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Hallmarks of the ‘90s: Merger-Mania and Co-op Fever

Lack of Dairy Consolidations Hurts Farmers

After 31 years as a director, including 15 years as chairman at Wisconsin Dairies Cooperative, Herb Selbrede laments the lack of consolidations among dairy cooperatives in his state. "It [industry consolidation] should have happened," he says, but divisions in the country and among directors and managers prevented it. Some farmers think competition keeps prices up, he says, "but competition also costs you a lot of money." So both in the country and political arena, producers are still failing to reach a consensus so they can speak with a unified voice, he adds. "The one thing that has helped us over the years with mergers has been that we share information. We lay all issues on the table so everyone knows what we're doing."

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Dairy farmers Clark and Joy Vilter, members of Golden Guernsey, Milwaukee, Wis.
USDA Photo by Ken Hammond




Co-op Restructuring Lead Issue for I 990s

Cooperative directors and managers believe cooperative restructuring is the single largest issue facing them, according to a survey conducted at the Arthur Capper Cooperative Center. David Barton, the center's director, says it is clearly the most important business and economic issue co-ops will face in the 1990s. Research at Kansas State University indicates that the most efficient and profitable size for cooperatives in Kansas is much larger than existing sizes. Substantial economies of scale appear to exist up to (at least) sales of up to $30 million. The typical current operation has sales of $7 million.
        Politics is the root cause for the predominance of small cooperatives, Barton said.
        "Cooperatives will not achieve their full potential to provide economic benefit to patrons until patrons are convinced and agree that this benefit is achievable and more important than alternative benefits," Barton said.

Social Issues Challenge Co-ops

Growing activism in the United States over social issues such as the environment, animal rights, food safety and employee health are challenging cooperatives, Jimmy Loftis, member relations director for Gold Kist, tells participants at the 1990 Eastern Member Relations Conference. He cites these potential danger areas for cooperatives: pesticides on fruits and vegetables; antibiotics and hormones in livestock production; hazardous waste disposal; employee health concerns - including injury claims from repetitive motions in processing; and protests at broiler houses, testing laboratories and feedlots by animal rights advocates. "What is your plan? How will you respond?"

Emerging Technology to Impact Dairying

Members should take a broader view of emerging technology that will be a "mover and shaker" of our economy long after we're gone, Dairylea President Clyde Rutherford cautions.
        These new technologies will be a predominant force in the 1990s, he says, stressing that "pieces of this technology may be the only answer to remaining competitive in an era of upsizing farms," he said.

Growth on NCBA’s 75th Horizon

At age 75, the National Cooperative Business Association (NCBA) has gained stature in four areas: 1) government affairs; 2) membership; 3) international cooperative development; and 4) domestic cooperative development. Chairman Rod Nilsestuen characterizes NCBA’s role as being the "common ground for joint action for all cooperatives. We provide services that a single cooperative or association can't ... build relationships with professionals in other organizations and thereby broaden our membership base and corresponding income."
        President Robert Scherer details NCB’:s diverse interests, which include supporting cooperative financial institutions and promoting cooperative development in agriculture, housing, financial services, health care and education. NCBA is helping shape national standards for organically grown produce certification and exploring services for urban cooperatives in child care and health care and initiating a trade and business development center for Eastern Europe.

Indiana Co-op, Countrymark Launch Joint Venture

After a year of common management, Indiana Farm Bureau Cooperative Association and Countrymark Inc. have formed a joint venture for their regional cooperative farm supply and grain marketing interests. This action has been taken in response to tight economic conditions in agriculture. The coops had combined sales in 1990 of $2.4 billion and net income of $9.55 million. Total assets are $428.4 million and long-term debt is $67 million. In its Ohio-Michigan territory, Countrymark had 117 member cooperatives and 22 farm centers. IFBCA had 57 member cooperatives in Indiana. Eight member cooperatives belonged to both regionals. Real economies of scale resulting from the merger will occur in fiscal 1992.

