Co-op solution for rural America's economic crisis

Communities all across rural America are once again caught in the grip of an economic crisis. Low commodity prices, global competition and the flight of capital have all contributed to the current economic situation. The U.S. Department of Agriculture (USDA) estimates that 1998 net income for U.S. farmers has declined by $7.9 billion since last year and tens of thousands of farmers hover on the brink of economic ruin.

Paul Hazen

In mid-October, Congress and President Clinton agreed to $6 billion in emergency funding for farmers and ranchers. This funding will help to avoid an immediate economic catastrophe that could extend beyond the farm gate and seriously impact many rural communities. While this emergency funding is important, it does not address the long-term economic issues facing rural America. The dismantling of traditional farm support programs and the emerging world economy demand that the United States adopt new economic strategies if rural America is to grow and prosper in the 21st Century.

I believe that an excellent way to build a stronger, more stable rural economy is to support the expanded use of cooperatives. Co-ops are a proven form of business that bring economic benefits to people and communities all across America. Today, there are over 47,000 cooperatives in the United States with over 120 million members. In many rural communities, cooperatives power an economic engine that helps farmers process and market their products and provides farm supplies, electricity, telecommunications, credit and insurance. In addition, since cooperatives are owned and controlled by their members, their operations are tailored to meet local needs with profits either returned to members or reinvested in the cooperative. They help keep more dollars at home in rural communities.

On October 29 at the Cooperative Development Forum sponsored by the National Cooperative Business Association (NCBA), USDA took a major step to help strengthen the nation's cooperative business sector. At that Atlanta conference, USDA Under Secretary for Rural Development Jill Long Thompson announced that USDA will set aside $200 million from its Business and Industry Loan Guarantee program in 1999 to promote new cooperative businesses. A priority will be given to supporting rural cooperatives that create or preserve good jobs and which engage in the production of value-added products. But a wide variety of cooperatives can qualify, such as child care, health care and recreation cooperatives, to name a few. Under this USDA program, cooperative leaders first seek a loan from a financial institution in their area, and the lender in turn applies to USDA, which guarantees from 60 to 80 percent of the loan. I believe that this USDA initiative will lead to many cooperative success stories across America.

Cooperative success stories come in all sizes and shapes. Consider Kansas City-based Farmland Industries, one of the largest farmer-owned cooperatives in North America. Nearly 500,000 independent family farmers own the 1,400 local cooperatives that encompass the Farmland system, organized in 1929. Today the cooperative is a Forturne 500 company with sales of more than $10 billion annually. Farmland is a fully integrated food company owned and controlled by farmers and ranchers for their long-term economic benefit. This cooperative system enables farmer members to: 1) lower their unit production costs; 2) increase market access; and 3) secure higher prices for their farm products. Farmland markets value-added farm products in the United States and around the world, thus giving U.S. farmers access to a global marketplace.

Paul Hazen is president and CEO of the National Cooperative Business Association. Since joining the NCBA staff in 1987, he's served as chief operating officer, vice president for membership and cooperative development, vice president of government relations, and director of consumer cooperatives.

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The cooperative success formula is also increasingly on display in the Upper Midwest and Northern Plains, where a cooperative renaissance is underway. A number of new farmer-owned, value-added cooperatives have been formed in this region in recent years to help members earn a greater share of the consumer food dollar. The Dakota Growers Pasta Company is an excellent example. Since its formation in 1993 by 1,040 durum wheat farmers, members have increased their income by processing their crop into pasta. Members succeeded because they took control of their capital resources and built a $41 million durum mill and pasta plant, which they own and control. Dakota farmers now compete in the global marketplace with their own value-added products and the economic benefits extend throughout the local economy.

The cooperative answer to meeting people's needs is found in all areas of the economy. Good employees are essential for business success and economic development. The availability of child care is often essential for creating an adequate pool of good employees. That is what drove three of the largest employers in Shawano, Wis., — 21st Century Genetics, Shawano Medical Center and Little Rapids Corp. — to form the Shawano Employers' Development Cooperative. The cooperative operates Kids in the Kountry, which offers childcare for over 100 children from 5:30 a.m. to 11:30 p.m. Four parents and one representative from each of the organizing businesses serve on the seven-member board of directors, which ensures the success of the center in meeting its members' need for child care.

Another example of the power of cooperatives can be found in the rural Georgia community of Dawson, where USDA last year provided a $1.4 million loan guarantee to reopen a closed textile plant as an employee-owned cooperative. Many of the 200 textile workers who had lost their jobs are now back at work, and the small rural community where most live avoided a near-fatal economic blow.

NCBA, working with partners such as USDA, hopes to replicate these successes using the cooperative business model for rural people facing similar challenges. Rural America can reduce the likelihood of future economic crises by forming more cooperatives that invest in long-term economic benefits for their members. We need to build cooperative businesses that are locally owned and controlled, that can compete in a global economy and return the economic benefits to producers. As Under Secretary Long Thompson explained in her announcement, "The cooperative way of doing business is a significant strategy to address the economic problems and challenges of agriculture and rural America." In short, cooperatives are an economic tool that offers enormous potential for improving the economy and quality of life in rural America.

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