Association Perspectives

Despite Setbacks, Farmers Must Continue Trend to Become Price Makers

In 1993, the Associated Press listed “Co-op Fever” as one of the top 10 stories in the Northern Plains.  Co-op Fever then was in reference to the feverishly high interest by farmers in establishing cooperatives to add more value to the farm commodities they produce.

A decade later, it would seem that co-op fever has evolved from an ardent trend to an ailing one, with troubled ventures downsizing or switching focus, changing hands, or falling by the wayside. Some of the more high-profile disappointments:

AgGrow Oils, which planned to crush specialty oilseeds near Carrington, N.D., opened in 1998 and folded just two years later, citing problems with its processing plant.

Walton Bean Growers Cooperative, Englevale, N.D., which processed dry edible beans since 1995, called it quits and liquidated its assets last fall.

Spring Wheat Bakers, organized in 1996 as United Spring Wheat Processors with over 3,000 grower-members in the Northern Plains, ran out of operating capital last fall.  The cooperative’s frozen dough plant near Atlanta is up for sale or lease. It's only activity now is a partnership with Monsanto to establish an identity-preserved, variety-specific marketing system to segregate grain when (or if) Monsanto commercializes biotech Roundup Ready wheat.

Farmland Industries, the largest farmer-owned cooperative in America based in Kansas City, Mo., filed for Chapter 11 (reorganization) bankruptcy protection last May, burdened by high debt, looming loan defaults and a downturn in its fertilizer and petroleum businesses. 

Minnesota Corn Processors, a cooperative that operated a corn processing plant near Marshall, Minn., turned its reigns over to ADM last September.  Golden Growers Co-op turned its ProGold plant over to Cargill for operation in 1997, after only a year in business.  However, the co-op still owns the plant in Wahpeton, N.D., which produces high fructose corn syrup and other products from corn wet-milling.

Still, for all of the disappointments, there are successes.  It’s just that the failures tend to make the headlines and stick in our minds more than those that are quietly going about their business.

Some ventures have survived by shifting gears. For example, grower members of Dakota Growers Pasta voted to convert the company from a closed cooperative to a common stock corporation last year.  Based in Carrington and organized in 1991, it is the third largest producer of dry pasta products in North America.

Cenex Harvest States, based at Inver Grove Heights, Minn., with 8,000 employees worldwide and member cooperatives and producers in 24 states, combined its wheat-milling operations with those of Cargill Inc., in January, 2002, to form Horizon Milling LLC, now the nation's largest miller. See many other good examples of successful ag cooperatives reinventing themselves online at http://www.ncfc.org/forum/2002-05-07-Heuer.shtm .

American Crystal Sugar and Minn-Dak Growers have weathered many ups and downs, but continue to stand as pillars in the sugar beet processing industry.  South Dakota Soybean Processors, which broke ground near Volga, S.D. in 1995, was the nation’s first new soybean crushing plant to be built since 1978.  It continues to thrive and grow today. 

Kansas-based 21st Century Alliance, organized in 1996, has made inroads in grain processing and grain product distribution, and has spurred other value-added ventures, including dry bean processing, dairy, ag fiber procurement, and identity-preserved grain merchandising. Penn’s Corner Farm Alliance, a cooperative involving close to 20 farms, is successfully supplying a wide variety of farm products to restaurants and stores in the Pittsburgh area.

Colorado-based Kiowa County Growers, Inc. continues to expand a venture focused on petroleum substitutes made from sunflower oil.  Minnesota-based FarmConnect continues to seek opportunities for its farmer-members to add value to the commodities they produce, including a new venture called SoyLink, to supply and process food grade soybeans.

Massachusetts-based Ocean Spray, formed in 1930 by three cranberry growers, and now owned by more than 800 cranberry growers and 126 grapefruit growers, is North America’s leading producer of canned and bottled juices and juice drinks. That’s due in part by savvy in capitalizing on a shift in the consumption of cranberries. Twenty years ago, cranberries were used mainly in a sauce at holiday meals. In 1975, only about 20 % of American households used cranberry juice products. By the early 1990s, this had increased to about 75 %. 

There will be similar opportunities for other commodities as new uses come into play. Soybeans are increasingly being used for biodiesel.  Corn ethanol production continues to expand, and in fact, the amount of corn used for ethanol in the U.S. has quietly grown to almost half of what is exported.

Lee Egerstrom, longtime food and agribusiness writer for the St. Paul Pioneer Press and author of a book on new-generation cooperatives, “Make No Small Plans,” points out that the survival rate for new entrepreneurial startup businesses is only around 50 percent.  "It's amazing we can leave our homes and find anyplace to go out and eat, because restaurants are always starting and failing," he says. "Look at Silicon Valley and the dot coms, where some have succeeded, some have failed and others have consolidated.  It's business, and farming and agriculture is business."

While there have been bumps in the road for value-added agriculture, Egerstrom says the problems generally cannot be blamed on ill-conceived ideas, but rather, on business conditions, such as over-capacity in the market or poor management.

Egerstrom says that despite the setbacks, farmers must continue to seek ways to add value to what they produce, and be price makers, not price takers.  Indeed, as President John F. Kennedy once said: “There are risks and costs to action. But they are far less than the long range risks of comfortable inaction.”

This commentary appeared in the winter, 2003 issue of the Duluth Seaway Port Authority's North Star Port magazine, and is reprinted with permission.