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Dave Studebaker, Haven Cooperative, Haven, Kan.
USDA Photo by Dan Campbell



Squeezing More Profit from Sugar Beets

An $18 million, one-of-a-kind operation for extracting sugar and other products from sugar beets has been built at Renville, Minn., by Southern Minnesota Beet Sugar Cooperative. It processes 175,000 tons of pure beet sugar, 82,000 tons of beet pulp pellets and 80,000 tons of beet molasses annually. The pellets are fed to dairy and beef cattle and sheep while beet molasses is used for the pharmaceutical and liquid feed businesses. In looking ahead, President Irvin Zitterkopf observes: "The future of the cooperative and the industry in this area rests on the continued willingness of growers and employees to use these changes."

Merger Equals Survival in Indiana

Dean Kaesebier, La Porte County (Indiana) Farm Bureau Cooperative's manager of 12 years, has guided his local cooperative's combination with two neighboring co-ops during a 20-month period. As a result, sales have tripled to $56.5 million, with $36.1 million of that amount derived from grain marketing.
        "The merger affected patrons, employees and the cooperatives differently," he says. "In today's market, merger becomes a matter of survival." He offers these merger tips: blend employees by moving some from one cooperative to another; avoid getting entangled in small details and be sure to force the right thing. Two cooperatives can't merge unless one agrees to give up control, he notes. Branch offices must be staffed with capable people who have power to solve problems. That keeps solutions closer to the members being served.

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Oliva Hernanez, second from left, and her daughters, who were organizing a dairy goat cooperative in Redford, Texas. 
USDA Photo by Larry Rana.






Colorado Co-op Grows Rapidly

Consolidations and a merger have put American Pride Co-op at Brighton, Colo., on the crest of a wave that's building a $20-million operation with 6,000 members. The co-op's sales volume has nearly tripled in just four years. Al Shively, who has managed the Colorado cooperative since 1987, is also a director and officer of Farmland Industries. A competent staff is one of the keys to absorbing businesses, Shively says. "I'm not afraid to hire good people. It makes for a good cooperative. That's why we have five former local managers from elsewhere in the Farmland system. Each manages one of our divisions. They bring in a lot of ideas and expertise."

Farmland Acquires Union Equity

Union Equity Cooperative Exchange (EU), the Oklahoma-based grain marketing cooperative, has become the grain division of Farmland Industries and boosted unified sales to $4.7 billion. Far-Mar-Co, Farmland's grain marketing subsidiary until 1985, had previously been sold to EU. All of EU's 434 member cooperatives were also members of Farmland. Due to rapid changes in the grain industry, such as the federal government's exit from the grain storage business, EU had cut its workforce 40 percent and closed seven terminals.

Qualla Markets Cherokee Crafts

Qualla Arts and Crafts Mutual, operating on the Cherokee Indian Qualla Boundary reservation in North Carolina, markets the crafts produced by the Eastern Band of Cherokees. Sales in 1991 exceeded $750,000, an important source of income for the co-op's 300 members.

1990p12.GIF (83957 bytes) Rancher Ken Dillingham, Hawaii Cattle Producers Cooperative Association, Hilo, Hawaii.
USDA Photo by Dan Campbell
Doc Throlson, North American Bison Cooperative, New Rockford, N.D.
USDA Photo by Dan Campbell
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New Co-op Center in North Dakota

A center for cooperatives at North Dakota State University at Fargo has been named after the late U.S. Sen. Quentin Burdick, a strong supporter of cooperatives and rural issues. David Cobia, professor of agricultural economics at the university, is acting director. It will serve as a resource center for cooperatives and members and work to increase understanding of cooperative businesses and their economic role.

CRI Co-op Unites Dairy Interests

A member-owned holding company, Cooperative Resources International, has been formed by two major Wisconsin cooperatives associated with the dairy industry. The restructuring by 21st Century Genetics and Wisconsin Dairy Herd Improvement Association will benefit more than half of the state's 30,000 dairy producers by controlling costs and improving services. It's the first link between a herd improvement association and a provider of artificial insemination services.

