Co-ops must capitalize
on new opportunities

Editorís Note: The following speech was delivered in October by
Thomas C. Dorr; USDA Under Secretary for rural development, at
the 8th annual Cooperative Development Forum. The even was
sponsored by the National Cooperative Business Association in
Minneapolis, Minn.

bring you best wishes from President Bush and Secretary of Agriculture Ann Veneman, whom I have the honor of working with to strengthen the economy by creating jobs and improving the quality of life both urban and rural.

A couple of months ago, President Bush held an economic forum in Waco, Texas, to talk about the fundamentals of the American economy and his vision for economic growth. At that forum, the president said, ďThe fundamentals of the American economy are strong. Yet, the only purpose of a strong foundation is to build on it.Ē

A very critical part of that vision is our rural economy. And, as undersecretary of agriculture for rural development, itís my job to help realize that goal for rural America.

Iím a farmer who has spent nearly my entire life in rural America-Cherokee County in northwest Iowa. Iíve seen first-hand the challenges facing our rural areas and the amazing opportunities that we have there as well.

Those of you who live, work or grew up in a small town or on a farm know well that our countryís rural communities have faced significant challenges over the last century. From shifting populations to the ďbrain drainĒ to the farm crisis of the 1980s, weíve faced some tough times.

But I believe weíre on the verge of a new era for rural America. The outstanding quality of life combined with new information technology, advancements in agriculture and new business opportunities open the door for an unparalleled period of growth.

Farming and agriculture will always be a major and important part of the rural landscape in America. But traditional agriculture alone will not be the driving force of future development.

There are a couple of significant factors impacting our rural economy today. The past several decades have seen major changes in U.S. and world production agriculture and rural structures. These shifts have shown us that although our farm commodity programs have been critical in keeping U.S. agriculture competitive in the global economy, they arenít geared toward rural development and donít have the impact that our communities need.

Consider these facts for a moment. There are 65 million Americans living in rural areas. Of these, only about 2 million are engaged in farming. That leaves 63 million Americans who have needs for basic services, homes, jobs, education and healthcare.

Focusing solely on agriculture will not develop rural areas. We need to look to other markets-technology, manufacturing, and recreation to name a few.

To be successful, we must have a clear understanding of where we want to go. To me, the vision of rural development and the goals that drive our efforts at USDA-focus around two components: increased economic opportunities and improved quality of life.

Cooperatives can be, and will be, a vital part of seizing these new opportunities. As a farmer, Iíve had a lot of experience with cooperatives. I have sold to them, bought from them and competed with them. My experiences have been both good and bad, and those experiences have taught me a great deal about the cooperative concept.

Like all of you, I know that cooperatives can work very, very well and I firmly believe that they are a valuable tool in rural development and many other areas. But as we all know and many have experienced they are not always the answer. And it is important for those of us in the business of cooperative development to know the difference.

Cooperatives need to be businesses first. They must be soundly financed and built upon business plans that are well thought out and make sense. Cooperative members and boards of directors need to be knowledgeable and able to make wise business decisions. Education and equity are key.

Let me spend a moment on farmer cooperatives. We hear of several farmer cooperatives that are troubled. Thereís the bankruptcy of Farmland and Agway, the failure of Tri Valley Growers, and reports of troubles with several other large cooperatives. They are struggling challenged to compete with the scale, technology and sophistication the market demands.

And importantly, at the center of the struggle is the lack of sufficient capital. Our typical farmer cooperative today is built upon a model that uses debt to finance itself. Some may call this an overstatement, but I donít think it is. When we look at the balance sheets of many local cooperatives, we see capital structures largely composed of equity.

Yet when we look underneath the numbers, we see that a lot of that equity is owed to members, many of whom have retired or are about to. Thus, the numbers mask a serious condition.

Recent failures are not failures of the cooperative model any more than the bankruptcies of WorldCom, Enron or U.S. Airways is a failure of the corporate model. Itís how we apply the models that determine success or failure.

Many suggest that farmer cooperatives donít have enough capital because farmers donít have the capital to put into them. On the farm, we call that ďbunk.Ē The equity is there.

Farmers have not used their asset base their land to its maximum return. Instead of just rolling that capital into the relatively low returns from farming, they can move their capital to other areas. This will raise farm incomes and enable more farmers to stay on the farm. Our farmers probably canít get much better at farming. They should, however, get much better at investing.

So when I hear people say farmers donít have the money to make major investments in cooperatives, I say thatís wrong. The money is there. If the business plan is sound and convincing and if farmers understand the untapped potential of their capital, they will invest.

The theories of Clayton Christian, in his book Creative Deconstructionism, suggest that institutions must be completely, rather than incrementally, reconstructed if they are to remain vibrant and relevant. This kind of reconstruction may just be what our farmer cooperative system needs.

We need to look beyond the conventional mold to build and support cooperatives that increase economic opportunities in our rural economy.

Rural communities can band together to increase returns to their taxpayers by providing basic services such as healthcare and education.

Rural small businesses can band together to make bulk purchases or provide better business services to remain competitive and to use the technology necessary in a retail world dominated by Wal-Mart. The cooperative is a flexible concept that makes all these things possible.

We donít support cooperatives because of what they are but because of what they can do. We support them because they are a method for local people, businesses and communities to take charge of solving their own problems and opening their own doors of economic opportunity.

I recently had the opportunity to talk with NCBA CEO Paul Hazen and Communcations Director Jennine Kenney to discuss cooperatives and the role they can play in making our rural communities stronger, more vibrant places to live. We talked about rural healthcare, housing and community services. We talked about keeping the small business on Main Street alive and thriving.

Cooperatives mean empowerment in accomplishing all of these things. We need to work together to make sure this important tool is used to its full potential.

We are challenged today to develop strategies for rural America that are effective and programs that make sense. We, in the public sector, simply have to do a better job. We have bound ourselves up with procedures, regulations and approaches that reflect a rural America of the 1950s, using definitions from the 1930s.

That has got to change. Rural America of the 21st century will look nothing like the rural America of the early 20th century. Our programs must stop looking back and start looking forward.

We have to work with our farmers to encourage them to use that untapped equity in their land to make serious investments in their local communities. This doesnít mean encouraging them to leave farming or to take senseless risks. Itís just the opposite. By increasing their return on investment the value of their land their ability to stay in farming will be enhanced, not lessened. That age-old question of how to protect the family farm comes in diversification.

But, in order to do this, we also need to improve business knowledge and skills in rural America. Serious education on business strategies, finance, marketing and decision making will enable farmers, business and community leaders to lead dynamic, creative cooperative businesses that can succeed.

Most of all, we need to work together. Partnerships and collaborative approaches are how we make this vision of rural America a reality.

At all levels, we need to think differently and in ways that capture the spirit and values of rural America. We must act boldly.

Rural America is no longer just about getting grain from the farm onto railcars and shipping it away. It is about capitalizing on and creating opportunities that create jobs and grow communities.

We must allow ourselves to think creatively and differently. And that different thinking starts with how we think of rural development at the national level. We do not develop rural America-rural Americans develop rural America.

The foundation is there. Now, it is our challenge to build on it.

November/December Table of Contents