Exploring a greater role for
agricultural cooperatives in
sustaining rural living

By Thomas W. Gray,
Ph.D., Rural Sociologist,
USDA Rural Development/ RBS
thomas.gray@usda.gov

gricultural cooperatives have a long history of helping farmers achieve their goals. For generations, they have enabled U.S. farmers to address recurring concerns: low crop and livestock prices, the high cost of farm production supplies and the need to expand markets to absorb surplus production. Historically, individual farmers have had to contend with these dynamics while competing in a marketplace with much larger sometimes global firms.

While cooperatives have served as vehicles for collective action to develop markets and to improve the economic viability of farmers, the strategies used to achieve gains have tended to follow, and/or deepen, paths leading to an industrialized system of agriculture.

The predominant development trajectory of U.S. agricultural production, historically, has involved an increasing use of biological, chemical and mechanical technologies. While this development path has resulted in a massive expansion in production, it has also created conditions that made it impossible for many thousands of farm families to stay in business.

Willard Cochrane of the University of Minnesota characterizes this dynamic as akin to being on a treadmill. As individual farmers have increased scale to increase farm revenues, total quantities of product released to the market have increased and prices while fluctuating have on average remained stable or declined. Many farm families, unable to meet increasing costs of production and lower farm prices, have thus had to leave farming.

Agricultural cooperatives have had to contend with these as well as other socio-economic pressures. Fewer farmers means fewer co-op members. Large-scale production has allowed some farmers to go direct to terminals and bypass local cooperatives. Fewer, larger farms, low prices and keen competition have made the economic services of many cooperatives redundant. Many have succumbed to bankruptcy, including some of the nation’s largest co-ops in the past few years.

Some co-ops have responded by diversifying into other product-revenue centers, expanding geographically (including globally) as well as pursuing horizontal and vertical integration.

These survival strategies frequently adopted in a crisismanagement mode have resulted in many cooperatives taking on a new shape as large, complex organizations that are far removed from the individual farmer.

As farm numbers decline, so do rural communities
The result of these strategies has been larger farms, fewer farmers and fewer, but larger, cooperatives. As farms and cooperatives go out of business, local communities struggle for continued vitality with fewer people, fewer families and fewer businesses. Tax bases erode, services decline. With these declines, the ability of communities to sustain themselves through time comes into question, as do the culturally enriching, and diversifying, experiences of rural living.

Thu and Durrenberger of the University of Iowa suggest that as rural communities decline, so also goes the “social and human character benefits of learning honesty, hard work, ingenuity, flexibility and fairness as part of being reared in a farm [and rural] environment.” Yet the cultural importance of rural living remains evident in various, not so subtle, advertising images. Hence we see product names such as Nature’s Pride, Country Time and Florida Natural. These symbols of a rural lifestyle sell products on a massive scale.

Hundreds of thousands, if not millions, of people closely identify with these images and invest their consumer dollars in them. Paradoxically, while there is a felt longing within the culture for the values of this rural lifestyle, there is a simultaneous decline in numbers of farmers and farms, and in opportunities for rural living.

Individual and collective benefits Cooperatives offer individual and collective benefits. A farmer who receives a higher price for his or her individual products when marketed through a cooperative is receiving an individual benefit due to joint marketing with other farmers. The fact that he or she can raise a particular product for a market that an individual farmer could not reach is a mutual collective benefit (Parnell).

Historically, agricultural cooperatives have tended to emphasize individual collective benefits (though not exclusively). Most have moved with much of the rest of agriculture down a trajectory dependent on large, capitalintensive production units and technology, with heavy reliance on external sources of energy and credit. The unintended consequences as mentioned have been to fragment family farming functions and to displace family farmers and rural communities.

While there are many trade-offs, some cooperatives made a historic choice that emphasized individual collective benefits to farmers at the expense of mutual benefits, such as maintaining a dispersed ownership agriculture and retaining overall family farm numbers. While large numbers of individual farmers have been able to survive, the mass of farmers as a group, particularly family farmers, have not.

Rethinking directions
Some of the major names in agricultural cooperatives have recently gone bankrupt most notably Farmland, Agway and Tri-Valley Growers while many others have merged and acquired other organizations to survive. Mid-sized farmers continue to go out of business and rural communities struggle to sustain themselves. We may have reached an exhaustion point in our current ways of doing things and thinking, relative to the inter-connections of agricultural cooperatives, farmers and rural communities.

Farmers, managers, employees and rural residents may need to begin asking themselves what they enjoy about living in a rural environment and how it can be sustained. Agricultural cooperatives are at the economic (and, in some ways, sociological) center of many rural communities. What agendas might be developed that explicitly capture the mutual stake-holding and interests of rural residents generally? What roles might cooperatives play that concretely embrace their central importance in rural communities, while developing the mutual interests of rural residents?

