Fever Pitch
A first-hand report from the man who helped
spark co-op fever in the Northern Plains
Ken "Doc" Throlson describes the art of raising bison for a tour group visiting his North Dakota buffalo ranch. Throlson was one of the leaders in the effort to organize the North American Bison Cooperative.
William Patrie
Rural Development Director
North Dakota Association of Rural Electric and Telephone Cooperatives
Editor's Note: For many years, the author has been assisting with the development of new cooperative businesses in North Dakota and other states. He began his career as an economic development specialist for a regional commission, later joined the North Dakota Economic Development Agency, and currently is with the state's association of rural electric and telephone cooperatives.
A convergence of circumstances
personalities, economic conditions, political culture and
government actions created the phenomenon in the Northern Plains
that has come to be known as "co-op fever." During the
past 10 years in North Dakota, farmers and ranchers facing
similar economic challenges became enthused with the
possibilities for creating expanded marketing options through the
formation of "new-generation" cooperatives.
While the causes of "co-op fever" are multiple, the
courage, intelligence and willingness of farmers to take a risk
for reasonable returns are the primary reasons.
These "new" or "next generation" cooperatives have flown in
the face of such traditional cooperative operating principles as
estate retirements, open membership and a competitive yardstick.
Sugar co-op pattern
The new cooperatives have followed a pattern first used by
American Crystal Sugar Co. and Minnesota Corn Processors. Years
ago, sugar beet growers in the Red River Valley of North Dakota
and Minnesota-faced with the loss of their only market-purchased
American Crystal's sugar processing operation and converted it to
a cooperative.
The newcomers followed a limited membership pattern used by
California cooperatives which involves producer agreements and
"up-front" equity investments by members. Two leaders
surfaced who would later reappear in future cooperative
developments: George Sinner from Casselton, N.D., and Pat
Benedict of Sabin, Minn.
In establishing the corn wet-milling plant at Marshall,
Minn.,
Minnesota Corn Processors generated delivery rights for farmers.
It also required growers to deliver specified amounts of corn,
and, if necessary, at below-market prices. The processor could
count on a dedicated supply of raw product, adequate operating
margins and limits on losses. That encouraged lenders to finance
the cooperative.
American Crystal Sugar had sought to establish a successful
cash flow by spreading out payments to growers during the
processing and marketing year. The final payment reflected the
actual operating margins achieved. The volume required for an
efficient processing operation was assured. This created
a strategic advantage over other competing processing plants.
Distinguishing characteristics of these two
cooperatives emerged:
Bill Patrie, the
man who helped spark coop fever in North Dakota.
USDA photos byDan Campbell
Dakota Growers Pasta Co.
When discussion began about forming a
cooperative to produce pasta, durum was selling for $2.20 per
bushel. Farmers were not even returning their cost of production.
Converting durum into pasta was simply a way to improve net farm
earnings.
Soon after joining the state rural utility
association, I met with Bob Spencer and John Rice, Jr. at
Maddock, N.D. Both were early proponents of the pasta
cooperative.
Spencer managed Baker Electric, which served
the Noodles by Leonardo pasta plant in Condo, N.D. He chaired the
Durum Triangle Industrial Park Corporation that had recruited and
helped finance the private pasta company plant in 1980. Rice, a
young farmer from Maddock, was president of the U.S. Durum
Growers and a strong proponent of better prices for producers.
Others joined the original team of Dakota
Growers Pasta Co. They included Eugene Nicholas, a member of the
North Dakota House of Representatives from Cando and a director
of the Durum Triangle Industrial Park Corporation. He helped
acquire funding from the Bank of North Dakota for the Leonardo
pasta plant. Jack Dalrymple, a farmer from Casselton, like former
Gov. George Sinner, chaired the State House of Representatives
Committee on Appropriations.
Organizational steps follow
In the feasibility study for Dakota Growers
Pasta Co., steps were outlined and a budget was prepared.
