Spirit of cooperation endures

Co-ops try to cut out middle man

By Nichole Aksamit
The Forum - 03/14/1999

Local historians and co-op experts differ on when the first farmers cooperative was formed in the Red River Valley, but most agree cooperation was alive and well in farm communities in the region at the turn of the century.

Historians point to barn raisings, group harvesting and threshing bees in the late 1800s and early 1900s as the philosophical roots of the cooperative movement in North Dakota and Minnesota - today considered among the most fertile areas for cooperatives in the nation.

"Cooperation in pioneer days was necessary to life and livelihood," writes Karl Limvere in "Economic Democracy for the Northern Plains," a cooperative history published by the North Dakota Farmers Union.

For farmers already working together, the creation of formal cooperatives was the logical next step, says Bill Nelson, director of the Quentin N. Burdick Center for Cooperatives at North Dakota State University.

The philosophical base of cooperatives, says Limvere, is the concept of individuals working together for the mutual benefit or common good of the group and the society.

The need for better marketing of dairy products fueled many early cooperatives. In this 1920s-era photograph, a shipment of cream cans awaits the train in Elgin, N.D., in 102-degree heat. Institute for Regional Studies, NDSU Libraries

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"The raw materials must pass from the farm to the city worker; the finished product must pass from the city worker back to the farmer, and here is where the middle man gets his dig." - O. M. Thomason, "The Beginning and the End of the Nonpartisan League," 1920.

By the early 1900s, frustration was growing among Valley farmers who had to pay to store their grain in elevators owned by the railroads and to ship it to the terminal market in Minneapolis, where it was fetching poor prices despite rising grocery costs.

"Farmers began to feel that the cost of that shipping and that storage were too much," says Moorhead State University archivist and author Terry Shoptaugh.

Just as necessity had driven the first cooperative efforts among farmers, the need for increased prices and better marketing propelled the first formal cooperatives.

With help from local chapters of national farmer organizations like the Grange, Farmers Alliance, Farmers Union and American Society of Equity - as well as the push from the Nonpartisan League in the 1910s - many farmers cooperatives cropped up in the Red River Valley in the 1920s.

By 1937, there were nearly 600 farmer-owned co-ops in North Dakota, about half of them grain-related, Nelson says.

The basic goal of most early co-ops was to get farm products to market and keep some of the profits being enjoyed by the middle men, the railroads and the established grain terminals, writes Leo N. Rickertson in "To Gather Together," a history of the Cenex supply cooperative.

The marketing co-ops built grain elevators, warehouses and dairy creameries, paid farmers dividends based on their patronage and formed marketing firms to promote their products.

Supply co-ops operated under a different theory: If you can't get more for what you grow, spend less for what you need. They bought staple items in bulk - such as binder twine, flour, salt, coal and oil - sold them at a discount to members and paid yearly dividends based on members' patronage.

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"Cooperatives are the greatest bulwark between free enterprise and the powerful forces of concentrated wealth and monopoly." - Ole L. Olson, Farmers Union Grain Terminal Association president, speech at annual meeting in Fargo in 1946.

A power struggle between farmers and the established rail and grain industry typified the politics of North Dakota's first legislative sessions.

At one point, "a series of thirteen bills designed to curb the power of railroads and other corporations were literally stolen after they were approved by the legislature," writes Limvere, who adds that Governor Eli C. Shortridge, a former Farmers Alliance president, had to launch an investigation to get the missing bills back.

With help from co-op friendly legislators, cooperatives won anti-trust exemption and tax advantages with passage of the Capper-Volstead Act in 1922. Until then, cooperatives had existed under the same laws governing corporations.

But, as Shoptaugh notes in "Roots of Success," early cooperatives and groups like the Farmers Alliance did not address the problem of overproduction and consequently didn't fundamentally improve farmers' earnings in the first third of the century.

Nelson says few agricultural co-ops formed after the Great Depression, although the electric, telephone and oil cooperatives gathered steam in the '50s and '60s and many existing cooperatives consolidated. New commodity-based cooperatives didn't really resurface until the '70s, when the Valley's sugar beet cooperatives were born.



Steam rises from the Minn-Dak Farmers Cooperative sugar refinery north of Wahpeton, shown here in 1988. Forum file photograph

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"No one in their wildest dreams thought we'd ever come up with the money to do it." - Aldrich Bloomquist, who was executive secretary of the Red River Valley Sugarbeet Growers Association in 1972, reflecting on the farmers' proposal to purchase American Crystal Sugar Co.

