Expanded database vital
for future co-op reseach
By Dan Campbell, Editor
Editor’s Note: The complete text of testimony
presented at USDA’s public hearing on
co-op research is posted on the Internet at:
http://www.rurdev.usda.gov/rbs/pub/
ResearchPublicMeetingTranscript.doc.
The Web site includes comments from co-op
organizations that were not present to testify
(and are not reflected below). Anyone
needing a printed text of the testimony
should e-mail: john.dunn@wdc.usda.gov.
ou can’t tell where you
should be going if you
don’t know where you
are (or where you’ve
been).
That, in essence, was a major message
delivered by a broad array of
national co-op leaders when USDA
Rural Development held a public hearing
in October to gather ideas on
where to focus its co-op research
efforts. A new database is critical to the
future of the nation’s cooperatives and
for showing their impact on the rural
and national economy. Such a database
will become the foundation for future
co-op research, they said.
A number of speakers stressed that
this co-op database should cover the
entire cooperative sector, not just
agricultural co-ops. Others, however,
countered that USDA’s Cooperative
Programs office has its hands full just
trying to maintain an up-to-date,
accurate database on farmer cooperatives,
and stressed that more resources
would be needed if its mandate is
broadened to include all types of co-ops.
Other common themes heard during
the day-and-a half of testimony at
USDA headquarters in Washington,
D.C., included calls for more research
into how co-op members can access
their co-op equity, ways to finance new
or expanded co-ops, demutualization
(or co-op conversion) trends and ways
to promote more collaborative
research between USDA, universities,
co-op trade organizations and co-op
foundations.
Many speakers cited the need for
more case studies that document real-life
lessons regarding what business
and member strategies are, and aren’t,
working for co-ops. Still others
stressed the need to devote more
resources to cooperative development
and the study of international cooperatives.
Seize the opportunity
In his opening remarks, Under
Secretary for Rural Development
Thomas Dorr stressed that the partnership
between cooperatives and
USDA remains strong, but that the
government’s co-op research program
must better reflect the needs of the co-ops
it serves.
“Cooperatives and USDA have truly
grown up together,” Dorr said. “This
partnership has been one of the foundations
of the rural economy for generations,
and it’s evident to me that if
rural America is going to continue to
be involved in a strong economic
revival — and I would submit to you
that in many areas, there is a strong
economic revival going on in rural
America — it is important that we
understand the modern basis for these
relationships.”
Dorr said research should be
focused “where there will be real-world
payoffs for rural America.” With
so much change occurring, he continued,
“the challenge is going to be how
to anticipate, prepare for and profit
from change.”
Cooperatives need to understand
how to “best leverage their member
equity, their traditions and their mistakes
into new, strong and viable business
models,” Dorr continued. Co-op
research should help co-ops “create
new markets with value-added or
branded products, and exploit emerging
technologies in bio-agriculture and
alternative fuels, or leverage broadband
technology to level the playing field
for rural businesses.
“We want to build a research program
that helps cooperatives uncover
and take advantage of these opportunities,
and we are looking for ways to
build businesses and increase profits
while simultaneously serving the other
social needs that cooperatives can
clearly help fulfill,” Dorr said, adding
that USDA also has “a very special
interest in using cooperatives to
address the problems faced by small
farmers in historically disadvantaged
groups.”
Following are excerpts from the testimony:
Paul Hazen, President,
National Cooperative Business
Association (NCBA)
“This country needs national data
on the impact of cooperatives on the
U.S. economy…This data needs to
include: (1) the number of jobs created
by cooperatives, both directly and indirectly;
(2) the level of economic activity
created by cooperatives; (3) the tax
revenue generated by the level of economic
activity; (4) a definitive census
on the number of cooperatives and the
types of goods and services that are
being offered; (5) the amount of
patronage refunds that are returned to
the members from their cooperatives,
and (6) the extent of the social welfare
benefit where cooperatives are meeting
the needs of communities that would
not adequately be met by other types
of businesses.
“A competent, government-sanctioned,
cross-sector, multi-discipline
economic-impact study led by a
respected academic institution will
provide enormous benefits for all
cooperatives. The database that this
study will create will allow and encourage
continuing research. This will
increase awareness of the cooperative
form of business, which, in turn, will
generate new business which will allow
cooperatives to attract new members
and investors.
