THE VERMONT STORY: HISTORY OF FARMER COOPERATIVES AND HOW THEY HAVE IMPACTED VERMONT AGRICULTURE

The farmer cooperative movement has a long and varied history in Vermont. Over the years farmer cooperatives have come and gone, influenced by the need for better pricing through joint marketing, collective buying of supplies, changing demographics, and challenges brought about by the ever changing market environment. At the state, regional, and national levels, the politics behind this cooperative movement has always been significant.  This blog reviews, very briefly, the history of the farmer cooperative movement, and its status in Vermont today. An entire book could be written on this rich history.

Why the European Model was Appealing to U.S. Agriculture and Rural America:

It is said that the model for the cooperative movement in the United States came primarily from Europe, and the heritage that many of the original settlers brought with them.  Often cited is the Rochdele Cooperative (weavers) and the resulting Rochdele cooperative principles, the primarily ones being “member owned, member controlled, and for member benefit.”  These principles, and the development of U.S. cooperatives are rooted in the upheavals that characterized the Industrial Revolution in England during 1750-1850 (see Univ. Wisconsin Center for Cooperatives, Cooperatives in the U.S.). Accordingly it is stated that dairy cooperatives were among the first type of agricultural cooperatives organized in the U.S. with the first creamery being built in Goshen, Connecticut in 1810 (see Cropp and Graf, History and Role of Dairy Cooperatives).

In the United States a very extensive infrastructure has been developed at the federal level around the cooperative model for farmers and rural America.  Under the American and U.S. Commission of 1913 (see Senate Doc. No 214, Parts I, II, III, 63^rd Congress) several U.S and Canadian representatives made an extensive trip throughout all of Europe in the spring and summer of 1913 to investigate the cooperative structure for rural credit. The Federal Loan Act of 1916 resulted, creating the Federal Land Bank (part of the Federal Farm Credit System) for farm mortgage lending. Other federal laws were also enacted.  These included the Clayton Act of 1914, and the Capper-Volstead Act of 1922 (giving limited anti-trust immunity to farmer marketing and bargaining cooperatives).  The Cooperative Marketing Act of 1926 created a division within USDA to promote cooperatives. The Agricultural Marketing Act of 1929 was created to deal with the supply and demand imbalance that existed in the United States at that time. It was seen as a way to increase farmer prices during the depression period.  It did this by creating a Federal Farm Board, which saw cooperative marketing as being essential to bring about economic relief to agriculture.  One quote from that time stated “at the present time nearly everyone from President Coolidge down is talking of Co-operative marketing as a cure for the ills which American agriculture faces.” (See: Fourteenth Biennial Report of the Vermont Commissioner of Agriculture, 1926-1928.)  Other laws soon followed to further aid rural America and cooperative development.  Some of these such as the Rural Electric Administration and the Rural Telephone Act are easily recognized. Both helped to bring electricity and communications to rural parts of the United States that were not well served by privately owned utilities, and thus encouraged further development in these regions.  Others, such as the Farm Loan Act of 1933, created a structure, through the Farm Credit System, to provide immediate short-term credit to farmers and a process for lending to farmer cooperatives (Bank for Cooperatives were established in the twelve Farm Credit Districts in the United States).

Support and Advocacy Structure:

Besides the infrastructure created through federal laws, a strong trade organization structure still exists that embraces the cooperative model as a way to transact business.  For example, the dairy cooperatives across the United States organized the National Milk Producers Federation (NMPF) in 1916. Diary cooperatives are said to be among the first type of agricultural cooperatives organized in the U.S. (see Cropp and Graff, History and Role of Dairy Cooperatives)).  The National Grange and the Farm Bureau Federation have been strong advocates for farmer cooperatives from the beginning of these two organizations.  The National Council of Farmer Cooperatives, and the National Cooperative Business Association are likewise strong advocates for their member cooperatives, as is the National Rural Electric and National Rural Telephone Association, and the National Farm Credit Council, and the National Credit Union Association. In the Northeast region, Cornell University has established a Cooperative Enterprise Program; there still exists the Northeast Cooperative Council that grew out of the N.Y. State Council of Farmer Cooperatives that was organized in 1940. The dairy cooperatives have the Council of Northeast Farmer Cooperatives that primarily represents its members on national dairy policy issues. In Vermont the Green Mountain Dairy Cooperative Federation represents the dairy cooperatives on legislative issues within the state.  This list is not meant to be exclusive as there are other support organizations at the national and regional levels such as state and regional cooperative councils that also support the cooperative model.

