C0MMENTARY
USDA Rural Development programs help fuel co-op movement
Rural Americans looking for an effective business structure to process and market their products or to acquire goods and services have long looked to cooperatives. As part of its mission to create new opportunities for rural Americans, USDA Rural Development is striving to stimulate the creation of cooperatives that can help boost the rural economy and ensure that family farmers remain a dominant link in our nation's food production chain.
Since the 1920s, USDA has offered technical assistance to those looking to start or improve cooperatives. Through research and education products (including this magazine), USDA has also done much to increase public awareness of cooperatives.
USDA is expanding the ways in which it can provide financial backing for cooperatives. Through the Business and Industry (B&I) Guaranteed Loan program, USDA Rural Development can help finance cooperatives engaged in value-added processing and marketing. Likewise, USDA~ Rural Business Enterprise Grant (RBEG) and Rural Business Opportunity Grant (RBOG) programs can provide seed money for fledgling coops.
Under the B&I program, a cooperative pursuing a value-added project first seeks financing from a local lending institution, which can then ask USDA to guarantee a portion of the loan; the percentage of the loan covered by the guarantee depends on the size of the loan.
Our Cooperative Stock Purchase Program works much the same, but in this case, family farmers who want to borrow money to buy membership shares (or stock) in a new, value-added cooperative can receive a USDA guarantee for up to 80 percent of the loan. Interest rates are negotiated between the lender and the farmer, and may be fixed or variable.
For a real-life example of how our programs are promoting new co-ops, turn to page 4 of this issue and read about how USDA helped turkey producers in Michigan open their own processing plant. These growers tamed adversity into opportunity when faced with the sudden closure of the processing plant which had been buying their flocks. USDA helped kick-start the coop with technical assistance and a $95,000 RBEG to fund the co-op's feasibility study. Eight of the 15 farmers who started the co-op also used our Co-op Stock Purchase Program to secure USDA financial backing for their membership, investments. In all, USDA backed nearly $2.3 million in loans issued by a local Farm Credit bank in Michigan.
Our cover story examines the surge in activity among co-ops seeking to tam corn and other crops into ethanol. USDA has also been active in t1tis arena, both with technical assistance and financial support. As I write this, USDA has just provided a $95,000 RBOG to a cooperative of grain growers in Western Kentucky, who will use the money to study the feasibility of starting an ethanol production facility. USDA also just approved a $10 million B&I guaranteed loan to purchase machinery for a new a dry-mill ethanol plant in Craig, Mo., owned by a farmers' cooperative. USDA also provided technical assistance to help launch a new co-op-owned ethanol plant in Macon, Mo., the state's first. Both plants are discussed on page 12.
The future of ethanol as a clean, bio-fuel additive for gasoline appears to be bright and could help stabilize corn prices. Our story quotes one expert who believes that the ethanol industry could soon consume 600 million bushels per year, which he says could raise corn prices by about 35 cents per bushel. The ethanol industry has been on a roller coaster ride during the past decade, its fortunes rising or falling depending on factors such as the price of foreign oil and various financial incentive programs. Prospects for the ethanol industry are much improved, but when it comes to the economics of energy, there is always a high element of riskTo learn more about any of our programs, visit our website at: www.rurdev.usda.gov and click on the "Rural Business-Cooperative Service" button. Or contact your USDA Rural Development state office, which you can reach by dialing (202) 720-4323.
Jill Long Thompson
Under Secretary, USDA Rural Development