al r u r cooperatives - usda rural development rural cooperatives / july/august 2011 3...

USDA / Rural Development July/August 2011

Rura

lCOOPERATIVESCOOPERATIVES

Forginglinks betweengrowers andbuyers

Features

Rural Cooperatives / July/August 2011 3

Volume 78, Number 4July/August 2011

Rural Cooperatives (1088-8845) ispublished bimonthly by USDA RuralDevelopment, 1400 Independence Ave.SW, Stop 0705, Washington, DC. 20250-0705.

The Secretary of Agriculture hasdetermined that publication of thisperiodical is necessary in the transactionof public business required by law of theDepartment. Periodicals postage paid atWashington, DC. and additional mailingoffices. Copies may be obtained from theSuperintendent of Documents,Government Printing Office, Washington,DC, 20402, at $23 per year. Postmaster:send address change to: RuralCooperatives, USDA/RBS, Stop 3255,Wash., DC 20250-3255.

Mention in Rural Cooperatives ofcompany and brand names does notsignify endorsement over othercompanies’ products and services.

Unless otherwise stated, articles in thispublication are not copyrighted and maybe reprinted freely. Any opinions express-ed are those of the writers, and do notnecessarily reflect those of USDA or itsemployees.

The U.S. Department of Agriculture(USDA) prohibits discrimination in all itsprograms and activities on the basis ofrace, color, national origin, age, disabili-ty, and where applicable, sex, maritalstatus, familial status, parental status,religion, sexual orientation, geneticinformation, political beliefs, reprisal, orbecause all or part of an individual’sincome is derived from any publicassistance program. (Not all prohibitedbases apply to all programs.) Personswith disabilities who require alternativemeans for communication of programinformation (Braille, large print, audiotape,etc.) should contact USDA’s TARGETCenter at (202) 720-2600 (voice and TDD).To file a complaint of discrimination, writeto USDA, Director, Office of Civil Rights,1400 Independence Avenue, S.W.,Washington, D.C. 20250-9410, or call (800)795-3272 (voice), or (202) 720-6382 (TDD).USDA is an equal opportunity providerand employer.

Tom Vilsack, Secretary of Agriculture

Dallas Tonsager, Under Secretary,USDA Rural Development

Dan Campbell, Editor

Stephen Hall / KOTA, Design

Have a cooperative-related question?Call (202) 720-6483, or email:[email protected]

This publication was printed with vegetable oil-based ink.

p.4

04 Taking the plungeAmerican Prawn Co-op helping aquaculture take root in tobacco countryBy Anne Todd

08 Pilot Mountain Pride forges links between growers and buyersBy Anne Todd

11 Hogs on the rangeCarolina growers form co-op to supply local pasture-based pork marketBy Bill Brockhouse

16 Market edge for the WedgeFood co-op’s warehouse/distribution division a key cog in developing regional food systemBy Adam Diamond

20 Finding a wayUSDA husband/wife team helps form soybean farmers’ associations in AfghanistanBy Eva Nell Mull Wike

26 Banking on butanolMissouri’s Show Me Energy Co-op pursuing $55 million plantBy Stephen Thompson

30 Split decisionVirginia electric co-ops join forces to purchase investor-owned assets, then split service territoryBy Robert A. Ellis

Departments02 COMMENTARY

14 UTILITY CONNECTION

35 NEWSLINE

p. 30p. 20

ON THE COVER: : Packing pecks of peppers in Pilot Mountain, N.C.,is Joshua Cave. Pilot Mountain Pride was created to help small- tomedium-sized producers gain access to retail and food servicemarkets in the Winston-Salem, N.C., area. USDA photo by Bob Nichols

p. 8

By Anne Todd, Contributing Editor

Editor’s note: portions of this article wereadapted from a co-op history written byCharlene Jacobs.

emand for cigarettes inthe United States hasbeen falling fordecades. As a result ofthis trend and other

market forces, North Carolina’s tobaccoindustry has been declining for manyyears. The result has posed seriouschallenges for the state’s overalleconomy. But the problems have beenespecially acute for tobacco farmerswho have been forced to look for othercrops or endeavors.

In response, the North Carolinaagriculture industry has established anumber of programs to encourageproducers to diversify by moving intoother types of farming. One result ofthis diversification effort is the

American Prawn Cooperative (APC), amarketing co-op in Walstonburg, N.C.,that provides processing, freezing andmarketing services for the region’sfreshwater prawn producers.

In April 2010, the North CarolinaTobacco Trust Fund Commission —which administers a fund to supportinnovation in communities impacted bythe downturn in the tobacco industry— awarded APC a $200,000 grant tohelp the co-op purchase a flash-freezeunit for its processing facility.

APC has acquired the unit and it isbeing installed this summer. It will beused to flash-freeze prawns, which canthen be shipped long distances, mostlyalong the East Coast. This will allowthe cooperative to tap into new,lucrative markets for its product.Demand for prawns is strong in theNortheast, where they can bring morethan $18 a pound, vs. $8 to $10 perpound when sold at the co-op’s pondsites during harvest.

“We have an all-natural, chemical-,antibiotic- and hormone-free product,”says APC President Charlene Jacobs.“It is low in fat and sodium, high inprotein and makes a healthy alternativeseafood choice for health-consciousconsumers. But APC freshwater prawnsare considered a ‘niche’ product, ratherthan a commodity, so it is extremelyimportant that the APC find nichebuyers who are willing to pay a nicheprice.”

The Tobacco Trust FundCommission grant is helping thecooperative fulfill its goal ofestablishing a complete processing andstorage facility in Walstonburg.

In 2002, Gene Wiseman and Dougand Johnny Barbee, former tobaccogrowers, started the DJ&W KingPrawn Farm in Kenly, N.C., where theyconstructed a two-acre pond andstocked it with baby prawns acquiredfrom Mississippi. The pond yielded 750pounds of prawns the first year, only

4 July/August 2011 / Rural Cooperatives

D

Takingthe plungeAmerican Prawn Co-op helpingaquaculture take root in tobacco country

about half of what they had expected.However, they sold their entire “crop”right after harvest. So they wereencouraged.

Over the next four years, DJ&WKing Prawn constructed two moreponds, expanding the operation to sixacres of ponds. The average yield soonrose to 1,500 to 1,600 pounds per pond,a big improvement over the first year.Again, they sold every pound harvestedto local customers “at pond side” and toa local food supply company.

More farmers dive inAs news of this new aquaculture

industry spread, interest grew. DJ&WKing Prawn set up a nursery to raisejuvenile prawns as stock for themselvesand other freshwater prawn producers.The nursery became the first, and only,supplier of juvenile prawns in NorthCarolina.

Two other farmers, John Relyea ofWalstonburg and Don Ipock of

Vanceboro, contacted Wiseman to learnmore about this new aquacultureindustry. Wiseman shared some of hisexpertise and referred them to MikeFrinsko, the Aquaculture ExtensionSpecialist at North Carolina StateUniversity.

In 2006, with the help of Frinsko,Relyea and his wife, Natalie,constructed a pair of two-acre ponds inGreene County and launched Relyea’sCrazy Claws Freshwater Prawn Farm.Ipock and his wife, Kim, constructed atwo-acre pond in Craven County andstarted Carolina’s Best FreshwaterPrawn Farm.

It was about this time that thesefarmers began to consider establishing acooperative for prawn growers. Butthey felt they would need moremembers for a viable co-op. So, in2006, they approached Frinsko again,this time seeking assistance in reachingout to other farmers who might beinterested in growing freshwater prawns

and forming a cooperative.

Freshwater prawn schoolFrinsko enlisted the aid of Lou

D’Brahmo of Mississippi StateUniversity, and together they began toeducate North Carolinians aboutaquaculture and freshwater prawns.Meetings were held in various localeswhere farmers learned more about thisgrowing industry.

As a result of these outreach andeducation efforts between 2006 and2008, three new farms joined theoriginal three operations in freshwaterprawn production. Tom and AnnHollowell started Hollowell’s FamilyPrawn Farm in Seaboard(Northhampton County); Charlene,Gene and Chad Jacobs started Harvestof the Great Spirit Prawn Farm inClinton (Sampson County), and Merlinand Edith Nichols started Swift PrawnFarm in Ayden (Pitt County).

In 2008, with support from USDA


Ponds such as this at Crazy ClawsPrawn Farm in Walstonburg, N.C.(facing page), have beendeveloped by members of theAmerican Prawn Cooperative(APC), many of whom are formertobacco growers. USDA photo byBob Nichols. At left: Farmers workbeside hired employees during theharvest. “We farmers are very‘hands on’ with our product,” saysAPC President Charlene Jacobs(center, facing camera). To herright is Mike Frinsko, N.C. StateUniversity extension agent andaquaculture specialist. Photocourtesy APC


and the North Carolina Department ofAgriculture and North Carolina StateUniversity Cooperative Extension,Frinsko helped the producers officiallylaunch the American PrawnCooperative. Bruce Pleasant, Business-Cooperative Programs Director withUSDA Rural Development in NorthCarolina, and Bill Brockhouse, an ageconomist and co-op developmentspecialist with USDA RuralDevelopment’s Cooperative Programsin Washington, D.C., met with thegroup several times. They conducted anexploratory meeting and helped identifyresources that could help the new co-op. They also reviewed the co-op’sorganizational documents and otherwisehelped with planning.

“The amount of enthusiasm andpride the members share in theircooperative is tremendous,” saysPleasant. “From the beginning, thegroup recognized the value inmarketing cooperatively and werealready pooling labor with their prawnharvests and sharing production andmarketing information. The membersdeserve credit for tapping the resourcesof Mike Frinsko and Bob Usry withN.C. State University and others whohave worked closely with thecooperative, and for keeping focused ontheir mission.”

The co-op was incorporated in May2008.

Expanding operationsIn 2009, APC established a website,

www.americanprawncooperative.com,to market its product online, to informcustomers about trade shows APCmembers would be attending and toprovide other news about the co-op andfreshwater prawns.

That same year, APC also received a$50,000 grant from North Carolina’sGolden Leaf Foundation, which wasissued to Greene County to study thelive-hauling of freshwater prawns —information that is critical to APC’sfuture success.

In February 2010, APC received a$30,000 grant from Rural AdvancementFoundation International (RAFI) to

purchase live-haul tanks and trailers totransport prawns from the farms to theprocessing facility in Walstonburg.

In June 2010, APC members, alongwith Greene County officials, held aribbon-cutting ceremony to celebratethe opening of the APC processingfacility. More than 150 stakeholders,officials and local supporters attendedthe event. The co-op acquired theprocessing facility with help from anInnovation Grant from Greene Countyand the North Carolina RuralDevelopment Center.

Greene County recently voted toconvey the facility to the co-op,provided that APC remains in businessas the American Prawn Cooperative forthe next seven years.

In September 2010, American Prawnreceived a $197,000 Value-AddedProducer Grant from USDA RuralDevelopment to market and packageAPC’s freshwater prawn. Shortlyafterward, the co-op signed a contractwith a marketing broker for assistancein establishing markets.

Harvest and beyondAmerican Prawn Cooperative

members participated in the BostonSeafood Festival in March 2010, wheretheir freshwater prawns won a “BestChoice” designation by the MontereyBay (Calif.) Aquarium, as part of its“Seafood Watch” program. SeafoodWatch is an internationally respectedprogram that recognizes “the best ofthe best” in sustainability and helpsconsumers make smart seafood choices.

APC’s prawns have also been given a“green” ranking in all five sustainabilitycriteria established under the SeafoodWatch program. This is the first timefreshwater prawn has been classified asa “green” product since Seafood Watch

began assessing seafood in 1999.Harvesting of APC freshwater

prawns usually occurs from mid-September through early October.American Prawn Cooperative membersused the hauling tanks and trailerspurchased through the RAFI grant forthe 2010 harvest, making transportationeasier and safer. Although the 2010harvest dipped from 2009 levels at eachfarm, the quality and size of the prawnsexceeded the previous years. The Value-Added Producer Grant funding allowedthe co-op to grade its product in 2010for the first time.

Sales were better in 2010 than in

Clockwise (from upper right on facing page):Gene Jacobs (on pier) oversees the last stageof draining a pond at Great Spirit Prawn Farmin Clinton, N.C., while other family memberssearch for prawns that may be stuck in themud. Middle photo: Prawns are taken out of acatch basin and loaded into purging tanks atCarolina’s Best Freshwater Prawn Farm inVanceboro, N.C. Cooked prawns ready toserve. A worker in a catch basin carefully netsprawns as they flow into the basin from a pondat Carolina’s Best Freshwater Prawn Farm. Afresh prawn. All photos courtesy APC


2009 and are expected to be even betterin 2011. Co-op members credit theUSDA Value Added Producer Grantfor helping them improve theirmarketing efforts and hire a marketingrepresentative.

Eye to the futureAPC’s leadership has set short- and

long-range goals for the cooperative.The one- to two-year goals are toexpand the APC membership base bybringing on new producers and to hireat least two permanent employees (inaddition to the 60-75 temporaryemployees that will be needed to handlethe expansion). The two- to three-yeargoals are to lease the individual quick-freeze equipment during the months itis not being used by APC, to expandmembers’ ponds, and to hire additionalemployees. The three- to five-yeargoals are to expand the APC facility andto enhance product distribution bypurchasing a cooler/freezer truck andhiring a driver.