Packing Shed a Boon to Vegetable Growers

Opening a new $100,000 packing shed in Petal, Miss., was a big step for Indian Spring Farmers Association in 1993. Annual sales for the 40-member vegetable growers cooperative, formed in the 1960s, are expected to hit $1 million in a few short years. The cooperative had been field packing or renting space in a state-owned packing facility. Its first contract for a value-added product packed with new equipment was with a Minnesota based food service company for weekly shipments of 5,000 bags of two-pound cut and washed collard greens. It is hoped that cooperative such as this can help preserve black farmers in the South.

Hawaiian Co-op Took 25 Years to Brew

After 25 years in the brewing stage, competing coffee growers on the island of Hawaii have merged, forming the new Kona Pacific Farmers Cooperative in order to gain more market clout and possibly stabilize or reverse a trend of diminishing market share. Growers in both cooperatives produce gourmet Kona coffee and macadamia nuts. The merger was prompted in part by steep drops in coffee and macadamia nut prices. The board now requires new members to sign a marketing agreement to deliver all their crop to the cooperative.

Rural Women Gain from Craft Co-op

The Watermark Association of Artisans operating out of Camden, N.C., is an example of what the rural poor can accomplish through a cooperative approach to business and life.
        The craft cooperative has carved an ever-widening market niche in a highly competitive crafts trade and provided training to members to improve or learn craft-making skills. Hundreds of rural women in North Carolina gained not only a source of income but also a new sense of accomplishment. Formed in 1978 by 35 women who pooled efforts to sell crafts, the cooperative had grown to 750 by 1993 and their products are being sold around the world.

Bergland: Spread Rural Job Base

Instead of states fighting each other for "the newest manufacturing plant and its 10,000 jobs, America should be looking to create a new job at 10,000 different places," says Bob Bergland, president of the National Rural Electric Cooperative Association and former U.S. secretary of agriculture. Speaking at the Eastern Member Relations Conference, Bergland says if 10,000 firms which currently employ two people each have the economic incentive to expand to three employees each, the rural economy of the entire nation benefits, not just one lucky town or county that wins a new manufacturing plant. It will take a private and public partnership to create conditions that pave the way for a stronger rural economy, he says.

Co-op Fever Erupts on Northern Plains

There's a fever erupting on the Northern Plains that's being driven by a major resurgence of producers seeking to add value to their crops and livestock via cooperatives.
        They represent attempts to answer problems identified during the agricultural downturn of the 1980s. One of the early successes was Dakota Growers Pasta Co., formed by Northern Plains durum wheat growers. Members invested an average $14,000 in risk capital, demonstrating their commitment to the cooperative. The new processing plant - featuring the cooperative's own brand name of pasta products - was met with widespread success in the retail marketplace. The pasta co-op has sparked the creation of other cooperative efforts, such as the North American Bison Cooperative, Northern Corn Processors Cooperative and Northern Plains Organic Cooperative.

Minnesota Co-ops Spark Rural Resurgence

Bumper crops from the 1994 season hold ever-greater promise for rural communities in Minnesota because of the resurgence of new cooperatives which can absorb the production. Instead of simply selling the raw materials their crops represent, producers are forming value-added cooperatives to generate an increasing share of the consumer food dollar. Agricultural economists say the plants are part of a new wave that will reshape the food system.
        Farmers and rural residents have invested at least $1 billion of new capital in new plants at various stages of development in Minnesota, Wisconsin and the Dakotas. They range in size from a $245 million corn sweetener plant planned for the Red River Valley to small marketing co-ops for organically grown vegetables in Wisconsin and to process and market farm-raised venison in Minnesota. Rural communities are benefiting from the economic stimulus new cooperatives generate.

Consolidations Drive New Foremost

The number of Wisconsin dairy farms has plunged from 143,000 in 1950 to 30,150 in 1992. This trend set the stage for the consolidation of Wisconsin Dairies at Baraboo and Golden Guernsey at Milwaukee to form the new Foremost Farms USA. The new cooperative has 5,500 members and sales of $778 million. Cheese production accounts for nearly 72 percent of Wisconsin Dairies' sales. Subsequently, the Mid States region of Associated Milk Producers Inc., merged with Foremost.

