, he said,because with the arrivalof electricity on his par-ents’ subsistence farmnear the border ofMinnesota and Canada,

“she finally saw a chance for our familyto break the bonds of poverty.

“We lived in poverty, as did most ofthe other 6 million farms then operat-ing in the United States,” he said. “Youstruggled to stay alive.”

Bergland recalled the first three elec-tric appliances his family bought. Thefirst purchase was electric lights for thehouse, followed by a toaster and then a“98-cent hair curler my mother boughtat J.C. Penney and kept all her life.”

Art Campbell, Deputy Under Sec-retary for Policy and Planning atUSDA Rural Development, said hetoo has vivid memories of the day hisparents’ farm was wired for electricity.“I remember singing with robust gleein celebration as our little strip ofhouses along a dirt road was connect-ed to electricity. We sang out with joyand no small amount of amazement:Oh the lights, the lights, Lottie Mae

got light and we got lights! Oh thelights, the lights.”

Campbell said, “REA is govern-ment at its best: doing things criticalfor the common welfare that arebeyond the ability of individuals todo for themselves.”

Glenn English, CEO of NationalRural Electrification Cooperative Asso-ciation (NRECA), described the REA as“a partnership between government andordinary people who have used coopera-tives as a business device to own theutilities that mean so much to them.”

REA, Englishcontinued,enabled rural co-ops to build “thefinest electricalinfrastructure inthe nation, bar-none...REA is agreat program thatperformed greatdeeds,” he said,noting that it builthalf of the nation’selectric infrastruc-ture. He alsopraised REA/RuralUtilities Service(RUS) as a highlyefficient program.

Electric circusTo help

educate rur-al people inthe 1930sabout howthey coulduse electricityin their homesand on their farms,REA sponsored a traveling road show,which became known as the “electriccircus.” Louisan Mamer was one ofREA’s first employees, hired in 1935to help stage those road shows. Shewas presented a Lifetime AchievementAward during the anniversary ceremo-ny and shared some memories of thoseearly days.

Mamer recalled being intrigued byan REA advertisement seeking peoplewith “a pioneering spirit.” Born in 1910

and raised on a farm in southern Illinois,where her father cleared 1,000 acres ofIllinois River bottom land, Mamer saidshe knew well the hard labor of rural life.So when the chance came to leave hometo attend the University of Illinois atUrbana, she took it.

The REA road show used two bigcircus tents, one for a general meetingand the other to demonstrate electricalappliances and farm equipment,Mamer recalled. One of her mainduties was to speak to farm wives tohelp them “convince their husbands to

pay to join a cooperative.” Small radios and electric irons were

among the first appliances sold. In theNorth, washing machines were in bigdemand, while refrigeration was moreof a priority in the South.

Mamer also trained other instruc-tors so that they could conduct work-shops, and she developed trainingmaterials, remaining with REA untilher retirement in 1981.

“Education, inspiration, involve-ment and recognition” are the keys tosuccess in life and business, Mamer

Louisan Mamer receives a Lifetime Achievement Award from USDARural Utilities Service Administrator Chris McLean. Inset photo:Mamer, circa 1935, making a presentation about the use of electrici-ty in the home and on the farm during one of the “electric circus”shows. USDA photos

With 85 to 90 percent of its sales to farmers and other ruralresidents, Central Iowa Power Cooperative leaders knewthey needed to do something to promote electrical use in thecountryside. Otherwise, the investments by local farmers andrural residents through their electric cooperatives for gener-ating stations and transmission lines were inevitably going tobe borne by fewer and fewer people.

“We had done a few things to try to stimulate electricalsales, but it became apparent it was a bigger job than we hadthe resources for,” said Mel Nicholas, who was then workingwith Central Iowa Power Cooperative (CIPCO), a Cedar Rapids-based generation and transmission cooperative. CIPCO is thewholesale power supplier for 13 rural electric distributioncooperatives and one municipal cooperative. Together, CIPCOand the CIPCO Systems supply the electric service needs of250,000 Iowans who live in a service territory that stretches 300miles diagonally across northeastern Iowa to its southwesterncorner. CIPCO has participated in the loan program of USDA’sRural Utilities Service since 1946.

In 1980, CIPCO sold less electricity than it had in the previ-ous year. That’s when Nicholas hatched an idea to have all ofIowa’s power-generation cooperatives pool their resourcesto fund what would eventually become the Iowa Area Devel-opment Group (IADG). By 1985, Iowa’s farm economy hadbeen badly battered and rural electric sales were flat, atbest. IADG’s formation that year could not have come at abetter time.

“Our goal was jobs and wealth creation in rural areas,” says

Dennis Murdock, CIPCO chief executive officer. “There was lit-tle focus at the time on job creation in rural areas served byelectric cooperatives, which were also the parts of Iowa wherethe farm crisis had taken a heavy toll on farm men and womenwho were searching for off-farm income opportunities.”

During the past 15 years, IADG and Iowa’s rural electriccooperatives (REC) have been instrumental in creating busi-ness and community development opportunities across Iowa.IADG is the marketing and economic development agency fornearly 70 of Iowa’s rural electric cooperatives and selectmunicipal electric systems across the state. IADG has assist-ed with over 850 successful business expansions and newlocations. This growth represents capital investment of morethan $2.5 billion and more than 26,000 new jobs.

USDA has credited IADG with initiating 57 grants andloans totaling more than $16 million for projects across thestate that led to 2,900 new jobs. All IADG services are offeredat no charge to new and expanding businesses, complimentsof Iowa’s rural electric cooperatives.

IADG’s sponsors are the generation and transmissioncooperatives serving Iowa, which includes CIPCO, CedarRapids; Corn Belt Power Cooperative, Humboldt; NorthwestIowa Power Cooperative, LeMars; and Northeast MissouriElectric Power Cooperative, Palmyra. The Iowa Farm BureauFederation is also an IADG sponsor. The two have beenworking together since 1997 to advance value-added agricul-tural opportunities in Iowa.

How did the electric cooperatives and their new economic

Iowa RECs reach 15-year milestonefor rural development

said. “Let people know what they do isappreciated.”.

REA legacy all aroundAs America celebrates REA’s 65th

anniversary, the wisdom of Roosevelt’saction in 1935 is obvious: 95 percent ofall rural Americans now have electricservice and nearly half of all rural elec-tric lines in the nation were built underthis program. Through REA, $56 bil-lion has been invested in rural electricservice for rural Americans. The pro-gram — now administered under theRural Utilities Service of USDA RuralDevelopment — continues to invest

more than $1 billion in rural electricinfrastructure development each year.

Some say USDA’s rural electric pro-gram has served its purpose and is nolonger needed. But electric systems areaging and must be upgraded to meetthe increasing power demands of ruralcustomers. The program will be “justas important to rural America in the21st century as it wasin the 20th century,”Bergland said.

English predictedthat reliability willbecome a key issuefor electric service in

the years ahead. He said the only pow-er systems in the nation built to meetfederal standards are those financed bythe Rural Utilities Service. RUS couldhelp bring the entire electric infra-structure of the nation up to these highstandards, he said.

RUS Administrator Chris McLeansaid USDA’s rural utility programs are

Pamela J. KargField Editor


President Roosevelt’s creation of the USDA Rural ElectrificationAdministration in 1935 brought electric light and power to ruralpeople, and eased many burdens of rural life. USDA photo

development entity know what industries to attract or toexpand? Where did they start in the face of a farm and a ruraleconomy spinning quickly out of control?

The answers came through research conducted by theinternationally known Battelle Institute. “IADG hired the firmto comprehensively study Iowa’s development advantagesand assets, and come up with a list of the kinds of industriesthe state might have the best chance of attracting,” saidBruce Hansen, vice president of marketing on the six-personIADG staff, located in West Des Moines, Iowa.

Hansen said the list identified viable industries for the state,including biotechnology, electronics, metal fabrication, plastics,furniture and other wood products, printing and publishing, val-ue-added agriculture and food processing, warehousing anddistribution, and telecommunications.

“These are our priorities and we keep a clear and definitemission surrounding these priorities,” Hansen said. For exam-ple, IADG worked hard during the waning months of the 1980sand during the 1990s to help re-build Iowa’s egg industry.Iowa was the No.1 egg-producing state in the 1950s, but ithad fallen to 24th in the nation by the late 1980s.

Through targeted marketing and national promotions, Iowahas climbed back to the top. In 1999, Iowa produced 6.7 billioneggs, second only to Ohio, which produced nearly 8.2 billion.The state is now number two in layers on feed and in grossegg production.

IADG worked with Southwest Iowa Egg Cooperative inMassena, which went into full production in December1999. It expects to market some 156 million eggs worth up to$7 million. The co-op is owned by 275 Iowans and Iowa enti-ties, primarily area farmers who wanted better prices fortheir corn.

IADG and the local REC, Farmers Electric Cooperative inGreenfield, helped the egg cooperative get started. In addi-tion, IADG and Farmers Electric helped Southwest Iowa Egg

secure a 10-year, no-interest $400,000 loan from USDA RuralDevelopment under its Rural Economic Development Loanprogram. The program provides zero-interest loans to RuralUtilities Service-financed electric and telephone utilities topromote rural economic development and job creation. Theimpact of the egg facility is being felt throughout the com-munity with added employment and a new corn market forlocal farmers.

The list of success stories goes on for IADG and Iowa’sRECs. The Rural Housing Institute (RHI) recently opened anew manufacturing plant to become a resource for communi-ties to develop, finance, and build affordable housing in ruralareas. RHI received an $80,000, zero-interest loan from USDARural Development, which was sponsored by Eastern IowaLight & Power in Wilton.

Meanwhile, T.I.P. Rural Electric Cooperative in Brooklyn,Iowa, applied for and received $450,000 zero-interest loans onbehalf of the Rosewood Farms food-processing project. Thisbusiness will upgrade, renovate and re-open the former LouisRich plant in Sigourney, Iowa.

“These are just a few recent examples of many projectsthat IADG and the Iowa RECs have helped develop acrossIowa during the past 15-years,” said Hansen. “The success ofIADG is a fine example of the determination of Iowa’s RECs.Similar to the 1930s — when rural Iowa leaders stood up tothe challenge of bringing electric power to the countryside —the RECs continue to be innovators with the foresight to helpchange the economy and landscape in rural Iowa.”

For more information on the Rural Economic DevelopmentLoan program, visit our website at:www.rurdev.usda.gov/rbs/busp/redl, or contact any USDARural Development field office or USDA Service Center. Orcall (202) 720-4323, then enter “1” and follow the voiceprompts to be connected to your USDA Rural Developmentstate office. ■

vital to ensure that rural people are notleft on the wrong side of a digital orsocial/economic divide. “Dramatic reg-ulatory and market changes are occur-ring in the telecommunications, electricand water utility sectors,” McLean said.“Without the help of RUS, rural Amer-ica will have a more difficult time keep-ing pace with the revolutionary changesbeing experienced in these industries. Itis imperative that the federal govern-ment be actively involved in providing afunding network of support services toensure full participation in the 21st cen-tury economy.”

Glickman concurred, saying “The

infrastructure required to keep ruralAmerica viable and competitive growsmore sophisticated every day. Sixty-fiveyears ago, it was basic electricity. Intoday’s high-tech, information economy,it’s Internet access, modems and satellites.

“We are beginning to see a gap similarto the one we saw earlier this century,with most of the tools of the InformationAge concentrated in the hands of urbanand suburban Americans,” Glickmansaid. Rural communities, meanwhile, arein danger of being left behind,” he noted.“RUS is responding with more resourcesfor programs such as distance learningand telemedicine to bring improved edu-

cational opportunities and health careservices to rural communities.

“All of us together still have a big hillto climb,” Glickman continued. “Let’smake this anniversary more than a cele-bration. Let’s use it as inspiration towork that much harder to ensure thatrural Americans enjoy affordable accessto modern electronic tools they need toprosper in the 21st century.”

Editor’s note: Below and following arefour profiles of rural electric cooperativesthat RUS works closely with and which aremaking a major impact on the economyand quality of life in rural America.