Brief History of the Farmer Cooperative Model in Vermont:

The first cooperative market statute or state law was passed in Michigan in 1865 (see Univ. WI Zeuli and Cropp), and other states soon followed. The twenty-Sixth Annual Report of the then Vermont State Board of Agriculture in 1906 (before the establishment of the State Department of Agriculture) states that “unity of action ought or should be the watchword all along the line of farmers today.  Is it not possible for farmers of Vermont to unite to such an extent as to establish a market under their own supervision and in their own New England markets? The State Grange and State Farm Bureau were strong advocates behind the farmer cooperatives, as were Commissioners of Agriculture during this early period. “ For example, E.S. Brigham, Vermont Commissioner of Agriculture in 1914, stated in Sixth Annual Report of Agriculture for that year that “…it is good business for the state to assist in the formation of producer associations of permanent character, and to assist the associations in finding a market which will pay the highest price for good produced. The first step should be the enactment of a law similar to laws of Massachusetts, New York, and Wisconsin defining how cooperatives shall be organized.”  In 1915, the Vermont legislature enacted a law authorizing cooperative market association of farmers. Numerous local cooperative creameries (many towns had one or more) were formed in Vermont from 1915-1923. Cooperatives around other non-dairy products were created as well, such as the Vermont Maple Products Co-Operative Exchange, and the Shoreham Apple Cooperative. As cities reached out further for their milk and other farm-produced products, farmers joined together to leverage higher pricing for their products. 

There has been an attempt over a long period of time to build better cooperation among farmer cooperatives.  Cooperative organizations that existed in the past to provide joint marketing for price enhancement and market stabilization included the New England Milk Producers Association in 1922, Vermont Cooperative Creameries from 1920-1924. The New England Governors and many dairy leaders in the past worked to establish New England Dairies Inc. in 1932 as a way to eliminate destructive competition that deprived milk producers in the region of their “rightful share of the profit.”  The Boston Chamber of Commerce, in a study of the New England Dairy Industry during this time, recommended joint cooperative marketing as a way to assure better farmer prices.  Some of these challenges for the Vermont dairy industry have been discussed in past Whatceresmightsay blog postings (see May and August of 2012).

Cooperation among farmer cooperatives has often remained a challenge.  Commissioner of Agriculture E. H. Jones stated (see Thirteenth Biennial Report of the Commissioner of Agriculture, 1924-26) “…Vermont producers must cooperate in delivering products of high quality if we expect to receive good prices.”  He went on to say, a few years later (see Nineteenth Biennial Report of the Commissioner of Agriculture, 1937-38) “with eighty percent of dairy products exported from the state, the most important issue at stake is a system of marketing that is both equitable and workable.  This is a matter which has confronted Vermont dairymen for two or more decades and is still far from being settled.” (At that time there were twenty-two cooperative creameries in Vermont operating fifty-three plants).

Today’s Vermont Dairy Farmer Cooperatives and the Challenges Ahead:  Cooperatives have been an essential part of the marketing of milk and further processed dairy products in Vermont and the region for many years.  Consolidation has continued within the cooperative community at the state, regional, and national levels as the number of dairy farms have continued to decline.  Examples include the formation of Dairy Farmers of America and its affiliated DMS (dairy marketing services, and its relationship with St. Albans Cooperative), the acquisition of Cabot by AgriMark Cooperative in the 1990’s, and the growth of the organic dairy cooperative, Organic Valley.  Serving both large and small producers continues to be a challenge for the remaining cooperatives (treating members equally or equitably based upon size and milk volume), as does the need for additional capital beyond what is available from member equity.

There have been many studies and reports on agricultural cooperatives throughout the years. Some of the more recent studies have dealt with those cooperatives that still exist today.  (See USDA Cooperative Information Report 60).   For example, these and other reports state “consolidation of firms at the processing, wholesale, and retail levels of the U.S. food marketing system continues unabated and the market influence and bargaining strength of even the largest cooperatives are limited as a consequence.”  Other studies have reached similar conclusions relative to the challenges.  “The ability of cooperatives to access sufficient capital for their operations is of course, one of the most discussed issues among co-op leaders and researchers.  As agriculture becomes more industrialized, the need for capital at the processing and marketing levels increases.  The question by case studies is whether cooperatives are able to access sufficient capital from their members to be able to compete in these markets.”(See Centre for the Study of Cooperatives Report).