“Being a young cooperative thatcelebrated its third year in May 2011,and given the state of the economyfrom APC’s birth until the present, wefeel very fortunate to have progressedto our present state,” says Jacobs. “Ourgoals and expectations for the APC areunlimited…The APC will make itsmark as a North Carolina producer anddistributor of the best all-naturalfreshwater prawn in the United States.

“Even though times are hard and weare struggling, just as other farmers are,we stay encouraged that tomorrow justmight be our big breakthrough day —the day we find the niche market thatwants all of our product and more,” shecontinues. “It will happen.”

To learn more about the AmericanPrawn Cooperative and its latestactivities, visit its website at:www.americanprawncooperative.com,or send e-mail to: [email protected]. �


By Anne Todd, Contributing Editore-mail: [email protected]

ilot Mountain Pride (PMP), in PilotMountain, N.C., was launched in thesummer of 2010 to help small- tomedium-sized family produce farmersgain access to retail, service and

institutional markets in the Winston-Salem area.Many of the farmers involved with the co-op(organized as a producer-run limited liabilitycompany, or LLC) are former tobacco farmers whohave suffered economically from the decline in the

tobacco industry. PMP is helping them to transitionfrom tobacco into other crops and meet theburgeoning demand for more local foods.

Poor infrastructure for local distribution of high-value specialty crops, including vegetables and fruit,has long created marketing challenges for farmers inSurry County and the surrounding area. For manyyears, Surry County officials worked with producersto develop local “tailgate markets,” small-scale farmersmarkets where there are no middlemen and thefarmer sells his or her own produce. While theseefforts met with some success, the unknown numberof buyers at any given sale made this a less-than-

P

P I L O T MOUN TA I N P R I D EF ORG E S L I NK S B E TWE ENG R OW E R S A N D B U Y E R S


optimal business practice, especially for morecommercial, medium-sized producers.

Today, the Pilot Mountain Pride network isconnecting producers to a wide variety of end users inthe region, including hospitals, restaurants andsupermarkets. These buyers are benefiting fromconsistent delivery, better prices and certified safehandling while producers realize improved income.

Pilot Mountain’s rootsPilot Mountain Pride is a limited liability company

owned by Surry County’s nonprofit EconomicDevelopment Foundation. It was designed to play a

role in the local foods movement in the Winston-Salem region by linking local producers with endconsumers by providing them with an aggregationcenter to ready their produce for market.

In 2006, North Carolina’s Small Towns EconomicProsperity Program identified a need for a communityagriculture center in the area to help producers. Theidea for an ag center eventually grew into the PilotMountain Pride business model.

Surry County subsequently secured a location —the old Amos and Smith Hosiery Mill building at 612East Main Street. Funding was received through avariety of state and county programs to help with the

This former North Carolina hosiery factory has been converted into the Pilot Mountain Agricultural Center. Initial sales have beenmuch better than expected, but finding a market for slightly off-grade produce has been a challenge for Pilot Mountain Pride. USDAphoto by Bob Nichols


Rural Cooperatives interviewed Chris Knopf, SurryCounty Assistant Manager for Economic Developmentand Tourism, to learn more about Pilot Mountain Pride.Knopf, along with Surry County Cooperative ExtensionDirector Bryan Cave, worked to get the Pilot MountainPride business up and running. Knopf developed thegrant proposals that helped provide seed funding for theproject.

Q. What has been the biggest challenge facing PMP?Biggest obstacle overcome?A. Keeping the cost of operating PMP within the 20percent it retains for operations. Packaging has been thebiggest obstacle to overcome. Costs last year were 250percent higher than estimated.

Q. What do you consider to be the greatest strength andweakness of the PMP business model?A. The biggest strength is providing an outlet for familyfarms to sell local produce where they are not burdenedwith marketing their products or acquiring the necessaryinfrastructure to wash and grade their produce. Also,PMP has provided its farmers with GAP (GoodAgricultural Practices) training. Its biggest weakness hasbeen finding markets for “seconds” — produce that isslightly irregular in shape or appearance but will berejected by grocery outlets purely on physicalcharacteristics.

Q. Has your marketing strategy evolved or changed? Anymajor additions or changes at the plant?A. Marketing last year revolved around brand awarenessutilizing print media, radio, Internet and television. Thisyear it is focusing on advertising at locations where theproduct is being sold or consumed.

Q. What do your members want and expect from PMP?

A. They expect PMP to find markets for their produce.However, they understand that they also need to developother markets as well to protect themselves.

Q. Is the recession affecting PMP growers? If so, is itable to make any special efforts to help in such toughtimes?A. Not especially, other than that growers have not beenable to develop their secondary markets as well as firsthoped, due to the economy.

Q. Do you have any long-term plans to expand into newmarkets?A. PMP desires to access more of the institutionalmarkets, such as universities and hospitals.

Q. How many fulltime employees do you have?A. One full-time, three part-time.

Q. What are your plans for the future for the company?A. To have sustainable growth in markets, growers andproduce volume.

Q. Tell us about the commitment the PMP has made tothe community. How much overall impact does the PMPhave on the area’s economy?A. PMP has brought enormous attention to both the townand the county. More attention to the concept of buyinglocal has emerged due to PMP’s existence, whichbenefits small businesses across the board in our area.

Q. Has PMP produce won any awards and, if so, dothese awards help influence sales?A. No awards, but it has received a great deal of positivepress over the past 13 months. PMP has been therecipient of grants from eight different businessorganizations or local, state and federal governments. �

purchase, building renovations and needed equipment. The6,000-square-foot facility is now known as the PilotAgricultural Center. USDA Rural Development was one ofthe agencies supporting the project, providing PilotMountain Pride with a 2010 Rural Business Enterprise Grantfor a refrigerated truck to deliver the produce throughout theregion.

PMP’s goals are to:

• Increase sales and economic opportunity for area growersof specialty crops;

• Provide farmers with crucial training and education in post-harvest handling of their crops, including grading,packaging and distribution while increasing the long-termviability of their family farms, and

• Raise awareness of local foods in the greater community

Market for ‘seconds’ proves elusive to date

continued on page 42

The Animal Welfare Approved Program (AWAP), part ofthe Animal Welfare Institute, works with pork producers inNorth Carolina to promote “pasture-raised” productionmethods. AWAP staff member Tim Holmes estimates thatthere are more than 526 sows on 33 farms in the stateproducing pasture-based pork.

Two main groups are engaged in “natural/pasture-raisedpork” marketing cooperatively within the state, Holmes says.The average producer marketing cooperatively has 23 sows,compared to eight sows for producers marketing on theirown.

“Producers choose to market through groups due totransportation costs and their distance from major populationcenters, like the Raleigh/Durham area,” Holmes says. Manyproducers marketing independently are located closer topopulation centers and sell at local farmers markets ordirectly to consumers (sometimes through CommunitySupported Agriculture, or CSA, plans) restaurants and otherretail food markets.

Cooperative beginningsThe North Carolina Agricultural and Technical

Cooperative Extension Program (NC A&T-CEP) beganworking with hog growers in the southeastern part of thestate, using funds from USDA’s Outreach and Assistance forSocially Disadvantaged Farmers and Ranchers Program.Faculty worked with these growers to help improve outdoorhog production, land and financial management,recordkeeping and marketing.

Niman Ranch, a California-based specialtymeats company, entered the North Carolinamarket in 2002 and contracted with somegrowers for pasture-based hogs. “The growerswere looking for an alternative to raisingtobacco; many of them raised hogs in the pastbut abandoned it when they couldn’t turn aprofit,” says NC A&T-CEP’s Michelle Eley,who works out of Greensboro. “We had toshow them that they were capable ofproducing a product that appeals to an upscalemarket. For a time, farmers made a profit byfollowing strict animal husbandry guidelinesand selling their product to Niman Ranch.”

NC A&T-CEP also provided advice onnecessary farm equipment and infrastructure,hog genetics and meeting specifications.Heifer International was also involved through its “Passingthe Gift” program, which provides hogs to sociallydisadvantaged farmers who in turn give some of the offspringto other limited-resource farmers.

There were other indications that niche hog marketing,including pasture-based pork, was a viable alternative,including research conducted by Michigan State University’sDavid Conner. Unfortunately, Niman withdrew from NorthCarolina in 2007, leaving growers with no place to sell their

hogs. But the growers wanted to continue their pasture-basedhog operations since returns were very good and theybelieved in this method of production.

“Just trying to survive”After their market disappeared, growers in south-central

North Carolina held meetings to explore ways to worktogether to stay in business. They focused on creating aformal business structure to market their pork. “We were justtrying to survive,” says Jeremiah Jones, NCNHGA president.

NC A&T-CEP and Heifer International assistance wasinstrumental during this stage of the cooperative’sdevelopment, helping growers secure markets and create aformal business structure to market their pork.

A steering committee was formed, involving Jones and 10other farmers. Several meetings were held to devise a plan tosave their operations. Some buyers encouraged them to forma cooperative. One major buyer, Whole Foods — which has atrack record of working well with cooperatives — indicatedthat it would be easier and more efficient to deal with agrower cooperative than with individual growers.

With this in mind, growers began working to develop acooperative. Meetings were held with NC A&T-CEP andUSDA Rural Development staff members, who helped theproducers understand cooperative principles and practices;they also helped producers draft articles of incorporation andbylaws for the cooperative.

A survey of producers showed that a significant number ofgrowers would be interested in being cooperative members,

would sign a marketing agreement, would contribute start-upcapital to the cooperative and would collectively marketaround 2,000 hogs per year through the cooperative.Growers then decided to form the North Carolina NaturalHog Growers Association, a nonprofit grower cooperative, in2007.

The cooperative marketed around 2,600 hogs in the firstyear, increasing to 6,000 hogs in 2010-2011. The number ofmembers grew from five to 30 during this period. Grower


operations are primarily located in Pender, Duplin, Sampson,Johnson, Orange and Warren counties. Most members are inthe 50-70 age range, and many are former tobacco farmers.

Growers benefit from co-opNCNHG performs several important functions for

members. These include:• Coordinating between growers, the slaughter plant andbuyers;

• Handling payments from buyers to growers;• Negotiating with buyers;• Helping growers meet production standards and buyers’specifications; and

• Locating the right breeding stock.Some growers remain skeptical of the cooperative, even

after they become members. But they usually soon see thebenefits of joining the cooperative.

In response to the need to meet strong demand in theniche market for pasture-based pork, buyers have agreed topay higher prices to the co-op, due to higher grain costs inrecent years. “All our markets are coming to us,” says Jones,indicating that there is unmet demand for the cooperativemembers’ pork. Prices have increased the past few years fromabout 93 cents to $1.20 per pound. Co-op sales now exceed

$1 million annually.

Forces behind demandThere are several

explanations for the risingdemand that has helpedexpand the niche market forpasture-based pork. Holmescites the desire to “buy local”as probably the most popularreason consumers give. Thenutritional aspects, animalwelfare and taste attributes arealso factors.

Buyers also seek hogs in afairly narrow weight range.Premiums are paid if the hogsare within the desired weightrange; producer prices aredocked the further out of thedesired weight range theirhogs are. The cooperative hasworked with buyers to developa system that helps membersmeet their needs.

In addition to WholeFoods, other major buyersinclude The Pit Restaurant inRaleigh, Farmhand Foods, OldHavana Sandwich Shop inDurham and Sam’s BBQ and

Chop House in Chapel Hill. The cooperative seeks buyerswho will be steady customers “for the long haul.” There aregenerally no signed contracts, just verbal agreements, exceptwith Whole Foods, which is by far the co-op’s largestcustomer.

Pork from the cooperative’s hogs is marketed locally,although the definition of “local” can be problematic,according to Jones. One market was lost when “local” wasdefined as being within 35 miles of the buyer’s site.

Meeting standardsThe cooperative’s pork must meet strict standards.

Members must receive certification from the Animal WelfareInstitute, which audits and inspects members’ farms each yearto ensure compliance. The program has strict requirementsand best management practices that must be followed if agrower is to receive the “Animal Welfare Approved”endorsement, which allows their products to carry that label.Each member of the association must receive thatendorsement to market through the cooperative.

Whole Foods’ requirements are even stricter, as it doesnot allow any animal byproducts, such as bone and blood


Co-op members attend a meeting where they learn about the requirements for having theiroperations pass the farm audits that ensure their hogs are grown according to natural,pasture-raised standards.

continued on page 42

By Anne MayberryUSDA Rural DevelopmentRural Utilities Servicee-mail: [email protected]

ixty years ago, a newcoal-fired electricgeneration plant wasbrought online byDairyland Power

Cooperative, based in LaCrosse, Wis.,in an effort to meet rapidly growingelectric power needs. Today, that samecoal-fired plant has a new life. Butinstead of coal, it is using wood wastefor fuel to meet Dairyland consumers’growing demand for electricity.

The E. J. Stoneman Station biomasspower plant, now owned and operatedby DTE Energy Services, sells its entire40 megawatt output to Dairyland. “Wehave been expanding our renewableenergy portfolio as part of Dairyland’slong-term power supply planning,explains Katie Thomson, Dairyland’ssenior communications specialist. Theplant can power 28,000 homes andaddresses member interest in increasinguse of renewable power, she adds.Other advantages include diversificationof Dairyland’s energy portfolio andmeeting regulatory requirements.

Dairyland brought the coal-firedplant into service in 1951, just 15 yearsafter the Rural Electrification Act of1936 was signed into law. May 20, 2011marked the 75th anniversary of the Act,which codified establishment of theRural Electrification Administration(REA), created by President FranklinD. Roosevelt as part of his long-termeconomic recovery program in 1935 bydelivering electricity to rural areas. The

REA was later reorganized into what isnow the U.S. Department ofAgriculture’s Rural Utilities Service(RUS), a Rural Development agency.