The Pennsylvania Rural Electric Association and itsmember cooperatives have been key players in establishingdistance learning and telemedicine network links that allowrural schools, libraries and hospitals to access informationand specialized training previously only available in urbanareas. But now the association is involved in another initia-tive that gets to the heart of life in rural areas: wastewatermanagement.

Three years ago, an innovative on-lot sewerage treat-ment system installed at a Catherine Township, Pa., resi-dence had a decidedly statewide significance. The systemat the home of Valley Electric Cooperative member Gary Dis-cavage was the start of the PREA’s Rural Wastewater Initia-tive, an ambitious effort to find a solution to wastewater dis-posal problems in ruralareas and work out aninnovative licensingagreement with thestate.

Large areas of ruralPennsylvania are nei-ther served by centralsewage systems norsuitable for conven-tional septic or sandmound systems.

“A virtual moratori-um on developmenthas been imposed inmany areas as aresult,” said Russ Big-gica, PREA director ofpublic affairs. “We’retalking about some of the most rural of rural areas, and peo-ple can’t sell their homes. They can’t will them to their chil-dren. They can’t give them away. It’s all because of theproblems associated with wastewater disposal and ground-water contamination.”

The solution is the innovative septic systems PREA, localelectric cooperatives and state agencies started testing in1998. PREA can be credited with helping rural people find asolution that Biggica said does not promote urban sprawlyet does promote improved health and safety.

“We did our demonstration projects in which we showedthat the system has cleaner water flowing out of it than iscoming out of many of our rural wells,” he said.

In the new system, solids settle and are retained in aseptic tank before the liquid effluent passes through a filterand, by gravity, into a box filled with sand, where it is filteredstill further. The sand box also contains a recirculating pumpthat distributes, or doses, the effluent over the filter media

several times before it is discharged. The filter worksthrough the activity of micro-organisms that colonize thespaces between the sand particles and use the waste mate-rial in the effluent for food. Finally, an ultraviolet filter killsany remaining bacteria that might have survived. The efflu-ent meets or exceeds federal Clean Water Act standards.

PREA is now working to get the system accepted by thestate Department of Environmental Protection (DEP) for rou-tine use without need for special permitting.

“We need to consider the economic side of the problem.A virtual moratorium on housing and development existsbecause there are no central sewerage systems, which cre-ates a hardship for many rural people,” Biggica said.

Pennsylvania has an abundance of water, but it also hasabandoned acid miningfacilities, past farmingpractices that includedheavy use of chemi-cals, and old, leakingsewerage systems. Inmany areas of ruralPennsylvania, owningland and investing inproperty had become alosing proposition.

“We have shallowsoil here because ofthe glaciers, and wecan no longer use thesoil or traditional sep-tic technology,” Biggi-ca said.

As a service organi-zation, PREA works with local electric co-ops to provideprofessional and technical assistance, such as developingcomprehensive local development strategies and seekingout-of-state and federal economic development grants.Pennsylvania co-ops, for example, spurred job creation byguaranteeing 24 zero-interest loans secured through USDA’sRural Business-Cooperative Service. The projects funded bythese loans benefit entire rural communities, not just areasserved by rural electric co-ops.

“Helping rural areas find a remedy for wastewater dis-posal problems is a priority for PREA and its member coop-eratives,” he stressed.

With more than 60 years of experience in providingaffordable and reliable electric service, co-ops are a ready-made delivery system for improving the economic health oftheir rural communities, Biggica added. As a result, co-opsdo more than just supply power. They aggressively work to

Pennsylvania co-ops take development underground

Continued on page 27

The on-lot sewerage treatment system tested in rural Pennsylvania by the state’selectric cooperative association uses the newest technology to produce an effluent that exceeds EPA standards.


In eastern Maine, rural towns average about 361 people.Remove the two largest communities in the territory served byEastern Maine Electric Cooperative (EMEC) and that averagewould drop to 281 hardy Nor’easters.

“With populations so low, many towns cannot afford a townoffice, much less someone to focus their energy on economicdevelopment, so along comes the concept of regional develop-ment,” explains Charles McAlpin, director of public relationsfor EMEC, headquartered in Calais, Maine, one of the twolargest communities in this most rural of rural Maine regions.

Economic development professionals agree that develop-ment is more successful if undertaken on a regional basis,when individual towns work together as part of a larger com-munity. “The regional effort has three primary advantages,”McAlpin adds. “Those include more people to share the work-load, more money with which to operate, and greater politicalclout to influence state and federal policy.”

Three years ago, EMEC entered the planning effort in a bigway, helping small towns and businesses band together totalk about regional economic development. By helping encour-age business growth, promoting the region to perspectivebusinesses and encouraging internal changes to make theregion more marketable, EMEC assists the Maine Departmentof Economic and Community Development and regional coun-cils. EMEC is committed to bringing a renewed quality of life toits members who live in parts of Aroostook, Penobscot andWashington counties, which border Canada.

To that end, EMEC has worked with several councils,including Eastern Maine Development Corporation, SunriseCounty Economic Council (SCEC) and Saint Croix EconomicAlliance (SEA). EMEC took a more direct role, as well. Theco-op applied for a $700,000 zero-interest, pass-through loanon behalf of a local company, Washington County Psycho-therapy Associates (WCPA). With this money as part of amulti-tiered financing package, WCPA will establish a youthtreatment facility that will create 65 new, skilled jobs in theregion.

This financing was possible through the Rural EconomicDevelopment Loan program of USDA Rural Development.Under this program, electric cooperatives participating inUSDA/RUS programs can apply for pass-through loans forbusinesses creating jobs in depressed rural areas. The coop-erative’s involvement in the project did not end with the loan,however. EMEC also sold a building to the City of Calais, pur-chased by the city for a business incubator under theCommunity Development Block Grant program. The city isleasing the building to WCPA for the project, thereby cuttingthe project’s starting cost.

Although the program was available for some time, it had

gone unused because — to be useful — it needed the type ofmajor regional development effort now underway, says JimDean, chief executive officer of EMEC. “A lot of people in theCalais area and elsewhere across the state worked in a verycoordinated way to bring this about.” Those backers includedMaine Governor Angus King, Congressman John Baldacci andSenators Olympia Snowe and Susan Collins and numerousgovernmental organizations.

Among the project’s many benefits are new, quality jobsand the ability to treat children at home in Maine. Childrenwho are clients of WCPA are currently sent out of state fortreatment, at great cost. This project saves the state money,brings funds to a depressed region from out of state, and, mostimportantly, will allow local parents to be more involved in therecovery of their children.

In Washington County, where unemployment was in thedouble digits in the late 1990s, the state and businesses suchas EMEC have helped refocus efforts on a variety of economicdevelopment resources. The efforts established a strong part-nership between the State Planning Office and the SunriseCounty Economic Council to build long-term economic devel-opment capacity for the county. The partnership prompted theSCEC to begin a $1 million endowment drive.

The state also spent more than $20 million in WashingtonCounty for the new Port of Eastport, reconstruction of Route 9and for infrastructure improvements in numerous communities.Meanwhile, Cherryfield Foods expanded cranberry beds.Atlantic Salmon of Maine built a new processing plant inMachiasport, which added 30 jobs. And Destiny 2000 plans to enhance opportunities for tourism while conservingcultural and natural resources.

The SCEC commissioned “Cultivating Jobs from the Sea inWashington County” to develop strategies that encourage thegrowth of targeted sectors of Washington County’s marineeconomy. These sectors include: Fish Processing, AquacultureSupport Services, Wild & Cultured Shellfish, MarineEngineering and Fabrication, Marine Biotechnology, andMarine Research Conferences and Institutes. Harvesters,aquaculturists, and business people in Washington County arealready putting these strategies to work.

“Regional economic development efforts affect the EMECservice territory,” McAlpin said. “It must be stressed thatthese are private efforts that cooperate with state efforts, butare independent of them. While co-op staff have varying levelsof involvement with these different organizations, we encour-age anyone with an interest in the future of their region to sup-port these groups when the opportunity arises.” ■

— Pamela J. Karg, Field Editor

Maine co-op building support for economic development



Mohave Electric Cooperative and its power supplierjoined forces to draft an innovative service agreement inless than four months that helped attract a major newindustry and is the source of 650 construction and/or per-manent jobs added to its Arizona service area. The area’sinvestor-owned utility had tried — unsuccessfully — forthree years to accomplish the same feat.

“This was an innovative power supply agreement thatbecame this utility’s andthe state’s first ventureinto retail power wheeling— long before deregula-tion took effect in Ari-zona,” says Mark Harris,communications managerfor Mohave Electric Coop-erative (MEC), headquar-tered in Bullhead City,Ariz.

Mohave Electric andits generation and trans-mission source, ArizonaElectric Power Coopera-tive (AEPCO) — bothlong-time participants inUSDA’s Rural Utilities Ser-vice loan program — puttogether a package that included 80 megawatts of hourlydemand so that North Star Steel Co., a division of Cargill,Inc., would locate its $140 million manufacturing plant inKingman, Ariz.

The North Star plant was the first to be built in Arizonathat is deriving benefits from the Environmental Technolo-gy Manufacturing Act (ETMA). The ETMA gives long-termtax benefits to companies that primarily produce manu-factured goods through recycling, and companies thatare committed to renewable-energy product manufactur-ing. The North Star mill has a high-tech, automated pro-cessing system that uses electric arc furnaces to makeabout 500,000 tons of construction-grade steel from vehi-cle bodies, appliances and other recycled material thatare shipped by road or rail.

When ground was broken in 1995, the plant broughtsome 500 construction jobs. Now about 150 permanentjobs have been added to Kingman and Mohave County.The estimated economic impact of the plant on the coun-ty is $23.75 million.

The power supply contract required the Western Area

Power Administration to build a switching yard, funded byNorth Star, under existing transmission facilities at theplant site. Through the contracted arrangement, NorthStar takes power directly off the grid at the best marketprice available, Harris said.

Power delivery is handled by the AEPCO dispatch cen-ter in Benson, Ariz. Power travels over WAPA lines, butservice is provided by Mohave Electric. At no time

throughout the negotia-tions and contract signingwere Mohave Electricassets put at risk, and thecooperative assumed nonew debt.

“It also set a precedentin that Citizens Utilitiesceded a portion of its ser-vice territory to MohaveElectric. So the North Starplant became an island ofour service territory, sur-rounded by an IOU(investor owned utility), “Harris said.

“That MEC and AEPCOwere able to work togeth-er to meet the needs of a

new customer is a good example of what cooperativesare all about,” said Fred Grigg, a MEC director. He wasinvolved in the negotiations over the contract, and alsowitnessed MEC’s efforts to help Citizens Utilities andNorth Star negotiate an agreement during the previousthree years.

“We were excited by the mill’s impact on local eco-nomic development,” Grigg added.

MEC serves all of Bullhead City as well as parts ofMohave County, including the areas north and south ofKingman. Now MEC provides an island of electrical ser-vice to the North Star mill near Kingman’s borders, whichis otherwise served by IOU Citizens Utilities.

“This type of contract provides North Star with energy atcosts that will help ensure the mill’s success,” said RobertE. Broz, chief executive officer of MEC. “Our member-own-ers and AEPCO member-owners benefit through increasedsales without incurring debt for capital investment. Weworked hard with North Star to make this happen.” ■

– Pamela J. Karg, Field Editor

Mohave Electric Co-op’s quick response attractsmajor source of jobs to service area

Mohave Electric CEO Robert E. Broz (left) worked with the North Starcompany to provide power to its mill without the cooperative incur-ring debt for capital investment. Photo by Mark E. Harris, courtesy MEC


op co-op communicatorswere honored by theirpeers in Montana in Junefor outstanding work and

dedication to cooperatives. Awardswere presented during the annual insti-tute of the Cooperative Communica-tors Association (CCA).

James Leuenberger, Shawano,Wis., received the H. E. KlinefelterAward, given annually to a CCAmember who has raised the standardsof cooperative communications and,in doing so, has contributed signifi-cantly to the cooperative way of doingbusiness. Leuenberger is vice presi-dent of information and public rela-tions for Cooperative ResourcesInternational (CRI).

