Turmoil of early 2oth century led to USDA role in assisting co-ops
From the Northwest comes Tillamook cheese (in this 1940s-era photo), long-cherished by cheese lovers. USDA’s Cooperative Services program has produced numerous reports and studies over the years to help maintain a strong co-op presence in the dairy industry. All photos for 75th Anniversary section are USDA archive photos, except where noted.
Patrick Duffey
USDA Rural Development
The federal government has had a long relationship with agricultural cooperatives, viewing cooperatives as part of a national farm policy aimed at fortifying the income of agricultural producers. But it took until the 1920s for a formal policy to jell. The 69th Congress approved, and President Calvin Coolidge signed, the Cooperative Marketing Act on July 2, 1926, two days ahead of the nation’s annual observance of Independence Day. By its passage, “helping farmers to help themselves” became national policy.
This summer marks the 75th anniversary of that historic legislation as still another new administration finds cooperatives a useful part of its national farm policy. During a special anniversary observance at the U.S. Department of Agriculture in Washington, D.C., on June 28, Secretary of Agriculture Ann Veneman spoke of the importance of cooperatives to the rural economy.
“Our mission provides some valuable tools in the food and agriculture industry’s toolbox to help them better compete in today’s changing food system,” Veneman said. “Seventy-five years after its creation, Cooperative Services recognizes these changes, and our employees are playing a major role in helping promote the opportunities that lie ahead in what promises to be a world of opportunity.”
In the face of several years of declining commodity prices for farmers, some farmer-owned cooperatives have taken a severe economic hit. Mergers and consolidations have been the order of the day among cooperatives that are faced with the declining number of producers and rising energy-based and other costs.
This special section of the magazine reflects on why and how USDA supports cooperatives as an effective farm policy tool that bolsters the income of the nation’s food producers and why that support for cooperatives has continued for 75 years.
What the law says
The 1926 law directed the secretary of agriculture to form a Division of Cooperative Marketing in USDA’s Bureau of Agricultural Economics. Seventy- five years later, an expanded and more refined program supporting agricultural cooperatives is contained within the Rural Business-Cooperative Service (RBS) of USDA Rural Development.
While the department’s cooperative assistance program was formalized in 1926, it was preceded by two studies. Both are chronicled by Wayne Rasmussen, USDA’s official historian, in his 1991 book, “Farmers, Cooperatives and USDA: A History of the Agricultural Cooperative Service,” which also traces the historical development of cooperative activity in the United States.
In 1901, the department’s first comprehensive study of cooperatives was led by George Holmes, a statistician in the Division of Statistics. He tied cooperative failures to the lack of sufficient capital, cooperatives’ need for more experienced business managers and a poor credit policy. Although Holmes’ 432- page manuscript was never published, it “provided our best picture of agricultural cooperatives as they existed at the turn of the century,” said Rasmussen.
The Commission on Country
Life, appointed by President
Theodore Roosevelt, issued a report
in 1908 that said the greatest need of
country life was “effective cooperation
among farmers, to put them on
a level with the organized interests
with which they do business.” The
commission further proposed formation
of a cooperative farm credit system.
It took until the Federal Farm
Loan Act of 1916 for Congress to
create such a system.
Eventually, most of the commission’s recommendations were adopted. Agriculture Secretary James Wilson’s administration initiated the first specific cooperative research project, which focused on cotton handling and marketing.
Unlike other sectors of the national economy, agriculture was suffering from over- production after World War I. The post-war period of American life, from 1920 to 1932, was one of considerable change, such as the switch from horse power to motor power. The rapid business consolidation also applied to farmers. It brought on what one historian called a “cooperative explosion.”
Knapp’s observationsA historian and author of numerous books on agricultural cooperatives, the late Joseph Knapp was administrator of USDA’s Farmer Cooperative Service (a forerunner of today’s RBS Cooperative Services program) from 1953 to 1966. In his book, “The Advance of American Agricultural Enterprise,” Knapp said the most important factor during this period was “the severe post-World War I depression which led to chronic agricultural distress in the face of general business recovery.”
