Gateway Gathering: Impacts of Industrialized Agriculture Gauged at 1996 NICE Conference

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Continuing change in agriculture will challenge the fundamental independence of farmers and profoundly alter their relationships with others in the years ahead, Michael Boehlje, a Purdue University agricultural economist, said during his keynote address to the 65th annual National Institute on Cooperative Education (NICE) in St. Louis.

"Today's industrialization of agriculture is not new," he said, citing changes from horsepower to traction power, hybrid seed, confinement livestock production and four-wheel- drive machinery. "The difference today is that changes are being driven by new ways of doing business and this industrialization will be more controversial."

Boehlje cited two fundamental themes of industrialization: the move to a manufacturing mentality where people will think of the food chain as an assemblyline and where marketing will be characterized by negotiated coordination vs. market coordination. "We have had a largely impersonal, open market system but we are moving to a more personalized/negotiated market," he noted.

"A key question we each need to ask is: what's your business? When you ask the commercial production unit, they'll say, "we're manufacturing pork, and it's a science, rather than an art."

Alliances and outsourcing resources and services are part of the change where the objective is to gain high-quality services without investing, Boehlje said. "That's why you use your cooperative. We've been outsourcing for decades. Now we're going to do more."

Boehlje said agriculture is moving into a new era: "the Wal-Marting of agriculture. The key question is whether cooperatives will lead or follow."

More than 1,000 people attended NICE, held under the shadow of the St. Louis arch, where they heard the nation's leading cooperative thinkers address topics that explored all facets of the theme of the event: "Cooperatives: The Gateway to Opportunity, Progress and Success."

The annual conference, sponsored by the education foundation of the National Council of Farmer Cooperatives (NCFC) in Washington, D.C., attracted cooperative executives, university educators, cooperative bankers, directors of local and regional cooperatives, young cooperative farmers and students sponsored by individual cooperatives.

Following are some highlights from some of the dozens of symposiums held during NICE.

Cooperatives that can grasp certain key technological values and skills will be the winners in tomorrow's marketplace, said Professor Michael Cook from the University of Missouri in addressing a young adult group. He outlined 13 points for cooperatives to consider in becoming winning organizations:

1. Control core technologies. In general, cooperatives are not developing key technologies, but can compete by controlling parts of those developments through strategic alliances, joint ventures and partnering.
2. Control distribution of technologies.
3. Be flexible, especially in attitude and mentality.
4. Be sophisticated in worker incentives to gain knowledge. Good employees are increasingly mobile.
5. Internalize opportunity. Develop opportunities in every challenge or change.
6. Have technology transfer credibility. Cooperatives must be trustworthy in recommending technology and need excellent communication programs to relay that information.
7. Be sophisticated in vertical coordination market risk management tools.
8. Permit considerable freedom in control. Producers are reluctant to give up control, but when their cooperatives are organized correctly, producers can gain considerable control.
9. Understand and manage the complexities of heterogeneity, or diversity. Members are not as similar today as they were years ago.
10. Understand and emphasize historical values.
11. Invest in personal and professional member sophistication.
12. Understand and work with regulators.
13. Permit spatial monopoly.

Elected leaders of a cooperative play an important role in guiding and communicating change. Three of them—Ed Brooks, chairman of Foremost Farms USA Cooperative; Bill Lenschow, former vice chairman of AMPI's Morning Glory Farms region; and Larry Grell, chairman of Rice Growers Association—offered insight about changes in their cooperatives. Brooks was a key figure in the consolidation which led to Foremost Farms USA; Lenschow provided background on Morning Glory's transition from being part of AMPI to joining Foremost; and Grell candidly described the near crash of Rice Growers Association in 1985 which led to a complete restructuring of the cooperative, including the board.

The three dairy cooperatives involved in the formation of Foremost in Wisconsin —Wisconsin Dairies, Morning Glory and Golden Guernsey—shared a common culture and history which helped smooth the enormous changes necessary in creating a single new cooperative. Their members had a culture of encouraging innovation and using change for the benefit of members. All had previous experience with mergers and acquisitions and shared a history of cooperation. Members and employees were kept fully informed during negotiations so that the birth of a new major dairy cooperative was a member issue, not a media event.