“This is a phenomenal opportunity
to reinvigorate [USDA’s Cooperative
Programs] and continue a tradition of
a public/private partnership that will
truly provide lasting benefits for all
cooperative members.”
Jean-Mari Peltier, President,
National Council of Farmer
Cooperatives (NCFC)
Peltier said NCFC is undertaking a
comprehensive review of the existing
business structures of farmer cooperatives
to help identify structural challenges
confronting the farmer cooperative
business model. The goal is to
“provide a new menu of strategic
options to give farmers and farmer-owned
businesses the flexibility needed
to organize and finance a business
that can effectively compete in the
global marketplace.
“All of this work is generating literally
a mountain of data — a mountain
of data that’s going to be able to
be analyzed by both geography” and
type of cooperative. “We’ll be able to
analyze the changing demographics
of their membership and the
impact….” Another key issue is lack
of access to sufficient capital for
farmers to fund their organizations,
Peltier said. “The question is not so
much access to capital, as it is access
to equity capital, rather than taking
on long-term debt.” Farmer cooperatives
are also “struggling with being
able to provide a vehicle for their
members to access the value of the
cooperative without selling off the
value of that enterprise.
“Obviously, it’s going to take a lot of
work to review all of this data…we
definitely will be looking for partnerships
to help us sift through this data
and analyze what its long-term impacts
will be.”
Peltier noted that USDA’s legislative
mandate is to operate a co-op program
that focuses on farmer cooperatives.
“We hate to see that diluted,” she said.
Deb Conley, Executive Director
Indiana Co-op Development Center
Conley urged that more research
be conducted into international co-ops
— how they are structured and
function. “Are they more or less effective
in enhancing quality of life and
economic developments than in the
U.S.?” Other key research topics, she
said, should include: “How much do
cooperatives impact our states’
economies? How many cooperatives
are there? Where do co-ops access
capital? In what areas are co-ops more
successful, and in what areas are they
proving not to be?
“Expanded research should include
co-ops in all sectors; identify the sectors
in rural areas which show the
most potential for growth for cooperative
businesses; compare the sustainability
of cooperative businesses to
other forms of business; measure the
economic impact of cooperatives in
each state; develop a measure for non-economic
benefits of cooperatives,
community cohesiveness, citizen participation,
growth in other sectors and
community improvement.”
Other priorities should be the
effect of gentrification in co-ops and
to identify the resources leveraged per
dollar invested in co-ops and the rate
of growth or decline in each co-op
sector. “Identify how co-ops access
capital. And how do we compare
internationally?” Research should
examine what types of co-ops are
incorporating under new state
statutes, similar to Minnesota’s, she
continued.
Bill Patrie, Rural Development
Director, North Dakota Association
of Rural Electric Cooperatives
Patrie stressed the need for more
case studies, including co-op conversions
to non-co-op business structures.
He cited Dakota Growers Pasta
Cooperative and the Saskatchewan
Wheat Pool as two prime examples.
Both conversions were, and remain,
controversial, he said. “What have
been the consequences? What were
the motives of those conversions?
What were the mechanics of those
conversions? What is the aftermath? Is
the stock more liquid now? What
about access to equity investments
from others? Has that improved or
gotten worse or about the same?”
Another case study could look at
conversions that went the other way,
from corporations to co-ops.
“American Crystal Sugar has been
studied, but it would be interesting to
see what has been the long-term effect
of those sugarbeet growers buying
ACS and what they went through.
What is the performance history?”
Likewise, the conversion of U.S.
West telephone into a cooperative
would make a fascinating case study, he
said. “We can learn a lot, because we
have operating history before and after.
What happened to the cost of service?
Did they in fact reduce the cost of service
to the subscribers? Is the technology
better or worse than when U.S.
West operated those companies?” Two
other case studies involve major co-op
failures: Spring Wheat Bakers Cooperative
and the North American Bison
Cooperative (although the later recently
emerged from bankruptcy).
“A seventh study that would be very
useful is to understand the psychology
of human cooperation,” he said.