Raised on a Fort Atkinson,Iowa, dairy farm,Leuenbergerearned a bachelor’sdegree in dairy sci-ence and a master’sdegree in agriculturaljournalism from IowaState University. Heserved as a 4-H and youthagent with the WinneshiekCounty Extension Service inIowa before joining the Nation-al Holstein Association in Brat-tleboro, Vt. In 1975, he was namedvice president of public relations ofwhat ultimately became known as 21stCentury Genetics.

As the industry consolidated, 21stCentury became part of the new CRIorganization in 1993 and Leuenbergerassumed his present position at thattime. He now manages a staff of 17 infour different locations. He also servesas managing editor of the cooperative’s

cattle breeding publica-tion, Horizons.

Sheryl DoeringMeshke, Lake Crystal,Minn., received CCA’sMichael Graznak Award,given annually to a youngcommunicator and CCAmember who has demon-strated excellence incooperative communica-tions. Meshke is communicationsdirector for Associated Milk ProducersInc., at New Ulm, Minn.

Meshke manages the communica-tions and government relations depart-ment. She is in charge of the co-op’s

monthly magazine and its memberand employee newsletters and

serves as treasurer of AMPI’spolitical action committee. In

addition, she is the coopera-tive’s spokesperson and media

relations coordinator. Beforejoining AMPI in 1991, she

was editor and advertisingdirector with Madelia

Media Inc. andworked as a journal-

ism intern at The Landmagazine and Country Times

newspaper at Amboy, Minn. She earned a bachelor’s degree in

agricultural journalism at South DakotaState University. She currently is pur-suing a graduate degree in businesscommunication at the University of St.Thomas in Minneapolis. She serves onthe CCA board.

CCA named Catherine Merlo, Bak-ersfield, Calif., as writer of the year.Merlo, who heads a communicationsfirm that works closely with a numberof cooperatives and related organiza-

tions, formerly worked withCalcot, a Bakersfield-basedcotton and almond market-ing cooperative. Merlo wascited by judges for her abil-ity to address a variety ofwriting assignments.

Bob McEowen, field edi-tor with the Association ofMissouri Electric Coopera-tives, Jefferson City, earned

photographer-of-the-year honors.McEowen’s photography focuses onsubjects that convey the message thatthere are opportunities in rural areasand that rural areas are a good place tolive and work.

Best-of-class award in the specialprojects/programs competition went toDavid Eaheart of Farmland Industries,Kansas City, Mo., for that company’scampaign entitled “Support Trade forFarmers, for Farmland, for You.”Judges said the winning entry stood outdue to a comprehensive approach tocooperative communications thatincluded well-written stories, good useof contemporary graphics and a designthat supported the theme.

Honored for Publication of the Yearwas Janet Hunter, editorial director ofthe Farm Credit Bank of Texas, Austin,for that company’s Landscapes magazine.The publication showed “exceptionalcreativity, originality, readability andquality over a broad scope of content,”judges said.

USDA Rural Development’s RuralCooperatives won a third place award forbest magazine, and field editor PamelaJ. Karg won a second place news writ-ing award for an article about PresidentClinton’s visit to an Arkansas tomatocooperative. ■

C o - o p c o m m u n i c a t o r s h o n o r e d

T

Sheryl Meshke andJames Leuenberger Photo courtesy CCA


ach year, thousands ofpeople die, are injuredor lose propertybecause they didn’treceive adequate

warning of approaching weather haz-ards or natural disasters. When peopleknow disasters are coming, they act.For many, the best chance they have toavoid an approaching weather emer-gency is the 24-hour disaster warningnetwork of the National Oceanic &Atmospheric Administration (NOAA).

Agriculture Secretary Dan Glick-man has announcedthat the U.S. Depart-ment of Agricultureand the Departmentof Commerce arecreating a partner-ship to extendNOAA’s emergencyradio service to morerural areas of thenation, large portionsof which still do nothave coverage.Through the agree-ment, the Rural Util-ities Service (RUS) ofUSDA Rural Devel-opment will encour-age the installation ofemergency radiotransmitters by iden-tifying rural utilitytowers not currentlyreceiving the NOAA transmissions.NOAA will work with the utility co-ops to install the transmitters to pro-vide the warning signal to that area.

“The cost of installing radio transmit-ters is small when you consider the life-saving service it will provide to millions

of rural people nationwide,” Glickmansaid. “West of the Mississippi River,more than two-thirds of the land area isstill not covered by this vital radio ser-vice, and large areas of the eastern thirdof the country also lack coverage.”

Inadequate warnings of approachinghazards, such as floods, tornadoes andhurricanes, are particularly acute in thenation’s rural areas. Once the transmittersare installed, households will be able toreceive warnings through NOAA radios,the Internet, pagers and telephones.

“This agreement is a real life saver

for rural Americans,” said Jack Kelly,assistant administrator for the NationalWeather Service. “The Rural UtilitiesService’s long-standing relationshipwith electric and telephone coopera-tives will make it easier to identityweather radio transmission sites, as

well as partnering with them to installtransmitters.”

Utilities willing to mount a trans-mitter will be asked to donate power torun it, including an emergency back-uppower source. The savings from usingexisting towers and power supplies canmore than double the deployment ofweather radio transmitters.

Jill Long Thompson, USDA undersecretary for rural development, saidthis is an ideal public service effort forrural utility cooperatives to pursue.“What better way for cooperatives to

show their commitment to public ser-vice than making this life-saving tech-nology available in their service areas?”

For more information on this pro-gram, contact RUS’ national office at(202) 720-1255 or visit the NOAAwebsite at www.nws.noa.gov/nwr. ■

U S D A , C o m m e r c e j o i n f o r c e s t ob o o s t e a r l y w a r n i n g s y s t e m

E

Missouri rural electric officials discuss how a new NOAA weather alert system will be installed along powerlines.Photo by Jim McCarty, courtesy Missouri Electric Cooperative Association


Co-op description:Agrilink Foods is a $1.5 billion

national food company that processesand markets a variety of product linesof branded, private label and foodser-vice products in 32 facilities locatedthroughout the United States and inMexico. Included in Agrilink Foods’portfolio are the Birds Eye,Veg-All, McKenzie,Comstock, andWildernessbrands.AgrilinkFoods is awholly ownedsubsidiary ofPro-FacCooperative,an agriculturalmarketing coopera-tive which consists ofmore than 600 member-growers. It processes fruits, vegetablesand popcorn through its subsidiaries,Agrilink Foods and AgriFrozen. Pro-Fac Cooperative is also now doingbusiness under its Agrilink name andonly uses the Pro-Fac name in legaldocuments.

Professional background:Mullen graduated from St. Leo Col-

lege, St. Leo, Fla., with a bachelor ofarts degree in education. Before joiningthe Pro-Fac Cooperative family, he waswith Globe Products Co., Clifton, N.J.;The Nestle Co., White Plains, N.Y.;Farmland Industries, Franklin Park,Ill.; and Butoni Foods, South Hacken-sack, N.J.

Mullen joined Agrilink Foods in itsNalley Fine Foods division in Tacoma,Wash., in 1990. After three years there,

he moved to Agrilink’s Curtice BurnsFoods. In 1996, Mullen was named chiefoperating officer for Agrilink,Rochester, N.Y. Six months later, he waspromoted to president and chief execu-tive officer.

Community and industry roles:Mullen serves on the boards of

directors for the followingorganizations: AmericanHeart Association, Gene-see Valley Region; Gro-

cery Manufacturers ofAmerica; NationalFood Processors Asso-

ciation; St. Leo Col-lege; The PopcornInstitute; United Way

of Greater Rochester;Rochester Institute of Tech-

nology, School of Food, Hoteland Travel Management national

advisory board; and Chase ManhattanBank, northeast regional advisory board.

Greatest challenge facing Agrilink:Our greatest challenge is one of con-

tinuing to compete and grow in theextremely competitive food business,where mergers continue to create fewer,but much larger companies with greatereconomies of scale. We must be a low-cost operator in everything we do, frompurchasing to manufacturing to admin-istrative functions. This is the challengeI’ve presented to our employees and willcontinue to pursue as we move forward.

How do you view yourcommunication role as the CEO?

“I’m a true believer in the impactcommunications can have on all aspectsof business and I promote this passion-

ately in any conversation, meetings, etc.Our communications mission is toexplain ‘why we do what we do,’ and wehave a variety of vehicles to help achievethis goal. I am committed to sharing thisvision, in person, wherever possible.”

Mullen is about to begin anotherseries of employee meetings across thecountry. These ‘road shows’ will besimilar to what he did a couple yearsago when he met with all employees, insmall meetings during day and eveningshifts over several weeks. The firstseries of meetings was prior toAgrilink’s acquisition of the formerDean Foods Vegetable Co., which hasnow doubled the number of employees.This year’s trip will mean meetings, inlarger groups, to address the nearly6,000 employees now part of Agrilink.

“When I meet with employees ormembers and they understand our mis-sion...our core values...our strategicthrusts, then I know we are getting thatmessage throughout the organization,”Mullen explains. “We recently pro-duced an orientation video for newemployees and I was thrilled to hearsome of the concepts about being a‘low-cost producer,’ ‘excellence in per-formance,’ and ‘working together asteams’ being repeated by our employeesin the video. That tells me our commu-nications efforts are working.” ■

D e n n i s M . M u l l e nPresident & CEO, Agrilink Foods, Inc., Rochester, N.Y.Cooperative Communicators Association’s CEO Communicator of the Year

Dennis Mullen: “Our mission is to explainwhy we do what we do.” Photo courtesy Co-op

Communicators Association

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


G e n e r a t i n g r u r a l p r o g r e s sStudy finds that new-generation and traditional co-opshave major beneficial impacts on rural communities

s the new millenniumopens, the U.S. foodsystem is still in themidst of profound

structural changes that will have a sig-nificant impact on farmers, agribusi-nesses (including cooperatives), ruralcommunities and consumers. Thesechanges include a wave of new farmer-owned processing cooperatives formedby growers who see their best odds forsuccess hinging on their ability to keepmore of the value-added dollars gener-ated from their crops and livestock.Consider the case of Great Plainswheat producers, who in 1997 receivedonly 10 cents of each consumer dollarspent on cereal and bakery products.Nationwide, farmers reaped just 23cents for every consumer dollar spenton food in 1997, compared with 37cents per food dollar in 1980.

During the 1990s, more than 50 newcooperatives were established in theUpper Midwest, with most of thembased in rural communities. This surgeof interest in forming new-generationcooperatives (NGCs) is creating spin-off economic benefits to the communi-ties where these new businesses locate.

This study focused on the Midwest

because it is the home of the greatestconcentration of cooperatives in theUnited States. Nine of the top 10cooperatives, when ranked by 1997 rev-enues, are located in the Midwest.Among them are Farmland Industries,Cenex Harvest States, Growmark,Land O’ Lakes and grocery wholesalecooperative Associated Wholesale Gro-cers of Kansas City. There are alsomany smaller co-ops in the region,ranging from credit unions and ruralelectric cooperatives to natural foods,housing, and agriculture co-ops.

One of the objectives of the study,conducted during the fall of 1997 andthe winter of 1998, was to summarizethe experiences of cooperatives andtheir impact on local communities.

How co-ops boost rural communitiesAll cooperative businesses, the study

notes, are based on three fundamentaloperating principles: one vote permember; the business is owned bythose who use it; and earnings arereturned to members in proportion tohow much they use the cooperative.These principles exemplify the differ-ences between cooperatives andinvestor-oriented firms (IOF). IOF vot-ing is based on the number of sharesowned, ownership is not limited tothose using the business, and earningsare returned to stockholders in propor-tion to investment.

“As user-owned organizations, coop-eratives provide a model for individualself-help and empowerment thatstrengthens bonds leading to greatercommunity awareness and involvement,”says Randall Torgerson, deputy adminis-trator of USDA’s Rural Business-Coop-erative Service (RBS). “Cooperativeshave been created in response to the

A

Editor’s note: A group of Midwest university professors collaborat-ed on a study that includes a close look at five cooperatives and theimpact they have had on their respective communities. Theseincluded three new-generation cooperatives, a traditional coopera-tive that had changed its relationship with members, and a groupof local governments using a cooperative business model to deliverservices in rural areas.