Wisconsin was among those statesthat used the REA to make rapidprogress in bringing electricity to farmsand rural residents. According to astudy published by the University ofWisconsin in 1961, Wisconsin REA —The Struggle to Extend Electricity to RuralWisconsin, 1935-1955 — “Wisconsinranked eighth in total REA allotmentsreceived…and first in generation andtransmission capacity.”

Farm demand fueledco-op’s growth

Dairyland, organized in 1938, grewto a $40 million generation andtransmission system with the help ofREA financing. It supplied 87,000 ruralconsumers in Wisconsin, Illinois andIowa with 162,000 kilowatts of powerby 1954, a few years after the Stonemanplant came online. According to theWisconsin study, the growth of ruralelectric cooperatives in Wisconsin wasfueled by farmers discovering howelectricity could increase efficiency infarm operations.

Dairyland sold the coal-fired plantduring the 1990s. DTE Energy Servicespurchased the plant in 2008, planningto convert it to biomass fuel. “Themajority of the fuel we use is urbanwood, which is from construction anddemolition,” says John Austerberry,spokesman for DTE Energy. “We alsouse green wood — which is derivedfrom forest activities. Railroad ties areanother source of fuel.”

A key advantage of biomass,

according to an April 2011 study justreleased by USDA’s Office of the ChiefEconomist and Office of Energy Policyand New Uses, is that it can beconverted to electrical power using pre-existing infrastructure, such asDairyland’s 1951-vintage coal-firedplant. Biomass produces biopower —the process of converting biomass intoelectric energy.

Biopower, according to the USDAstudy, is readily scalable and can providepower for a single farm or a larger load,such as a small city. Biopower


S

Uti l i ty Connect ionWisconsin coal-burning plantconverts to biomass

generation reduces the amount ofmethane released into the atmosphereby using the methane directly, or — asin the case of the Stoneman Stationplant — by burning it before itdecomposes. Thomson says Dairylandliked the biomass aspect, in part because“Using waste for energy is a win-winproject.”

The plant uses 1,000 tons of biomassdaily, or about 50 truckloads. “Provis-ions in our contracts spell out howclean the biomass material needs to be.This comes to us as fuel, not refuse,”Austerberry says.

Co-ops are enginesof rural economies

The 1961 Wisconsin study pointed

to the role of the REA in developingprograms to improve rural livingconditions through investment, whichin turn increased employment in ruralareas as the demand for electricitytriggered growth in other markets. Halfa century later, rural electriccooperatives continue to makeinvestments that trigger economicgrowth.

For example, Austerberry says thatduring the conversion, DTE’sStoneman plant employed as many as100 contractors. “Currently, there are32 full-time employees at the plant.The plant also contributes to the localeconomy through DTE’s relationshipswith other local businesses. “We haveabout 20 different biomass providers

within a 200-mile radius,” Austerberrynotes.

The USDA report says renewableresources are most abundant andpractical for development in rural areasand present a good investmentopportunity for rural electric utilities.The Upper Midwest is rich in biomassresources, according to the report,which makes states such as Wisconsinwell suited for biopower. However, itstresses, much of that potential is notrealized.

Thomson reflects on the irony thatthe biomass power plant was aDairyland owned and operated coalplant 60 years ago. “We’ve come fullcircle.” �


This Dairyland Power Cooperative (DPC) plant, which formerly burned coal, now runs on 1,000 tons of biomass daily. Photo courtesy DPC


providing co-op members access to a greater variety ofproducts than would be the case if the Wedge’s retailoperation had to physically store its entire product inventory.

As CPW developed and more warehouse staff was hired,the Wedge leased two refrigerated trucks and started makingdeliveries to other cooperative groceries in the area.However, even after four years of operation, 80 percent ofthe warehouse’s sales were being made to the Wedge; overallsales were fairly stagnant.

Starting in 2005, a combination of key personnel changes,favorable market conditions and new infrastructureinvestments contributed to rapid sales growth, helping CPWbecome a significant catalyst for the development of aregional food system. A key turning point was the purchase,in July 2005, of a worker-owned organic distributor inMinneapolis that had been the primary source of organicproduce for food stores in the area by a large (non-cooperative) national organic food distributor.

In the wake of that co-op buyout, many customersswitched to CPW for their organic produce. CPW alsopicked up some skilled staff members who left the co-op afterthe buyout. This influx of experienced personnel helpedprofessionalize what had been a fairly informal operation atCPW. These new employees drew on their skills and industryrelationships to bring new business to the firm.

In the next three months, business at CPW increased by60 percent. This meteoric sales growth meant that morewarehouse space would be needed before long.

CPW management discussed different options with its

landlord and with Wedge management. It was decided in late2005 to triple warehouse space to 45,000 square feet. Whilethe 30,000 additional square feet was more space than neededto handle CPW’s immediate needs, the rental rates were lowenough to make it affordable. It made sense to secure thisadditional space to allow for future growth.

Expanding the warehouse allowed CPW to vastly increaseits ability to serve farmers in the region and to increase itscustomer base far beyond the Wedge. Sales were $2 millionin 2003, with the Wedge accounting for 80 percent of thetotal. In 2010, annual sales had climbed to $17 million, withthe Wedge’s share being only 23 percent. Sales growth wasparticularly rapid from the period just prior to expansion andin the next few years afterward, increasing 300 percent from2004 to 2007, to $13 million.

Business structureCPW is a wholly owned subsidiary of the Wedge

Cooperative, which, as a retail food cooperative, is owned byits consumer members. Consumer cooperatives, like allcooperatives, are controlled by their members and areobligated to serve them. The Wedge’s mission statement saysthe co-op will:

“…provide a diverse selection of highest quality,fairly-priced products and a deepening understanding oftheir importance to our members, employees, andcommunity. To achieve this, we will: 1) Earn the loyaltyof our member-owners through an ongoing commitmentto service; 2) Forge a deepening bond between sustainablelocal producers and the co-op community; and 3) Buildupon cooperative principles and values.”

This organizational mission directly supports thedevelopment of CPW as a vehicle for providing the kind offood members want and for supporting local agriculturalproducers and sustainable agriculture. The warehousemanager at CPW reports directly to the Wedge’s generalmanager, and all the other employees of CPW report to thewarehouse manager.

CPW has 32 employees, including: 7 drivers, 10 orderfillers, 3 buyers, 9 sales associates, 1 bookkeeper, 1 quality-control manager and 1 manager. Profits earned by thecooperative, including the store and the warehouse, rangefrom 1 to 4 percent. Profits are allocated in three ways: oneportion is reinvested in the business for maintenance andexpansion; another portion is returned as patronage dividendsto the 14,000 members of the cooperative; the third portionis distributed to the Wedge’s 262 employees as part of aprofit-sharing plan that can add as much as $2 per hourworked during the previous quarter.

The warehouse is self-supporting with operating revenuecovering its expenses. It has been able to draw on the Wedgefor capital infusions both when it initially started and when ithas needed to purchase equipment.

In addition to its retail food store (facing page), the Wedge CommunityCooperative also operates Co-op Partners Warehouse, a whollyowned subsidiary that supplies the Wedge and dozens of other retailoutlets in the Upper Midwest. All photos courtesy The Wedge


Business operationsThe vast majority of CPW’s sales come from distributing

produce to retail cooperatives. The firm distributes weeklyprice books to customers, takes orders, makes deliveries andbills customers. It charges customers 16-25 percent abovefarmgate prices, depending on the perishability of thecommodity.

To satisfy year-round customer demand for fresh produce,“in season” the firm buys locally and regionally grownproduce from more than 30 farmers in Minnesota, Wisconsinand other parts of the Upper Midwest (when available), butrelies on California producers for the bulk of its freshproduce supplies.

Retail grocery cooperatives account for 88 percent ofCPW’s sales. The remaining 12 percent of sales is accountedfor by restaurants, independent natural food retailers, buyingclubs, community supported agriculture (CSA) co-ops orassociations, and food manufacturers.

Additionally, CPW operates an unusual drop-shipprogram for farmers and other value-added food producers inMinnesota and Wisconsin. This service allows smallerproducers to take advantage of CPW’s superior logisticalcapabilities on a fee-for-service basis. This program preservesproducer identity and visibility in supply chains by allowingfarmers to handle the sales and marketing aspects of theirbusiness transactions, but entrusting CPW to handle thelogistics portion of each transaction for a flat delivery fee.

Farmers drop off their products at CPW’s St. Paul facility,including a packing list showing what each customer issupposed to receive. CPW then delivers the farmers’ productto area stores. Producers pay CPW $20 for each drop-shipment and invoice the buyers directly.

About 24 producers or value-added food producercompanies are currently using the drop-ship program. Thisprogram is also helpful for co-op stores that want to buyproduct from local producers but would rather not have adozen different trucks coming with small deliveries.

Overall sales for this program are not tracked, becauseCPW only collects the flat $20 delivery fee per shipment,and because product volume is only a small fraction of theWarehouse’s sales to cooperatives and other retail outletsthrough traditional distribution operations. Nonetheless, thisprogram demonstrates CPW’s commitment to helping localfarmers find profitable outlets for their product.

Fair dealing with farmersCPW is committed to building strong relationships with

its producers and ensuring they receive a fair price for theirproducts. As Wedge General Manager Lindy Bannisterrecently wrote in the store’s newsletter:

Dean [the Wedge’s produce buyer] and Rick [thebuyer for Co-op Partners Warehouse] sign contracts toensure our farmers receive a fair price for their productand that we have a reliable supply of vegetables and fruitto adorn your tables. Dean and Rick visit the farms,

watch the production methods and get to know thefamilies. As we like to say, “we have smelled the dirt.”

In general, CPW aims to set prices that enable farmers tocover their costs and are fairly predictable, with minimalvariation throughout the season. Lori Zuidema, CPW’sdirector of business development, clearly articulates howvalues of fairness to farmers are embedded in CPW’s pricenegotiations with farmers:

“…a lot of people think it’s the California marketthat influences it [prices], but it’s more production-costrelated….They [farmers] figure out how much it’s goingto cost them…. and you know we want their product. Wewant to be able to present it to our customers. We wantthem to be in business. We don’t want…them to sell to usso cheap that they can’t make a living and then they haveto fold in two years…So that’s our incentive for payingthem a fair price.”

Fair pricing becomes not only a point of principle, but alsoa pragmatic strategy for ensuring a stable supply of high-quality organic produce for CPW and its customers. DeanSchladweiler, the Wedge’s produce manager, has made apoint of working with small and new organic farmers to helpthem price competitively and realistically. Sometimes he hasactually had to negotiate prices up with farmers because heknew they were underpricing themselves and that they couldcharge a higher price.

Farmers would tell Schladweiler that they were basingtheir prices on the California organic price. He wouldrespond that they were not in California, and that they had toconsider their own individual production costs and price theirmerchandise accordingly. His general point of view is thatfarmers need to be savvy about their market and stand firmon their pricing, otherwise they will not be able to stay inbusiness.

Marketing: serving customers needsIn marketing to retail grocery cooperatives other than the

Wedge, CPW emphasizes that it is also a cooperative andthat one of the foundational principles of the cooperativemovement is “cooperatives helping cooperatives.” Thisemphasis on organizational solidarity with its retailcooperative customers is meant to demonstrate that CPW iscommitted to its customers’ success not only to serve itsparticular business interests, but also as a means forfurthering the cooperative movement in general.

However, recent feedback from customers indicates thatcooperative solidarity alone will not determine sourcingdecisions for most retail grocery cooperatives. A customersurvey conducted by CPW about three years ago showed thatproduct quality was the No. 1 criterion for picking adistributor; price ranked second while product availabilityranked third in importance. Purchasing from a locally ownedbusiness or a cooperative did not make the list of top five

criteria, even though retail grocery cooperativesconstitute CPW’s largest group of customers.

With a competitive organic and natural foodssector in the Twin Cities, Co-op PartnersWarehouse has worked hard to differentiateitself from its competitors by offeringexceptionally strong customer service, reachingabove and beyond what other organic andnatural food distributors are willing to provide.This has included offering a Sunday deliveryservice and a “short delivery call” service for in-

town customers, whereby orders received by 10 a.m. can bedelivered that day for no extra charge.

The same-day delivery service was instituted becausetrucks often arrive late in the day after the price list hasalready been distributed. Customers can call the nextmorning, find out which products just came in (includingthose that weren’t on the previous afternoon’s supply list),place an order by 10 a.m., and have it delivered by 4 p.m.

Lessons learned:Service is paramount; co-op solidarity won’t keep you

in business —For a time, Co-op Partners Warehouse(CPW) management thought just being a cooperative wouldgo a long way towards building customer loyalty. Realizingthis was not the case was a tough, but important, lesson.Food cooperatives need to be business savvy and conscious ofcosts as they compete with specialty food chains andsupermarket chains that increasingly stock items such asorganic produce and milk, soy milk and tofu that were oncethe stock-in-trade of food co-ops. Meeting customer needsfor good service, competitive prices and high-quality producehas made for a winning combination.