Paul Darby, Co-op Development
Director, Southern States
Cooperative Foundation
Darby said a top research topic
should be how producers can “truly
access the equity in their farms for
value-added business development
without selling out. That is an issue
that we bump up against every single
day. Equity capital is absolutely a significant
issue. It’s not capital, it’s equity
capital. For a group of producers in a
start-up enterprise, it’s even more difficult,
even though each of these individuals
very likely is successful in their
farming operations. Many of them are
small, but many of them have developed
a niche market and are very successful.
They may have millions and
millions of dollars in assets on that
farm, and yet — because they either
have a loan with a commercial bank or
Farm Credit, and those assets are part
of the collateral — they’re not able to
touch those.
“A second issue is: why are cooperatives
converting to stock corps. and
LLCs.” He too said the pasta co-op
conversion in North Dakota “would be
a phenomenal case study. A third one:
why are new value-added enterprises
being developed outside the co-op
model.” A good example, he said,
would be Atlantic Bioenergy, a
biodiesel project in North Carolina
that his foundation has spent years
working with. “The leadership of that
project, from day one, wanted it to be
a cooperative. But there was roadblock
after roadblock that prevented it from
being a cooperative…There were
agribusiness investors in North
Carolina that wanted to be a part of
that ownership structure. They couldn’t
be involved…so that group had to
go to an LLC structure.”
The new Virginia Poultry Growers
Co-op would be another good case
study, Darby said, including the impact
of the co-op having three non-members
— a banker, an educator and a
representative from a value-added
product partner — on its board. That
value-added foods company “made a
multi-million-dollar equity investment
in that cooperative. They couldn’t be a
Class-A member. They had to buy preferred
stock, but because of a provision
in state law, they could be a part of the
governance structure. And that really is
the key for a lot of companies and
individuals that want to invest.
“We think there is certainly value in
USDA not simply going to a university
[for research], but bringing in people
with boots on the ground from the
centers to collaborate on a bigger project,
working with the trade groups
that represent cooperatives; really
make this a fairly broad-focused
effort.”
Mike Boland, Professor,
Kansas State University
(representing NCERA-194)
Boland said NCERA-194 (an organization
of land grant university faculty
members doing research on co-ops)
members believe that more study is
needed on existing equity management
programs used by cooperatives. “As
Mr. Dorr has spoken at length over the
last several years, there’s a lot of
untapped equity in rural America that
we just don’t have access to.”
Information is needed on co-op
finance, governance and strategic
thinking, he said. To improve the
response rates on its surveys of cooperatives,
Boland said USDA could build
a broad coalition with others — such
as the Dept. of Commerce. “We need
some baseline information on how
many cooperatives access outside equity,
the changes in governance and
organizational structure, and how this
capital is being used.”
He said NCERA-194 members feel
strongly that co-op research funds
should be awarded on a competitive
basis. “There are a lot of new faculty…
and they’re eager to do research
on cooperatives.”
Boland said a revolving internship
or fellowship program that would
bring university research economists to
USDA for a 6– to 12–month assignment
would prove popular. “Most people
like going to D.C. for six months
to a year.”
Randall Torgerson,
former deputy administrator,
USDA Cooperative Programs
Torgerson said commodity-specific
studies are needed to understand the
structural adjustments and economics
of new, value-added initiatives and
their impact on commodity marketing.
As an example, he cited the burgeoning
alternative fuels industry, which he said
has “greatly altered the patterns of traditional
commodity markets and attendant
infrastructure needs. How are
cooperatives adjusting to these changes,
and what strategies are needed for
remaining viable businesses serving
farmer members?”
Red-meat processing co-ops also
need study, he said. “Some, like
Oregon Natural Beef Cooperative and
the pork cooperative at Rantoul, Ill.,
have become successful,” while others
have failed. “What have been the keys
to success or the mistakes made that
have led to these different outcomes
for livestock producers?
“What has been the experience of
cooperatives generally in supply control?
Does the CWT (dairy market
balancing program) provide any guidance
for potential success in this
endeavor? Bargaining cooperatives
represent grower members and contract
negotiations with processors
…Are national legislative remedies
required to augment the bargaining
process?
Organic and natural foods producer
co-ops also merit further study. “What
have been the ingredients for their
success? What relationships exist or
can be developed between niche marketing
groups and established cooperatives?