Coordinating the study were David Trechter, University of Wis-consin-River Falls, and Robert King, University of Minnesota.Contributors were: Robert Cropp and Anne Reynolds, Universityof Wisconsin Center for Cooperatives; Kimberly Zeuli, University

of Kentucky; Roger Ginder, Iowa State University; Evert Van derSluis, South Dakota State University; Michael Cook, DeanneHackman and Kristi Livingston, University of Missouri-Colum-bia; Gary Goreham and Frayne Olson, North Dakota State Uni-versity; Beth Honadle, University of Minnesota; and Linda Jacob-son, University of Wisconsin-River Falls.

The following material has been excerpted or summarized fromtheir study, USDA/RBS Research Report 177, by Patrick Duffey, awriter/editor with USDA Rural Development’s public affairs office.The full text can be accessed on the USDA Rural Development web-site at: www.rurdev.usda.gov/rbs/pub/research.htm.

Soybeans are inspected prior to processingat a plant built by South Dakota farmers whowere tired of shipping out raw product andbringing back in finished product. Photo courtesy South Dakota Soybean Processors


needs of agricultural producers and oth-er rural residents faced with rapidlychanging forces that affect their liveli-hoods and well-being. Cooperatives notonly provide access to markets not oth-erwise reached, but also provide mem-ber-owners with an opportunity toimprove incomes and services.”

Traditional agricultural cooperativesare easy to join and difficult to leave.In contrast, new-generation coopera-tives are more difficult to join, butoften easier to leave. The substantialup-front investment farmers or ranch-ers need to make in new-generation

cooperative stock is linked to deliveryrights and responsibilities.

Cooperatives usually have a positiveimpact on rural communities in partbecause operating and service decisionsare made locally. Thus, cooperativeshave little incentive to close or movetheir operations in order to increasetheir return on investment. Net earn-ings are returned to members andcooperatives contribute to local eco-nomic development. They also help tofoster an attitude of self-help and self-initiative in a community.

When agricultural commodities that

had been shipped out of a region areinstead processed locally, it generatesmore jobs and local income. Processingand other new cooperative facilitiesenhance the local tax base andstrengthen the demand for retail salesand services, triggering the creation ofother local businesses. This, in turn,may trigger the need for new housingand improvements in local schools andother community facilities.

Cooperatives may also increase thesocial cohesion of a community by pro-viding local meeting places and a greatersense of community pride. A cooperativestore may become the social and eco-nomic hub of a community. Coopera-tives also make donations to local serviceclubs and create scholarships.

Following are highlights from theresearch report relating to each of thefive cooperatives studied.

Farmers’ CooperativeAssociation, Keota

Farmers’ Cooperative Association,Keota (FCAK), is a farm supply andgrain marketing cooperative locatedabout 40 miles southwest of Iowa City.It had gross sales of more than $22 mil-lion in 1997 and a membership of 668.It employs 47 people, making it one ofthe larger employers in Keota.

FCAK is working with FarmlandIndustries on an innovative program thatcould help reverse the decline in thestate’s hog industry. In 1997, Iowaranked first among all states for hog pro-duction, with 22 percent of the nation’shogs. But production is shifting to theSouth and Southwest, and some produc-ers felt their operations had to change.

Iowa farm numbers have fallen andthe remaining operations are growinglarger. The decline is a major concernbecause hog production adds value tothe state’s corn crop, creates a marketfor other feedstuffs and demand forfarm services and equipment. It alsocreates jobs in the marketing, slaughterand processing sectors.

New production technologies haveled to the construction of large-scale,low-cost hog production farms. Thesefarms are designed to meet consumer

New-generation cooperatives get farmers closer to the consumer through value-added processing, and the organizations that these innovative farmers build help bring diverse economic vitality to rural communities.


demand for leaner, more consistentpork products. In turn, meat packersneed large numbers of uniform-qualityhogs from a single source. Also, anincreasing percentage of this country’sfood supply is distributed via highlyintegrated agribusiness firms. Largerscale hog operations have benefitedfrom these trends.

The “traditional” hog producer withless than 500 sows is struggling to com-pete with these mega-farms. Capitalcosts and associated market risks pre-vent many young people from enteringhog production.

FCAK had been losing business tocompetitors offering various services tofarmers, such as record keeping. Thecooperative’s board approached Farm-land Industries for assistance and metwith an Iowa State University Exten-sion specialist to discuss possibleresponses to these structural changes inhog production.

Farmland offers a “contract-buildingsystem” for its farmer-owners, andmanages another type of swine pro-gram for independent producers,known as an “alliance farm system.”Traditionally, farmers have retainedownership of production facilities andtheir hogs, accepted all risks andreaped all returns for production. Thealliance system offers a way to helpsmaller operations expand hog produc-

tion, including construction guidelinesfor buildings and simplified financing,as well as a source of high-genetic-quality feeder pigs. Farmland offersmarketing agreements that includemarket price-risk sharing programs,futures contracts and carcass-meritpricing. Other services include accessto swine specialists to assist with man-agement, and feed and services provid-ed by the local farm supply coopera-tive.

Under the contract-building system,farmer-members invest in the hog-fin-ishing buildings and provide labor for

the hog-finishing process. Farmlandretains ownership of the pigs, assumesprice and production risks, provides thefeed and covers health maintenancecosts. In some contracts, a premium ispaid for reaching defined performancestandards, but most participating farmersreceive a guaranteed payment per pigspace.

Both programs require that the hogfarmer purchase feed from FCAK if thefarm is located within a 25-mile radiusof the cooperative. This agreementholds for 10 years, after which a farmeris free to purchase feed from anyone.Thus the local cooperative benefits fromhigher feed sales and other services.

Each month for nearly a year, theboard discussed the pros and cons ofparticipating in Farmland’s hog pro-

duction systems. The FCAK board hadto decide whether to invest members’capital to encourage hog production(which would require building a newfeed mill), or to expand grain handlingand storage facilities.

The board eventually opted for theFarmland hog programs, and heldthree meetings to present its proposalto the members. Member reactionranged from those who thought theproposal was a great idea, to those whosaw the plan as a threat to their ownhog operations and a loss of their eco-nomic independence.

Based on member reaction, theboard voted to adopt the Farmland hogprograms (state law required a mem-bership vote to formalize the plan),even though it lost members in theensuing controversy. By 1997, eightmembers were participating in theFarmland program — a small number,but those eight farmers represent abouthalf of the cooperative’s feed business.Their increased level of business justi-fied the cooperative’s investment in anew feed mill, which is benefiting allmembers. FCAK was also able to hire agrain-marketing specialist who pro-vides members with precision agricul-tural services. Those members withFarmland contracts have reduced theirmarket risks. The Farmland programhas also helped younger producersobtain the resources needed to enterthe business.

The program got off to a somewhatrough start — some members feltFarmland should have provided moredetails early on about the contractualarrangements, and there were someinitial disease problems. But since then,participating farmers appear to be hap-py with the program.

Some farmers initially had troublesecuring credit to participate, but localfinancial institutions are now morefamiliar with the program and are morewilling to make loans to farmers wish-ing to enroll in it. Between 1990 and1997, gross sales for the cooperativeincreased 137 percent, from $9.4 mil-lion to $22.2 million, although not allthat growth can be attributed to theswine program.

Iowa producers are meeting consumer demand for leaner, more consistent pork products byfollowing a Farmland swine program. Meeting consumer expectations can mean betterprices to producers. Photo by Jim Tucker, courtesy Farmland


Ultimately, this swine programboosted economic activity in the cityand county. Higher net corn pricesresulted because corn no longer had tobe trucked out of the area. The higherprofit levels and experience in financ-ing the programs increased the avail-ability of credit from the local bank.Construction of hog facilities providedemployment for local building contrac-tors and increased the need for localveterinarians. More young people havebeen able to remain in the community.The cooperative added employees andother local businesses also gained. Anew library has been built, the localpark has been improved, and commu-nity pride has increased.

The co-op has also provided bene-fits to non-members. With a gas sta-tion and tire service, home heating andair conditioning services, etc., FCAKprovides the community with much-needed competition for both agricul-ture and consumer goods and services.

Because contract-hog production isoften controversial, a cooperativeentering this business arena must pro-vide ample information to its membersoutlining the benefits to them, theimpact on the cooperative’s profitabili-ty, availability of new services, and thepotential economic impact on the localcommunity in terms of business andemployment. Such major projects takea minimum of two years.

The cooperative feels it is keepinghog production in the hands of farmfamilies and can have many multipliereffects by offering more services to itsmembers and the community.Enhanced profitability of the farmersspills over to enhance business activityin the local community and more localemployment opportunities.

Northeast Missouri GrainProcessors (NMGP)

Northeast Missouri Grain Proces-sors (NMGP) cooperative opened Mis-souri’s first ethanol plant on April 29,2000, at Macon, Mo., about 60 milesnorth of Columbia. When fully opera-tional, it will produce 15 million gal-lons of ethanol and 100 million poundsof dry distiller’s grain (DDG), a high-

quality livestock feed, annually from 6million bushels of corn.

The cooperative’s 311 farmer-own-ers invested $5.6 million in the facility,which cost $23.5 million to build. Theproject was launched in 1994. Likemany other ethanol plant operations,this one is structured as a new-genera-tion cooperative. While Missouri is notthe epicenter of the new-generationco-op movement, this ethanol coopera-tive nonetheless illustrates the opportu-nities and challenges faced by thoseattempting to transplant this businessinnovation into new areas.

NMGP, organized in1995, currently has a 13-member board and 30employees. During theorganizational phase, siteapplications were receivedfrom nine counties repre-senting 15 communities.Information meetings wereconducted in 25 counties. Alimited liability companywas eventually formed toown and operate the plantand sell the byproducts.

Initially, 274 memberspurchased 1,632 units ofstock at $2,500 per unit, or slightlymore than $4 million in producer equi-ty. In a second equity drive, both exist-ing and new members purchased anadditional 428 units at $3,000 each.

NMGP holds an 84 percent share ofthe LLC that owns the ethanol plant.The cooperative faced an initial chal-lenge in raising equity capital. Localfarmers were unfamiliar with new-gen-eration cooperatives and there wasuncertainty about federal and state leg-islation affecting ethanol production.Missouri’s variable weather also oftenputs heavy demands on a farmer’s cashflow reserves, and state law restricts thesale of investment securities. OnceMacon was selected as the plant site,cooperative backers had to contendwith a drop-off in support for the ven-ture among producers in other areacommunities who had hoped theirtown would win the new facility.

After an initial period of uncertaintyabout this new organizational form, the

state of Missouri has been very helpfulin the formation of new-generationcooperatives. The Missouri Depart-ment of Agriculture hired a cooperativemarketing specialist to assist producerswith cooperative development. Thestate legislature created grant programsto assist with activities such as feasibilitystudies and business plans for projectsthat add value to agricultural commodi-ties. The state also provided partial loanguarantees for value-added projects.

Producers consider increased prof-itability derived from processing theircorn as the primary direct benefit of

the new cooperative, and they antici-pate higher corn prices as well. Newjobs and an expanded local tax base arerated as the primary community bene-fits. The cooperative is also creditedwith stimulating related business activi-ty, such as trucking.

Five key lessons for those launchingnew cooperatives were learned fromthis case study: 1) remain flexible(NMGP changed its initial opinionabout the type of technology to beemployed at its ethanol plant andregarding the prerequisites of a goodplant site); 2) don’t underestimate thetime required to develop a new-genera-tion cooperative (it took time to edu-cate farmers, lenders, state legislatorsand state agencies); 3) state statutesgoverning new-generation co-ops mustbe well understood and may need to bechanged; 4) economic developmentprograms at the state and local level areoften ill suited to cooperatives; and 5)tap the knowledge and expertise of oth-

Northeast Missouri producers are putting their commodity product into a new ethanol plant. Photo courtesy NMGP


ers interested in rural development,such as rural electric cooperatives.

