University of Wisconsin Center for Wisconsin
Rural Cooperatives, November/December 1999,
Published by the Rural Business and Cooperative Development Service
President Clinton hails co-ops as engine for rural progress
By Pamela J. Karg
Tomato farms and the economy of Hermitage, Ark., were dying on the vine just a few years ago. The local agricultural industry was on a downhill slide. But the formation of a tomato growers' cooperative has helped farm families foster new economic vitality in their southern Arkansas community. The progress has been so impressive that President Clinton and Agriculture Secretary Dan Glickman visited the Hermitage Tomato Cooperative Association in early November during a trip touting the president's New Markets Initiative.
The trip illustrated how a partnership between tomato farmers, the United States Department of Agriculture, the Farmers' Bank of Hamburg and Burger King Corporation has created 118 sustainable jobs and brought economic prosperity to Hermitage.
The federal officials, along with local government leaders and community members, say the cooperative's success demonstrates how even a small, farmer-owned food processing facility can add value to a local crop and bring much need economic vitality and sustainable jobs to a struggling rural area. For their part, co-op leaders say USDA Rural Development's decision to back a $3 million loan for the co-op through its Business and Industry Guaranteed Loan Program was a key to the economic revival of the farms and community.
"We came here today because of the success of this co-op and because we want every rural community in America to know what you have done and to know that they can have a better future," Clinton told the crowd that filled the two main streets of Hermitage, located about 95 miles south of Little Rock.
Clinton continued: "In every little old rural community where people are about to give up and they think their kids are going to have to leave home to find work—I want them to see this on television tonight and say, 'if we get our act together, if we work together, if we have a partnership between the local community, the people who are producing food, the people who can buy it and the government and the bankers, we can make it.' We can turn our community around. We can create a new market."
Reversing rural decay
Hermitage's 644 people have long known that something needed to change if the town was to have any future. The town included one restaurant, a couple auto garages, a TV store, two banks and a real estate/car dealership office. Most of their high school graduates were leaving the community. Most residents commuted daily to larger communities for jobs.
In 1998, Bradley County's unemployment rate was 10.7 percent, but has now improved to 8.5 percent. Although this is a positive change, it is still much higher than the national average of 4 percent. The county's poverty rate in 1990 was 24.9 percent, but has dropped to 22.5 percent.
In 1996, USDA Rural Development helped 18 farmers organize the cooperative that started to turn life around for their family farms as well as Hermitage.
USDA then negotiated a Memorandum of Understanding with Burger King Corporation and Restaurant Services Incorporated through which the restaurant giant committed to buying locally produced commodities. Through this agreement, the Hermitage Tomato Cooperative Association, Burger King and Restaurant Services Inc. became business partners.
In 1998, the cooperative received a $3 million Business and Industry Guaranteed Loan from USDA to purchase and to modernize a tomato cleaning and packaging facility in Hermitage. An additional $1 million loan guarantee financed the cooperative's second processing facility.
A small local bank, the Farmers Bank of Hamburg, Ark., originated the loans. Loans of this size are difficult for small banks that do not have the deposit base to generate very many— or very large—loans. However, this bank is committed to helping local businesses utilize the loan guarantees available through USDA Rural Development's Rural Business-Cooperative Service, Glickman pointed out. The lender may sell much of the guaranteed portion of the loan to the secondary market and not have it count against the regulated loan-to- deposit ratios the bank must maintain.
Co-op sales soar
Sales for the co-op have soared from $60,000 to nearly $4 million annually. Shipments have increased from 3,400, 20-pound cases of tomatoes annually to 570,000 cases. In addition to Burger King, major customers include Kroger, SuperValu, Fleming Foods and Associated Wholesale Grocers. Each is a large customer that none of the individual farmers could have supplied on his or her own.
The co-op has a waiting list for new members. The processing facility now employs up to 120 people during the peak season. And during the early November visit, Clinton and Glickman announced that the farmers will do even more to boost the value of their crop through diversification, as well as experiment with the production of greenhouse tomatoes so growers can expand business to a 9-month growing season. The expansion could also include an additional 100 jobs in the facility.
"If I may say so, it was a whopper of a deal...which allowed everyone to have it their way," Glickman said, alluding to the co-op's surging sales to Burger King—to the delight of the Hermitage audience.
"Now you can build that repackaging facility and farm supply store you've been talking about, and spend more of Bradley County dollars here," Clinton said. He added that cooperative efforts offer the best promise to turn around those areas of rural America that haven't kept pace with current economic prosperity enjoyed in more urbanized areas. Agriculture can't sustain the economy anymore under the old rules, Clinton said. But the Hermitage tomato growers have proven that people can make a living in rural America and do something good.
Since the Hermitage cooperative started, a second cafe has opened on Main Street and a new elementary school is being built for the 550-student district. The U.S. Department of Transportation is assisting Arkansas officials in improving State Highway 15 and building a bypass in Hermitage, which will be known as "Co-op Road."
The new frontage road not only complements the expansion plans of the cooperative, but also has stimulated other development, including plans for a full-line, full-service farm supply store and a convenience store. The new road makes it easier for trucks to travel to and from Hermitage on tomato runs. And it has all helped to renew hope, said Randy Clanton, the president and chief executive officer of the cooperative, who shared the November podium with Clinton and Glickman.
Creating "new markets"
The Arkansas co-op stop was the second New Markets Initiative trip by the Administration in four months. In both instances, the remarks of Clinton, Glickman and others highlighted the untapped potential in America's underserved markets, especially in rural areas. This second trip put a special emphasis on how corporations and communities could leverage that potential through long-term, sustainable partnerships. Through the New Markets Initiative, Clinton wants to encourage the private sector to invest in rural communities so that all communities can share in the prosperity of current economic expansion.
The New Markets idea poses two questions. First, does America have a moral obligation to give people a chance to succeed who haven't participated in the current economic recovery and who want desperately to work? Second, if we are enjoying the longest peacetime economic expansion in history, how do we continue to find new jobs and new opportunities with no inflation?
President Clinton says the answers are new markets. Hermitage is a perfect example of what that means, added Secretary Glickman. "Hermitage has shown how a few innovative folks —with some help from their government and a commitment from the private sector—can help turn a community around and create a brighter future for all of its people," he said.
Glickman acknowledged that there's been a lot of pain and struggle for America's small farmers and ranchers these last couple of years. On top of low prices and weak export markets, they're trying to do business in a top heavy farm economy, where so much is controlled by so few.
"To survive, they need to have some kind of ownership in the marketing, processing and distribution of their goods," Glickman said. "That way, they get to keep a greater percentage of the consumer dollars spent on the food that they produce. Co-ops will be a big part of farming and rural growth in the 21st century. And USDA will continue to be there, with the resources and technical assistance necessary to support them."