Be pragmatic with local procurement—CPW isstrongly committed to supporting small local growers andgoes to considerable effort to buy as much produce aspossible from small and/or local growers. However, this isoften not possible, given the high demand for producethroughout the year. Tom Rodmyre, the warehouse manager,explains:

“Our mission has always been to support small localgrowers…but because we are pretty much a full-serviceorganic produce warehouse, we have to supplement —there just isn’t enough local product to fill the needs ofwhat we are doing…. And then the local farmersthemselves….want the direct connection with the peoplethey are selling to; they’ll be trying to sell their product to

the same accounts that we’re going to.”

Co-op Partners has to be pragmatic inpursuing its mission of supplying co-ops andother customers with high-quality organicproduce, with an emphasis on localprocurement. If CPW insisted on onlyselling local produce, it simply would not beable to stay in business. Overhead is too highto run a full-service produce distributionoperation seasonally, to say nothing about the

high level of direct-to-consumer marketing to foodcooperatives during the growing season in the upper Midwestthat makes it hard for CPW to procure enough local producefor its customers even in season.

Even cooperatives are not going to buy from a cooperativedistributor without being assured they are getting good valuefor their money. Absorbing this lesson and building thebusiness with competitive pricing, unique services (such asSunday delivery and short-delivery calls), along with a verystrong commitment to organic and local food, has made for awinning formula.

CPW has demonstrated its continued commitment tolocal growers not only by buying their products anddistributing them through its sales network, but alsoproviding an extra level of service in the form of its drop-shipprogram. While not a significant revenue earner for CPW, itearns the organization good will with farmers, saves them thehassle of shipping products to stores, and smoothes relationswith its retail store customers, who are relieved from havingto deal with multiple trucks clogging up their loading docks.

This is a good example of how small business ventures canreap rewards far beyond their immediate impact on companysales.

Bibliography:• Lindsey Day-Farnsworth, Brent McCown, Michelle Miller,Anne Pfeiffer (2009) “Scaling Up: Meeting the Demand forLocal Food,” University of Wisconsin-Madison Center forIntegrated Agricultural Systems, December.

• Lindy Bannister, “What Makes Us Different?” The WedgeNatural Foods Co-Op Newsletter, June/July 2007.Some information was also used from the following

websites: www.wedge.coop/ and www.lakewinds.com/store/ About-CO-OPS-W18C0.aspx �


“Fair pricing becomes not only a point of principle, but alsoa pragmatic strategy for ensuring a stable supply of high-quality

organic produce for CPW and its customers.”

CPW has 32 employees.


By Eva Nell Mull Wike, Ph.D.

Editor’s note: the author is a physicseducator based in Oak Ridge, Tenn. She isthe sister of David Mull.

hen David and DonnaMull arrived inAfghanistan in 2010 ona one-year mission tohelp expand the war-

torn nation’s fledgling soybean industry,most farmers were threshing theirsoybeans by laying the crop on rocksand beating it with sticks, thentransporting it 30 miles or more bydonkey. Today, farmers in the two

provinces where the Mulls worked haveformed their own associations that helpgrowers harvest, process and markettheir crop using more moderntechniques.

As a result of the Mull’s work andthe many others they teamed with, pro-duction has increased, jobs have beencreated and lives have been improved.

Unique skills set aids missionThe Mulls were the first husband-

wife team on active duty with USDAever to be deployed together toAfghanistan, where they worked side byside with farmers and others. Thechallenges of their one-year tour of

W

Finding a wayUSDA husband/wife team helps form soybeanfarmers’ associations in Afghanistan

Lieutenant-Commander Robert Hamm (thirdfrom left) and Donna and David Mull (towardrear, fifth and seventh from left) tour asoybean farm in Parwan Province. With themare members of the Korean Parwan ProvincialReconstruction Team and employees ofParwan Baston Seed Co. (PBSC). Facing page:Against the backdrop of an armoredpersonnel carrier, USDA Rural Developmentemployees Randy Frescol (left) and Donna andDavid Mull meet some Afghan children inParwan Province. All photos courtesy Donnaand David Mull.


duty with the USDA Foreign Agri-cultural Service (FAS) in Afghanistanwere many. However, their wide arrayof skills gave them the confidence andcommitment necessary for the mission.

Donna Mull, a human resourcespecialist with USDA RuralDevelopment in Georgia, was able todraw upon her expertise and “peopleskills” during the assignment. From thestart, she was cognizant of the manychallenges facing her and drew on herearlier farming experiences. “I felt likemy previous experiences wereinvaluable. They enabled me tocontribute to meeting some of the vastneeds of the Afghan people, while at the

same time serving my country.”David Mull, a retired command

sergeant major with the U.S. Army anda Vietnam War veteran, is a businessprogram specialist with USDA RuralDevelopment in Georgia. His militaryand business experience, as well as thecouple’s past experience owning andoperating small farms in three states,gave them a wide array of skills andknowledge that served their missionwell in Afghanistan. In a CBS Newsinterview before departure, heexplained his position: “I look upon thisendeavor as an opportunity to serve mycountry and at the same time to helpthe Afghan people.”

After a few weeks of training, theMulls arrived in Afghanistan on March3, 2010. “We arrived in Kabul late atnight and, to our surprise, it wasraining. We thought it was going to bedry and hot,” he said.

“I had not had such an ‘uphill’experience since my arrival in Vietnamfor a second tour of duty there! It was alittle disconcerting, and my firstthought was ‘What have I gotten myselfand my wife into now?’ It took a fewdays for the shock to diminish.”

Soon they were “embedded” withthe Kentucky National GuardAgribusiness Development Team(ADT). Their service area included four


provinces in northeastern Afghanistan,north of Kabul.

Enhancing productionThe Mulls quickly focused their

attention on finding a way to enhancethe productivity of the farmers of theregion. Opportunity soon knockedwhen Col. Mike Farley,commander of the Kentucky ADT,requested that David Mull “find away” to build a soybean processingmill in Parwan Province. At thetime, the nearest soybean mill inAfghanistan was 30 miles away, inKabul, where farmers deliveredtheir soybeans by donkey.

Drawing on his USDAexperience, David Mull formed aplan to establish a soybean-flourprocessing facility in ParwanProvince. He contacted NutritionEducation International (NEI), aCalifornia-based nonprofit that wasinstrumental in introducingsoybeans as a crop for Afghanfarmers. NEI soon joined the effortto establish a new soybean-processing facility.

NEI had conducted research onsix different varieties of soybeansover a three-year period. By 2005,NEI was helping to producesoybeans in 12 Afghan provinces.

The NEI soybean initiative wassoon adopted as a nationalprogram by the Afghangovernment. NEI also researchedthe preferences of the Afghan people toidentify ways to incorporate soybeansinto their diets.

By 2006, the nation’s soybeanindustry had a production capacity of1,000 metric tons produced by 2,400farmers. By 2010, farmers in 31 of thenation’s 34 provinces were growingsoybeans. The total yield had climbedto 4,000 metric tons produced by16,000 farmers.

Mill plan developedAfter lengthy meetings, NEI made a

commitment to help establish the firstsoybean mill for Parwan Province.Steven Kwon, NEI president, agreed

that his organization would purchasethe needed machinery and lease it toParwan Bastan Seed Co. (PBSC), asuccessful “for-profit” business and aleader in agriculture production andmarketing, which would also operatethe facility. Col. Farley arranged theinitial meeting with PBSC, based on its

reputation as a successful business.It was also agreed that PBSC would

construct a facility to house theoperation. As a result, 19 jobs werecreated and the mill created a localmarket for Parwan Province soybeanfarmers.

Throughout the process, the Mullsconsulted with Kwon, explaining howUSDA Rural Development’sCooperative Services program providesassistance to the rural residents andfarmers in the United States. Throughthese talks, the need became clear toestablish soybean growers’ associationsin both Kapisa and Parwan Provinces.

The Mulls assisted NEI and the

Kentucky ADT, providing guidance andadvice to help establish the soybeanfarmers associations. NEI helpedorganize the soybean farmers and tooversee the establishment of their twoassociations, which were formed in thefall of 2010 — the nation’s first soybeanassociations.

The farmers associationsprovide advice and assistance totheir members in growing andmarketing soybeans. This includesharvesting the crop and processingit into soy flour.

The usual “pre-processing”method at the time was to lay thesoybeans on a rock and beat themwith a stick, resulting in a hugeloss of beans and picking up debristhat was mixed with the soybeans.If not removed, this debris coulddamage the milling facility, thusincreasing the time needed forcleaning the beans beforegrinding. The result was a huge,negative impact on themarketability of the beans.

Thrashers purchasedTo address the present

methodology and resulting losses,Donna Mull recommended theacquisition of three small soybeanthrashers. Again, NEI agreed topurchase the thrashers and leasethem to the associations to helptheir members become moreefficient and to deliver cleaner

beans to the mill. The results have beenimpressive.

The projects the Mulls helpedimplement are now assisting 900soybean farmers in Parwan Provinceand 550 soybean farmers in KapisaProvince. The combined soybeanproduction for the 2010 crop-year wasabout 1,000 metric tons, making themtwo of the largest soybean productionprovinces in Afghanistan.

A five-year contract with the WorldFood Program to purchase the soy flourhas been negotiated by Kwon, thuscreating an international market for thefarmers of Parwan and KapisaProvinces — all thanks to the teamwork

Haji Abdul Robate Qahir, owner of PBSC, inspects thegrinder portion of the soybean mill.


of the Mulls, NEI, PBSC andKentucky ADT.

Shortly before the Mulls ended theirassignment in Afghanistan, RandyFrescoln, director of USDA RuralDevelopment’s Business andCooperative Programs in Iowa, arrivedat Bagram Airfield in Afghanistan onhis second assignment as an agricultureadvisor. Within a short time of meetingFrescoln, the Mulls knew they werepassing their projects on to a soybeanexpert with broad rural businessexperience.

“Randy has had many years ofexperience [working with the soybeanindustry] and he comes from the topsoybean producing state in the nation,”David Mull notes.

For his part, Frescoln says: “I canthink of no other organization in theworld where I could have helped serveso many people — not only in theUnited States but all over the world!”His knowledge and leadership willensure the continued work of USDARural Development employees inhelping the people of Afghanistan.

Parting thoughts“I think our work has helped to

strengthen the understanding thatsoybeans are indeed a sustainable cropin this region of the world,” DavidMull wrote in a report on theAfghanistan project. “Soybeans arehelping to improve nutrition in the dietof the Afghan people. More jobs arebeing created for the farmers, leadingto increased economic development inthe two provinces.”

The Mulls say there are also manyintangible results of their work thatcannot easily be quantified — the typeof results that occur when people fromtwo different cultures, located a worldapart, cooperate, working together forthe benefit of all and makingdesperately needed improvements inpeople’s lives. It is the Mull’s hope thatall of the desperately neededimprovements will occur in the lives ofthe people they leave behind.�

On any given day, roughly 50 American agricultural experts applymodern technologies to help grow stronger, more abundant crops andensure the health and proper care of livestock. What sets these men andwomen apart from the millions of other Americans who live and work inthe agricultural sector every day is that they apply their knowledge andskills in rural Afghanistan.

Since 2003, the U.S. Department of Agriculture’s Foreign AgriculturalService has sent more than 100 agricultural experts from a wide range ofbackgrounds — including farmers, veterinarians, agricultural economists,extension agents, educators and more — on assignment to Afghanistan.Their purpose is to help Afghanistan revitalize its agricultural sectorthrough a variety of activities. The ultimate goal is to strengthen thecapacity of the Afghan government, rebuild agricultural markets andimprove the management of natural resources.

USDA representatives have performed a wide range of missions,including helping install windmills to pump water for irrigation, trainingAfghan veterinarians, establishing nurseries in reforested areas,rehabilitating degraded orchards, mentoring Afghan agriculturalextension workers, providing key technical education to help controlanimal disease and much more.

USDA’s efforts in Afghanistan are making a difference.Results of a USDA survey from April-December 2010, for example,

show that USDA-assisted activities helped created 107,000 temporary and14,000 permanent jobs, trained 800 Ministry of Agriculture, Irrigation andLivestock (MAIL) officials who, in turn, trained 60,000 Afghan farmers.Nearly 34,000 Afghan farmers have used improved techniquesdemonstrated by U.S-Afghan extension teams.

Despite these successes, there is still a need for ongoing USDAassistance for the reconstruction of the agricultural sector inAfghanistan. The Afghan countryside and farmland have been devastatedby 30 years of ongoing conflict, yet 80 percent of the population is stillinvolved in farming or herding. Most of their equipment, technology andeducational resources are scarce or outdated, which stifles the growthand expansion of the agricultural sector.

USDA currently has about 50 slots for agricultural experts inAfghanistan and is looking for men and women with diverse agriculturalbackgrounds who are willing to commit to medium- and long-termassignments, which can range from six months to more than a year.USDA representatives can help further the development of the capacityof MAIL staff, who can, in turn, help their own Afghan farmers.

For more information about opportunities with USDA in Afghanistan,visit http://www.fas.usda.gov/country/ Afghanistan/us-afghanistan.asp. �

USDA ag experts bring knowledge, skills to AfghanistanBy Karoline Newell, Public Affairs SpecialistUSDA Foreign Agricultural Service


By Stephen Thompson, Assistant Editore-mail: [email protected]

s butanol a better biofuel forAmerica? One Missouri farmers’ co-op is banking on it.

Show Me Energy Cooperative,based in Centerview, Mo., has raised

the funds to build a facility that will produce 2million gallons of butanol annually, a fuel that ischemically similar to ethanol, but offers someimportant advantages.