Spencer, Nicholas, Dalrymple and Rice helped raise funds to match
a research grant from the North Dakota Agricultural Products
Utilization Commission (AgPUC). A Massachusetts consultant
specialized in the food system and cooperatives was hired.
To form the co-op's steering committee, members
selected contributors to the study: U.S. Durum Growers, the North
Dakota Wheat Commission, AgPUC, Baker Electric, Central Power the
North Dakota Department of Economic Development and Finance, and
the North Dakota Farmers Union. Rice chaired the committee and I
was the principal advisor.
For an interim board, Dalrymple was elected
chairman and subsequently was named interim chief
executive officer (CEO). Legal and accounting service contractors
were chosen. A grant from AgPUC for $150,000 in organizational
funds was matched by contributions on a nickel-per-bushel basis
from durum farmers. Armed with a $300,000 organizational budget,
the board recruited Tom Dodd as CEO. He was operating a pasta
plant in Missouri and brought along his sales manager and
engineer.
The board then launched the equity drive, which encountered
some resistance due to the then-recent failure of several new
cooperatives.
The plant was designed to use 3 million bushels of durum
annually. The equity share price was set at $3.85 per bushel. But
to cut that price, the board negotiated a loan with the Bank of
North Dakota on a subordinated basis to the St. Paul Bank for
Cooperatives. More than 1,000 producers made a personal
commitment (on a per-bushel basis) to cover any default.
It took 33 meetings before the drive reached striking range of
the $12.5 million equity needed to capitalize the plant. More
than 1,000 farmers agreed to be individually liable for the
additional loan of several million dollars.
Ground was broken at Carrington, N.D., on July 9, 1992. The
first dividends were paid to durum growers in November 1995. The
cooperative sold an additional 3 million shares at $5 each to
finance doubling the commercial milling capacity. Another pasta
line was added. The extra bank loan was retired from earnings.
Shares originally purchased at $3.85 after a two-for-one split
sold for $14 to $15 each. Dakota Growers subsequently purchased
two pasta plants in Minnesota, making this cooperative the second
largest pasta operation in the United States.
Strips of pasta roll through the Dakota Pasta Growers Cooperative processing plant in Carrington, N.D. | Boxes of Dakota Pasta Growers' spaghetti are inspected by a plant employee. |
Marketing bison comes next
Bison producers were next to form a cooperative association.
It would come to be called the North American Bison Cooperative.
Steering committee meetings were often highly charged. The
feasibility study was completed, an interim board was selected,
and legal counsel was named. Ken Throlson became the first
president. Directors and the attorney conducted equity meetings
to discuss plans to build a slaughter plant and market bison
meat.
Producers were projected to receive a 47-percent return on
their equity investment. In 28 days, these producers raised $1
million in equity subscriptions. The Bank of North Dakota made
AgPACE (the interest buydown program for farm-based enterprises
or non-traditional products) loans at a subsidized interest rate
to farmers buying bison.
By 1995, the co-op had built a $1.6-million processing plant
and office building in New Rockford, N.D., and were processing
3,000 buffalo per year.
Media coverage
Meanwhile, Sarah Vogel, former North Dakota agriculture
commissioner, joined US. Senator Kent Conrad in January 1993 at
an annual event called the "Marketplace of Ideas."
Vogel described the vibrant interest in forming new cooperatives
as "Co-op Fever."
The media picked up the phrase and, in 1993, the Associated
Press listed "Co-op Fever" as one of the top 10 stories
of the year. Vogel and Conrad subsequently added "Co-op
Night" to the state's annual marketplace conference agenda.
These activities began to attract media attention.
In 1994, Lee Egerstrom, a writer for the St. Paul Pioneer
Press, produced a book titled, Make No Small Plans: A
Cooperative Revival for Rural America. He listed 50 new or
emerging cooperatives, 20 of them from North Dakota.