If this cooperative proves successful,the board, farmers and communityleaders say they believe it will provide apowerful model for other value-addedprocessing cooperatives in Missouri. Asboard Chairman John Eggleston said,“It will be much easier to be secondthan to be first.”

South DakotaSoybean Processors

South Dakota Soybean Processors(SDSP) transforms members’ soybeansinto soy oil and soy meal. Prior to itsexistence, lack of a soybean processingplant in the state forced producers toship soybeans to neighboring states.About 40 percent of the processedbeans were transported back to SouthDakota again in the form of soy mealfor livestock feed.

This new-generation cooperativebegan operating in late 1996. Itprocesses raw soybeans into crude soy-bean oil, high- and low-protein soy-bean meal, and soybean hulls. Soy mealis sold throughout the Midwest, thePacific Northwest and Canada. Soy oilis marketed to Harvest States Coopera-tive in Manka-to, Minn.,where the oil isfurther refinedfor human con-sumption. Thehulls are pellet-ed by SDSP andsold to an out-side vendor.

To launchthe cooperative,organizers con-ducted nearly200 meetings,reached 6,000 farmers and developed alimited membership plan and a uniformmarketing agreement. Members wereinitially required to purchase a mini-mum of $5,000 in shares. The boardvoted to build the $32.5 million plantin Volga, S.D. It is still the only soy-bean processing plant in South Dakota.

As of 1998, the cooperative had

2,092 members, about 70 full-timeworkers, an annual payroll of $2 mil-lion, total assets of $48.4 million and$29.2 million in member-owned equityin the plant. Sixty-eight percent of the$8.5 million in net proceeds in 1998was returned to members as cashpatronage refunds.

The cooperative’s processing capaci-ty was expanded from 50,000 to 65,000bushels of soybeans per day in the firstsix months of the plant’s operation, andlater expanded again to 70,000 bushels.As has been the case in many similarprojects, the site-selection processcaused a temporary rift to developamong the founders of the cooperative.

Farmers and other communitymembers needed a large amount ofinformation to convince them to com-mit to the cooperative. SDSP wouldnot have been possible without a groupof very active individuals committed toachieving the goal of developing a soy-bean processing facility.

The plant has helped raise soybeanprices in the area and has generatedprofits during its first two years ofoperation. However, continued vigi-lance by the cooperative’s members andmanagement will be critical to its con-

tinued suc-cess. Theywill need tomonitorregional,national andglobal marketconditionsfor soybeansand soy-based prod-ucts.

Resourcesrequired for

developing and operating a successfulcooperative often are limited in ruralareas. New-generation cooperatives,like other cooperatives, must operateefficiently, which requires sufficientmember territory. On the other hand,SDSP’s early success motivated localleaders to become involved with othervalue-added endeavors in the region

and has inspired others to seek financialopportunities by participating in new-generation cooperative activities. Per-ceived negative impacts include heavierrail and truck traffic and possiblereduced economic opportunities forlocal grain elevators.

The cooperative is credited withstimulating the local economy, creatingnew jobs, a higher tax base and newactivity in service industry businesses.Directors and co-op members take agreat deal of pride in having created alocally owned soybean processingcooperative in a market dominated bylarge, powerful multi-national compa-nies and regional cooperatives.

The DakotaGrowers Pasta Co.

The Dakota Growers Pasta Co.(DGPC) at Carrington, N.D., is recog-nized as one of the most successfulnew-generation cooperatives to emergein the Great Plains. New-generationcooperatives such as DGPC appear todo best when they develop and/orexploit a niche value-added market.DGPC capitalized on the growing pop-ularity of pasta and established itself inthis expanding niche market.

In 1996, North Dakota was thecountry’s leading producer of durumwheat, which is the primary input forDGPC pasta, but durum productionhas been hit by serious disease prob-lems in recent years and productionhad been declining.

Dakota Growers mills its durumwheat into semolina, which is used toproduce pasta products. The coopera-tive is one of only a few fully integratedpasta manufacturers in the UnitedStates. The cooperative was developedunder nearly ideal conditions with sub-stantial assistance from the state forfeasibility and marketing studies andother facilitation assistance from thestate association of rural electric coop-eratives. Most of the 1,085 membersreside in South Dakota. In 1997,DGPC had 247 employees.

DGPC state-of-the-art facilitiesturn durum wheat into high-qualitysemolina, durum flour, and millfeed;

Soybeans harvested in South Dakota can now beprocessed by a farmer-owned cooperative, which ben-efits not only growers, but the rural economy of thearea. Photo courtesy South Dakota Soybean Processors.


the co-op then processes semolinausing advanced Italian pasta processingequipment. By 1998, annual capacityreached 30 million pounds. Net rev-enues, sales, net incomes and patronagedividends have climbed steadily.

DGPC gave Carrington a psycholog-ical boost and came on the heels of anagricultural decline and very demoraliz-ing time for farmers. The plant is credit-ed with helping to boost durum pricessubstantially, although the smaller har-vests have also played a role in the high-er prices. Members gained a market fordurum wheat, new crop research ondurum and production advice from thecooperative. DGPC also benefited non-members by improving the market fordurum wheat (non-members can accessDGPC’s grain-marketing pool). Mem-bers also learned about the food industryand why durum of the highest quality isrequired for production of pasta.

An improved tax base and more andbetter jobs are seen as major benefits ofthe pasta plant. Among negative factorscited by some is that the plant con-tributed to a housing shortage,increased traffic and a more transientpopulation. This study reveals that, inaddition to higher income, farmers alsochoose to join NGCs based on the like-ly impact on their community.

Locating a new-generation coopera-tive manufacturing plant in a commu-nity works best when community andcooperative officials focus on theirshared interests. Strong, hard-working,visionary leadership is essential both toinitiate the cooperative venture and toattract the manufacturing plant to a

community. Farm-ers need informa-

tion from trustedsources, including thecooperative’s officialsand leaders andneighbors in theirown communities.

Western Areas Cities andCounties Cooperative (WACCO)

Local governments, especially thosein rural areas, are facing a number ofchallenges. Population levels, particu-larly in the Great Plains, are stagnantor shrinking. Agriculture, long the eco-nomic bulwark for many rural areas, isundergoing a structural transformationtoward fewer, larger, more verticallyintegrated and much more technologi-cally sophisticated farms and ranches.

Consolidation means fewer potentiallocal leaders, fewer children for theschools, and consumers who oftenbypass local stores. Resistance toincreases in taxes, particularly the prop-erty taxes upon which many local gov-ernments depend, has created signifi-cant fiscal constraints. Within thiscontext, Western Areas Cities andCounties Cooperative (WACCO) atFergus Falls, Minn., was developed.

WACCO is a cooperative organiza-tion owned by the governments of sevencounties and 18 small towns. It is a mod-el that could have widespread applica-tion throughout the United States, espe-cially in rural areas. Local governmentsnationwide are facing increasingly com-plex demands as activities previouslyperformed by federal or state govern-ments are being transferred to the locallevel. Citizens are also demanding moreefficient delivery of services.

A common response to similar pres-sures in the private sector has been toconsolidate into fewer, larger firms.There has been no parallel trend in thepublic sector. Resistance would likelybe quite vigorous if two counties pro-posed a merger. WACCO allows local

units of government to realize theeconomies of scale associated with con-solidation without the real and emo-tional costs that come with disbandingexisting local governmental structures.

WACCO’s initial goal was to pur-chase municipal supplies and services(e.g., snow plow blades, road salt, officeequipment and supplies) at reducedprices. By aggregating orders and act-ing as a broker with competing suppli-ers, WACCO generated significant sav-ings for its members.

WACCO also has facilitated equip-ment sharing among member govern-ments. It has created an inventory ofequipment available in each of itsmember communities. Members nego-tiate rental terms among themselves.Leased equipment is moved from com-munity to community as need arises.One community realized substantialsavings by renting a rarely used piece ofequipment from a neighboring munici-pality. This one transaction more thanpaid for annual dues to WACCO.

WACCO has become a majorprovider of training for local govern-mental employees. Prior to WACCO,training workers typically took place inthe Twin Cities, at significant expense.WACCO has been able to bring trainersto western Minnesota. WACCO alsoacts as a clearinghouse of informationand a liaison with state and national reg-ulatory agencies.

WACCO estimates that during atypical year it saves members in excessof $500,000. …

Cooperatives, which played a keyrole in the evolution of the food sys-tem, are increasingly viewed as an insti-tutional tool for enhancing farm prof-itability and fostering the developmentof rural communities. In the bestcooperative development projects,there is a synergistic relationshipbetween the project and the communi-ty. The cooperative benefits from theexpertise and financial assistance of thestate and local governments and thecommunities receive real (jobs, taxes)and intangible (psychological boost,model for others) benefits. ■

Photo courtesy Dakota Growers Pasta Co.


James MatsonAgricultural Marketing SpecialistUSDA-Rural Business Services

Editor’s note: This article is excerptedfrom the author’s forthcoming report“Cooperative Feasibility Study Guide”(USDA/RBS Service Report 58), availablesoon on USDA Rural Development’s web-site, www.rurdev.usda.gov.

armers and their coopera-tives continually searchfor that “next great idea.”After they think they’ve

found it, the real work begins. Background studies are necessary to

determine whether that great idea isviable and if farmers should invest time,effort, crops and money in it.

Feasibility studies are a useful tooland valid for many kinds of projects.Evaluation of a new venture, both fromnew groups and established businesses,is the most common application, butnot their only use. Studies can helpgroups determine whether to expandexisting services, build or remodel facil-ities, change methods of operation, addnew products, or even merge withanother business. A feasibility study canassist decisionmakers whenever theyneed to decide among alternativedevelopment opportunities.

This analytical tool used during theproject planning process shows how abusiness would operate under anexplicitly stated set of assumptions —the technology used (the facilities,types of equipment, manufacturingprocess, etc.) and the financial aspectsof the project (capital needs, volume,cost of goods, wages etc.).

The feasibility study represents the

first time in a project developmentprocess that the pieces are put togetherto see if they perform together to cre-ate a technically and economically fea-sible concept. The study also shows thesensitivity of the business to changes inthese basic assumptions.

Feasibility studies contain standardtechnical and financial components.The exact appearance of each studyvaries, depending on the industry stud-ied, the critical factors for that project,the methods chosen to conduct the fea-sibility study and the study budget.Emphasis can be placed on various sec-tions of an individual feasibility study,depending upon the needs of the groupfor whom the study was prepared.

The objective consultantThe feasibility study evaluates the

project’s potential for success. Its per-ceived objectivity is important indetermining the credibility placed onthe study by potential investors andfinanciers. The creation of the studyalso requires a strong backgroundboth in the financial as well as thetechnical aspects of the project. That’swhy outside consultants conduct mostfeasibility studies.

Although in principle it is possiblefor a group member to conduct thestudy, outside consultants produce mostfeasibility studies. Prospective membersand financiers see the objective evalua-tion of a concept as an important aspectof the study. This objectivity can pro-vide helpful information that mighthave been overlooked by people partic-ipating directly in the project.

Hiring a consultant to create thestudy can be the most important deci-sion in the creation of the study. The

list below provides possible criteria forselecting a good consultant. A groupshould determine that the consultant isqualified to create the feasibility studyfor the particular project. Also, anyconsultant must be able to work wellwith the group.

Criteria of a Good Study Consultant1. Previous experience conducting fea-

sibility studies;2. Experience with the industry to be

studied; 3. Understands cooperatives;4. Willingness to listen to the group’s

ideas;5. Works closely with designated con-

tact members of the group;6. Accepts reasonable revisions to the

submitted study;7. Accomplishes the study within an

agreed deadline;8. Works within the group’s designated

budget;9. Provides clear, useful information in

the completed study.

ExperienceDoes the consultant have an ade-

quate background to prepare the feasi-bility study? Before contracting a con-sultant, the group should reviewsamples of previously prepared studiesand speak with others for whom thepotential consultant has worked.