Show Me was founded in 2008 when a group ofseven farmers saw a chance to compete in the localmarket for heating fuel by using grasses asfeedstock. Now 612 farmer-members strong, thecooperative produces fuel pellets that can be soldmore cheaply than comparable pellets made fromwood waste. Show Me serves not only a stronghome-heating fuel market, but a number of localpoultry growers who heat their poultry houses withthe co-op’s pellets instead of more expensivepropane.

“Propane costs were driving the poultry farmersout of business,” says Steve Flick, president of theco-op board of directors. “We’re supplying themheat for less than half the cost.” Each ton of pelletsis equivalent to 190 gallons of propane gas. Thecooperative buys the grass feedstock for between $45and $60 per ton.

Show Me is also exploring other markets. In trialtests with Kansas City Power and Light, the co-opprovided biomass pellets for an experimental co-firing pilot program at a coal-fueled power plant innearby Sibley, Mo., in 2008. The 2,000-ton burn wasdeemed a success, but did not result in a supplycontract. However, the co-op is selling pellets toother power utilities across the United States, Flicksays.

The cooperative has developed an EPA-approvedoil-cleanup powder from switchgrass that it says willabsorb 800 gallons of oil per ton of pellets. The oil-laden product can then be processed into fuel orreused after the oil is squeezed out.

Watching “the big boys”When the cooperative looked to expand, it

considered producing ethanol from its grass stocks,but decided that butanol held more potential. “Wewatch what the big boys do,” says Flick. “Andthey’re bypassing ethanol.”

I

Missouri’s

Show Me Energy

Co-op pursuing

$55 million plant

BANKINGON BUTANOL


Ethanol used as a gasoline additive has some drawbacks,among them a tendency to dissolve the epoxy matrix of thefiberglass fuel tanks used in some boats and oldermotorcycles. It can also corrode fuel system parts in vehiclesnot designed to handle it. Its affinity for water can lead tofuel soaking up moisture from the air, resulting indeterioration of gasoline left in inactive vehicles for morethan a few weeks.

Perhaps the biggest drawback for ethanol is that it can’tbe transported in the nation’s network of petroleum pipelinesbecause its solvent properties strip contaminants from thepipeline walls. It also has less lubricity than gasoline and onlyabout two thirds of its energy content, which hurts fuelmileage.

Butanol has none of these disadvantages. While it can beproduced by a fermentation process much like those used forethanol, its energy content is closer to that of gasoline, so it

gives better mileage. It can be safely shipped via pipelines, ithas good lubricating qualities and it has little affinity forwater. Proponents claim that it is safe for older vehicles andthat it can be used without blending in gasoline engines.

Most importantly, butanol appears not to be subject to thegasoline-blending limit faced by ethanol, known as the“blend wall,” which has limited ethanol expansion. TheEnvironmental Protection Agency currently certifies butanolas a gasoline additive at concentrations up to 11 percent.

One of butanol’s key advantages “closed the deal” forShow Me: it can be added to diesel fuel. As a diesel additive,butanol has a comparatively high cetane rating and improvesflow in cold weather. Proponents say that it reducesparticulate emissions in diesel exhaust when added to fueland prevents fuel deterioration in storage.

BP and DuPont have joined in a partnership to developthe fuel while other firms are exploring its commercial

Facing page: AgricultureSecretary Tom Vilsacktours the Show MeEnergy plant last year, asSteve Flick, the co-opboard president, explainsthe operations. Above: theco-op’s plant currentlyturns biomass into fuelpellets, but the co-op isalso pursuing plans tobuild a plant that wouldproduce butanol. Photoscourtesy Show MeEnergy

One of butanol’s key advantages“closed the deal” for Show Me: itcan be added to diesel fuel.


potential. However, butanol is not quiteready for the mass market: the techno-logy for producing it in commercialquantities is unproven. Some venturesare exploring production usingfermentation; others are looking atpyrolysis — a process that uses heat todecompose organic compounds in theabsence of oxygen. One firm in Oregonis planning to use pyrolysis to producebutanol from dairy manure.

Improved fermentation processFlick says that Show Me’s

fermentation process is being developedin cooperation with a technologypartner and several universities. Theco-op’s 2-million-gallon-per-yearfacility is in the design stage, with agoal of being up and running in twoyears.

The cooperative looked at numerousliquid fuel production methods with thehelp of outside consultants beforefinalizing its process. “Most of theprocesses we tested didn’t work,” saysFlick. “They were ‘beauty science,’publicized to raise capital.”

The feedstock for the new plant willbe the same locally harvested grassesused for the co-op’s fuel pellets.According to Flick, the sugar content ofsuch grasses available for fermentationcan be as high as 70 percent (althoughgrasses harvested in the late fall, as theyare in Missouri, are somewhat lower insugar content, Flick notes).

After the fermentable sugars areextracted from the grass, the leftovers— mostly cellulose and lignin — will begasified and burned to generateelectricity onsite. “We’re going to begetting three squeals from the pig,” ishow Flick puts it.

The co-op expects to produce 10megawatts from co-generation, ofwhich four megawatts will be used torun the plant and six will be sold. Flickis careful to point out that, while sixmegawatts isn’t a great deal of energy, itwill be continuously generated, making

it a baseline power source, unlike solarand wind energy. The leftover ash willbe used for fertilizer.

Qualifies for USDA’sBCAP program

The cooperative scored a major coupwhen its proposal for participation inthe USDA Farm Service Agency’sBiomass Crop Assistance Program(BCAP) was the first to be approvednationwide. The program allowsfarmers and bioenergy producers toteam up to apply to establish a BCAPproject area. Inside the boundaries of aproject area, eligible farmers can applyfor reimbursement of 75 percent of thecost of establishing a perennial biomasscrop, for up to five years in the case ofgrasses and other non-woody crops. Inaddition, up to $45 per ton in matchingpayments is available for up to twoyears for harvesting, storage, andtransportation costs.

BCAP has allocated $15 million forthe project area, which covers 39counties in western Missouri andeastern Kansas. Initially the programwill subsidize up to 20,000 acres ofgrasses planted for biofuel, with plansto expand to 50,000 acres in comingyears.

While BCAP doesn’t limit itsprogram to marginal land, Show Me’sproposal specified that only landunsuitable for grain crops will be used.Flick says that this is an example of thecooperative’s commitment to the localcommunity.

“We have very intense agriculture inthis area,” he says. “Most of ourmembers have less than 200 acres, andthey concentrate mostly on livestockand minimal row crops. This is a way toexpand productive acreage and promoteconservation, too.”

Grass crops are promoted as highlydesirable conservation measures,because they offer flood control andrunoff filtration benefits. Grassplantings can decrease sedimentation

and absorb chemical pollution fromother crops before it reaches waterways.Much of the grass crop will be plantedon flood-prone land. The cooperativehas developed two grass seed mixtures,one suitable for lowland, wet conditionsand the other for drier, well-drainedland.

While the BCAP approval has beenhelpful, Flick says that obtaining thecapital for the expansion has beendifficult. His comments echo those ofother co-op leaders. “The capitalsituation right now is just a nightmare,”he says. “Banks don’t want to dobusiness with new technologies and theeconomy is dragging. We would reallyendorse new co-op laws that make iteasier to raise outside capital andsimplify the distribution of patronagedividends. The laws now just make a lotof work for CPAs. Things have changeda lot since Capper-Volstead waspassed.”

The projected cost of $55 millionwill be financed by debt and equity.“This is the biggest chunk we’ve everchewed off in our lives,” Flick says.“We’re going to groom a newgeneration for the next step.”

In keeping with the cooperative’semphasis on the local community, thebutanol it produces will be sold onsite,in a 10-percent blend with diesel oil,and stored in above-ground tanks.“This will be a local product for localconsumption,” says Flick. “We’re justgoing to sell fuel. There won’t be aconvenience store. We’re not sellingpotato chips.”

Flick says he thinks the butanolproject could eventually involve 1,000local farmers, depending on how manysign up for the BCAP subsidies. Co-opmembership will not be required to sellfeedstock to the new plant. As forfuture co-op growth, Flick says, “We’llprobably have more membership withBCAP, but 612 members is pretty bigfor a new business.” �


MFA Oil Biomass receivesUSDA BCAP funding

MFA Oil Biomass LLC, a subsidiary of MFA Oil Co., has been approved toreceive $14.6 million under USDA’s Biomass Crop Assistance Program(BCAP), which will help growers plant a special grass — miscanthusgiganteus — that will be processed into biofuel pellets. MFA Oilcooperative leaders say the program will lead to job creation, stimulateeconomic growth, improve the environment and help reduce the nation’sdependence on foreign oil (for more on the project, see the cover story ofthe March-April 2011 Rural Cooperatives, available online at:www.rurdev.usda.gov/rbs/pub/openmag.htm).

The BCAP funding was a critical factor that MFA Oil Biomass needed toachieve its goal of producing a next-generation, renewable energy crop,according to its parent co-op. MFA Oil Biomass, a partnership betweenAloterra Energy and Columbia, Mo.-based MFA Oil, was created to form avertically integrated energy supply company. The energy grass will begrown on marginal land and thus will not compete with row crops, the co-op stresses.

MFA Oil Biomass projects an estimated $150 million annual economicimpact from growing the new energy crop, while creating 2,700 new jobs.The co-op says the new energy crop, which it expects will be grown bynearly 1,700 farming families, will replace fossil fuels now used foragricultural heating and power plants.

“What we are talking about here is displacing foreign oil, two-thirds ofwhich is imported and accounts for half of the nation’s trade deficit,” saysMFA Oil President Jerry Taylor. “Renewable energy programs, like BCAP,are part of the solution because all of the dollars generated stay local, helpcreate jobs, strengthen our economy and improve the environment.”

Under current guidelines, BCAP will reimburse farmers up to 75 percentof planting costs and pay an annual rent payment while farmers wait fortheir crops to mature. Once the crops mature, farmers will be eligible toreceive two years of matching payments for their tonnage, up to $45 perton beyond the selling price.

Miscanthus giganteus is a warm season perennial grass that is non-invasive, drought and pest resistant and needs less fertilizer than foodcrops. It is well adapted for growing on marginal land. The grass is alsoextremely efficient in sequestering carbon from the air — an added benefitif the carbon market develops. Miscanthus giganteus has been used as asource of heat and electricity in Europe for more than 10 years.

The three BCAP project areas approved for MFA Oil Biomass arelocated in central Missouri, southwest Missouri and northeast Arkansas.Each project area has a projected four-year goal of growing 50,000 acres ofthe miscanthus biomass crop. Funding has been approved for the firstyear’s planting of 13,838 acres towards the company’s goal. �

Gigantus miscanthus. Photo courtesy University of Illinois


Virginiaelectric co-opsjoin forcesto purchaseinvestor-ownedassets, thensplit serviceterritory

Rappahannock Electric Cooperative(REC) workers now have anadditional 50,000 member-customersto serve, following the co-op’s jointacquisition — along withShenandoah Valley ElectricCooperative (SVEC) — of AlleghenyEnergy’s assets in Virginia. SVECgained an additional 50,000 meters inthe deal. All photos courtesy REC

SPLITDECISION


By Robert A. Ellis

Editor’s note: the author is vice president for business developmentat Rappahannock Electric Cooperative.

wo rural Virginia electric cooperativesprovide dramatic evidence that cooperationamong cooperatives — one of the foundingprinciples of the cooperative movement —can accomplish something that would have

been difficult, or even impossible, had they not workedtogether. By working as a team, Rappahannock ElectricCooperative (REC), in Fredericksburg, Va., and ShenandoahValley Electric Cooperative (SVEC), in Mt. Crawford, Va.,were able to acquire Allegheny Energy’s (an investor-ownedfirm) electrical distribution assets in Virginia.

As a result, the two co-ops have expanded their serviceareas from a combined 140,000 electric meters to nearly240,000 meters. (REC jumped from 99,580 meters to149,160, while SVEC more than doubled its distribution,from 39,500 to 90,000 meters.) Co-op leaders credit thesuccessful results to teamwork, old-fashioned hard work andcareful planning.

The acquisition process began in March 2009, whenAllegheny Energy (AE) informed the cooperatives that itwould like to shed its Virginia distribution assets. It invitedboth Rappahannock Electric Cooperative (REC) andShenandoah Valley Electric Cooperative (SVEC) to submitbids, which were due just one month later. Much occurredduring that one month, leading to a joint bid submitted byREC and SVEC. The bid was accepted by AE within oneweek of submission. On May 4, 2009, an asset purchaseagreement was signed by AE and the cooperatives.

The combined purchase price was about $314 million for102,000 meters and the electric system that served them. Thesale closed June 1, 2010. After one year of consolidatedoperations, REC leaders say the acquisition is exceeding allexpectations and financial projections.

Co-op backgroundREC is a member-owned distribution utility formed in

1980 through the merger of Virginia Electric Cooperative, inBowling Green, and Northern Piedmont Electric Cooper-ative, in Culpeper, both of which were formed in the late1930s. Prior to the acquisition of AE, the co-op providedelectrical service in 16 Virginia counties, a territory which hasnow been expanded to 22 counties and more than 16,000miles of power lines. Its service area ranges from the BlueRidge Mountains to the Chesapeake Bay.

REC has 407 employees and $414 million in annualrevenues. It serves a variety of residential, commercial andindustrial accounts.

SVEC was the first electric co-op chartered in Virginia (in1936) and serves member-owners in eight Virginia counties.It just celebrated its 75th anniversary in June. It, too, has a

broad range of accounts, including residential, independentfarms and large industrial members.