He listed several events which led to a farm price collapse in 1920: government decontrol of railroads, which led to higher freight rates on agricultural traffic; the Federal Reserve Board raised discount rates to curb inflation; the War Finance Corporation, which had financed agricultural exports during World War I, was discontinued; and the government halted its support of wheat prices.
Record farm prices at the start of 1920 spurred increased production which caused prices to plunge. Farm index prices which stood at 219 in January collapsed to 140 in December, Knapp said. Farm commodity cooperatives strong enough to control prices were advocated as an approach to solving farm problems such as this. The legal status of cooperatives was clarified when Congress passed the Capper-Volstead Act of 1922. It gave farmers the right to form cooperatives without fear of antitrust action.
“The law protected cooperatives as they organized but never gave cooperatives the right to establish monopolies with complete immunity from antitrust laws,” Rasmussen noted. E. G. Nourse, a leading agricultural economist of 1920, felt cooperatives would offer a competitive yardstick in the business world – a measure against which to judge traditional investorowned businesses. That yardstick philosophy is still being used today to advocate cooperatives.
Significant cooperative developments occurred during this period. In 1916, the National Milk Producers’ Federation began playing a key role in advocating the need for legislation to assist cooperatives. The National Council of Farmer Cooperatives Marketing Association (predecessor of today’s National Council of Farmer Cooperatives, or NCFC) was formed in 1922, the American Institute of Cooperation (now part of NCFC) was organized in 1925 to promote cooperative education, agricultural colleges were devoting more attention to cooperatives in their research work and courses of study, and USDA’s Extension Service and the American Farm Bureau were actively promoting formation of cooperatives. Other leading farm organizations, such as the National Farmers Union and the Grange, played active roles during this early period of cooperative activity.
By 1925, “the monopoly-control philosophy of cooperative marketing had lost adherents; cooperative leadership was shifting to marketing efficiency as the primary objective of cooperative marketing,” Knapp wrote.
Is the Act still effective?
So why is this law still significant to cooperatives 75 years later? The act widely interpreted the term “agricultural products” to cover agricultural, horticultural, viticultural, dairy, livestock and related products, those from poultry and bee raising, edible products of forestry, “and any and all products raised on farms and processed or manufactured products thereof, transported or intended to be transported in interstate commerce and/or foreign commerce.”
The law’s Section 3 covered services
to associations, federations or subsidiaries
of agricultural producers
“engaged in cooperative marketing of
agricultural products, including processing,
warehousing, manufacturing,
storage, cooperative purchasing of farm
supplies, credit, finance, insurance and
other cooperative activities.”
The new division’s duties – as outlined in seven subsections – reflected activities still conducted by today’s RBS (see box, page 10).
Wider coverage
RBS is part of USDA’s Rural Development mission area, which was created in 1994 when USDA consolidated rural economic programs that has previously been scattered among various agencies. RBS encompasses the former Agricultural Cooperative Service and some of the economic and business development programs of the former Rural Development Administration and the Rural Electrification Administration.
While agricultural marketing and
farm supply cooperatives remain the
primary focus of USDA’s Cooperative
Services program, its educational
materials are widely used by all types
of cooperatives.
Cooperatives are often a mainstay and a major employer in rural communities. By one estimate, nearly onethird of the population belongs to some type of cooperative. Application of the cooperative business structure is virtually limitless. By working together for their mutual benefit in cooperatives, rural residents are often able to reduce costs, obtain services that might otherwise be unavailable, and achieve greater returns for their products.
Although the concept of farmerowned cooperatives has been around for generations, there has been a renaissance in the past decade as farmers try to stay afloat by getting a bigger piece of the food production chain, according to Mark Drabenscott of the Center for the Study of Rural America at the Federal Reserve Bank’s Kansas City branch.
From 1997 to 2000, the combination of adverse weather and declining sales led to retrenchment by many cooperatives. Some have been selling selected assets, purchasing private businesses to strengthen core facets of the cooperative business, or consolidating or merging with other cooperatives.
More producers are forming closed agricultural cooperatives to produce products such as beef, bread, turkey, sugar or pasta to glean more from the consumer food market, or ethanol fuel extenders to stretch fuel supplies, protect the environment and provide a livestock feedstock.