Alternatives to consider
Several rural sociologists Chiappe and Flora at Iowa State, Beus and Dunlap at Washington State, Gillespie and Hilchey at Cornell, Stofferahn at the University of North Dakota, Wright at Northern Iowa suggest there are a series of values and commitments that could deepen rural community sustainability. As mentioned above, most agricultural cooperatives have moved with much of the rest of agriculture down a trajectory dependent on large capital-intensive production units and technology, with heavy reliance on external sources of energy and credit.

The unintended consequences have been to fragment family farming functions and to displace family farmers and rural communities. The above authors suggest there are various tradeoffs and choices. Some of these choices are presented here, not as mutually exclusive alternatives, but as possible shifts in emphases. They include: These, of course, are only outlines of choices for thinking about more concrete alternatives. Such thinking may not seem practical when decisions have already been made, capital is sunk and strategic plans set. However to ignore these choices, and to continue along traditional agricultural trajectories, portends continued losses in a lifestyle that many mourn losing and seek to re-attach to.

Co-ops as bulwarks
of rural living
The larger culture in the symbols they embrace, and the massive consumption they pursue seeks greater attachments reminiscent of rural family farms and communities. Agricultural cooperatives are at the center (economically and sociologically) of many of these images. While pursuing individual collective benefits of farmers has kept many in business, the mutual collective benefits of retaining family farmers in business as a group has not been emphasized. The lost benefits of rural living generally, are rarely considered.

Yet agricultural cooperatives have a rich history of pursuing the interests of people seeking change in their lives. Embracing the desire to continue living out a rural identity, as rural residents including managers, employees, farmers, families, husbands, wives and children could provide a base to actively carry, if not protect, rural culture.

Re-shaping cooperative rural presence as an organization with the commitments of farmers as being reared on a farm in rural communities that value decentralized living, neighborliness and closeness to the seasons and food production, might serve to make explicit the mutual and collective interests of rural residents generally. The democratic aspects of cooperative organization, service and voluntary collective action are quite congruent with the older democratic, republican values of rural people (Lauck).

Perhaps cooperatives, even if only in support of the activities of others, could help pursue alternatives that are more directed toward deepening rural traditions and culture, sustaining smaller rural communities, as well as the survivability of farmers. This broadening would require agricultural cooperatives to augment their older agendas of “getting a fair share,” and greater power (the freedom to have) to one of “a freedom to be” to continue to embrace, live out and express their identities as rural residents.



Land O’Lakes reports nearly $84 million in earnings

Land O’Lakes Inc. had net earnings of $83.5 million for 2003, compared to $98.9 million for 2002. Co-op officials indicated that 2002 earnings were bolstered by vitamin litigation settlements. When those and other one-time gains and losses were factored out, earnings from operations were substantially improved over 2002. LO’L officials credit generally improved markets, effective cost-reduction efforts and strong sales volumes particularly in branded and proprietary value-added product lines for bolstering the co-op’s performance in 2003.

The co-op reported $6.3 billion in total 2003 sales, an 8-percent increase over $5.8 billion in 2002. The sales increase was due in part to the consolidation of MoArk (Land O’Lakes’ egg industry joint venture) into the company balance sheet. Without that accounting change, sales were up 3 percent for the year.

The company recently completed a debt-restructuring initiative that included the sale of $175 million in bonds to pay down senior bank debt and a three-year extension of its revolving line of credit. LO’L paid down long-term debt by $131 million (excluding the debt restructuring initiative) in 2003. It reported finishing the year with strong liquidity, with $383 million in cash-on-hand and unused borrowing authority, and remained in compliance with all its financing covenants.

Co-op leaders say the new bond sale did not increase debt levels, but rather enabled the company to improve its capital structure by taking advantage of declining longterm interest rates, securing its sources of traditional seasonal and short-term borrowing, spreading term debt payments over a longer period and maintaining strong liquidity. Major assets sold in 2003 included the co-op’s powdered cocoa business and its ownership position in QC, Inc. (a testing company).

New products in 2003 included two new Land O’ Lakes brand dairy products: a spreadable butter with canola oil and a soft baking butter with canola oil. Sales are running ahead of forecasts. Strong sales were also realized in such areas as LO’L branded deli and foodservice products; CROPLAN GENETICS Seed; and AgriSolutions crop protection products. Land O’ Lakes- and Purina Mills-branded products also continued to provide the foundation for the co-op feed division.







March/April Table of Contents