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Ben Burkett, Indian Springs Farmers Association, Petal, Miss.
USDA Photo by Ken Hammond

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Velma Cardwell, Cabin Creek Quilters Cooperative, Charleston, W.V.
USDA Photo by Ken Hammond

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Sharon Begay, president of Dine Be Iina (Lifeway of the People), a Navajo craft cooperative in Arizona.
USDA Photo by Ken Hammond

Co-ops Urged to Pursue Food Processing Projects

A Minnesota agribusiness manager dreams of building a cooperative that ranks among the nation's major food marketers. Lamenting the lack of significant cooperative presence among major U.S. food companies is Joe Famalette, president and chief executive officer of American Crystal Sugar Co. "Why don't growers own more of the U.S. food chain? Agriculture in America has to change and the sooner the better. ...We are not just growers and producers. We are food processors," he asserts.

ValAdCo: Bringing Home the Bacon

A swine breeding cooperative, ValAdCo, which adds value to corn crops, was opened in Renville, Minn., with 38 grower members. Its first farm, a 1,250-sow operation, began selling barrows and gilts in 1993. A 2,500-sow multiplier unit was added 1995. The two farms were expected to produce 76,000 animals annually. ValAdCo and Cooperative Country Farmers Elevator later constructed a 10,000-ton-a-year feed mill, with potential to expand. It provides feed for a new 2-million-hen egg-laying facility owned jointly by the elevator and a private firm.

California Gold Brand Pays Off

After years of supplying the market with bulk dairy products, the board of California Cooperative Creamery at Petaluma entered into the branded cheese market with its "California Gold" label and found a needed spark to rejuvenate the cooperative. After a decade of limited growth, membership climbed from 320 to nearly 500 and sales jumped from $220 million to $450 million. Its cheeses are now found in stores around the state and even in Japan and Mexico.

Blue Diamond Still Going Global

Walt Payne advises cooperators to continue to "think global." As the new chief executive officer of Blue Diamond Growers, he knows what that entails, since his cooperative exports almonds to 100 countries. "Each market has a unique development story. You really can't develop a cookie cutter approach to export market development," Payne says. "You must do your homework to identify your market opportunities and then channel what will work for you in that country."

California Co-ops Celebrate a Century

Two California marketing cooperatives marked their 100th birthdays during the 1990s. Danish Creamery Association (DCA) at Fresno is the oldest continually operated cooperative, and its still going strong, with 1995 sales of $210 million. Butter and dried milk are marketed by DCA. It has a majority interest in Challenge Dairy Products Inc. Also turning 100 is the Sunkist Growers citrus cooperative. From humble roots in 1893, with 60 struggling citrus members, Sunkist has blossomed into a $1-billion-1-year cooperative with 6,500 members in California and Arizona.

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Elsie Martinez, Ramah Navaho Weavers Association, Ramah, N.M.
USDA Photo by Ken Hammond





United Sugars Eyes Market Clout

Three Upper Midwest sugar beet grower cooperatives have formed United Sugars Corp., a marketing agency in common. It will market 100 percent of the sugar the co-ops produce in seven factories. Partners are American Crystal Sugar, MinnDak Farmers Cooperative and Minnesota Beet Sugar Cooperative. Other than for sugar marketing, each cooperative remains autonomous. United has become the nation's fourth largest sugar supplier, with annual marketings of about $800 million.

NCBA Forms Development Institute

National Cooperative Business Association has created the CLUSA Institute for Cooperative Development to act as a catalyst for building and sustaining partnerships among its members and other organizations to promote economic development through cooperatives in the United States and overseas. The mission seeks to replicate successful cooperatives.