The structure of the dairy industry
continues to change with more
commodity and ingredient production
concentrated in western states and production
of finished products in the
Midwest and East. How can they best
link? How can they coordinate? What
are the alternatives to going public
when dealing with equity redemption
and other restructuring issues?”
Audrey Malan, Executive Director,
Cooperation Works!
Malan recommended that USDA
engage in research that facilitates
strategic, sector-based systematic
approaches to co-op development.
“For example, municipal co-ops are a
proven strategy for county and state
governments to reduce costs without
reducing services…But we lack the
research required to build an effective
implementation strategy.
“The key is a commitment to developing
new cooperative businesses, and
to do it in a strategic way. We’ve been
at this now for a long time. We know
what works in co-op development. We
know what new businesses need to succeed,
and we know that we can be
more strategic with our resources…
“The home healthcare model of
cooperative care in Wisconsin…is dramatically
improving people’s lives.
It’s improving seniors’ lives because
they get consistent care rather than
new people coming in their house
every day, and of course it’s improved
working conditions for the women
who are taking care of our elderly people,
but we need research.”
Liz Bailey, Executive Director,
Cooperative Development Foundation
“First, focus on research and education.
We all know there’s a basic lack
of understanding about cooperatives at
all levels of government, in the business
community, in the academic
world, in my philanthropic world and
among the general public…We don’t
have access to the kind of aggregated
economic data that is routinely used by
economic and business analysts to map
U.S. economic activity and interpret
the data for those who make or influence
public policy. Rather, I envision
this research as the foundation of a
new and expanded cooperative development
agenda.” Research, Bailey said,
is the “yeast that makes the bread rise.”
Bailey said there may be “opportunities
for collaborative funding proposals
with foundations outside the cooperative
world that focus on workforce
issues, on healthcare issues or senior
issues.
“How do we capture the interests of
these new potential players?...We need
to be able to provide them with objective
data that they can use to validate
the economic impact of cooperatives.”
Ann Hoyt, Professor, University
of Wisconsin-Madison
& Chairperson, NCBA
“One of the major challenges facing
co-ops is demutualization. Another is
member relations and how to maintain
strong member identification and support
when the cooperative needs to
grow significantly to achieve economies
of scale. A third challenge is capitalization…
and changes in taxation and
accounting policies. There is also the
challenge of low public awareness of
the value and contributions of cooperative
businesses, particularly their contributions
to local economies.”
She too stressed the need to address
the “absence of reliable, comparable
data on the U.S. cooperative movement,
both rural and urban…We have
reliable information on cooperatives in
specific industries — credit unions and
rural electric cooperatives, for example
— but limited information on purchasing
cooperatives, worker-owned co-ops
and the many types of cooperatives
that are owned by consumers.
NCBA usually cites the figures of
47,000 U.S. co-ops with 120 million
members, she said, based on work
from 1984. “[USDA] could make a
vital contribution to the cooperative
community and an important contribution
to the country by focusing its
research efforts on establishing an
ongoing method to collect reliable data
that measures the economic impact of
cooperatives on rural communities…I
hope that you will consider establishing
a research effort that includes all of
the country’s cooperatives, both rural
and urban. It’s been nearly 50 years
since the federal government devoted
resources to collecting basic data on all
types of American cooperatives.”
Chuck Snyder, President
National Cooperative Bank (NCB)
Snyder said that co-op leaders often
tout the many ways their co-ops benefit
their communities. “But it’s very
frustrating because we don’t have the
research to back up some of those stories.”
To help address this need, NCB
annually produces the Co-op 100, a
listing of the 100 largest cooperatives
by revenue and assets.
When a cooperative fails, “the
media will often call me and say ‘gee,
does that mean that cooperatives no
longer work?’ And that’s farthest from
the truth. Like most corporations,
cooperatives have life cycles…If you
look at the Fortune 500 list today, compare
it with that of 40 years ago, you’ll
see the list is dramatically different;
there’s nothing wrong with change.
“We need some basic research
which shows the vibrancy of the co-op
sector, as well as some of the needs for
improvements. We need to understand
the role cooperatives play as direct
employers….We need to understand
the role of cooperatives in developing
and sustaining their immediate communities,
with a special focus on the
differential effect in retaining earnings
within those communities.”