If the project is of sufficient size andcomplexity, it may hire several consul-tants to complete various aspects of thefeasibility study. Multiple consultantscan reduce the dependency on a singleperson or company. It also can permitthe group to select experts from severalfields. However, it can complicate thecoordination and consistency of the

C o n s u l t a n t ’ s f e a s i b i l i t y s t u d yc a n p r e d i c t s u c c e s s o f ‘ n e x t g r e a t i d e a ’

F

M A N A G E M E N T T I P


information received.The consultant preferably would

have experience in the industry understudy. The consultant may be anexpert at creating feasibility studiesbut, if he or she has no knowledge ofthe specific industry, probably will notcorrectly identify critical factors forthat industry. Given business complex-ity, it is almost impossible for one per-son to have experience in all areas of abusiness.

Often, a team of consultants assem-bles feasibility studies. For example, acooperative development specialistfrom the USDA might work jointlywith industry specialists to create thefeasibility study. Some consulting firmsresolve this issue by having feasibilityspecialists and contracting with indus-try experts to create a feasibility study.

Cooperative knowledgeThe consultant should also under-

stand the unique aspects of coopera-tives. Tax implications and businessconsiderations of cooperatives differfrom those of other businesses. Thesefactors could decrease or increase pro-ject risks. The consultant should befamiliar with cooperatives to properlyevaluate these effects.

The consultant should avoid pre-conceived notions about how the pro-ject will function. The study should notbe an “off-the-shelf” document puttogether from previously created stud-ies. Rather, the consultant should payparticular attention to the ideas that thegroup has developed and craft a uniquestudy suited to their needs.

The consultant should work closelywith designated members of the groupand be receptive to their suggestions.Also, the consultant should be preparedto make technical revisions or to cor-rect errors at their recommendation.Revisions are a normal part of the feasi-bility study process.

Revisions should focus on the validi-ty of the assumptions and the technicaldesign of the study. Using an outsideconsultant brings objectivity to the fea-sibility study rather than merely pro-viding the results that group wants.

Consultants have a legal obligation toprovide a responsible analysis. Theyshould not be asked to alter the resultsmerely to conform to members’ desiresfor a project’s viability.

Meeting deadlines & costsWhen selecting a consultant, timeli-

ness is an important consideration.Projects are time sensitive. Usually,decisions to proceed await informationprovided in the feasibility study.

So care and diligence required toprepare a well-crafted study must bebalanced against the desire for speed. Ifa qualified consultant cannot completea well-designed study in a time frame

that serves the group’s needs, he or sheshould not be used.

On the other hand, the timelinemust be realistic. A consultant can onlyprogress as fast as a group makes therequired decisions, provides informa-tion to the consultant and carries outits other project responsibilities.

Cost is an important factor. Theexpertise and skills that consultantsoffer a project must be weighed againsttheir expense. A quicker timeline couldincrease the charge of a consultant. Attimes, preparing a pre-feasibility analy-sis can decrease the effort required to

complete the feasibility study andreduce the cost.

Useful informationSome public programs offered by

the USDA’s Rural Business-Coopera-tive Service, community developmentoffices, the Small Business Administra-tion and local business incubator pro-grams provide technical assistance atno, or minimal, cost to groups creatingfeasibility studies.

A consultant should be willing toprovide the data used to generate thefinancial tables and scenarios reportedin the feasibility study, and preferablyan electronic spreadsheet format that

can be easily manipulated. Thoughrequesting this information can mod-erately increase the cost of a feasibilitystudy, access to the actual data permitsthe group to use the information later.

This data can reduce the cost increating the business plan, if the groupproceeds to that stage. It can alsodecrease the effort required for revi-sions, if the group changes the projectin the future to differ from those inthe study.

The legal ties that bindOnce the consultant has been select-

Co-op managers and directors need to evaluate and to communicate up-front with consultantsto ensure the final report provides sound advice for following up on that “next great idea.”Photo by Glen Liford, courtesy Tennessee Farmers Cooperative


ed, the group should give him or herdetailed instructions on the require-ments for the study. A paid consultantshould be hired with a legally bindingcontract between the parties. Thegroup should consult legal counsel forassistance with this contract.

The contract should state clearly therequirements and role of both the groupand the consultant. It should have time-lines, delivery dates, explicit deliverablesand agreement on what is to be accom-plished before payment is made.

Often consultants receive a down pay-ment before the study begins. The bal-ance is paid only after the study has beenreviewed and accepted by the group(and, possibly, financiers, if appropriate).This gives the group more leverage toencourage timeliness or revisions.

The contract should designate athird party arbitrator to resolve any dis-puted items.

Before signing the contract, thegroup should discuss with the consul-tant arrangements for cost overruns,time delays and revisions. As Murphy’sLaw states, “Everything costs more andtakes longer.” The group should discusswith the consultant what considerationswill be made for these issues.

Changes after signing the contract canbe costly or delay the study results, so allparties should be clear what as to what isexpected prior to initiating the study.

Reviewing the studySelection of the consultant does not

end the group’s responsibilities. A qual-ified member or a small committeeshould be designated to work closelywith the consultant. They work toassure that the feasibility study presentsthe ideas that the group identified forstudy. They track the study at all stagesand work with the consultant reviewingand clarifying ideas during the studydevelopment process.

Members with appropriate abilitiesor backgrounds should be selected forthis task. It is critical that these “con-tact members” commit sufficient timeto work with the consultant. Thesemembers represent the group’s inter-ests to the consultant. They are the key

contact for providing clarification andadditional information that the consul-tant may require.

These members should give periodicreports regarding the progress of thefeasibility study. They also should workwith the other group members and advi-sors to gather the information needed toprepare the feasibility study. Thesemembers should express the wishes ofthe entire group and not their own.

Members or outside financiers willoften judge the perceived reliability ofthe entire study based on its least accu-rate piece. An otherwise well-conductedfeasibility study could be viewed as inac-curate or useless by a simple mistake.

To prevent this, the study should becarefully reviewed. It should be exam-ined for overall clarity and logical con-sistency, and the appropriate questionsshould be asked. Is the language appro-priate? Is the document well orga-nized? Can someone who is not famil-iar with the project understand thestudy? The reviewers should confirmassumptions and assure that theassumptions have been explained.

The report serves as a compilationof project efforts. Potential members,financiers and others use this docu-ment to help determine their supportfor the project. The report shouldpresent conclusions from the study. Itshould be professional in its organiza-tion and its presentation. Detailsshould be included such as a table ofcontents, page numbers and referencesthat make understanding the docu-ment easier.

Although the contact members takeon the lead in working with the consul-tant, the entire group should review thestudy carefully before deciding toaccept it.

Advisors such as cooperative devel-opment specialists or extension agentscan provide an objective review of thestudy and offer insights on content orassumptions. This outside review canbe especially useful, when consultantshave prepared the report.

The group refines the report beforeit is completed. Often a series of draftreports are presented as the study pro-

ceeds. Changes are then conveyed tothe consultant.

Accepting the completed studyAfter the review is complete, the con-

sultant normally makes a final report topresent key findings and recommenda-tions.

The group usually makes the prelimi-nary decision to accept or reject thestudy. Often, the contact members whohave been working with the consultantand have the most knowledge of the fea-sibility study, make a recommendation toaccept or reject the study.

The final decision rests with at leastthe entire steering committee. In manycircumstances, the entire group mustgrant final approval.

Approval should be based on the tech-nical quality of the study. Does it fulfillthe work expectations that the group hadwhen contracting with the consultant?Do the ideas presented differ substantial-ly from those of the members for theproject? Does the study contain signifi-cant errors? Is the study sufficiently com-prehensive to permit informed decisionsabout continuing with the project? If keyinformation is lacking the group shoulddecide to have the study revised.

A well-crafted, but negative, feasibili-ty study can prevent the group fromundergoing considerable trouble andexpense to learn the same informationlater in the project process. By the sametoken, a feasibility study with a positiveeconomic return should be scrutinizedand not accepted merely because itmakes the project seem possible.

Written records of the decision-mak-ing process should be made and kept in asafe place. Group members need to beaware of their legal responsibilities fordue diligence. In the development of aproject, an attorney should be keptappraised and provide appropriate legalconsul.

The next great idea for your farm oryour cooperative could be just aroundthe corner. But before betting the farmon it, take time to hire a consultant todo a feasibility study to ensure youunderstand where that next great ideacan lead you. ■


By Carolyn LiebrandAgricultural EconomistUSDA Rural Development

airy farmers and theirmilk marketing coopera-tives join the list of com-modities to be hard-hit by

volatile market prices last year. But let’stake a step back to review the financialperformance of these individuals andorganizations at the end of the 1990s.

A picture of the financial perfor-mance of dairy cooperatives in theUnited States was developed from theresults of a 1998 USDA survey.Detailed information on cooperatives’1997 finances were collected as a specialpart of one of USDA’s annual mail sur-

veys of agricultural cooperatives. Thir-ty-nine percent of the nation’s 226 dairycooperatives supplied complete data.However, these 88 cooperatives repre-sented about 96 percent of the totalassets held and 90 percent of the milkhandled by U.S. dairy cooperatives.

Overall, dairy cooperatives used$5.15 per hundredweight (cwt) of milkof total assets to market their members’milk in 1997. Of their total assets, 55percent ($2.84 per cwt) were currentassets; 26 percent ($1.32 per cwt) werenet property, plant and equipment; andthe remaining 19 percent ($1 per cwt)were investments in other cooperativesand assets (table 1).

On the other side of the ledger, totalliabilities were 60 percent of total assets

($3.12 per cwt), current liabilities were43 percent ($2.22 per cwt), and long-term liabilities were 18 percent ($0.90per cwt). The remaining 40 percent oftotal assets consisted of member equity— both allocated ($1.70 per cwt) andunallocated ($0.34 per cwt).

Fluid milk and finished product salesby dairy cooperatives were $19.85 percwt, which made up 88 percent of theirtotal income. The second largest seg-ment of income came from supply sales($1.77 per cwt), but these were just 8percent of total income. The other 4percent of total income came from oth-er sales, service receipts and otherincome, and patronage refunds fromother cooperatives.

Net margins before tax was $0.30 per

H o w w e l l a r e d a i r yc o o p e r a t i v e s p e r f o r m i n g ?

D

Table 1—Consolidated balance sheet per cwt, by type of dairy cooperative, 1997

Type of cooperativeBargaining Bargaining- Hard-product Branded- Diversified

Item only balancing manufacturing cheese & fluid processing All

$/cwt % $/cwt % $/cwt % $/cwt % $/cwt % $/cwt %Current assets .91 75.4 1.45 61.5 2.84 58.1 6.62 65.8 3.62 53.1 2.84 55.1Net PP&E 1/ .13 11.1 .78 33.1 1.86 38.1 2.89 28.7 1.70 25.0 1.32 25.6Investments in other co-ops .13 10.6 .09 3.9 .17 3.5 .38 3.8 .81 11.9 .56 10.8Other assets .03 2.9 .04 1.5 .01 0.3 .16 1.6 .68 10.0 .44 8.5

Total assets 1.20 100.0 2.35 100.0 4.88 100.0 10.06 100.0 6.81 100.0 5.15 100.0

Current liabilities .80 66.1 1.32 56.2 1.94 39.7 4.69 46.6 2.79 41.0 2.22 43.0Long-term liabilities .04 3.1 .22 9.4 .73 14.9 .90 9.0 1.31 19.2 .90 17.5

Total liabilities .83 69.1 1.54 65.7 2.67 54.6 5.59 55.6 4.10 60.1 3.12 60.5

Allocated equity .30 24.8 .78 33.0 2.08 42.6 3.55 35.3 2.23 32.8 1.70 33.0Unallocated equity .07 6.1 .03 1.3 .14 2.8 .92 9.1 .48 7.1 .34 6.5

Total equity .37 30.9 .81 34.3 2.22 45.4 4.47 44.4 2.72 39.9 2.03 39.5Liabilities and equity 1.20 100.0 2.35 100.0 4.88 100.0 10.06 100.0 6.81 100.0 5.15 100.0Number of cooperatives 45 4 9 10 20 88Milk handled 19,632 16,475 5,434 1,265 71,627 114,432(million pounds)2/

Note: Totals may not add due to rounding.1/ Property, plant and equipment.2/ Total milk volume handled by cooperatives, net of inter-cooperative transfers.


cwt. The ratio of net margins before taxto total income was 1.3 percent. Returnon the assets used by cooperatives tomarket milk was 7.1 percent (measuredby dividing net margins before taxes andinterest expense by total assets).