Tree Top Sprouts Record Earnings

Tree Top, the apple and pear marketing cooperative based at Selah, Wash., is marking fiscal 1996 with record earnings of $49.4 million, topping its previous 1995 record of $34.6 million. Total proceeds include $3.5 million in profit, which reflects the earnings members receive above the average cash market. Annual sales have dipped from $229.9 million in 1995 to $218.4 million in 1996 as did tonnage, although supply was greater than anticipated. For the first time in many years, the cooperative received more than 50 percent of the Washington state apple crop.

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Kerry Kennedy, production manager of the Culpepper (Va.) Farmers Cooperative.
USDA Photo by Ken Hammond





Co-ops Cautious Toward Ethanol Fuel Projects

Despite the general enthusiasm for renewable energy from the heartland and cooperative involvement in the subsidized ethanol industry, the pace has been slow and cautious. The St. Paul Bank for Cooperatives, which has been assessing the viability of ethanol projects for 15 years, finances only a few. Some 42 plants produced 1.54 billion gallons of ethanol in 1996, up substantially from the 1979 production of 20 million gallons.

Ocean Spray Cranberry Opens Research Center

An agricultural research center with all the components of an agricultural experiment station has been opened by Ocean Spray Cranberries at its new headquarters site at Lakeville-Middleboro, Mass. The new center enables Ocean Spray to conduct flexible, problem-solving research in seeking solutions to problems facing today's cranberry industry. Since its founding, Ocean Spray had been based at historic Plymouth, Mass.

Hedge-to-Arrive Contracts Snare Some Grain Co-ops

Hedge-to-Arrive (HTA) contracts have become a nightmare for a number of producers and grain cooperative managers in 1996 and beyond. The price risk associated with HTA contracts is not a problem in a normal post-harvest grain marketing pattern. But sharp, unexpected grain price increases in the spring and summer of 1996, however, caught many producers and cooperatives in speculative market positions. Failure of both parties to honor HTA contract conditions is often leading to litigation in the courts. Some cases are still pending.

Marketing Agreements Must Be Enforced

A cooperative must enforce its member marketing agreements to protect its reputation in the marketplace and the interest of loyal members, according to Frank Kronynenburg, former chairman of the California Canning Peach Association. Members must look at factors other than price, such as the stability of the market created by the cooperative and improved terms of trade.

Sun-Diamond Growers Settles Litigation

A $13.4 million settlement was reached between Sun-Diamond Growers of California and its federated cooperative members, Sun-Maid Raisin Growers and Diamond Walnut Growers, regarding overpayments disclosed in 1985. Funds necessary to accomplish the settlement will be paid by various insurance companies.

Harvest States lntroduces 'Harvest Mark' Pooling

A new grain pooling plan has been unveiled by Harvest States Cooperatives of St. Paul, Minn., during a series of meetings with 60 select local elevator managers and President Allen Hansen. Pools are used as a vehicle for handling the risks in grain marketing because they enable local managers to cooperate on a cost-plus basis in the same way they now handle government grain.

Co-ops Cotton to Blue Jeans

In a vivid example of how U.S. cooperatives add value to raw farm products, each year, 28 million pairs of Levi Strauss jeans are stitched together from rolls of denim produced by Plains Cotton Cooperative Association in Littlefield, Texas. The denim stems from 120,000 bales of billowy white cotton that flows into the cooperative's textile mill, which is contained under one huge, 10-acre roof.

'Dough' Expectations Rise in Colorado

Both business expectations and bread dough were rising in Longmont, Colo., as 227 wheat growers have formed the Mountain View Harvest cooperative to purchase Gerard's Bakery and transform their crop into a value-added product. Nearly half of the more than 500 farmers who attended a series of 60 grower meetings opted to invest in the cooperative.

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Steve & Margo Sayre family, Dodge City (Kan.) Cooperative Exchange.
USDA Photo by Dan Campbell





Florida Co-op Juice Brand Growing

Citrus World's total juice products represent $450 million a year in sales and its Florida's Natural juice brand provides it with 18-percent share of the not-from-concentrate juice market, which ranks it second in the nation. The 65-year-old cooperative's orange and grapefruit juices are now exported to 50 countries.