The Fargo Forum produced a special report called "Processing
on the Prairie" that sought to identify the causes of
"Coop Fever." USDA's Rural Cooperatives magazine
featured Throlson and the bison cooperative in a cover story
titled, "Expounding the Co-op Gospel in North Dakota." Rural
Electrification magazine, published by the National Rural
Electric Cooperative Association, promoted the state's
development work in a cover story titled, "Brainstorming for
Co-ops." The Indianapolis Star carried a two-page
story on "Farmers Helping Farmers," which advocated
value-added cooperatives and featured comments by then-governor
Sinner.
The 67 new cooperatives created in North Dakota during the
past five years range in size from 15 members to more than 2,000.
Dollar value ranges from several hundred thousand to $261
million. (The latter figure is the cost of a corn wet-milling plant built by Golden Growers Cooperative in
association with Pro-Gold, a limited liability company). The
operations serve geographical areas that range in size from
several counties to the massive region of Northern Plains Premium
Beef, whose equity drives covered six states and two Canadian
provinces.
Why 'Co-op Fever'?
The commitment of the rural electric and
telephone cooperatives to economic growth enabled me to serve as
a facilitator or catalyst. AgPUC was critical in financing new
feasibility studies and cooperative startups. The Bank of North
Dakota made loans to farmers interested in investing in
value-added cooperatives. The St. Paul Bank for Cooperatives was
the first choice for financing because of the expertise and
leadership of its loan officers.
The state spent four years developing a
strategic plan for economic growth. An organization was launched
to create a common economic direction called "Vision
2000." A Stanford study called for a four-sector economy
made up of advanced agriculture and food processing, energy
byproduct development, export services and tourism, and advanced
manufacturing.
Dennis Hill, executive vice president of the
North Dakota Association of Rural Electric and Telephone
Cooperatives, was a member of the "Vision 2000"
committee. We were joined by several legislative and farm group
leaders as well as the director of North Dakota State University
Extension Service and the president of the Bank of North Dakota.
We developed a legislative strategy called "Growing North
Dakota."
Charles Fleming, Sinner's chief of staff,
chaired the legislative campaign. After leaving the state
government in 1990, I contracted with Sinner's office to prepare
the draft that went to the legislative council and subsequently
became Senate Bill No.2058. The law dedicated $22 million from
the profits of the Bank of North Dakota to economic development.
The legislation created an equity capital
corporation and a science and technology corporation. It also
provided additional monies to AgPUC and funded AgPACE and PACE
(Partnership for Assisting Community Expansion), which provided
matching funds to buy down interest rates for primary sector
businesses.
The organizing members of many of these new
"value-added" cooperatives are college educated,
aggressive, young, and not intimidated by sophisticated marketing
and processing plans. Many already operate profitable farms.
Investing in a processing cooperative was simply an extension of
their current enterprise. Those with the right experience and
skills appeared in the right place and time.
"Co-op Fever" report available from USDA
This article is excerpted from a new report
published by USDA Rural Development, Creating Co-op Fever: A
Rural Developer's Guide to Forming Cooperatives, by William
Patrie, cooperative development specialist with the North Dakota
Association of Rural Electric Cooperatives. In this 24-page
report, Patrie provides a wealth of valuable insight into the
process of establishing several "new wave" rural
cooperatives in North Dakota.
Although his development experience has
principally been with value-added agricultural cooperatives and
cooperative efforts with rural electric and telephone
cooperatives, his practical tips have wide application to many
cooperative ventures.
The manual covers an array of development
topics, ranging from how to bring organizers together and form
steering committees to development of budgets and the selection
of an attorney and chief executive officer. He also discusses
developing a business plan and conducting equity drives.
To order, send a check for $6 ($7 for orders
outside the United States) made payable to "USDA," to:
USDA Rural Development, Stop 3257, 1400 Independence Ave. SW,
Washington, D.C. 20250-3257. Indicate that you are ordering RBS
Service Report 54.