In our last issue we described the rise of industrial
agriculture operations that are putting family farmers
out of business. How can the family farmer compete with
giant industrial agriculture operations? Many are
finding the answer in farmer cooperatives, which can
allow family farmers to pool their resources for the
purpose of marketing, adding value to their products,
and tapping into "niche" or specialty markets.
Historically, farmer cooperative numbers have increased
during or directly following farm depression. During
the agricultural depression of the early twentieth
century, many farmers viewed farmer cooperatives as a
way out of their financial troubles. In support of this
vision, Congress passed the Capper-Volstead Act in the
1920s, which exempted agricultural cooperatives from
some aspects of the antitrust laws. Today the Capper-
Volstead Act governs the operation of marketing
cooperatives, enforces the "one member one vote"
rule (as opposed to "share voting," in which larger
farmers get more votes than smaller farmers), mandates
that the majority of the co-op's business must be
conducted with members, and states that the cooperative
must be operated for the mutual benefit of its producer
members.
Cooperatives differ vastly in size and membership. This
issue of FARM AID NEWS & VIEWS will examine a few of the
current trends in the agricultural cooperative movement
and look at some specific cooperative examples. In
addition, some questions will be raised about the
difference between corporate cooperatives and true
farmer cooperatives.
CORPORATE COOPERATIVES FAILING
TO MEET THE NEEDS OF FAMILY FARMERS
What do Harvest States, Farmland Industries, Land
O'Lakes, Mid Am and Cenex all have in common? They are
all farmer cooperatives, and they all rank in the top
eight largest agriculture and food-related cooperatives.
How do these cooperatives affect family farmers? Many
of these giant cooperatives tend to operate just like
corporate agribusiness. The benefit of these
rganizations to family farmers is becoming more and more
difficult to identify.
There is a difference between farmer cooperatives that
sustain family farmers and rural communities and those
that contribute to the loss of family farmers on the
land. Tom Trantham of Trantham's Dairy in Greenville,
South Carolina, says it all boils down to one word
greed. Trantham, a member of the Southern Sustainable
Agriculture Working Group (Southern SAWG), states that
historically, farmers have been focused on production.
All measurable accomplishments in the farming industry
are based on a farmer's ability to produce. There
hasn't been a focus on marketing, or on the labeling of
a superior product. "We thought we could produce
ourselves out of any trouble that would arise; instead,
we produced ourselves to the level where we are at the
mercy of corporate America and large corporate
cooperatives." Cooperatives that originated to assist
family farmers, can, over time, become as profit-driven
as corporations, in the end hurting the very group they
were formed to help. "This happens when the cooperative
loses farmer input, and when the huge co-ops select
board members who can only move their heads up and
down."
Trantham, who has been in the dairy industry for over
twenty years, is optimistic that agriculture is moving
in a new direction. "There's a huge ship to turn, and
we're coming to realize that there are not enough tug
boats in the water to turn it, so now we're building a
new ship -- and that ship is sustainable agriculture."
One option for many family farmers trying to stay in
business is to carve out a niche market for themselves.
Farmers can develop a product that is produced
differently than its mainstream counterparts, inform
consumers about the differences, and generate a market
locally. "I think there's a good chance that the new
boat will float," says Trantham.
According to Jon Youngdahl of Minnesota COACT, family
farmers have three options when they find themselves
dealing with a large cooperative that doesn't seem to
have their best interests in mind. Farmers can switch
to a different cooperative, they can start a new co-op,
or they can work to make their current co-op better. In
response to this last option, MN COACT, along with a
group of other farm organizations, is drafting a "Co-op
Members' Bill of Rights."
This Bill of Rights would educate members of the role
cooperatives play in keeping farmgate prices low while
co-op profits skyrocket, as well as ensure that members
are informed of financial matters. Much of this
information is not currently available to co-op members,
including investment practices and allocation; salaries
of staff; detailed information on each member's earned
equity; identification of investors; and benefits to
board members. "Co-op members need to and should have
access to all of this information. It all needs to be
on the table," Youngdahl says.
NEW GENERATION COOPERATIVES
"New Generation Cooperatives," or NGCs, are sweeping the
Midwest. NGCs are patterned after the sugar beet
cooperatives that were formed twenty years ago when the
American Crystal sugar refinery decided to cease
operations in the area. Sugar beet farmers, faced with
having no place to process their crop, formed a
cooperative and purchased five run-down American Crystal
refineries, raising capital by charging a fee to member
farmers. This fee amounted to around $40,000 per
farmer. This type of large, up-front investment is one
of the distinguishing factors between the New Generation
Cooperatives and traditional cooperatives.
