A Business Model to Believe In
To most of us, the word "cooperative" means to be agreeable or accommodating. But to thousands of Americans who work in rural America, the word "cooperative" means the difference between an industry left in the dust or one given the chance to thrive. And to the U.S. economy, it means jobs and sustained economic activity.
This month, the U.S. Department of Agriculture reported that the nation's 100 largest cooperatives produced $118 billion in sales in 2010 alone.
"Farmer and rancher-owned cooperatives are a mainstay in the American economy," said USDA Rural Development Under Secretary Dallas Tonsager in a press release announcing the good news, "not only helping members market and process their crops, milk and livestock and creating jobs, but also helping producers keep more of the earnings derived from their products at home, in rural counties and communities."
But agricultural cooperatives weren't always such a mainstay. In fact, they didn't even exist until the 1920s, when farmers found themselves struggling to hold on to private investors who realized that money was not made in the production, but the processing and sales of food.
The passage of the Capper-Volstead act in 1922 allowed farmers to form the first cooperatives, and the model proved successful. Where private investors were only interested in the end-of-year profit margin, farmer owned and operated cooperatives were invested financially and emotionally, from start to finish.
No longer beholden to what an investor thousands of miles away found important, farmers were able to ensure they would have the necessary supplies, equipment and employees to maximize the efficiency and productivity of their operations.
In 1953, a group of Texas cotton growers used this model to form the Plains Cotton Cooperative Association (PCCA), providing an alternative to farmers who felt they were getting an unfair price for their products from private investors faced with little to no competition.
PCCA described its mission as one that adds "significant value to the cotton marketed for our members by being the supplier of choice to our business partners in terms of quality, service and value."
Today, PCCA is the world's largest producer and supplier of Texas-style cotton, and the only fully integrated cooperative—producing and marketing the cotton, as well as up to 150,000 pairs of jeans weekly in their own denim mill.
Twenty years later, the nation's first farmer-owned sugarbeet cooperative—American Crystal—was founded when the area's sugar farmers found themselves facing a similar sink-or-swim situation.
"The publicly traded corporation that owned Red River Valley sugarbeet factories had cut back on maintenance and capital spending," said Robert Green, current chairman of American Crystal and a third generation sugarbeet farmer. "Farmers in the region were concerned that within a short time, the factories would become unreliable, and the company would move on."
But a grower can't move on, Green explained, when he has already invested so much into the business. "For sugar growers in North Dakota and Minnesota, beets are a major part of our livelihood. Not having access to a mill that could process those beets into something we could sell simply was not an option," he said.
So American Crystal was born, and today its reach goes far beyond the farmers who own and supply it. "The sugar industry has almost $5 billion worth of impact on our region's economy, and supports more than 42,000 local jobs," said Green. "If sugarbeet farmers had not used the cooperative business model, those jobs would not be here today. In fact, the U.S. sugarbeet industry might not be here today."
Still, years later, other members of the farming community are adopting the cooperative model in order to protect their business, maximize its potential and contribute to the local and national economies.
"[Cooperatives] act as a balance," said Andy Quinn, founding member of Minnesota-based Bushmills Ethanol, founded in 2005 after private investors opted against building an ethanol plant. "When the bottom drops out of corn prices, things are usually better for ethanol producers and vice versa."
But, like those that came before him, Quinn said the positive impact of cooperatives go beyond their members.
"They directly benefit the farmers because we can purchase services and materials that we wouldn't otherwise have access to, like healthcare benefits and new equipment. And they directly benefit the community, providing jobs and pumping revenue back into the our economy."
Today, cooperatives exist for many different commodities all over the United States and can range in size from 20 to 10,000 members. They continue to bring prosperity to local economies and together, have a major impact on the nation's economy. It seems the meaning of the word "cooperative" will always be an agreeable one—no matter how you slice it.