At kitchen tables and at farm meetings across Canada, farmers are mourning the slow passing of the small towns that they still depend on for groceries, schools, doctors and hockey rinks. Often it’s a bitter farewell, because the farmers know that the sizing up of agriculture is at least partly to blame for the hard times in town. Sometimes in fact it’s the main culprit.
Farmers of Renville county in Minnesota, however, say that there’s nothing inevitable about the death of our small towns. More than that, they say that when farmers take charge, there can be good things ahead both for their towns, and for their farms.
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It all starts by reviving one of the oldest ideas in farm business— the co-operative. But it also leads to a couple perplexing questions. Can other farmers copy Renville’s success? Should they try?
“The key to the survival of Renville was the willingness of farmers to work together,” says Francis Buschette, one of the original champions behind the area’s co-operative successes.
But on it’s own, that wasn’t enough. It took something else too, and Buschette is blunt about it: “We had more entrepreneurial spirit than farmers in other areas.”
The town of Renville is a lot like legions of small agricultural centres across the U.S. and Canada. Renville got its start with the arrival of the railroad in the late 1800s. It was incorporated as a town a few years later, and then grew slowly but surely by serving the needs of local farmers in one of the most fertile areas of the state of Minnesota.
But by 1970 Renville was in trouble. It’s a familiar story. The town’s population had halved to about 800 people, partly due to the loss of farm-related jobs. Local farm service businesses consolidated in larger urban centres, with nothing to replace them. Low agricultural commodity prices and rising input costs cut farm incomes, so there was less money to spend in town. Most noticeably, young people drained away.
Then, in 1971, came the blackest day of all. American Crystal Sugar Company said it would close its plant in Chaska, 90 miles away. Sugar beets were a major cash crop in the Renville area, but the closure would take away their only market.
That, however, is also when something surprising began to happen. Instead of switching to other crops, sugar beet producers banded together. They formed the Southern Minnesota Beet Sugar Co-operative and built their own processing plant. And although the co-op’s first years were a struggle, today this farmer-owned sugar beet plant in Renville is the largest sugar beet-processing facility in the world.
Following up on that success, area corn growers formed the Minnesota Corn Processors co-operative in 1980. Like many new-generation, closed co-operatives, membership was limited by plant capacity. For each ownership share purchased, a grower was entitled and obligated to sell a specific amount of corn to the co-operative.
Success at MCP led to a number of expansions and by 1995, the co-op had 2,400 members shipping over 130 million bushels for processing into value-added products including high-fructose corn syrup and ethanol.
Success breeds success
In the terms that economists use, what happened next is called “spawning” and “economic clustering.” The successes in sugar beets and corn sparked a flurry of co-operative startups in Renville.
In the 1990s, local farmers launched ValAdCo, a four-farm, 10,000-sow hog-breeding operation, Golden Oval Eggs, an egg producter and processor with 16 barns housing two million laying hens, and United Mills, a feed mill capable of milling 300,000 tonnes of feed per year. Farmers also created a biomass electric power generation plant and then went on to form Phenix, a plant that converted soybean flour and recycled newspapers into building materials, and they even set up a tilapia fish production facility called MinAqua that ships 30,000 pounds of fresh fish per week to stores as far away as Toronto and Vancouver.
In total, since 1970, Renville-area farmers have started over 20 co-operative ventures. But that isn’t the most impressive number of all.
Instead, it’s that 90 per cent of farmers in the Renville area are members of a co-op, and over 50 per cent have invested in two co-ops or more.
This co-operative culture has led to Renville proclaiming itself the Co-operative Capital of the World… and the world has taken notice. Business leaders, researchers and journalists from more than 50 countries have travelled to this community of just 1,250 people to try to learn the secret of Renville’s success.
Always, the same question comes up. Why Renville? Steve Kramer, an MCP board member for 12 years believes the reason for the success of Renville cooperatives may lie in the nature of the community itself. “A lot of people here have Scandinavian backgrounds,” Kramer says. “Many of the concepts applied in Renville came over from Sweden. Basically, farmers realized the only way to get things done was jointly.”
Dave Nelson, the University of Minnesota extension agent for the Renville area credits a “co-operative culture” as the reason why Renville has prospered. “People knew how to work together. As a result there was support for value adding.”