According to Frank Blackburn of the Minnesota
Association of Cooperatives, it was too easy for farmers
to invest in the "Old Generation Co-ops." The result
was that the farmers didn't realize that they owned the
cooperative, and "The bigger the cooperative got, the
further they got from their members." Conversely,
farmers who provide a large up-front investment, made up
partially of borrowed money in many cases, are well
aware of their investment and ownership in the
cooperative. In addition, New Generation Cooperatives
often limit the number of investors so that they don't
lose sight of their membership. New Generation
Cooperatives are currently operating in Minnesota, North
and South Dakota, Nebraska, Iowa, Missouri, and Kansas.
Roger Johnson, administrator of the Ag Mediation
Program, explains how New Generation Cooperatives (also
called value-added agricultural cooperatives) differ
from traditional cooperatives. According to Johnson,
who currently farms the land his great-grandfather
homesteaded in Turtle Lake, North Dakota, "Most value-
added co-ops are contract co-ops, which means that you
can't do business with them unless you are an investor
with them. The volume of your business with them is
tied to the contract you entered into when you
originally invested."
In the case of a pasta cooperative, for example, one
share equals one bushel of durum wheat. Members buy
shares according to the number of bushels of wheat they
are committing to deliver. If, at harvest, the farmer
comes up short, he or she is required to purchase wheat
in order to fulfill their contract. Additionally,
farmers with a surplus of wheat must sell the wheat to a
pool from which other members can purchase, if needed,
to fulfill their delivery.
"These new co-ops pay out the majority of their net
earnings to their members in cash every year, because
the co-op is already capitalized by the members' large
up-front payment. If the co-op facilities need to be
expanded or updated, members are solicited for
additional investments," Johnson says.
By their nature, traditional cooperatives, which require
only nominal membership fees, must retain a large
portion of their net gain for capital. "Value-added
cooperatives are essential to North Dakota because they
provide an opportunity to add significant value to
commodities produced in the state. This results in
significant economic development: co-ops provide jobs,
and they keep dollars in the state because earnings are
returned to members, who must be actively producing and
living in the state," Johnson says.
NORTH DAKOTA NEW GENERATION COOPERATIVES SUCCESSFUL
In August 1994, FARM AID NEWS & VIEWS reported on the
activity of two new value-added cooperatives in North
Dakota. We wanted to update our readers on the current
situation of the North American Bison Cooperative in New
Rockford, North Dakota and the Dakota Growers Pasta
Cooperative in Carrington, North Dakota.
According to Dennis Sexhus, Chief Operating Officer of
the North American Bison Cooperative, production is
running ahead of schedule. "We've been able to
establish and maintain a high standard in the industry.
Before we came along, there was no organized approach to
raising and marketing bison products." The cooperative,
founded in early 1994 and now 210 members strong, has
found a niche market for its low-fat products in premium
restaurants and health food stores across the nation and
in Europe. Sexhus stated that the key for success for
new cooperatives is to develop a solid plan, and find a
manager who will execute that plan.
The Dakota Growers Pasta Cooperative has enjoyed similar
success, according to President and General Manager Tim
Dobbs. The co-op recently announced plans to double
their capacity in order to keep up with their sales
options. The co-op has over 1,000 member durum wheat
growers from North Dakota, Minnesota and Montana, and
the co-op's pasta is distributed nationally.
INSURING NGCs MEET THE NEEDS OF FAMILY FARMERS
Although NGCs are being praised for their high returns
to members, Mark Schultz of the Minnesota-based Land
Stewardship Project (LSP) emphasizes that there is a
difference between production cooperatives and
marketing, supply, processing or purchasing co-ops.
"The farming production co-op often has cash and in-kind
investment by people who happen to be farmers. However,
it looks and operates just like a corporation. The
difference is in the structure. The production
cooperative is investors coming together to produce
commodities under a cooperative corporation framework."
Schultz states that there are two primary points to be
considered: Does the co-op support an open-access
system for family farmers, and what are its
environmental implications?
LSP member Monica Kahout is a farmer and neighbor to a
"corporate hog cooperative" in Renville County,
Minnesota. According to Kahout, "The corporate co-op is
an organization based on control. The majority of the
stockholders are not hog farmers -- they never were, and
they never will be. They are just investors in the
corporate co-op. These large cooperatives end up
monopolizing the market; the small farmer co-op can't
compete. We're losing markets and can't find processors
willing to buy from us. We feel that we have better
quality; however, the packer wants quantity and
uniformity." Kahout states that it is difficult to
communicate the plight of the small farmer and small
farmer co-op to the public: "Consumers see the pork
chops in the store but they don't see the war behind the
scenes."