Vermont and regional cooperatives are not immune to these and other challenges.  Cooperatives continue to provide an essential role in marketing their member-owner’s milk (all size farms in all locations, and 86 percent of all milk marketed to plants and dealers in U.S. was by cooperatives in 2002). Nevertheless, securing milk while providing member benefits as envisioned by cooperative principals, especially in a more deregulated marketing structure, continues to be a major challenge.  Other forces are in play as well.  The larger producers who supply the majority of the milk, may seek other outlets to include longer term contracts with processors, bypassing their cooperative all together thus reducing the pricing advantage of the cooperatives. Larger producers may also feel that they are unfairly subsidizing the transportation costs of the smaller producers.  Some smaller producers may elect to further diversify into value added.  This has been a growth sector in Vermont with eighty-six plants now processing less than five hundred pounds of milk per day.  Cooperatives, however, continue to provide an important marketing and balancing function in the market that cannot be easily over looked or ignored.

Much is expected from dairy cooperatives today, as in the past, but shielding dairy farmers from pricing risks in a more deregulated market is not easily achieved as has been noted by many studies.  The trends are not new, especially in a more deregulated market, and as milk production has been moving westward for many years, and the Northeast continues to be a milk deficit area.  Cooperatives continue to be challenged to demonstrate to ALL their members that the benefits of cooperatives membership and thus producer returns, outweighs alternative marketing structures or strategies and financial returns to the members themselves.

The June 14^th, 2011 whatceresmightsay blog addressed many of these challenges.  As stated in that posting, markets and consumer needs are constantly changing. “In a future driven by technology, cooperatives face many challenges to include the need for more research and development, more aggressive product development and marketing, new manufacturing processing and technology, and equity financing to fuel these changes.”  While Vermont dairy cooperatives are critical in the marketing and balancing of milk, they too lack the necessary capital for research and development of new products and their marketing. Entities such as O-AT-KA dairy cooperative in New York are often looked at as examples of the type of facility and the type of research and development in new products that should be coming from Vermont, with its brand recognition.  Some suggest that the current marketing approach by Vermont based dairy cooperatives may possibly lead to more fracturing of the milk supply within the dairy industry in the state as producers seek other outlets or alternatives to include direct long term contracts with processors, more on the farm value added production, and further movement to organic production.  Others may elect to discontinue operation due to costs and market volatility. To overcome these ever present challenges, many have suggested that the cooperatives need aggressive strategies that address an equitable balance between member and cooperative financial needs, as well as new forms of equity capital that does not take away from the farmer member control (these forms of equity ownership are now possible under new farm cooperative laws in many states). An extensive review of the literature and other studies and reports available, and cited in the reference section of this blog, raise many questions around the future role of dairy cooperatives in Vermont and the Northeast region, particularity around member financial benefits longer-term.  Cooperative members and others are asking many of the following questions today.

* Do the Cooperatives have a strategic plan or vision for the longer-term profitability of the cooperative that financially benefits their member owners? What is the strategic plan that addresses these issues in the next 5-10 years?

* How does the cooperative model, going forward, best benefit all sized producers in light of changing consumer demographics, changing consumption patterns and product demand as well as the impact of more open markets internationally?

* If dairy trade were opened between the U.S. and Canada, how would this impact dairy production and manufacturing in Vermont and the region?

* Do the cooperatives have sufficient capital to do the research, development, and marketing around value added products that can best financially benefit member owners going forward, and how does strategic partnerships with others work to the financial benefit of member owners?   If not what plans do they each have to secure such capital?

* What new initiatives are warranted to best assist in establishing and maintaining a viable dairy industry in Vermont going forward and are these advocated and supported by the dairy cooperatives?

*  Are the dairy cooperatives capable of reacting to market and other economic changes and reinventing their business strategies for financial success that benefits both their members and the cooperative?  What are these strategies?

* How does the continued consolidation within the dairy industry nationally, regionally, and within the State impact the current cooperative processing and marketing structure in Vermont and the region and how do these changes hinder or help, financially, their farmer members in the state and region?