Performance by groupA portrait was also developed by

type of dairy cooperative, based on thevariety of functions the cooperativeperformed to ensure a market formember milk. There were differencesin the financial structure of coopera-tives, depending upon their primaryfunction. The following dairy coopera-tive categories were identified:

• bargaining-only — focus exclu-sively on negotiating milk pricesand do not own plants;

• bargaining and balancing — bar-gain for milk prices and manufac-

ture about 25 percent of the milkhandled into commodity productsin their own plants;

• hard-product manufacturing —most member milk used in theirown, large-scale manufacturingplants where they make undifferen-tiated, commodity dairy products;

• branded-cheese marketing and fluidprocessing — typically process alltheir member milk in their ownplants, manufacturing and market-ing specialty or branded cheese, orbottled fluid milk, respectively;

• diversified — manufacture orprocess more than half the milkthey handle into both differentiatedand commodity products, as well asbargain for milk prices.

For this study, diversified and fluidprocessing cooperatives were groupedtogether.

AssetsBargaining-only coopera-

tives used $1.20 to market 100pounds of milk, while brand-ed-cheese cooperatives used$10.06 per cwt. The othertypes of dairy cooperatives fellin-between this price spread.

Bargaining-only coopera-tives’ current assets of $0.91per cwt accounted for 75 per-cent of their total assets. Forthe other groups, current assetsmade up between 53 percent(diversified and fluid process-

ing cooperatives) and 66 percent (brand-ed-cheese cooperatives) of total assets.Property, plant and equipment (PPE)accounted for only 11 percent of bar-gaining-only cooperatives’ total assets,reflecting their lack of facilities. In con-trast, PPE was 25 percent of total assetsfor diversified and fluid processing and38 percent for hard-product manufac-turing cooperatives.

Diversified and fluid processingcooperatives had the highest level ofinvestment in other cooperatives andother assets, $1.49 per cwt, which was22 percent of total assets. The othershad low proportions of assets investedin other cooperatives and other assets,with the exception of bargaining-onlycooperatives where investments in oth-er cooperatives represented 11 percentof their assets.

Liabilities and equityTotal liabilities (current plus long-

term liabilities) ranged from $0.83 percwt for bargaining-only cooperatives to$5.59 per cwt for branded-cheese mar-keting cooperatives. However, liabilitiesmade up the largest proportion of totalassets for bargaining-only cooperatives,69 percent, compared to the othergroups of cooperatives, which rangedfrom 55 percent (hard-product manufac-turing cooperatives) to 66 percent (bar-gaining-balancing cooperatives).

Diversified and fluid processing coop-eratives had the most long-term liabili-ties, reflecting a greater investment in

plants and facilities andreliance on borrowedcapital. Long-term lia-bilities for the remain-ing groups rangedfrom 15 percent oftotal assets for hard-product manufacturingcooperatives to 3 per-cent for bargaining-only cooperatives.

Members of bar-gaining-only coopera-tives held the lowestequity stake in theircooperatives, $0.37 percwt (30.9 percent of

Table 2—Average financial profile of dairy cooperatives, by type, 1997

Million dollars per cooperative Bargaining Bargaining- Hard product Branded- Diversified

Item only balancing manufacturing cheese & fluid processing All

Total assets 5.3 38.7 66.3 14.1 243.9 67.0Total liabilities 3.6 25.4 36.2 7.8 146.6 40.5Total equity 1.6 13.3 30.1 6.3 97.3 26.5Milk and dairy

product sales 69.7 245.5 228.1 32.5 796.0 258.2Net margins

before tax .3 3.4 6.5 1.4 12.9 3.9Milk handled per cooperative

(million pounds)1/ 436 1,648 1,359 141 3,581 1,300Number of

cooperatives 45 10 4 9 20 88

Note: Totals may not add due to rounding.1/ Net of inter-cooperative transfers.

0

5

10

15

20

25

30

AllD & FPB-CHPMB & BB-O

Milk and dairy product salesSupply salesOther salesService receipts and other incomePatronage refunds received

Figure 1—Dairy cooperative sales and income

per cwt, by type, 1997


total assets). Member equity in hard-product manufacturing cooperatives was45 percent of total assets, the largestshare among the groups. However,member equity per 100 pounds of milkwas highest for branded-cheese coopera-tives at 44 percent of total assets.

Most member equity was allocated(directly assigned to individual mem-bers), regardless of the cooperative’sprimary function. Bargaining-balanc-ing and hard-product manufacturingcooperatives had the smallest portionsof unallocated equity (not assigned tomembers) among the different types(4 percent and 6 percent of total equi-ty, respectively). About one-fifth ofthe branded-cheese and bargaining-only cooperatives’ equity was unallo-cated.

Sales and incomeMilk and dairy product sales per

hundredweight ranged from $14.90 forbargaining-balancing cooperatives to$23.16 for branded-cheese coopera-tives. Ninety-nine percent of the hard-product manufacturing cooperatives’income came from milk and dairyproduct sales, $16.79 per cwt, the high-est proportion among the groups (fig.1). Milk and dairy product sales of$22.23 were 87 percent of total incomefor diversified and fluid processingcooperatives, the smallest proportionamong the different types.

However, diversified and fluid coop-eratives had the largest proportion of

supply and other sales (12 percent oftotal income) along with bargaining-only cooperatives where 11 percent oftotal income was from the sale of sup-plies and other items. The other threetypes of cooperatives had minimal salesof these types.

Net marginsNet margins before tax per 100

pounds of milk ranged from $0.06 forbargaining-only cooperatives to $0.98for branded-cheese cooperatives. Hard-product manufacturing cooperativeshad the second largest net marginsbefore tax, followed by diversified andfluid processing and bargaining-balanc-ing cooperatives.

Branded-cheese cooperatives realizedthe highest profit margin (4.1 percent oftotal sales). Hard-product manufactur-ing cooperatives yielded the secondhighest net margins to sales (2.8 per-cent). Diversified and fluid processingcooperatives’ net margin was 1.4 percentof sales, and similarly, bargaining-bal-ancing cooperatives’ was 1.3 percent oftotal income. Bargaining-only coopera-tives generated the lowest net margins(0.3 percent of total income).

Average The average (per cooperative) finan-

cial statement for each type highlightsthe magnitude of their differences(table 2). Diversified and fluid process-ing cooperatives were the largest coop-eratives, on average, in terms of total

assets, milk and dairy product sales, netmargins, and volume of milk handled.On average, diversified and fluid pro-cessing cooperatives used almost 50times the assets used by bargaining-only cooperatives and four times theassets used by the second largest typeof cooperative in terms of assets —hard-product manufacturing coopera-tives.

Diversified and fluid processingcooperatives’ average milk and dairyproduct sales were more than threetimes larger than for bargaining-bal-ancing cooperatives, the second largesttype in terms of average sales. Branded-cheese cooperatives had the lowestaverage milk and dairy product salesper cooperative, reflecting their gener-ally smaller size.

Diversified and fluid processingcooperatives had the highest net mar-gins, on average, almost twice those ofthe next highest. Branded-cheesecooperatives had the second smallestnet margins. But, these were morethan four times the average net mar-gins of bargaining-only cooperativesand were generated with less than halfthe average milk and dairy productsales of bargaining-only cooperatives,an indication of the value-addednature of branded-cheese coopera-tives’ operations.

To obtain a copy of the full report,visit our website at:www.rurdev.usda.gov/rbs/pub/research.htm. ■

attract new businesses to rural areas, plus help existingbusinesses expand. In addition, PREA and its member-coop-eratives undertake projects that improve both rural infra-structure and the rural quality of life - cornerstones to eco-nomic development and job creation.

“We are perceived as rural advocates,” Biggica added.“We did not get into the business of electricity for the mon-ey-making end of it. We are in the electricity business forquality of life issues. You can have the best economicdevelopment plans in the world, but if you don’t have sew-ers and roads and good schools — if you don’t have a goodinfrastructure — your economic development plans don’twork.”

As rural advocates, PREA officials expect to sign a memo-randum of understanding with the Pennsylvania environmen-tal department to establish the first-ever public-private part-nership in septic system installation. Under the agreement,rural cooperatives not only financed research into the newtechnology but will also have a hand in ensuring it is properlylicensed, installed and managed.

“With our reputation, we got through the regulation sys-tem three times faster than other groups coming forwardwith new technology,” said Biggica. “And now we have theregulatory agency acknowledging that they trust us enoughto ensure the technology is used correctly.” ■

– Pamela J. Karg, Field Editor

Continued from page 10


Blue Diamond buys MacFarmsBlue Diamond Growers, Sacramen-

to, Calif., is acquiring MacFarms ofHawaii, one of the nation’s largestmacadamia nut retailers, from Camp-bell Soup Co. for an undisclosed price.The deal will be financed entirely fromthe cash flow of MacFarms, which lastyear generated sales of $30 million,according to Walt Payne, president andchief executive officer of Blue Dia-mond. The purchase includes 3,900acres of macadamias and a processingplant in South Kona, Hawaii.

Payne added that Blue Diamond isno stranger to the macadamia markets.The cooperative has been marketingMacFarms’ nuts to businesses world-wide as an ingredient for such foodproducts as cookies and candies fornearly two decades. During that period,MacFarms has become the globalleader in ingredient, or industrial sales.Now, as owner of MacFarms, Blue Dia-mond also will market MacFarms’retail product, which today representsabout half the annual MacFarms sales.

Cenex Harvest States names new CEO North Dakota native John D. John-

son is the new president and chief exec-utive officer of the producer-owned

Cenex HarvestStates Coop-eratives. HesucceededNoel Esten-son, whoretired June 1.Johnson, 51,joined the for-mer HarvestStates Coop-eratives in

1976 as a feed consultant, later becom-ing a regional sales manager and finallygeneral manager of the GTA Feeds divi-sion. In 1995, he was named HarvestStates president and CEO. Johnsonbecame president and general managerof Cenex Harvest States when the co-opwas formed in June 1998. Estenson, 61,joined Cenex as a credit manager in1963 and rose through the ranks tobecome president and CEO in 1987. Hewas named CEO of the merged CenexHarvest States in 1998.

McLean new USDA/RUS leaderChristopher A. McLean has been

sworn in as administrator of the RuralUtilities Service (RUS) of USDA RuralDevelopment. McLean succeeds WallyBeyer, who retired October 31, 1999.

“Chris McLean is dedicated to thebiggest task RUS faces today — mak-

ing sure that rural America is not leftbehind as we advance into the informa-tion age,” Agriculture Secretary DanGlickman said. “He comes prepared tohelp rural Americans meet their needsfor safe drinking water, moderntelecommunications and an adequatesupply of electrical power.”

As the administrator of RUS, McLeanwill oversee financing for rural electriccooperatives, telecommunications andwater programs, and administer the dis-tance learning and telemedicine loan andgrant program. The RUS loan portfoliocontains over $42 billion in investmentsin rural utility infrastructure. McLeanwill also serve as governor of the RuralTelephone Bank, a public/private lend-ing institution that promotes ruraltelecommunications infrastructure.

Previously, McLean worked in theU.S. Senate for more than 15 years,

N E W S L I N E

John D. Johnson

Blue Diamond Growers has acquired MacFarms of Hawaii, which markets $30 million worthof macadamia nuts annually. Photo courtesy Blue Diamond Growers


serving as a legislative assistant andlegal counsel to Sen. James Exon ofNebraska, and later as legislative coun-sel to Sen. Bob Kerrey, also of Nebras-ka. While at the Senate, he worked ontelecommunications, budget, trans-portation and trade issues. He wasinstrumental in crafting the universalservice and rural provisions of theTelecommunications Act of 1996.

McLean received a B.S. and J.D.from Creighton University, Omaha,Neb. He also holds a Master of Lawsdegree from Georgetown University.