California's Hmong Refugees Form Co-op

Once refugee tribesmen from Southeast Asia, Hmong farmers have joined forces in California and found a possible route to economic self-sufficiency via a fresh vegetable marketing cooperative. A five-story historic building in Fresno provides office space for the Hmong-American Cooperative and Hmong Multicultural Center. USDA funds totaling more than $121,000 will help the Hmong farmers with cooperative education.

Beef Co-op for Cowboys

Faced with falling livestock prices and corporate inroads in the packing industry, hundreds of cattle producers from 23 states have formed a new cooperative: U.S. Premium Beef. The co-op purchased a major interest in a beef-processing company owned by Farmland Industries, and is pursuing larger profits with a value-added strategy. "This has never happened before," says Tim Ryan, a Kansas director. "Cattle producers have never before bought into a packing company or became part of a vertically integrated system where they own a piece of everything from conception to consumption."

1990’s Legacy: Tidal Wave of Changes fop Co-ops

The impact of rapid changes in agriculture - reduced farmer numbers but consolidated acreage among survivors and higher crop yields resulting from new technologies - created profound changes in the 1990s. This was seen nowhere more clearly than in the number of major cooperative mergers and consolidations.

        Two major dairy cooperatives with coast-to-coast connections were created. Land O'Lakes (LOL), Minneapolis, Minn., stretched east to merge with Atlantic Dairy near Philadelphia and then extended itself westward to absorb Dairymen's Cooperative Creamery Association at Tulare, Calif. Both of those co-ops had manufactured LOL butter for years. An even larger co-op was created when Dairy Farmers of America, based at Kansas City, was formed by the merger of Mid-America Dairymen, the Southern Region of Associated Milk Producers Inc., Milk Marketing Inc. and Western Dairymen. It later added California Gold.
        Southern States Cooperative of Richmond, Va., stretched to the Midwest to acquire Michigan Livestock Exchange. It then bought the seven-state farm supply, grain, peanut and cotton business and 100 retail stores from Gold Kist in Atlanta, Ga. Goldkist will now concentrate on the poultry business. CENEX and Harvest States merged to create the nation's largest cooperative. This was preceded by a feed joint venture between CENEX and LOL An 11-year-old agronomy joint venture between LOL and CENEX continues. Farmland Industries and CENEX Harvest States subsequently formed a petroleum marketing and distribution venture called Country Energy LLC.
        LOL acquired Countrymark Inc.'s feed and fertilizer assets in Indiana, Ohio and Michigan. Countrymark then formed a grain joint venture with Archer Daniels Midland, similar to an earlier ADM/GROWMARK alliance. In view of Countrymark's earlier joint feed venture with the FS supply division of GROWMARK, LOL will now supply feed to the FS member companies in Illinois, Iowa and Wisconsin and the Canadian province of Ontario. The FS Services feed employees will join LOL which leased the mills. Under the new alliance, GROWMARK will provide petroleum supplies not available from Countrymark to LOL member cooperatives in Indiana, Michigan and Ohio, but LOL retains its fertilizer business, which earlier had been distributed through a joint-venture with Countrymark.
        GROWMARK and LOL have also developed an alliance in seed. Farmland Industries acquired the assets of FS Services after an earlier feed joint venture with its Arkansas-based neighbor. Farmland developed a similar feed manufacturing and marketing alliance with MFA Inc. in Missouri, and created a grain joint venture with Con Agra. Statewide regional farm supply cooperatives serving Tennessee and Alabama were also exploring an alignment.
        Meanwhile, Pro-Fac Cooperative of Rochester, N.Y., acquired Curtice Burns, its joint venture partner in the fruit and vegetable processing industry, then changed the name of the now wholly-owned subsidiary to Agrilink Foods. It also acquired Dean Foods' vegetable processing division. It is in the process of acquiring the frozen foods assets of Agripac Inc., a Salem, Ore., food processing cooperative. And on the banking horizon, St. Paul Bank has entered into merger discussions with CoBank, Denver, Colo.
        The first decade of the next millennium will be hard pressed to match all this changes

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