*How can the cooperatives help their members as well as potentially new farmers to grow the region out of being a milk deficit area?

*  What role if any does or can the Land Grant System and Vermont Technical College provide in supporting dairy farmers and their cooperatives relative to new product research as well as related work around dairy farm and cooperative economic viability?

* What are other sources of equity besides member capital that a cooperative might access to achieve longer-term economic viability; and are these being considered?

Note: it has been stated in the USDA Report Agricultural Cooperatives in the 21^st Century “perhaps the most important challenge facing cooperatives is accumulating equity capital.  Without sufficient equity, cooperatives cannot meet the external challenges they face or continue to grow and offer services members and consumers need.”

* Are there joint ventures and other forms of business structures that should be considered by cooperatives going forward in order to financially benefit their member owners in the future? (O-AT-KA model, for example).

The Vermont dairy sector is an essential part of our farm economy and, by references, its working landscape.  While there is no silver bullet, there are some encouraging signs to include the fact that many consumers today are interested in knowing where their food comes from and how it is grown, hence the interest in local and regional food systems.  An example of this is the growth that has occurred in farmstead cheese production over the last few years.

The Vermont farm leaders of the past recognized these challenges and concluded in the late 1800’s that the future was not in competing with the West, but in developing those products for the growing markets of the East…. but it would take continued study and work…and today other sources of capital.  The solutions are not ultimately in Washington, D.C. or in competition with the West.  It will continue to take bold and visionary leadership to address these issues going forward.  The majority of dairy farms in Vermont are dependent upon their cooperatives for supply chain management and the cooperatives on their members for product. New and invigorated approaches are needed around the cooperative Rockdele principles, as the landscape is full of those industries to include farmer cooperatives that ignored or failed to embrace change or to reinvent themselves as viable business entities. One international study addresses these challenges (see Cooperative Conversions, Failures and Restructuring).

“As agriculture becomes more industrialized, the need for capital at the processing and marketing levels increases.  The question by case studies is whether cooperatives are able to access sufficient capital from members to be able to compete in these markets.”

Blogger’s Comments: 

Farmer cooperatives have been a large part of my professional life.  My grandfather shipped his milk and bought his feed grain through a nearby cooperative, as did other neighboring dairy farmers.  My wife’s grandfather, a respected Vermont vet in the 1930’s and early 1940’s, managed the Granite City Cooperative Creamery in Barre, Vermont.  He was also the President of New England Dairies, an organization that strived to coordinate joint marketing of milk in the Northeast in the late 1930’s and early 1940’s “…through one centrally controlled channel and with the elimination of destructive competition that deprived milk producers of rightful share of profits”.  I saw the changes and challenges to the cooperatives when I was a member of the senior staff of the former Farm Credit and Farmer Cooperative Banks for the Northeast, and again when I was Secretary of Agriculture, Food and Markets for the State of Vermont.  The challenges are not new in one sense (need for better farm milk pricing), but more complicated in other ways (consolidation at retail and wholesale levels and inability to leverage for higher farmer pricing). There has been greater deregulation in the dairy industry (parity concept was eliminated in 1982), and the federal price support level has been significantly reduced moving the dairy industry to more unregulated marketing.  Consolidation within the dairy industry continues both nationally and within Vermont. One research report states “as the dairy industry moves into the next decade, growth in milk production will come from large-scale agricultural enterprises located predominately between the Rocky Mountains and the Mississippi River.  Expanding operations in the Northeast and Upper Midwest may not be able to make-up for the number of exits of smaller operations.” (See Outlook of the U.S. Dairy Sector The Next Decade). 

Attempts to stabilize milk production within the state with dairy profitability teams and other initiatives have been met with mixed success.  Initiatives to provide over-order pricing incentives through changes in state laws have not been possible for various reasons to include challenges to the Commerce Clause of the U.S. Constitution. Buyers at the wholesale and retail level have immense market power today that make it difficult to leverage higher pricing for cooperative milk and milk products. “Consolidation of firms at the processing, wholesale, and retail levels of the U.S. food marketing system continues unabated and the market influence and bargaining strength of even the largest cooperatives are limited as a consequence.”(See Agricultural Cooperatives in the 21^st Century). Even in 1929 this challenge was recognized nationally when there was less consolidation at the wholesale and retail marketing levels (see Agricultural Marketing Act of 1929), when it was stated “that the Farm Board (created by the Act) is not blind…that unless producers are able to formulate and carry out a program of producer stability, much of the efficiency of cooperative marketing is bound to be wasted.”

