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,
63rd 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 14th, 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 21st
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 21st 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 21st 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:
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Future”, by Rev. G. F. Wright of Bakersfield, Vermont, presented to the
State Board of Agriculture at a meeting in St. Albans, March 6-7th,
1872.
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1883-1884.
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Agriculture of Vermont, 1909.
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the Commissioner of Agriculture of Vermont, 1924-1926, E.H. Jones
Commissioner.
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Commissioner of Agriculture, State of Vermont, 1928-1930.
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the Commissioner of Agriculture of Vermont, 1937-1938, E.H. Jones
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Date of
Blog Posting: December 20, 2012