C O M M E N T A R Y
New USDA program supports growth of value-added ventures
There is always great interest around the country when a new federal, state or local grant program is announced. The Agricultural Risk Protection Act of 2000,signed into law in June 2000, includes a section that provides $20 million in federal grants during 2001 for market development of value-added agricultural products. The program was announced in the Federal Register on March 6.
Rural Development's Rural Business-Cooperative Service (RBS) was given responsibility for administering the program. By the April 25 deadline for the first round of $10 million in grants, the agency had received 211 applications requesting a total of more than $56 million. This is an indication of the soaring interest among producer groups in value-added businesses.
Grants of up to $500,000 can be used for defraying costs of feasibility studies for value-added projects, for developing business plans and for initial working capital. They cannot be used for "bricks and mortar," nor for engineering studies. A dollar-for-dollar match is required. Applications are reviewed and scored competitively. Applications for the second round of $10 million in grants are due on June 27 (for more information, email: thomas.stafford@usda.gov).
Lessons learned from previous experience gained by USDA/RBS co-op technical assistance staff suggest that producer groups should judiciously use grant money. Over-reliance on grants has been fatal for a number of new cooperatives. They are not a be-all and end-all to the cooperative development process. In the past, some producer groups have fallen into the trap of believing that grants are a substitute for producers putting their own capital at risk. They have sought grant after grant, and when the source of grant funds dried up, the cooperatives collapsed. View a grant as an early boost, not a crutch.
USDA's Agricultural Outlook Forum 2001, held in February, featured a session on new value-added cooperative development in the livestock and poultry industries. An article highlighting presentations at that session is found on page 14 of this issue. Steve Hunt, CEO of U.S. Premium Beef, discusses the achievements of this new cooperative and credits much of its success to members' willingness to step up to the plate with up-front equity investments in their cooperative. In Hunt's words, "true commitment to a cooperative only comes about through ownership." Had members not made a major financial investment in U.S. Premium Beef, he said the co-op probably would have collapsed during the rough first year of operation. These are words that should be heeded carefully by anyone starting a cooperative.
Other presentations were made at the Outlook Conference by Minnesota pork producer Jim Lewis, representing Pork America, Wyoming sheep grower Pat O'Toole, and Iowa Turkey Growers Cooperative CEO Ken Rutledge. Their comments yielded valuable insights regarding how to launch a new cooperative. Similar investments are being made in the aquaculture, crop and forestry sectors.
Why are these well-planned efforts meeting with success? Lee Egerstrom, Knight-Ridder business/farm reporter and contributor to the book "A Cooperative Approach to Local Economic Development," says value-added, new-generation cooperatives will spread because farmers can invest in them at a fraction of the cost of spreading horizontally by buying out neighbors' farms. Furthermore, this expansion vertically in the market buys farmers a measure of risk-management protection. Investing horizontally in more land does not reduce a producer's risk exposure.
These reasons, along with the fact that farmers retain their independence and have more control over their economic destiny through cooperative ownership, suggest that these new value-added efforts are assured of a future that will continue to merit the support of the public and Congress.
Randall Torgerson, Deputy Administrator USDA Rural Business-Cooperative Service