Nelson, Shoptaugh and others point to Moorhead's American Crystal Sugar Company, which became farmer-owned in 1973, and Minn-Dak Farmers Cooperative of Wahpeton, N.D., which was organized in 1972, as the successful models that fueled the boom of new cooperatives in the last decade.

A major difference between traditional co-ops and new generation co-ops like American Crystal is how the organizations are capitalized, explains Bill Patrie, director of the North Dakota Center for Cooperatives in Mandan.

"In a new generation co-op, you capitalize it in advance and then you use it," Patrie says. "In the traditional co-op you used it and they retained some of the profit margin to maintain the co-op."

While membership in the supply co-ops was open to anyone who did business with the co-ops, membership in new generation co-ops is limited to those who make an equity investment on par with their intended use or patronage.

Also typical of most new generation co-ops is an involvement in processing and other value-added ventures.

"The new philosophy is to provide an investment vehicle for farmers that allows them to transform the crops that they're raising into higher value products," says Don Senechal, who heads a Danvers, Mass., firm that has done feasibility studies for many of the Valley's cooperatives.

"The new model recognizes that those transformations - whether it's beets into sugar, durum into pasta or wheat into flour - often add more value to the traditional farming operation," says Senechal. "You can either buy land and machinery or invest in a co-op."

In the process of organizing, the beet co-ops inadvertently formed a well-educated group of directors who had the know-how to help other cooperatives get started. But several other factors led to the recent boom in co-op development, Nelson says.

Tough times in the early '80s and rebounding farm prices in the early '90s provided the right mix of necessity and opportunity. Farmers benefiting from better times had more money to invest in cooperatives and more desire to do so because the farming losses of the early '80s were not-so-distant memories.

Fear about declining federal price supports made many farmers more willing to examine alternatives. "With the general movement toward less government control was coming a higher level of uncertainty, a higher level of price volatility and a higher level of risk to the individual commodity producer," Nelson says.

Organizations like the Agricultural Products Utilization Commission in Bismarck, N.D., and the Agricultural Utilization Resource Institute in Crookston, Minn., also helped many co-ops develop by providing support in the planning and start-up stages.

Some successful modern co-ops that took their cue from the Valley's beet growers include:

* Dakota Growers Pasta Co. of Carrington, N.D., which formed as a cooperative in 1991, broke ground for a $41 million plant in 1992, began producing pasta from durum in 1993 and is now the nation's No. 3 pasta company.

* North American Bison Cooperative of New Rockford, N.D., which formed in 1994 and opened a buffalo packing plant in 1995. After three years of losses, it began turning a profit in 1997. The cooperative now has members in 16 states, four Canadian provinces and Europe.

* United Spring Wheat Processors of Fargo, a multi-state cooperative that raised $25 million from growers in 1997 before announcing plans in 1998 to remodel a Georgia plant to produce frozen dough items.

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"We have taken the tradition of our forefathers one step further." - Message on box of lasagna produced by Dakota Growers Pasta, 1999.

Former North Dakota governor George Sinner, who long has been a promoter of cooperatives, recently decided on the title of a lecture he will present at NDSU in April: "Why farmers won't survive if they don't become food merchants."

Sinner's focus is indicative of the philosophy driving many cooperatives today.

Granted, not all new generation co-ops have been immediately successful. ProGold partners - Golden Growers of Fargo, American Crystal and Minn-Dak - have yet to see a return on their $260 million corn processing plant in Wahpeton, which started production in 1996 and was leased to Cargill in 1997 after the corn fructose market collapsed.

Steam rises from the Minn-Dak Farmers Cooperative sugar refinery north of Wahpeton, shown here in 1988. Forum file photograph

Two Minnesota vegetable processing co-ops - Snowflake Products of Oslo and Northern Lights of Brooten - folded in 1998, two years after startup.

Northern Plains Premium Beef of Mandan, N.D., dissolved in 1998 after two failed equity drives.

Yet, many Red River Valley farmers are turning to processing cooperatives as a viable way to survive plummeting commodity prices and increasing farm costs of the late 1990s.

Thanks to new laws, limited liability corporations entered the picture in the mid-90s, allowing farmers a broader base of investors for processing ventures.

The core idea of modern cooperatives is just a step beyond the one proposed by farmers more than 100 years ago: We must work together to improve our lives and our livelihood.

"Having seen the benefits for those who do it, I believe that we will see continued expansion of cooperatives," says Senechal. "The trend will continue."