Dairy cooperatives provide an important function for their members, as farmers do not have to concern themselves with the marketing function or supply chain management and the costs and knowledge associated with gaining access to markets today. However, the expectations today, as in the past (see the Milk Problem), by members for fair and adequate pricing still exist.  Larger dairy farmers desire to be treated equitably based on size and volume, and not equally with all members regardless of volume or size. Cooperatives in a more deregulated and volitale market structure may not be able to depend upon member equity as in the past either.  Numerous studies on the future of farmer cooperatives in the 21^st Century indicate that new and innovative business approaches will be needed in order to be successful in ever changing marketing structures that are occurring today and are likely to continue.

REFERENCES AND SOURCES FOR THIS BLOG POSTING:

• A Paper, “The Vermont Farmer’s Future”, by Rev. G. F. Wright of Bakersfield, Vermont, presented to the State Board of Agriculture at a meeting in St. Albans, March 6-7^th, 1872.
• A Paper, “Eastern and Western Farming”, by Lyman W. Peet of Cornwall, Vermont.  See Eight Report of State Board of Agriculture, 1883-1884.
• First Annual Report, Agriculture of Vermont, 1909.
• Agriculture of Vermont, Sixth Annual Report of the Commissioner of Agriculture, 1914.
• Agricultural Cooperation and Rural Credit in Europe. American and U.S. Commissions, 1913. Senate Doc. No. 214, Parts 1, 11, In 63^rd Congress.
• New England Grades and Standards Act, 1927, see Biannual Report of the Commissioner of Agriculture, 1926-1928.
• Thirteenth Biennial Report of the Commissioner of Agriculture of Vermont, 1924-1926, E.H. Jones Commissioner.
• Fifteenth Biennial Report of Commissioner of Agriculture, State of Vermont, 1928-1930.
• Nineteenth Biennial Report of the Commissioner of Agriculture of Vermont, 1937-1938, E.H. Jones Commissioner.
• A Detailed Survey of Leading Markets for Vermont Products, see Eight Annual Report of the Commissioner of Agriculture, 1916.
• Rural Vermont, A Program for the Future, The Vermont Commission on Country Life, 1931.
• This Milk Problem, by Harry R. Varney, The Vt. Agricultural Extension Service Cir. No. 95, June 1937.
• Dairy Farming in the Northeast, Now and in the Future.  Springfield District Farm Credit Service, Nov. 1984. By James N. Putnam 11 and Raymond J. Nowak.
• Agricultural Focus Group, Report to Governor’s Commission on The Economic Future of Vermont, November 1989.
• The Northeast Interstate Dairy Compact Public Hearings Report, March and May 1989, by NY State Legislative Commission on Dairy Industry Development, June 1990.
• The Evolution of Milk Pricing and Government Intervention in Dairy Markets, by Erick Erba and Andrew Novakovic, Cornell University Department of Agricultural Resource and Management Economics, College of Agriculture and Life Sciences, Pub. E.B. 95-05.
• Vermont Farmstead Cheese Marketing Study, January-March 2006, Report by Jane Sakovitz-Dale.
• Foundations for a Consumer-Driven Dairy Growth Strategy, by McKinsey & Company for the California Milk Advisory Board, Spring 2006
• An Outlook of the U.S. Dairy Sector The Next Decade, by Keogh Ledman Associates, Inc., Mary Ledman, July 14, 2006.
• The Impact of Globalization on the U.S. Dairy Industry: Threats, Opportunities, and Implications. Innovation Center for U.S. Dairy, August 2009.
• Vermont Historical Society, The Co-op Movement, Green Mountain Chronicles Radio Show.
• Vermont Agriculture Viability Council Final Report, Vermont Council of Rural Development, January 2003.
• Vermont Farmstead Cheese Marketing Study, January-March 2006, Prepared for the Vermont Housing and Conservation Board.