Internet-based meat exchange formsIBP, Cargill, Smithfield Foods,

Tyson Foods, Gold Kist and Farm-land plan to invest $20 million tocreate an Internet-based meat mar-ket. The four investor-oriented firmswill each control 21.5 percent of thenew company while the two coopera-tives will each control 7 percent.Buyers on the exchange will pay sub-scription fees and there will be trans-action fees and advertising to coverthe cost of the operation. Each of thesix companies will still competethrough this new channel as well asthrough traditional channels.

Farmington co-op buys newtechnology

A small Farmington, Maine, cooper-ative has purchased a portable grainroaster that can process grains, cornand soybeans into a nutritious, tastyanimal feed. Maine farmers hope it willtranslate into large savings so they nolonger have to buy processed feedsfrom other states or Canada.

The machine was put through itspaces when a truckload of locallygrown soybeans was poured through achute into the gas-powered roaster andheated to 280 degrees. The machineroasts and cools the product to air tem-perature at a speed of 12 tons per hour.

This is the only grain roaster in thestate, said John Harker, of the stateDepartment of Agriculture. Farmerslooked into buying them, but the costwas prohibitive. This year, grants andloans became available, and the local

co-op took the initiative. “Importing feed has been the high-

est cost for dairy farmers,” Harker said.“This machine will reduce their costsand will also give them the opportunityto expand their soybean production.”

The department contributed a$10,000 grant and a $15,000 low- inter-est loan toward the $30,000 purchase.The group took out a loan from FinanceAuthority of Maine, and four farmers inthe cooperative pitched in $5,000 apiece.

Citrus World to buy plantCitrus World Inc., Lake Wales, Fla.,

has purchased the Sun Pac Foods Inc.citrus processing plant in Bartow for anundisclosed price. “We need the SunPac facility to keep up with productionof our premium juice products,” saidSteve Caruso, chief executive officer ofCitrus World, parent company ofFlorida’s Natural Growers. “Our plansare to grow this business.”

The plant employs 80 people andprocesses about 5.5 million boxes oforanges into juice annually. CitrusWorld plans to retain current employ-ees and expand the facility sometimein the future. Sun Pac, based inBrampton, Ontario, Canada, had beenprocessing oranges under contractwith Citrus World since 1994.

Florida’s Natural Growers is the

largest citrus cooperative in Florida,with 12 member organizations repre-senting more than 1,000 growers and60,000 acres of citrus groves. Itprocesses more than 20 million boxesof oranges into frozen concentratedand not-from-concentrate juice. Itmarkets under brand names such asFlorida’s Natural, Grower’s Pride,Donald Duck, Bluebird, Adams andTexsun.

Apple cooperative to closeChief Tonasket, Okanogan County,

Wash., closed its apple packing cooper-ative this summer, putting 80 employ-ees out of work. In the past decade, the72-year-old co-op went from packingabout 90,000 bins of fruit to 27,000bins last year.

“It’s very, very sad, but basically thehole was too deep,” General ManagerSteve Skylstad said. Most of the ChiefTonasket employees were laid off inmid-July after the remaining Red Deli-cious apples in storage from the 1999crop were sorted and packed. Mostemployees were seasonal, but about 12were full time. Chief Tonasket oncepacked apples for 80 farmers, but only15 remain. They will have to find newwarehouses.

Chief Tonasket’s annual payroll is$1.2 million, much of which is spent

Kentucky grain farmers eye ethanol plant Kentucky Gov. Paul Patton recently presented a USDA grant for $95,000

to a group of western Kentucky grain producers to finance a study onethanol production. Patton delivered the check from USDA Rural Develop-ment to Ronald Berry, president of the Hopkinsville Grain Elevator. The2,200-member cooperative of grain producers from 17 western Kentuckycounties plans to use the money to match $30,000 in state money and pay fora study assessing the feasibility of ethanol production.

“While commodity prices remain at historically low levels and changes intobacco production present additional downward pressures in our rural econ-omy, it is essential that we look together at new and innovative ways to addvalue to our traditional farm products,” Patton said.


in local businesses, Skylstad said.Local orchards that were ripped outafter the disastrous 1998 apple cropwere part of the problem. Also, farm-ers who raise high-quality fruit left theco-op to get more money at packing-houses in Brewster and Wenatchee.About 80 percent of the co-op’s ton-nage was in old varieties of Red Deli-cious apples. Those Reds havebrought the lowest selling prices inrecent years.

No figures are available to showhow many of Okanogan County’s29,000 acres of orchards have beenremoved since 1998, but some indus-try leaders believe up to 20 percent areno longer producing fruit.

N.J. to sell new blueberry products A new blueberry venture is seeking

to create a market for a “JerseyBlues”iced tea. Also hitting fruit stands andsome stores this summer is a mashedblueberry spread called pomace. The

products are being test-marketed inNew Jersey and Japan. They weredeveloped by researchers at RutgersUniversity as a way to raise blueberryprices, which have been depressed.Project sponsors include Rutgers,USDA and the Pinelands Commission,

a state agency that manages the 1.1-million-acre Pinelands national reserve.

In 1998, New Jersey farmers pro-duced 36 million pounds of blueberriesworth $28.4 million. The 79 cents apound that farmers received that yearwas well below the $1 per pound theyearned in 1997 and the all-time high of$1.61 per pound in 1978.

Sandy and acidic soils of the PineBarrens, covering 22 percent of thestate, are perfect for cultivatingberries and have made New Jerseysecond in the nation in blueberry pro-duction, behind Michigan, and thirdin cranberry production. However,cranberry prices plummeted from $55a barrel in 1997 to roughly $10 thisyear, primarily because of a produc-tion surge that outpaced staticdemand.

In New Jersey, hundreds of acres ofblueberry fields were converted intocranberry bogs. From 1993 to 1998,cranberry farming jumped nearly 600

acres, to 3,980; dur-ing the same period,blueberry acreagedropped from 8,100to 7,500.

Blueberrygrowers then lob-bied the state toimpose a fee of six-tenths of a cent perpound, in part forresearch and devel-opment. Somemoney went to theRutgers project,along with a$95,000 grant fromthe USDA, $29,000from the PinelandsCommission,$36,000 from theNew Jersey Agricul-ture Experiment

Station, and $5,000 from the stateFarm Bureau.

To market the products, growersincorporated Blueberry Health Inc.Its goal is to make blueberry juice asmainstream as orange, apple and cran-berry juices. Growers predict blueber-

ries could be especially big amongconsumers because of their potentialhealth benefits — they are among therichest sources of certain antioxidantsthat some studies have linked to slow-er aging and reduced cancer risk.

Honse to take over Farmland reinsThe Farmland Industries board of

directors has named Robert W. Honseto the position of president and chief

executive offi-cer, effectiveSept. 1. At thesame time, theboard appoint-ed Farmland’scurrent presi-dent andCEO, H.D.“Harry” Cle-berg, as con-sultant toHonse from

Sept. 1 to Dec. 31.Honse holds a bachelor’s degree in

chemical engineering from the Universi-ty of Virginia and joined Farmland in1973 as project manager at its Lawrence,Kan., fertilizer plant. In 1986, he becamegeneral manager at Farmland’s phos-phate manufacturing operations in cen-tral Florida. Since returning to the co-op’s headquarters in Kansas City in 1989,Honse has held a variety of senior man-agement positions, most recently asFarmland executive vice president andchief operating officer.

Upstate Farms expands milk facilityUpstate Farms Cooperative is plan-

ning a multimillion-dollar expansion ofits milk production and distributionfacility in Cheektowaga, N.Y., a changethat will trim 25 jobs at its Jamestownplant. Relocation of milk processingoperations from Jamestown to thecooperative’s facility in Cheektowaga,effective Sept. 8, will cut eight jobsfrom the Jamestown payroll. Another16 jobs will be cut in June 2001,according to David Crisp, UpstateFarms chief operating officer.

Upstate Farms is expanding itsCheektowaga plant by 27,000 square

Blueberry tea may just be a hit with consumers — it’s the rightcolor for kids and it’s healthy, which adults appreciate.

Robert W. Honse


feet, adding more cooling and storagecapacity. The cooperative recently pur-chased a vacant office building inCheektowaga, which it expects to usefor administrative personnel. UpstateFarms, owned by some 400 dairy farm-ers, produces more than 200 productsunder Upstate Farms, Bison, Milk ForLife and Aahhh! labels. The Cheek-towaga liquid products plant employs175 workers, and its Bison culturedproducts plant, in Buffalo, employsanother 120 in the production ofyogurt and chip dip.

States launch inquiry into big dairy Massachusetts, Connecticut and

Vermont have launched an antitrustinvestigation into the growing marketclout of Suiza Food Corp., a Dallas-based dairy processor that one studysays now controls 70 percent of theregion’s milk supply. The attorney gen-eral’s offices of the three states joinedforces in the inquiry, officials said.Suiza has rapidly emerged as the majorplayer in the New England milk marketthrough an aggressive strategy of buy-ing smaller dairies. But regulators areconcerned that this expanding marketshare threatens to limit choices forboth farmers and consumers.

Over the past three years, Suiza hasbought Seward’s Dairy, Rutland, Vt.;Garelick Farms, Franklin, Mass.;Nature’s Best Dairy, Cranston, R.I.; NewEngland Dairies Inc., Hartford, Conn.;and Grant’s Dairy, Bangor, Maine. It alsohas acquired the milk processing facili-ties of Canton-based Cumberland FarmsInc. in Massachusetts and in New York,and processing plants owned by WestLynn Creamery in Massachusetts.

As Suiza has bought milk companies,it has closed four processing plants inNew England, a consolidation thateffectively limits the market for farmersand dairy co-ops, the states claim. Thecompany’s buying spree has alreadybegun to affect some Vermont farmers.In February, the St. Albans Coopera-tive Creamery learned that it was goingto lose its long-time co-packaging cus-tomer, Stop & Shop Supermarkets, toSuiza. ■

LOL sells fluid plants, continuescheese plant study

Illinois-based Dean Foods Co. is buying the Upper Midwest fluid milkoperations of Land O’Lakes (LOL) Inc. The companies also are forming ajoint venture to market and license some products to expand their reach.Terms of the agreement, closed July 1, were not disclosed. The deal is subjectto regulatory approval.

LOL, Arden Hills, Minn., is a food and agricultural cooperative doingbusiness in all 50 states and more than 50 countries. Dean Foods, FranklinPark, Ill., is a processor and distributor of regionally branded and private-label dairy products. The purchase includes four fluid dairy plants — inWoodbury, Thief River Falls and Bismarck, N.D., and in Sioux Falls, S.D.,as well as a new extended-shelf-life dairy plant at Richland Center, Wis.The division generates annual sales of about $310 million and markets afull line of fluid milk, yogurt, creams, sour cream and cottage cheese, 85percent of which is sold under the Land O’Lakes brand name. The twobusinesses will each hold a 50 percent stake in the joint venture that willdevelop and market cream, half and half, sour cream and extended-shelf-life products.

“The joint venture allows us to extend the reach of our most innovativefluid dairy products, and we will use the proceeds from the sale to build andstrengthen our core businesses on behalf of our members,” said ChrisPolicinski, Land O’Lakes executive vice president and chief operating officerof the dairy foods value-added group. Meanwhile, the Midwest would makean excellent home for what would be the largest cheese plant in the easternUnited States, according to a feasibility study by LOL and Alto Dairy Coop-erative, Waupun, Wis. The two proposed building the plant earlier this year.Executives with the cooperatives said the facility would ultimately handlemore than 1.7 billion pounds of milk annually, generate more than 100 jobsand include an annual payroll of about $6 million.

The feasibility study said Upper Midwest dairy producers have an advan-tage in resources, particularly water and crop production. They also haveedges in experience, expertise, long-standing production and processinginfrastructure, market presence and reputation. Officials with both coopera-tives said they would study the possibility of building the plant in Wisconsin,the nation’s leading cheese producer. The state lost market shares to newerand larger plants in California and other western states in the 1990s.

But Alto and LOL leaders have yet to decide to build the plant. Besideslocation, issues include environmental requirements, construction costs,financing options and economic support. No timetable for a final decisionhas been set.

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