Forty years of success had lulled the board of Rice Growers Association into complacency. But in 1985, the cooperative was on the brink of disaster, Grell explained. Although the message was not the good news heard by the dairy cooperative members, the communication approach was the same. Growers members were told the truth, which all three panelists insisted was the proper role of board leadership. Armed with the truth, members could make the best decision for their cooperatives.

Polls confirm that consumers like purchasing products from member-owned cooperatives as long as the products meet consumer expectations for quality and value. Examples of how cooperatives are using these findings to their advantage in marketing were discussed by a three-person panel chaired by Mahlon Lang of the University of California Center for Cooperatives.

Len Sanderson, president of Washington D.C.-based public affairs firm, recapped results of a NCFC-funded study which showed that 90 percent of Americans said they would prefer to buy goods from farmer-owned cooperatives given equal product quality. Robert Behr of Citrus World told of the 9-year climb in bringing its 'Florida's Natural' orange juice to market prominence.

"A strong '"rower-owned' message was an important part of our advertising campaign," said Behr. "We are convinced this message has played an important role in the success of our product along with market timing, taste, package and promotion."

Sally Gallion of Farmland Industries said her co-op seeks to insert the farmer-owned message in all communications to every audience. Even more important, however, is the credibility and reputation for quality of the organization behind the product, she said.

An Upper Midwest cooperative is combining the best of the "new wave" approach with the strengths of its traditional approach. John Johnson, president and chief executive officer of Harvest States, reviewed the concept the St. Paul-based grain marketing and food processing cooperative has developed. It allows producers and their local cooperatives to invest directly in the organization's value-added operations.

Attorney Ralph Morris, who specializes in cooperatives, provided a legal perspective on the plan and other innovative financing approaches. Under the investment plan, producers and cooperatives can boost their returns by investing in "equity participation units" in Harvest States' food processing operations. Offered on a per-bushel basis, the investments are designed to expand producers' involvement in value-added activities.

The new approach also helps the cooperative raise the capital needed to finance growth of existing operations and new ventures. Harvest States members will vote in November on changes in articles and bylaws needed to implement the plan.

Morris said the plan is "a creative hybrid that takes the best from both the traditional and newer cooperatives." Producer Ed Ellison who heads Harvest States' board, said a team effort between the board and management led to the plan's development.

The disappearance of cultural barriers between the United States and the rest of the world is having an impact on agricultural cooperatives, said Walter Payne, president and chief executive officer of Blue Diamond Growers, a Sacramento, Calif.-based almond growers cooperative.

Payne and Steve Dees, executive vice president of business development and international marketing for Farmland Industries at Kansas City, discussed how globalization was affecting their cooperatives. Globalization trends have a big impact on Blue Diamond, Payne said, because 78 percent of California's almond production is exported.

"Farmland markets hotdogs to Russia and pork and beef to Japan and China," Dees explained. The United States is a mature market so the cooperative needs to look overseas to sell more of its products. Both Dees and Payne believe there is an increasing role for agricultural cooperatives around the world.

Cooperatives are in a unique position to market their products because people trust them and find their products reliable. This positions them to make an impact in the global arena.

Designated as the home of "co-op fever" and "new generation co-ops," the Red River Valley region of the Upper Midwest has produced dozens of innovative cooperatives in the past few years. Three sugar beet cooperatives in the region have formed a successful new cooperative that turned their marketing woes into sweet success.

Robert Atwood, president of United Sugars Corp. since its founding in 1994, and Bill Rudeen, a producer-director, described how American Crystal Sugar, Minn-Dak Farmers Cooperative, and Southern Minnesota Beet Sugar Cooperative launched United Sugars as their common marketing agency.

"Cultural differences had kept the three cooperatives from combining their marketing efforts earlier," said Rudeen. Then came dramatic recent growth in sugar beet production and industry consolidation trends were clear.

"It was either change or be consumed by change," said Atwood. "The cooperatives realized they needed to work together rather than compete against each other." United Sugars now stands as the third largest marketer of sugar in the U.S.