Including the AE acquisition, SVEC now maintains morethan 7,600 miles of power lines and employs 204 people. Itsannual revenue is expected to exceed $224 million from thesale of 2.4 billion kilowatt hours of electrical power.

A perfect fitAllegheny Energy’s geographic service area in Virginia

matched up almost perfectly with the service territories ofREC and SVEC, so the acquisition was considered a naturalextension for the two cooperatives. AE’s Virginia assets werelocated in 12 counties in Virginia’s northwestern corner.These included: 102,000 electric customers, 5,739 miles ofdistribution lines, 315 miles of sub-transmission lines, 43substations, 3 service centers, 103 employees, and numeroustrucks and other pieces of equipment.

The AE service density in Virginia was 16.85 meters permile of line. Retail revenues were 50.5 percent residential,23.9 percent commercial, 25.1 percent industrial and 0.5percent street lighting. Winter and summer peak demandswere about 680 megawatts.

Shortly after AE made the initial contact about a possiblesale, REC management and its board decided it wanted tobid for the AE service area. It soon became obvious thatSVEC (an adjacent cooperative that bordered the AEterritory) also decided it was interested in bidding for theassets.

Rather than bid competitively, the two cooperatives agreedto work together to submit a joint bid to AE for the assets. Inthe joint bid, the cooperatives proposed to split the assets asequally as possible, based on meters, revenue, density andpotential growth. AE was agreeable to the joint bid proposal.

In the one month they had to prepare their bid, thecooperatives had to evaluate AE’s Virginia assets, determine abid price and develop the bid proposal in accordance with therequirements of the request for proposal. This had to bedone confidentially so that the AE Virginia work force wouldnot be adversely affected.

Co-ops see numerous benefitsFor both REC and SVEC, the perceived benefits of the

acquisition included increased service density, significantcommercial and industrial load and the ability to spread fixedcosts over more meters. Other benefits included the ability toleverage their existing information technology (IT) systemswithout significant upgrades or changes, a system thatmatched primary distribution voltages (12.5 and 34.5kilovolts), a territory that fit “hand-in-glove” with theexisting territories and improved service and accessibility forthe newly acquired members.

All of these factors would result in reduced cost of servicefor both the existing membership and the newly acquiredmembers.

The cooperatives decided that if they were going to spend

T


the funds to develop a bid, they wantedit to be successful. This required thatthe co-ops secure the assistance ofhighly qualified consultants, advisorsand lawyers during a “sprint” toprepare a valid proposal. In Virginia,all utilities come under the purview ofthe Virginia State CorporationCommission (VSCC), which wouldultimately need to review and approvethe deal.

The cooperatives secured theassistance of a firm called PowerServices Inc. to perform the systemevaluation and assist with the plan tosplit the territory. JDG ConsultingLLC was brought on board to evaluatethe power costs and retail rate issues. The law firm ofMcGuire Woods LLP was hired to prepare and present thecase to the VSCC, while the law firm of Orrick, Herringtonand Sutcliffe LLP performed the tasks related to all thevarious acquisition documents, of which there were manymore than was initially anticipated. Corporate lawyers for allparties were also heavily involved.

Old Dominion G&T co-op assistsSecuring an adequate power supply for the proposed

acquisition territory was a major concern. Both cooperativeshave an “all requirements power supply contract” with OldDominion Electric Cooperative (ODEC), a generation andtransmission (G&T) cooperative that serves 11 cooperativesin Virginia, Maryland and Delaware. ODEC providedimportant assistance in reviewing the three power-supplycontracts that came with the acquisition. Additionalconsultants were secured to provide financial advice,procedural advice, environmental analysis and labor lawadvice.

The cooperatives, along with the consultants and advisors,began an extremely intense, three-week effort to evaluate thesystem, determine a fair price for the assets and to preparethe proposal, based on a multiple of the net-book value of theassets. The proposal included how the two cooperativeswould split AE’s assets, making the bid much morecomplicated for the seller.

Still, AE needed only a week before accepting the bid.The co-ops were then asked to meet with AE immediately tobegin negotiating the asset purchase agreement (APA). Overthe next week, all three parties met frequently to hammer outthe APA, which all further actions and agreements were basedupon. On May 4, 2009, the document was finalized andsigned.

Unique features of agreementOne of the many unique aspects of the purchase

agreement was that it required each cooperative to have the

financial ability to purchase AE’s total Virginia distributionassets if the other cooperative was unable to complete its halfof the purchase. That required each co-op to secure fundingguarantees for the entire purchase amount of about $350million.

The timing of the acquisition coincided with the 2009economic recession, so the ability of the co-ops to securefinancing was initially a concern for AE. However, bothcooperatives were financially sound with good managementand solid revenue, margins and balance sheets. Their regularsources for funding (CoBank and the Cooperative FinanceCorporation) were eager to participate in the acquisition,quickly offering loan-guarantee letters. The Rural UtilitiesService of USDA Rural Development (which provides majorfunding for the electric cooperatives) also provided supportfor the proposed acquisition. Thanks to their solid creditrecords, funding turned out to be one of the easiest issues toresolve for the co-ops, even during the recession.

The sale closing was dependent upon a number ofimportant “milestones.” These included:• Conducting a detailed environmental audit and review;• Performing due diligence on the system and its operationsand maintenance;

• The two cooperatives agreeing on the actual split of thesystem and its assets;

• The migration of all the IT (information technology)systems data (not just to one cooperative, but to twocooperatives using different software and hardware);

• The development of operational budgets, along with ratesand tariffs;

• A legal review of all real estate and utility easements inanticipation of re-recordation in each county and city;

• A case study and legal documents required by the VSCC,and

• Review and approval by the VSCC (without which the salecould not be completed).

‘E-room’ and team leaders facilitate effortEarly in the process, AE established an extensive “e-

room,” with restricted access via the Internet, in which wereplaced all relevant documents, maps, engineering analysis andother reports, financial information and other requestedinformation. This e-room — which was accessible by thecooperatives, the consultants and advisors — allowed forquick, efficient access to critical information.

Beginning with the bid preparations, each of the threeentities designated a key primary contact person responsiblefor the overall coordination of all activities. These threeindividuals were critical in keeping the acquisition process ontrack and on time.

Team leaders and teams within each organization wereestablished for each of the numerous migration activities.Team leaders reported to their respective primary contactperson. Teams dealt with environmental review, systemreview, operations review, outage management, systemmapping, work management and substation review. They alsofocused on equipment maintenance management, vehiclereview and transition, financial review, systemautomation/supervisory control and data acquisition(SCADA), consumer/member information and billingtransition, as well as all of the IT systems that support eachof these activities.

A project timeline of 12 to 18 months was developed,based on the amount of work required to transition the ITsystems and secure VSCC approval.

The agreement allowed the cooperatives 60 days toperform an environmental audit of the system and properties.If environmental problems were discovered, AE would beresponsible for correcting or cleaning up any problems thatexceeded $1 million in costs. Should AE refuse to correct anysuch problem, then the cooperatives could void the purchaseoffer. The environmental audit revealed no significant issuesor concerns.

Territory split evenlyWork also began immediately to divide the territory

evenly between REC and SVEC. The cooperatives workedwith the consultants and AE over a period of three months toestablish the division of the territory. Geographic, political,circuit and substation boundaries — as well as the concernfor overall system safety — were used to establish theterritory boundaries. Density and estimated revenues werealso taken into account in the evaluation.

Numerous scenarios were analyzed before the cooperativesfinally agreed on the division plan. The plan resulted in thesharing of some substations and several 34.5 kilovolt sub-transmission lines that interconnected other substations ineach territory. Plans were developed and agreements werewritten defining the operations and maintenanceresponsibilities of each cooperative regarding these sharedfacilities.

Along a parallel path, the legal firms, in cooperation withthe primary contact person from each cooperative, weredeveloping the numerous agreements necessitated by the

purchase. These included agreements for borderlinecustomers, pole attachments, transmission line easements,shared facilities, transition services, interim services, load andfrequency control services, and mutual aid.

The agreements required an extensive amount of time todevelop, review and agree upon. Several were not finalizeduntil the last week prior to the closing of the sale. Co-opleaders advise that any other co-ops beginning a similaracquisition process should be aware that this may be an areaof unanticipated, time-consuming effort.

Soon after the APA was signed, it became obvious that theIT migration effort would be both extensive and expensive.There were 15 or more IT systems that required migrationor modifications. With only a few exceptions, each of thethree parties used different software and platforms for thevarious IT systems. Even with a 12- to 18-month timeline,data mapping and migration became the major concern. TheIT migration effort would run right up to the final hoursbefore the closing.

Concurrently, one of the law firms — along with thefinancial consultants and advisors — began working toprepare the documentation required by the VSCC. Thiseffort included responding to numerous inquiries fromVSCC staff and the consultants that the VSCC hired toreview the case for them.

Employee meetings, public relations effortsOnce the cooperatives became fairly confident that an

approval would be obtained from the VSCC, they met withthe existing AE employees (who would be changingemployers to REC or SVEC) to review the cooperativepolicies, wages, salaries and benefits. Some AE employeeswere unionized, while REC is not, so it carefully explainedhow it deals with all its employees and stressed itscommitment to open communication in all employeedealings.

A public relations campaign was also begun to educate thefuture consumers/members and businesses about thecooperative model and benefits. These futureconsumer/members had always been served by an investor-owned utility, so they knew very little about electriccooperatives.

The major concern by the future consumer/members wasthe fear that they would be paying higher rates undercooperative ownership. This was also a major concern of theVSCC. AE’s rates in Virginia were artificially low as a resultof its agreement to a rate cap in the early 2000s, duringVirginia’s electric deregulation efforts.

With market-based rates, AE’s actual costs for energy toserve its Virginia customers were higher than the dollaramount recovered by the capped rates. The capped-raterequirement was scheduled to expire in July 2011, at whichtime AE’s energy rates were forecast to be even higher, due tothe anticipated market-based rates for the Virginia area.

The cooperatives, with ODEC’s assistance, determined



that the ODEC blended energy rates would be equal to, orlower, than the anticipated market rates to which AE wouldbe subjected. Therefore, it was believed that the cost ofpower for the new territory should not be an issue.

VSCC finally agreed to a transition period that minimizedthe rate increases to the new territory and spread the ratechanges over a period of four years. During the transitionperiod after the close of the sale, the consumer/members inthe new territory would see different (lower) rates than thoserates used with the legacy members of the cooperatives. BothODEC and AE contributed toward these reduced rates.

New service center neededAs a result of the territory split, REC needed to secure a

site and building for a new service center that would support35,000 of the 50,000 future members. An existing districtservice center would serve 15,000 of the new members. A12.5-acre site with a recently constructed 50,000-square-footwarehouse was located within the future service territory.Design, approvals and construction were all expedited toproduce a complete district service center in six months.

About 25,000 square feet of offices were constructedwithin the warehouse shell and the entire site was graded,fenced and made ready for operations.

The VSCC set a March 2010 date for the public hearing.All were surprised when the pleadings and testimony at thehearing continued for five days. There was significanttestimony from both the VSCC consultant and thenresponses and testimony from all three of the utilitiesinvolved. About two months later, the VSCC approved thesale, with conditions. The three parties agreed to the finalconditions, and a June 1, 2010, closing date was set.

The finishing touches were put on the remaining work.AE employees were made job offers, in accordance with theAPA. Staffing decisions were finalized for the new districtoffice. IT systems migration was finalized using the actualdata files from AE.

Warehouses were stocked, arrangements were made totransfer all of the vehicles and equipment titles as well as allof the easements and real estate; spare parts and apparatuswere set up and funding was finalized in anticipation ofelectronic transfer of the full purchase price to AE themorning of the closing.

Consumer/member education and information, aided bypublic relations consultants, continued to be a major focus.Plans were finalized for the day of the takeover.

Closing the sale and the transitions within the newterritory went very smoothly. Now, one year after the closing,things continue to go smoothly.

The need for significant capital improvements wasforeseen by both cooperatives and are underway as of thiswriting. REC is replacing all meters in the new territory withan Advanced Metering Infrastructure (AMI) using Aclaratechnology and equipment. REC has used the Aclara AMIsystem throughout its existing territory for more than nine

years.All the AE substations are being upgraded with

supervisory control and data acquisition automation, whichprovide the REC operations center immediate informationabout the substations and control of them. Tie-lines betweenthe two cooperatives have been automated. For REC, threelarge 12- to 14-person contract crews have begun theextensive work of clearing some neglected rights of way onREC’s newly acquired 3,000-plus miles of electrical lines.This work alone has yielded significant reliability and powerquality improvements for the new members.

Lessons learnedAs with any large project, there were some things that, if

the process were starting again, REC co-op leaders say theywould do differently or give more consideration. Theseinclude:• The very short bid response time did not allow sufficienttime to thoroughly review and inspect the physical systemand the right of way conditions. Additional inspection timemight have influenced the bid price strategy.

• The joint bid process required detailed negotiationsbetween the cooperatives. There were differing ideas insome cases; therefore, compromises were required.

• Even though both cooperatives were USDA Rural UtilitiesService (RUS) borrowers and, as such, used RUS linedesign standards, there were still significant differences inopinion over how to operate the AE system, divide theterritory and upgrade the system.

• The real estate and easement review process was a lengthy,significant and complicated task.