But Nelson also says that farmers took a hard look at the economic argument behind co-ops. When dealing with large agribusinesses, for instance, they found they have more buying and selling power when they bundle their business than when trying to negotiate individually.
This advantage is magnified by the co-operative business model since co-operatives strive to provide services to members at the lowest cost rather than maximizing profits as corporations do. Furthermore, profits generated by a co-op are returned to the membership as patronage payments on the basis of the amount of business the member does with the co-op.
Thus, says Nelson, Renville farmers were able to increase their net incomes by owning and controlling the process that added value to the products they were already growing on their farms.
Dick Hagen, a Minnesota journalist who has documented the Renville co-operative movement, believes all the factors came together in central Minnesota to create its success. “The long Minnesota winter gives producers time to think, plan, and dream,” Hagen says. “And since the growing season is a month shorter, Minnesota growers have to work with a greater urgency. As a result there is an innovative spirit here, more than anywhere else.”
The dream fades
Now, those early glory days can seem a distant memory. In fact, some of the farmers who launched the co-op movement, like Buschette, wonder whether the moment of opportunity has passed.
In 2000, facing high corn prices and a glut of corn syrup in the world, MCP was converted to a limited liability company in order to attract additional capital investment. Two years later, the members voted to sell MCP to Archer Daniels Midland for $756 million. While this resulted in a huge return on investment for the producer-shareholders, it also meant Renville farmers no longer had ownership or control of the major buyer of their corn crops.
ValAdCo ran into environmental problems and in 2002 was sold to Christensen Farms, the largest family-owned pork producer in the U.S.
Golden Oval Eggs also converted to an LLC in 2004 in order to attract more capital.
Phenix Manufacturing has closed, and farm investment in this co-op was lost.
Buschette laments the failures. “I am very disappointed. A group of farmers working together is better than working alone,” Buschette says. “Cooperatives have been around for many years and have worked quite well in marketing grain and for purchasing the inputs needed on the farm. Unfortunately, these new value-added co-ops were not as strong.”
Buschette identifies a host of factors which he feels may have contributed to the demise of some of the coops at Renville. “Some co-ops expanded too fast and did not have the capital resources needed for expansion. Instead of paying down debt when times were good, they expanded when the cost of expansion was the highest,” he says. “Other co-ops did not have contracts far enough out to mitigate volatile commodity prices. Some co-ops did not watch the market closely enough. And production problems were also a factor in the failure of some co-ops.”
Too much to handle?
Buschette wonders if some co-ops may have simply outgrown the management ability of the board of directors. He wonders if a group of farmer directors meeting only three or four hours each month can effectively direct a $200-million co-operative.
Buschette is also angry that a Wall Street bonus mentality has crept into Renville’s boardrooms. “Why should managers seek and receive bonuses when increased earnings are simply due to price and have nothing to do with production or operation of the cooperative?” asks Buschette.
Patricia Buschette, Francis’s wife and a Washing- ton, DC farm policy lobbyist, agrees that much of the blame for the failure of farm co-ops boils down to people problems. “Some failed co-operatives had people in management that were simply not up to the task,” she says. “They were making decisions over their heads.”
The Buschettes feel the failures of these co-operatives have discouraged a lot of farmers and it will take a long time to recover the co-operative initiative.
Even Nelson has his doubts: “The jury is still out whether co-operatives or limited liability companies will be the business structure of choice in the future for value-added ventures.”
At the University of Missouri, ag economist Michael Cook says there are three “costs” which will determine whether growers support the co-operative business model. First is the cost of ownership. There tends to be a striking difference between what patrons of a co-operative and investors in a company want in exchange for investing, Cook points out. The more definitive the principles guiding a co-operative, the better the odds that it will succeed.
Second is the cost of collective decision making, Cook says. “How are decisions made in the boardroom? Is there fighting? Co-operative decision making can become gridlocked.”
Finally, Cook says, is the ownership risk. Cook says that although these costs can be outweighed by the potential for higher returns, risks do tend to be higher in co-operatives.
Nevertheless, Cook isn’t predicting doom for coops. American co-ops have weathered previous storms, including Sunkist, Ocean Spray and Land O’Lakes.
“SunMaid is another co-operative and every five years it reviews its business structure to see if they should convert from a co-operative to a corporate model,” Cook says. “Every time, the members decide the co-operative structure best serves their needs.”CG