Selecting a new chief executive officer (CEO) for a cooperative sometimes depends on the culture of the organization, said Richard Sherman from Southern States Cooperative, Richmond, Va. It can be done either by a selection committee of the board for inside candidates or by a search firm for outside candidates.

Sherman provided the inside perspective on using a selection committee; David

Wolfram of EFL Associates described how to use a search firm for outside candidates; and Jeff Kapell of Ocean Spray provided a step-by-step analysis of what to do.

"Because of the culture, we want to select someone from inside," said Sherman. "The cooperative has its own personality and the CEO really sets the standard for employees and image of the company" But if your organization wants to keep the search confidential, has a sense of urgency and lacks the internal resources, a search firm may be the answer.

The first step is to get an idea where the organization is going. Then the board must:

1. Appoint an internal search committee (usually 6 to 7 board members) or a committee to select an outside search firm.
2. Set a completion deadline.
3. Confirm responsibilities.
4. Define job requirements and the attributes desired.
5. Complete a thorough search and bring the top two candidates to the full board for an interview.
6. Interview top candidates and make independent reference checks before offering the job.

The ideal CEO has technical ability and good relationships. Leadership, communication skills and high ethical standards are a must, and marketing/sales skills and international expertise are desirable. Kapell stressed the value of succession planning to train several candidates from within.

What To Do When Media Come Knocking

There are multiple approaches a cooperative can take in developing a planned course of action in dealing with the news media. Eleanor Miller of the National Rural Electric Cooperative Association said the key is to develop ongoing contacts.

Terry Nagle, director of communications for Land O'Lakes, advocated developing a

crisis communication plan for unplanned situations. "Crisis can be defined as the crucial decision point," he said. First impressions are even more important when there is a crisis, so cooperatives need to have a written crisis communication plan.

Claire Peters, manager of public relations for Sunkist Growers, dealt with instances where the media had reported false information about her cooperative. "Positive coverage is possible if the cooperative is creative and works at developing good media relations," she said.

The media can be your friends if you're prepared for the good, the bad and the ugly, they said.

Poland is going to be one of the 10 largest markets in the next decade, Warren Berger observed in citing development efforts there by NCFC affiliates that are being combined. Berger described the program of Agricultural Cooperative Development, International (ACDI) which is combining with Volunteers for Overseas Cooperative Assistance.

Poland's cooperative banks were organized in 1861 and have survived two world wars, although until 1990 their services were very limited. Legal control of the cooperative banks ended when Poland's centralized government fell in 1990.

Gerber and Wayne Carlson, AgriBank, described how ACDI helped free the cooperative banks from control by the central bank. Three regional banks were established in Poznan, Warsaw, and Wroclaw. They are owned and controlled by 400 local banks.

"We targeted the skills of workers by setting up a training center program to improve their present skills," said Carlson.

Cecylia Wisniewska of the Warsaw regional cooperative bank discussed its most recent progress and her dreams for the future. With the success of the program, her dream may soon become reality.

The top tier of 64 local cooperative banks achieved 3.1 percent return on assets, 27 percent return on equity and a solvency ratio of 20 percent. These numbers exceed U.S. bank standards.

Take Co-op Story Back to Community

Go home and tell the story of co-ops, challenged Don Schriver, chief executive officer of the Ohio-based Milk Marketing Inc. "Attendance at NICE isn't enough," he said. "You have a responsibility to go home and talk to others in your cooperative and community and tell them what you learned. You've got to pass along the cooperative story."

Schriver recalled his own indoctrination into cooperatives, from his father (Henry Schriver) who was dedication to telling the cooperative story. "I learned from an early age what cooperatives were all about and why they are important.

"Time and generations cloud the reasons cooperatives were formed," said Schriver.

"We need to tell the story often because, in today's competitive environment, farmers often look only for the best price or the best deal and forget that cooperatives are about more than the bottom line."

Schriver said story telling is one of the most effective ways of educating members. "That is the way our culture is passed down from one generation to the next," he said. "And that is the way we will keep the cooperative movement strong from generation to generation