Dennis Timmerman, a member of the Land Stewardship
Project, has been actively involved in the formation of
the Prairie Farms Cooperative in New London, Minnesota,
which plans to begin processing hogs around the first of
the year. "We're a group of a dozen or so farmers who
have organized a cooperative to process our own products
and control them all the way through to retail. We see
it as an alternative to engaging in a large production
facility." Prairie Farms Cooperative differentiates
itself from industrial agriculture by how the animals
are raised. Timmerman states, "The primary difference
is that the production end is controlled. The animals
are raised on family farms, and each farmer makes his or
her own decisions about the management of their farm."
GRASSROOTS COOPERATIVES IN THE SOUTH
The Federation of Southern Cooperatives (FSC) is an
organization that assists Southern farmers in staying on
the land in the South. According to Heather Gray of
FSC's office in Georgia, "We work with family farmers to
encourage them to form cooperatives as a means to share
their ideas and market their produce collectively." FSC
helps with co-op development and provides technical
assistance. FSC has member cooperatives in Alabama,
Arkansas, Florida, Georgia, Kentucky, Louisiana,
Missouri, Mississippi, North and South Carolina, and
Texas.
Leon Crump, State Director of the Federation of Southern
Cooperatives and member of the South Carolina State
Association of Cooperatives, states that African
American farmers in the South are battling racial
polarization in addition to the obstacles faced by small
farmers across the country. "We just don't get the same
opportunities," Crump said. "We're working from the
most grassroots, elementary level of cooperative
development." Today there are thirteen affiliated
cooperatives in South Carolina, with between 45 and 60
members in each. These co-ops allow farmers to buy,
market and sell their products collectively. "The State
Association just purchased a refrigerated truck, so the
farmers can pool their produce and take it to sell in
both in-state and out-state markets. Churches sponsor
the co-ops, allowing the farmers to set up farmers
markets in church parking lots," Crump explains.
Two of the South Carolina State Association of
Cooperatives member co-ops own land collectively. One
of the challenges faced by the State Association is to
show farmers that there are profitable crop alternatives
to tobacco. Changes in the federal tobacco program
could result in small tobacco farmers getting edged out
of business. Demonstration projects show farmers how to
grow and market alternative crops. These projects take
place at the cooperative sites and on individual farms.
Crump attributes a lot of the success of the burgeoning
Southern cooperative movement to Farm Aid assistance.
"If it weren't for organizations like Farm Aid, we'd be
lost." South Carolina cooperatives are gearing up for
their fall harvest, preparing for VISTA volunteers who
will be working with the cooperatives to identify
resources, and getting ready to welcome people coming to
South Carolina for the Farm Aid '96 concert.
The South Georgia Vegetable Producers Cooperative of
Quitman, Georgia, also a FSC member, consists of thirty
grower members. According to the cooperative's Ron
Monk, peas, okra, watermelon, squash and greens are
marketed directly to retailers in larger urban areas,
sold at farmers markets, and distributed directly to
residents in low income housing projects.
HAY URGENTLY NEEDED
FARM AID IS WORKING WITH FARM AND CHURCH ORGANIZATIONS
IN TEXAS AND OKLAHOMA TO HELP FARMERS STRICKEN BY THE
SEVERE DROUGHT THAT HAS HIT THE REGION.
THE GREATEST SHORT-TERM NEED THAT HAS BEEN IDENTIFIED IS
FOR HAY TO HELP RANCHERS FEED THEIR CATTLE.
THE TEXAS FARMERS' UNION HAS ESTABLISHED A HOTLINE FOR
FARMERS WHO NEED HAY AND FARMERS WHO HAVE HAY TO DONATE.
IF YOU HAVE HAY YOU WOULD BE WILLING TO DONATE, PLEASE
CALL TOLL-FREE 1-888-264-4HAY.
Reminder: The deadline for FARM AID grant proposals is
Friday, September 13. Please call Harry Smith at FARM
AID for more information. (617) 354-2922.
________________________________________
Farm Aid News is produced by the Institute for
Agriculture and Trade Policy for Farm Aid. Editors
Harry Smith and Kate Hoff. We encourage the
reproduction of Farm Aid News & Views. Comments and
suggestions welcome. Farm Aid, (617)354-2922. Fax:
(617) 354-6992. Email: Farmaid1@aol.com. For more
information on agricultural publications contact IATP,
(612) 379-5980. Fax: (612) 379-5982.
Email:farmaid1@aol.com