• The submittal to the VSCC was a three-party jointsubmittal by REC, SVEC and AE. During the VSCCtestimony and hearings, this became awkward, becausethere were times when the cooperatives and AE were not inagreement regarding either a response or the possiblesolution. This required negotiations between the jointsubmitters and also with the VSCC and its staff.This significant acquisition has been successful because of:

• Solid planning and preparation, using qualified professionalleadership and advisors,

• Teamwork;• Hard work and careful attention to detail by each team andteam member;

• Clear and regular communication, listening to and thenworking out differences in opinions;

• Listening to existing and future consumer/members’concerns and responding promptly;

• Having a strong financial position from which to begin, and• Being flexible enough to respond to unanticipated issues asthey arose.The efforts of everyone involved made this purchase a

success for both cooperatives and all their consumer/members. Both co-ops hope that their experience can serve asa road map for other co-ops considering a similar move. �

Dairy Month campaigndelivers 100,000 meals

Nearly 100,000 meals for thehungry were made possible during JuneDairy Month, thanks to a nationwideeffort by Dairy Farmers of America Inc.(DFA). Throughout the month, DFAmembers and staff worked to deliver onthe cooperative’s core value of supportfor community by helping fight hungeracross the United States.

The cooperative initially set out toprovide 50,000 meals to those in needthrough a series of fundraisers,volunteer events and local food drives,the majority of which benefittedaffiliates of Feeding America, thenation’s largest network of food banks.

Ultimately, DFA members and staffdoubled that goal, giving nearly 700hours of volunteer time, donating morethan 7,700 pounds of food, sorting andpackaging another 65,000 pounds offood during volunteer events, andcontributing more than $5,000 in cashand grocery gift cards.

The campaign was part of a largerDFA hunger and nutrition effort, whichencompasses policy advocacy andlegislative outreach, as well ascollaboration with federal and localhunger and nutritional programs.

“Hunger is a serious problemaffecting a growing number ofAmericans,” says Jackie Klippenstein,DFA vice president of legislative and

industry affairs. “We believe that dairyproducts can play an important role inreversing the trend, and this nationalcampaign reflects DFA’s commitment tothe issue.”

As an example of the national effort,DFA members and staff in DFA’sMountain Area organized Dairy CaresDay, an event held simultaneously inthree cities: Broomfield, Colo., TwinFalls, Idaho, and Salt Lake City, Utah.Volunteers in each city spent themorning sorting and packaging food, aswell as delivering meals to needypeople.

DFA members also filled reusablegrocery bags with nonperishable fooditems, which their milk haulers assisted


NewslineSend co-op news items to: [email protected]

Co-op developments, coast to coast

Dairy Farmers of America (DFA) Young Cooperator delegates Brian and Jilean Ercanbrack and their family deliver meals to the elderly onbehalf of the Utah Food Bank in Salt Lake City, Utah, as part of DFA’s Mountain Area Dairy Cares Day in June. Photo courtesy DFA

in collecting. Thanks in part to acontribution by Western DairyAssociation, more than 7,000 pounds offood items and dairy products weredonated.

Fund established for victimsof spring storms

Citing the need to help the long-term recovery of individuals andcooperative businesses, the CooperativeDevelopment Foundation (CDF) haslaunched the Spring Storms of 2011Cooperative Recovery Fund.

“Regions throughout the continentalUnited States have been hit by adevastating series of storms, tornadoes,floods and wildfires,” says CDFExecutive Director Liz Bailey. “We’veall been horrified by the scenes fromTuscaloosa and Joplin, and we’vewatched in disbelief as massive floodinghas inundated both urban and ruralareas throughout the Mississippi RiverBasin. The death and destruction thathas occurred is beyond belief and theCooperative Development Foundation(CDF) applauds the resiliency of thepeople affected and the extraordinarywork being done by governmentresponse teams and disaster reliefagencies.”

Cooperatives have been an importantbuilding block in bringing economicdevelopment to many parts of thismulti-state area. Bailey sayscooperatives have raised incomes andprovided affordable services, providingagricultural production infrastructure,housing, access to credit and ruralutility services and access to markets forcrops. In many areas, much of thisinfrastructure has been damaged ordestroyed, leaving cooperatives andtheir members with few tools to rebuildand help themselves recover from thesedisasters.

“The establishment of this fund is allabout co-ops helping co-ops,” Baileysays. “Our focus is on what will benecessary for recovery once disasterrelief has met most immediate needs.”Donations will be used to rebuildcooperative businesses and newcooperative development as part of the

long-term recovery. “We want to helpmore people experience the benefitsthat cooperatives can bring to theirlives.”

CDF will charge no administrativefee for funds raised, ensuring that 100percent of the funds donated reach the

people and organizations that needhelp. A prime point of contact for CDFin the South will be the Federation ofSouthern Cooperatives/Land Assistance

Fund, which will help to identify theneeds of farmers and farm cooperativesand help CDF coordinate this effortwith the wider cooperative communityin that area.

For more information, visit:http://www.cdf.coop/the-spring-storms-

of-2011-co-op-recovery-fund/, call:(703) 302-8094, or write: CooperativeDevelopment Foundation at 2011Crystal Drive, Suite 800, Arlington, VA


Members of the North Dakota Air National Guard build a sandbag wall to protect a homealong the Missouri River near Bismarck, N.D., in June. More than 1,300 North DakotaNational Guardsmen worked in the Bismarck-Mandan area to help hold back floodwaters. Below: Streets in many towns in North Dakota and Iowa were turned into streamsby the flood. Air Force Photos by Tech. Sgt. Oscar Sanchez


22202. CDF also continues to acceptdonations for its Tsunami CooperativeRecovery Fund. Information on thateffort is also posted on the abovewebsite.

CHS aiding disaster victimsCHS Inc. is contributing $1 million

to help North Dakota communitiesimpacted by recent severe flooding. Inaddition, the CHS Foundation, anindependent, private foundationsupported by CHS Inc., is contributing$50,000 to the American Red Cross toaid in flood relief efforts. The companyis making an additional $50,000corporate contribution for directsupport to the nearly two dozen CHSemployees whose homes have beendamaged by severe flooding in theMinot, N.D., area.

“We recognize the significantchallenges faced by so many individualsand communities impacted by therecent flooding,” says Carl Casale, CHSpresident and CEO. “We hope thesecontributions will help those affected bythis disaster as they begin to recoverand restore their homes, farms andbusinesses.”

CHS Foundation and CHS Inc.employees have also contributed$84,000 to help victims of theearthquake and tsunami in Japanthrough their donations to theCooperative Development Foundation(see above news item) and the AmericanRed Cross. CHS has also madedonations to help victims of thetornadoes that hit Alabama andsurrounding states in the spring, as havemany other cooperatives.

CoBank-U.S. AgBank mergergets preliminary approval

The Farm Credit Administration(FCA) has voted to grant preliminaryapproval of the proposed plan ofmerger between CoBank and U.S.AgBank. FCA serves as the independentregulator for both banks and the rest ofthe Farm Credit System. The agency’sthree-member board votedunanimously to grant preliminaryapproval for the transaction, subject to

certain conditions.The preliminary approval will enable

CoBank and U.S. AgBank to submit themerger proposal to their stockholdersfor a vote later this summer. “This is acritical milestone in the mergerapproval process,” says John Eisenhut,chairman of the U.S. AgBank board ofdirectors.

Under statute and applicableregulations, the FCA reviews mergerproposals involving Farm Creditentities to ensure they don’t presentsafety and soundness issues and also toensure that disclosure materialsprepared for stockholders adequatelycommunicate key aspects of the merger.The FCA conditions for the mergerconstitute post-merger requirements ina number of areas, includinggovernance and reporting. The entirebody of conditions will be provided indisclosure materials that will be sent tostockholders in connection with the vote.

“[This] action by our regulatorreaffirms our belief that the merger willcreate a stronger, more durable bankthat is better able to fulfill its missionand serve its customers for generationsto come,” said Everett Dobrinski,chairman of the CoBank board. “Webelieve the conditions articulated by theFCA can be accommodated by thecombined bank without significantfinancial or operational impacts.”

If approved, the merged bank willcontinue to do business under theCoBank name and be headquartered inColorado. It will maintain U.S.AgBank's existing presence andoperations in Wichita, Kan., andSacramento, Calif.

The combined bank would continueto be organized and operate as acooperative, with eligible borrowersearning cash and equity patronagebased on the amount of business theydo with the organization. Robert B.Engel, CoBank’s president and CEO,will remain as the chief executive of thecombined entity. Darryl Rhodes,president and CEO of U.S. AgBank,has announced he plans to retirefollowing the merger.

The banks planned to distribute

disclosure and voting materials tostockholders in the first half of July,with completed merger ballots due tobe returned by September 7.

West Virginia co-op marketingnatural Angus beef

Mountain State Natural Beef is anew producers’ co-op in DoddridgeCounty, W.Va., which is marketing all-natural Angus beef nationally via itswebsite. The co-op was organized bythe Doddridge County EconomicDevelopment Authority (DCEDA), incooperation with West VirginiaUniversity Extension Service, the WestVirginia Department of Agriculture andthe U.S. Department of Agriculture.

The co-op says all participatingfarmers must follow strict productionguidelines “in order to ensure 100percent natural beef. The farms areinspected and visited repeatedly forquality assurance purposes.”

Ten Doddridge County farmers areparticipating in the pilot project, whichwill result in more than 16,000 poundsof beef delivered for marketing inAugust, according to the ParkersburgNews and Sentinel.

“The cows are primarily grass fed,resulting in lean, healthy beef,” MelissaHinterer, DECDA director, told theNews and Sentinel. “Because we aren’tfeeding them as much corn, the beef ishigher in antioxidants,” she added. “Wepulled together local farmers whowould accept guidelines on how to raisesource-verified, all-natural Angus beef.That means no antibiotics, no growthhormones and no additives.” She saysthe co-op has the potential to have afavorable impact on both the local andstate economies.

“Because our farmers are workingtogether cooperatively, we don’t have a‘meat shop’ or a frozen grocery storethat your beef would be shipped from,”the co-op says on its website:http://mountainstatenatural.com.“Instead, we are shipping beef directlyfrom the processing facility to yourhome.” The co-op is selling bundledassortments of various beef cuts indifferent weights.


Co-ops join forces to promotehealthy school lunches

Organic Valley, the nation’s oldestorganic farmer-owned cooperative, andthe National Cooperative GrocersAssociation (NCGA), a business servicescooperative serving 120 consumer-owned food co-ops nationwide, arejoining forces to help improve schoollunches. They will launch a nationalpromotion this fall to support theNational Farm to School Network, anonprofit connecting schools and localfarms to help serve healthier meals inschool cafeterias, improve studentnutrition and to support local andregional farmers.

The national promotion, which takesplace Sept. 1 through Sept. 30, willtrigger a $1 donation to the NationalFarm to School Network with everypurchase of any Organic Valley cheese,among other promotional efforts.

“Today more than ever, our childrenneed better school lunches,” saysAnupama Joshi, director of the NationalFarm to School Network. “We believethe most nutritious and delicious foodcomes straight from local and regionalfarmers. We appreciate the cooperativethinking of two leaders, Organic Valleyand NCGA, in supporting ourmission.”

GROWMARK finalizes SelectSeed acquisition

Regional cooperative GROWMARKInc. has finalized the acquisition of theassets of Select Seed, Camden, Ind.Purchase terms were not disclosed.

Select Seed will continue to operateas an independent brand within theGROWMARK family, and KevinEggerling will continue to manage thecompany’s operations. Select Seedserves more than 450 growers inIndiana, Ohio, Illinois, Michigan andKentucky through direct sales and anetwork of more than 100 farmerdealers.

“Becoming part of theGROWMARK family of brands willenable Select Seed to continue to offergrowers high-performing seed cornalong with access to an even broader

range of agricultural products andservices to improve farm profitability,”says Eggerling.

“Select Seed and GROWMARKshare a similar history of focusing onproviding progressive growersexceptional products to increase theirproductivity and profitability,” RonMilby, GROWMARK Seed Divisionmanager, says.

GROWMARK Inc. providesagriculture-related products andservices and grain marketing in 31states and in Ontario, Canada. The co-op owns the FS trademark, which isused by affiliated member cooperatives.

Binder new CEO at FCCServicesFCCServices, a Denver-based

provider of business consulting servicesfor the Farm Credit System and otherclients, has named Scott Binder as itspresident and CEO, effective Sept. 1.Binder most recently served as seniorvice president for the Mile High Regionof Comcast.

“Scott brings a wealth of experience,ingenuity and work ethic toFCCServices,” says Chairman LoydRutherford. “FCCServices helps itsclients achieve greater success byproviding services focused on leadershipand operational excellence — both areaswhere Scott has a proven track recordand can help continue a legacy ofprofitable growth.”

Prior to leading Colorado and NewMexico operations for Comcast, Binderserved in leadership roles in Kentucky,California and Wisconsin with anemphasis in marketing, finance, humanresources, learning and leadershipdevelopment, customer care andtechnical operations. Binder currentlyserves as board chairman of the MileHigh United Way, is a board memberof the Denver Public SchoolsFoundation and recently served on theboards of the Metro Denver SportsCommission and Denver MetroChamber of Commerce.

Retiring president and CEO RogerShaffer has been with the Farm CreditSystem for 28 years and served in hiscurrent capacity for the past eight years.

Under his leadership, the company sawunprecedented revenue growth and anexpanded suite of managementconsulting service offerings.

Grainland Co-op membersapprove joining CHS

Members of Grainland Cooperative,Holyoke, Colo., have voted to approvea merger with CHS Inc. The proposalpassed with 67 percent approval. Oncefinalized, management will beginplanning for enhanced grain shuttle-loading capabilities.

