New model, old ways

Farmersfind new life serving burgeoning organic markets

Pamela J. Karg,
Field Editor

t began as the collective idea of seven farmers who were tired of seeing their fellow farmers "dropping like flies," as one Wisconsin farm after another closed. They felt there had to be a better way they could pull together to increase their returns and keep producers in business. Their answer was to form the Coulee Region Organic Produce. Pool Cooperative (CROPP), which has more than fulfilled the fondest wishes of its founders. With a phenomenal growth rate of 60 to 70 percent in recent years, it has grown into the largest organic farmer cooperative in the United States. After 12 years of operations, CROPP has 200 members in 11 states and annual sales of $50 million to the ever-growing number of consumers who demand organic foods. But this success has also forced it to deal with growing pains.

Looking for alternatives
The number of dairy farms in Wisconsin has dropped by 39 percent since 1989, from 34,110 to 20,715. However, the number of cows has remained fairly stable, between 9.1 million and 9.6 million head. Still, rural communities take an economic hit every time a barn door closes. "It was a difficult reality for these rural communities," says Theresa Marquez, CROPPs director of marketing. "The farmers realized that the trend (of farm closures) was almost irreversible, so they started asking themselves how they could do something different rather than go out of business themselves." Having lived through the agony of the 1980s farm crisis, farmers around LaFarge, Wis., were looking for an alternative to growing chewing-variety tobacco, a vital cash crop for many, but one which appeared to have an uncertain future. They ultimately decided to grow and market organic vegetables, forming a cooperative to market their produce. Some of the growers also had dairies and felt the time was right to develop the organic dairy products market. Most farmers had lived through the awakening environmental movement of the 1960s and 70s and had not really changed the way they did business, says Karl Pulvermacher of Lone Rock, Wis. He gave up a career selling agricultural chemicals to farm in what he felt was a more sustainable way. "I'm really concerned about what I see in some other types of agriculture, where toxic chemicals are placed on the soil, year after year after year, all in the name of profit and with absolutely no foresight as to what's going to happen to the soil, what's going to happen to the groundwater and what's going to happen to the people who use this food," Pulvermacher says. "I think we have to be concerned about that. That's why they pay me a premium to produce organic milk. There are added costs, because I'm managing the problem, not just buying a solution." With financial backing and business guidance from the Wisconsin National Farmers Organization, the dairy division of CROPP was born, recalls Wayne Peters. He's one of the founding farmers and is currently president of the board. "Though dairy farms around us were dropping off like flies, our situation wasn't desperate," the Chaseburg, Wis., dairy producer recalls. "We just really wanted to make things better for ourselves. At die time, we were all working toward being organic, in one way or another. Until we all got together, we didn't know what to have for rules. There were no models, here or abroad, just a little bit in vegetables. There was no certified organic milk. We made the rules to fit our own situation. Now our standards are the basis for much of what's happening in Europe."

Brand name developed
CROPP produced and sold its first organic cheese as a private-label product by the early 1990s. With the encouragement of consumers who were concerned with food quality issues and who wished to purchase more natural, nutritious food grown without the use of pesticides or herbicides, CROPP developed its own brand name - Organic Valley - and expanded its line. "At first, we had no sense of a larger future. A company wanted to buy organic cheese from us. They thought they could sell it, but they couldn't. So we started looking for other markets. That got things rolling. We set up a faringate price at $17.50 per hundredweight, an average of $4 to $6 per hundredweight over conventional milk prices. Holding a stable pay price has been our biggest challenge and accomplishment," adds Peters. The cooperative had to learn fast, says George Siemon. He's also one of its founding dairy farmer members who now, uncomfortably, wears the titles of president and chief executive officer. The Wisconsin NFO opened doors to dairy plants for the new organization. In turn, CROPP talked to cheesemakers about manufacturing organic products for the cooperative market. "We started as a cooperative with a fairly anti-cooperative viewpoint," says Siemons. "I don't mean to be hard on the other cooperatives, but our farmers didn't feel good that the cooperatives had maintained their integrity. And we used to be a bunch of farmers who would pound our fists on the table and ask, 'Why is $10 (per hundredweight) milk $3 (per pound) cheese?'Well, now we understand and our farmers understand. We still probably think there's something wrong somewhere, but farmers need to be informed." To this day, CROPPs four divisions - dairy, eggs, meat and produce - hold monthly pool meetings that are open to all members. There the members debate what's good for their farms and the organic production systems they follow vs. what's best for their cooperative. The answers are never easy.

