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FARM AID NEWS & VIEWS AUGUST 1996



FARM AID NEWS & VIEWS
August 1996
Volume 4, Number 8
__________________________________________
Headlines:
- FARM COOPERATIVES:STRENGTH IN NUMBERS
- CORPORATE COOPERATIVES FAILING 
TO MEET THE NEEDS OF FAMILY FARMERS
- NEW GENERATION COOPERATIVES
- NORTH DAKOTA NEW GENERATION COOPERATIVES SUCCESSFUL
- INSURING NGCs MEET THE NEEDS OF FAMILY FARMERS
- GRASSROOTS COOPERATIVES IN THE SOUTH
- HAY URGENTLY NEEDED 
__________________________________________
FARM COOPERATIVES:
STRENGTH IN NUMBERS

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