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
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
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
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.
- First-we must increase economic opportunities
throughout rural America by improving the
flow of capital, hastening the use of technology,
furthering the rapidly growing links between agriculture
and energy and strengthening the infrastructure,
which will increase opportunities of all
types in rural America.
- Second-we need to improve the quality of life by improving
the basic needs of adequate food, water and housing, the
essential needs of education and health care, and addressing the
necessary needs of cultural and recreational experiences.
Iím sure some of you remember the movie ďField of
Dreams.Ē Those of us from Iowa enjoyed it because it popularized
the saying, ďIs this Heaven? No, itís Iowa.Ē But it also had a
larger message: ďIf you build it, they will come.Ē That simple
sentence describes much of what weíre trying to do at USDA
Rural Development and most of what we must do.
Diversification-both economically and culturally-will
enable our rural communities to attract new jobs, families,
investment and growth.
At USDA, we do a great deal of work that focuses on three
- Homeownership assistance that helps low and middle
income Americans build equity and gain the security and
pride of owning their own home;
- Infrastructure development, such as expanding bandwidth
capacity and technology for communities to grow; and
- Financing rural entrepreneurial and innovative rural
activities such as value-added industries.
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
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
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
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.