Struggling with capitalization
One issue they struggle with is capitalization. CROPP needs equity to expand. Since Organic Valley only owns one plant in Chaseburg, Wis., it works with a network of dairy plants and other organic farmer organizations across the United States to procure enough fruits, vegetables, meats, eggs and dairy products to fill its growing customer list. Three major dairy cooperatives that co-pack products under the Organic Valley Family of Farms consumer label are Land O'Lakes, Inc., Arden Hills, Minn.; West Farm Foods, Seattle; and Farmers Co-op Creamery, McMinnville, Ore. Another cooperative relationship Organic Valley has is with Organically Grown Cooperative in Oregon, which helps the Wisconsin-based cooperative procure and market potatoes, squash and bananas. Even with these relationships, though, CROPP needs more money. The solution being developed is a preferred stock program that will allow consumers to help the farmers fund the capitalizations needed to meet growing demands. Until taking ownership of its first dairy production facility last year, the cooperative's staff worked exclusively with small, specialty cheese plants and other dairy manufacturers across the United States to produce organic dairy foods. (About 65 percent of production is marketed under the Organic Valley Family of Farms consumer label; the remaining sales are industrial ingredients processed for the organic foods market.) The solution to the capitalization challenge is a preferred stock program being developed to allow consumers to help the farmers fund the capitalization needed to meet growing demands. "The consumer wants to support the farmer," Siemon says. "The consumer wants to be connected to the farm. Organics is especially that way, so we're trying to bring together two interested forces and still remain 100percent organic farmer owned." Recently, the cooperative also became the first nationwide marketer of organic meat products, thanks to an $18,800 grant from the Wisconsin Department of Agriculture, Trade and Consumer Protection, under its Agricultural Development and Diversification program. It allowed the cooperative to access professional and technical expertise in the meat industry in order to rapidly enter the marketplace, Siemon says. "Without this seed money, we could not have introduced the comprehensive product line that our farmers were capable of supporting," he adds.
CROPP developed 22 organic meat products to add to its existing line of produce, dairy and egg products. The cooperative diversified its product offering to include organic pork and poultry products. In a previous project, the meat pool developed frozen-packaged beef hot dogs, ground beef patties and bulk ground beef. The recent project brought together family farmers to produce organic pork on a standardized basis. CROPP developed value-added products at selected manufacturing plants, and it has begun distributing them nationally. The annual revenue projections for the cooperative as a whole are about $50 million for fiscal 1999. "Organic meat has the potential to be as large or larger than our current business, which is dominated by our dairy sector," Siemon says.

Growing membership poses challenges
Membership growth is another challenge. In 1999, it took on 51 new farms in its dairy division alone. For larger organizations, that would be just one month's list of new members. But supply and demand are critical if producers are going to be guaranteed payment of several dollars a hundredweight more than the going local milk price. "Size is the challenge we've had, and there's a world of farmers out there who need someone to work for them," Siemon says. "We're going into the future boldly. Maybe, someday, we'll look back and say we got too big. But I believe in systems and foundations, and we've laid ours out here at the cooperative."

"I couldn't have believed it would get this big this fast," adds Peters. "A 50- to 70-percent increase each year! The co-op does give many more farmers a chance to do organic. We've only lost two of our original seven farmermembers. A few more would have disappeare if the co-op hadn't existed ." Preserving farms, saving the environment and making a closer connection with the people who grow the food supply are the reasons behind consumers' willingness to pay more for organic dairy products, says Marquez. But the No. I reason organic sales continue to climb is health. Organic dairy sales account for less than onehalf percent of the 20 billion pounds of milk marketed annually in the United States. Yet Marquez and market analysts project the organic dairy niche can be expanded to at least 4 percent of milk sales. Others predict it can grow 10 fold in the next few years. That's because of the estimated 52 million Americans - or about 20 percent of the population - who are part of the "new green mainstream." "When one of these consumers looks at our product and sees that it costs 50 cents or a dollar more, they decide that they can spend a little bit more for their health and the environment," says Marquez. According to the "Natural Foods Merchandiser," an industry trade publication, organic milk sales hit a record high in 1996, followed by a lull in 1997 and yet another record-breaking year in 1998. Although organic dairy sales seem to be soaring, it's still a niche industry with plenty of room for growth.

Giving consumers an option
Between 1996 and 1997, organic ice cream sales grew 292 percent and organic cheese sales jumped 153 percent, according to the Organic Trade Association's (OTA) first organic manufacturer market survey, released in 1998. Forty-six percent of sales in the organic dairy category came from sales in mainstream retail markets, and OTA reported that in the conventional supermarkets' organics category, organic dairy product sales have been exceeded only by canned/jarred products. Clearly, new distribution channels for organic dairy products -although not necessarily increased sales at the local natural foods cooperative - are creating the impressive growth, says Siemon.

"We have a wide spread of consumers, from the mainstream to vegetarians," he says. "Organic sales at the natural foods stores were doing well, so now huge chain stores are making room for our products and not charging all the huge slotting fees they normally would. But we're not robbing from the natural foods stores. Rather, we're expanding the customer base." Siemon sees it as giving consumers an option - whole milk, organic milk, milk in a re-sealable consumer package. And that remains, too, the mission of the cooperative: to give market support for sustainable agricultural practices that are beneficial to the environment. "CROPP's membership consists of small- and mid-sized family farmers developing creative and sustainable solutions to farming and financial challenges," adds Marquez. "Many of our members have used organic methods for many years and are now in the forefront of organic farming education. They sponsor field days, speak at seminars, work with legislators and continue to experiment on their own farms with methods that work in cooperation with nature respecting the interdependency of all life."