“We are confident this decision willallow us to accomplish things for ourpatrons and members that we might notbe able to do otherwise,” says RickUnrein, Grainland Cooperative generalmanager. “We need to keep up with ourcustomers’ growing needs andexpectations.”

“The combination is a good matchfor both companies,” says JohnMcEnroe, senior vice president ofCHS. “And it aligns with the CHS corecommitment to always return value toits member-owners.”

The Colorado co-op, which hasseven locations, will continue to operateunder the Grainland name. It providesagronomy, feed, grain and energyproducts and services.

In other CHS news, the co-op hassold its shares in Multigrain S.A., aBrazilian joint venture company it hasowned with PMG Trading and Mitsui& Co. Ltd., to Mitsui & Co. Ltd.,Japan.

Hazen addressesWhite House Councils

NCBA President and CEO PaulHazen participated in a round tablediscussion on economic developmentand the economy with PresidentObama’s top business and economiccouncils on June 2. Hazen was one ofonly a few presenters to addressrepresentatives from the President'sCouncil on Jobs and Competitiveness,the Council of Economic Advisors, theNational Economic Council, the WhiteHouse Business Council, the Office ofPublic Engagement and the Office of


Science and Technology Policy, as wellas representatives from the U.S. De-partments of Labor and the Treasury.

In his remarks, Hazen stressed theimportant role that cooperatives play inthe U.S. economy as businesses that paytaxes, hire workers, provide benefits andcreate wealth in the communities wherethey operate. “Cooperatives are focusedon the triple bottom line: economicsuccess, social progress, andenvironmental stewardship. Asbusinesses, they have business needs. Inthese economic times, now more thanever, cooperatives need access to capitalto grow and to create jobs,” Hazen said

The American Sustainable BusinessCouncil hosted the meeting toemphasize innovative businessstrategies. Hazen was one of threepresenters who discussed cooperativeenterprise. Other organizationspresenting on cooperative businessincluded the Democracy Collaborative

and Local Government Federal CreditUnion. More than 25 business andeconomic development organizationsattended the meeting.

In other news, at the recentConsumer Cooperative ManagementAssociation conference in San Diego,Calif., NCBA Vice President of PublicAffairs and Member Services AdamSchwartz helped lead a workshop onways that food cooperatives can markettheir “cooperative difference” duringthe International Year of Cooperatives(IYC).

NCBA is creating a communicationstoolkit for cooperatives to help promotethe IYC and their own cooperatives.The goal is to create content for use atthe local level that amplifies messages inuse at the national and global levels.NCBA is planning to deliver the toolkitin August. Cooperatives that would likeNCBA to deliver a workshop onplanning for the International Year of

Cooperatives can contact IYCCoordinator Eric DeLuca at:[email protected].

Accelerated Genetics honoredfor export success

Accelerated Genetics, Baraboo, Wis.,is a recipient of the 2011 Governor’sExport Achievement Award. GovernorScott Walker presented the annualExport Achievement Awards in May torecognize firms and organizations thathave achieved extraordinary results ininternational sales or have contributedto Wisconsin’s increased ability tocompete in a global market. Walkersays the companies selected serve asexcellent examples of how to succeed ininternational markets and proved theycould prosper despite the ups anddowns of the global economy.

Accelerated Genetics — which doeshalf of its business outside the UnitedStates — was recognized for being a top

2011 inductees into the Cooperative Hall of Fame are (from left): Gloria and Stanley Kuehn, who spent 25 years working internationally withsmall farmers to grow non-traditional and organic crops; Shirley Sherrod, a veteran of the civil rights movement who found ways to achieveeconomic justice and rural land ownership for small and lower-income farmers through collective farming and cooperative development;Noel Estenson, who, as CEO of Cenex, joined forces with Harvest States Cooperative, creating CHS Inc., the nation’s largest cooperative;Daniel A. Mica, who served for 14 years as president and CEO of the Credit Union National Association (CUNA), a period of significantaccomplishment for the credit union movement. Photo Courtesy Cooperative Development Foundation


agricultural exporter. Award criteriainclude degree of export-relatedgrowth, innovative techniques andapproaches that resulted in thecompany's success, and demonstrationof extra effort in capturing worldwidemarkets.

The co-op, which began inter-national sales in 1957, constructed a 24-stall European Union Qualified SireIsolation facility in 2008 and has addedstaff members who are native to variouscountries it operates in to help “crossthe bridge into the global community.”During the past few years, AcceleratedGenetics says it has initiated cutting-edge marketing techniques to promotethe co-op’s sires.

“Our tremendous growth ininternational sales is a result of manythings, including our international salesteams’ efforts, the respect thatinternational dairy and beef producershave for our genetics program and thegreat superiority of the American beefand dairy genetics, which enhance ourefforts to meet the needs of manydiverse and evolving markets aroundthe world," says Gary Fassett, the co-op’s vice president of sales andcommunication. The co-op iscelebrating its 70th anniversary thisyear with the theme: “Celebrating 70Years of Innovation.’”

“International sales have enabledAccelerated Genetics to better serve ourmembership, including their needs forcompetitive prices, superior genetics, acomplete line of animal healthproducts, and providing reproductionmanagement programs along with otherservices,” Fassett adds.

Dairy co-op CEOsentenced for fraud

Richard Ghilarducci, former CEO ofHumboldt Creamery in NorthernCalifornia, was sentenced in May to 30months in prison and ordered to pay $7million in restitution for loan fraud in acase that led to the bankruptcy andeventual sale of the co-op. Ghilarduccihad previously pled guilty to thecharges, which were filed following ayear-long investigation by the FBI.

U.S. Attorney Melinda Haagannounced that under a plea agreement,Ghilarducci admitted that he falsifiednumbers in the co-op’s yearly financialstatements from 2005 to 2008 toprevent lenders from learning the truefinancial condition of the creamery.Specifically, he inflated the value of thecreamery’s accounts receivable andinventory in various financial statementsprepared for and submitted to CoBank.Ultimately, Humboldt Creamerydefaulted on its loan, causing a loss ofbetween $7 million to $20 million,Haag said in a press release issued bythe U.S. District Court for NorthernCalifornia.

Humboldt Creamery, near Ferndale,Calif., was formed in 1929. It hadconverted to a producer-owned LLC bythe time of the sale, although 75percent was owned by the cooperativeof local dairy farmers. Many peoplefrom the local community worked for,invested in, or were affiliated with thecreamery.

Ghilarducci had worked for thecreamery for more than 20 years,serving as its Chief Financial Officerand then CEO. Shortly afterGhilarducci’s fraud was discovered, thecreamery declared bankruptcy.

“The unraveling of the creamery hashad a profound impact on thecommunity,” Haag said. “Thisprosecution holds Mr. Ghilarducciaccountable for defrauding the bankand the damage his actions caused.”

U.S. District Court Judge Charles R.Breyer also sentenced the defendant toa three-year period of supervisedrelease. Ghilarducci began serving hissentence on May 20. The creamery waspurchased by Foster Farms, Modesto,Calif., one of the state’s largest privatelyheld dairy food companies.

USDA acceptingVAPG applications

Deputy Agriculture SecretaryKathleen Merrigan has announced thatapplications are being accepted forgrants to provide economic assistanceto independent producers, farmer andrancher cooperatives and agricultural

producer groups through the Value-Added Producer Grant Program(VAPG).

“By creating value-added products,farmers and ranchers can expandeconomic opportunities, create jobs andkeep wealth in rural communities,”Merrigan says. “These fundingopportunities will promote businessexpansion and entrepreneurship byhelping local businesses gain access tocapital, technical assistance and newmarkets for their products andservices.”

VAPGs may be used for feasibilitystudies or business plans, workingcapital for marketing value-addedagricultural products and for farm-based renewable energy projects.Eligible applicants include independentproducers, farmer and ranchercooperatives and other agriculturalproducer groups. Value-added productsare created when a producer increasesthe consumer value of an agriculturalcommodity in the production orprocessing stage.

For example, in Caroline County,Md., Richard and Wenfei Uva, ownersof Seaberry Farm, received a VAPG toexpand their processing capacity toproduce beach plum jams and jellies,juice and puree for retail and wholesalemarkets. The Beach plum is a nativefruiting shrub that grows in coastal sanddunes from southern Maine toMaryland. Seaberry Farm planted threeacres of Beach plum in 2006 and willdouble the acreage in 2011.

San Miguel Produce, in Oxnard,Calif., is owned by Roy Nishimori andJan Berk, independent producers oforganic and conventional cookinggreens. In 2009, they received a VAPGfor socially disadvantaged farmers andranchers. The grant enabled SanMiguel Produce to expand markets fortheir “Cut ‘n Clean Green” productsand increase revenues.

The application deadline is August29, 2011. For further details abouteligibility rules and applicationprocedures, see the June 28, 2011,Federal Register. �

meal, in its pork. From birth, hogs mustnever receive antibiotics, a stricterstandard than pork labeled “natural,”which permits no antibiotics 30 daysprior to slaughter. Hogs must havecontinuous outdoor access, wallows,shaded areas and corn stalks forbedding.

Other rules pertain to how hogs areunloaded at the packing plant, whichcan be problematic when dealing withhogs that have never seen a concretefloor. Experienced cooperativemembers share information onstandards and how to meet them,especially with new members with lessexperience in pasture-based hogproduction.

Manager coordinates effortsThe cooperative’s management is

carried out by Jones, NC NHGA’spresident, who acts as coordinatorbetween growers, the packing plant andbuyers. It can be a monumental task

pulling together enough hogs fromamong the membership that meet theweight ranges demanded by buyers.Smaller growers, for example, may haveonly a few hogs in the weight rangeready for slaughter in a given week.

Jones contacts other board membersoccasionally if problems arise. His wife,Jessica, does the billing for growers andis paid for her time. There are no otherpaid employees. At this time, there areno plans to hire a part-time manager,although the topic has been discussed.

The current fee of $1 per head, plus$250 per member per year, may not besufficient to cover the cost of employinga manager. If the day comes when apart-time manager is hired, Jones saysthe co-op will need someone whoknows the industry to help ensure thecooperative’s continued viability.

Since the membership is scatteredover six counties, holding membermeetings can be difficult. Even so, untilrecently there have been monthlymeetings held in conjunction with theNiche Pork Grower School session heldat Duplin County Extension office.Members vote on accepting new buyers

and other cooperative issues. Some havebeen turned away because they appearmore likely to be short-term buyers.

The co-op’s futureJones foresees an expanding market

for the cooperative’s pork, with littleeffort needed from the cooperative toobtain new buyers. He thinks theadditional hogs needed to meetincreasing demand will come fromexisting members who will increasetheir operations, as opposed to addingnew members to the cooperative.

Only five new members have beenadded to the co-op during the past twoyears. New members will always bewelcome, Jones says, if they are willingto work hard to meet the demandingstandards of pasture-based hogproduction.

Author’s note: The author wishes tothank Bruce Pleasant, director of Businessand Cooperative Programs, USDA RuralDevelopment/North Carolina, and MichelleEley, Ph.D., North Carolina Agriculturaland Technical Cooperative ExtensionProgram for their input to this article. �

and increase market share of locally grown goods in theregion.The program is open to farms in the greater Winston-

Salem area. Pilot Mountain Pride gives 80 percent of itsrevenue back to farmers. The other 20 percent goes tosupplies, labor and other costs.

GAP training requiredAn important part of the PMP project is that, to

participate, all growers must receive Good AgriculturalPractices (GAP) training on food safety handling andharvesting techniques. This training gives growers logicalguidance in implementing best management practices thatwill help to reduce the risks of microbial contamination offruits and vegetables.

GAP training includes worker hygiene and health, properuse of manure and protecting water quality throughout theproduction and harvesting process. Growers, packers andshippers are urged to take a proactive role in minimizingfood safety hazards potentially associated with fresh produce.

Being aware of, and addressing, the common risk factorsoutlined in the GAP training results in a more effective,cohesive response to emerging concerns about the microbialsafety of fresh fruits and vegetables. Furthermore, PMPgrowers also encourage the adoption of safe practices by theirpartners along the farm-to-table food chain. This includesdistributors, exporters, importers, retailers, producertransporters, food service operators and consumers.

Early returns encouragingPMP managers initially expected sales last year of around

$30,000 to $50,000, but sales dramatically exceededexpectations after PMP partnered with Lowes to sellmembers’ local produce. That deal resulted in gross sales ofabout $250,000 in 2010. Sales for this season are ongoing,but the “buy local food” movement seems to be going strongin the greater Winston-Salem area, thanks in big part to PilotMountain Pride.

“This is a new beginning,” Pilot Mountain Mayor EarlSheppard said of PMP. “I’m excited because I’m a farmer.This is going to be a new beginning for our young farmers.”

To learn more about Pilot Mountain Pride, visit:http://pilotmountainpride.com, call (336) 444-8000 or [email protected]. �

Pilot Mountain Pridecontinued from page 10

Hogs on the Rangecontinued from page 13


Periodicals Postage PaidU.S. Department of Agriculture

United StatesDepartment of AgricultureWashington, DC 20250

OFFICIAL BUSINESS

Penalty for private use, $300

NOTICE:� Check here to stop receiving this publication and mail this

sheet to the address below.� NEW ADDRESS. Send mailing label on this page and changes

to:

USDA/Rural Business—Cooperative ServiceStop 0705Washington, D. C. 20250-3255