• Future Structure of the Dairy Industry; Historical Trends, Projections and Issues, by Eddy LaDue et. al, Cornell Program on Agriculture and Small Business Finance, Department of Applied Economics and Management, Cornell University Agricultural Experiment Station, College of Agriculture and Life Sciences, Cornell University, June 2003, R.B. 2003-01.
• The Impact of Globalization on the U.S. Dairy Industry: Threats, Opportunities, and Implications, Innovation Center for U.S. Dairy, August 2009.
• A Northeast Dairy Benchmark by Mark Stephenson, Cornell Program on Dairy Markets and Policy, 2009.
• See Synergy LLC
• Dairy Farm Crisis 2009, A Look Beyond Conventional Analysis, by John Bunting, Delhi, NY.
• Cooperative in the Dairy Industry, USDA, Rural Development, Cooperative Information Report.
• An Evaluation of Cooperative’s Comparative Strengths and Weaknesses in a Vertically Differentiated Agricultural Product Market, Discussion Paper for the University of Wisconsin Center for Cooperatives, by Tina L. Saitone and Richard J. Sexton.
• Cooperative Conversions, Failures and Restructurings, Case Studies and Lessons from U.S. and Canadian Agriculture, edited by Murray Fulton and Brent Hueth, Knowledge Impact on Society Centre for the Study of Cooperatives, University of Saskatchewan.
• A Final Decision and Report on the Proceedings of the Vermont Milk Commission, January 15, 2008.
• America’s Milk Business in Crisis, The Wall Street Journal, December 10, 2012
• Choicesmagizine.org, Consolidation in the U.S. Dairy Industry by Brian W. Gould, University of Wisconsin, Dept. of Agriculture and Applied Economics.
• Agricultural Cooperatives in the 21^st Century, USDA, Rural Business Cooperative Service, Cooperative Info Report 60.
• Dairy Cooperative Growth Challenges: Technology, Ingredients (Proteins), and Equity Financing, USDA Rural Development, Research Report 206, May 2005.
• Dairy Cooperatives Bulletin: Structural Change and Operations, by Robert Crop, University of Wisconsin, Center for Cooperatives, Bulletin No. 4, October 2002.
• New Strategies for Mobilizing Capital in Agricultural Cooperatives, in FAO Corporate Document Repository, Economic and Social Development Department.
• Dairy Cooperatives and Their Role in the United States, by Robert Jacobsen and Robert Cropp, Dairy Markets and Policy Issues and Options, Cornell University, August 1995.
• The History and Role of Dairy Cooperatives by Bob Cropp, Truman Graf, January 2001, Univ. of Wisconsin Center for Cooperatives.
• Remarks to the New England Dairy Promotion Board by Roger Allbee, Nov. 19, 2010.
• Seeking to Ensure the Future Viability of Vermont’s Dairy Industry, Report of the Thirty-Third Grafton Conference, The Windham Foundation, Grafton, Vermont, March 6-7, 2008, and December 15-16, 2008.
• “Wisconsin Facing a Dairy Deficit,” by Ann Marie Ames, April 25, 2011, in GazetteXtra.com, May 27, 2011.
• “Vermont Dairy Sector: Is There a Sustainable Future for the 800 lb. Gorilla?” A paper by Dr. Robert Parsons, Vol. 1, No. 4, Opportunities for Agriculture, Working Paper Series, UVM Center for Rural Studies.
• “Trends in the U.S. Dairy Industry”, by Joe Horner, Dairy Economist, Commercial Agricultural Program, University of Missouri, Columbia, Missouri.
• “Upstate Niagara”, by James Dudlicek, in Dairy Facts Corporate Profile, August 2008.
• “A Perspective on the Northeast Dairy Industry”, a presentation by David Galton, Cornell University.
• See “Farm to Plate”, the Vermont Sustainable Jobs Fund.
• See “The Working Landscape Initiative”, the Vermont Council on Rural Development.
• Program on Dairy Markets and Policy Briefing Paper Series, The Chobani Paradox, Briefing Paper Number 12-03, Andrew M. Novakovic, Cornell University.
• Choices Magazine, 3^rd Qtr 2011, and Theme Overview: Critical Issues for Agricultural Cooperatives by Phil Kendel and John Park.
• Rural Cooperatives, USDA Rural Development, January-February 2003, Agricultural Cooperatives in 21^st Century, Are You Ready for Tomorrow.

Date of Blog Posting: December 20, 2012