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December 2, 2002

Purdue team leads charge on new generation co-ops

WEST LAFAYETTE, Ind. – Agricultural cooperatives were born from the principle that there's strength in numbers. Today's co-ops go a step further: There's added strength in turning crops, livestock and other commodities into marketable products.

These new generation cooperatives are gaining momentum, and Purdue University is committed to helping Indiana farmers interested in them.

A group of Purdue Cooperative Extension Service specialists and county educators has formed the New Ventures Team. The team will provide Hoosier producers with educational information and other services to establish value-added businesses, often structured as new generation co-ops (NGCs).

The team's first project is Extension publication ID-315 – "New Generation Cooperatives: What, Why, Where and How." ID-315 is available at county offices of Purdue Extension or on the Internet.

"This publication is an Internet guide," said Joan Fulton, an associate professor in Purdue's Department of Agricultural Economics and New Ventures Team co-chairperson. "There are a lot of materials that have been developed in other states because this activity has been going on in other places. What we've put together is a resource for those interested in a new venture so that they can explore the possibilities.

"We plan to publish a whole series of materials on new generation co-ops."

"New Generation Cooperatives: What, Why, Where and How" lists 43 articles on NGCs, ranging from general overviews of how they operate to NGC directories. The articles were written by experts from Purdue and other universities, the U.S. Department of Agriculture, economic journals and other sources. Links to the articles appear on the Web version of ID-315.

Agricultural co-ops have been around for decades. A co-op is a business owned by the members that use the business, either by marketing their products through the co-op, purchasing inputs from the co-op or using the co-op's services. According to the Center for Cooperatives at the University of California, there are more than 4,000 ag co-ops in the United States, with an annual total net business volume of more than $89 billion.

While sharing many characteristics with traditional co-ops, NGCs are different in three significant ways, Fulton said.

"One is that the new generation cooperatives are involved in value-added processing of the farmer's commodity," she said. "You might have an ethanol plant processing corn, or you might have a corn masa flour plant processing corn.

"The other differences have to do with the organizational structure. In traditional cooperatives if you want to get your equity investment out of the cooperative, the cooperative has to pay you out. Often the cooperative pays out equities at the time of death – they pay out estates – and some will revolve equity over time, but that creates a cash flow challenge for many cooperatives.

"In the new generation cooperatives, the producers/owners can sell their shares – what we called 'tradable equity shares.' So a corn grower invested in an ethanol plant's shares will be associated with a certain number of bushels of corn to be delivered. If they want to leave the co-op they can sell those shares to someone else, who would then take on the responsibility to deliver that number of shares."

NGC members are obligated to deliver product, Fulton said. In a traditional co-op, patronage is voluntary.

NGCs are most common in the upper Midwest and Great Plains states, Fulton said. Wheat growers in the Dakotas formed a NGC to produce frozen bread dough. Sugar beet growers in Minnesota's Red River Valley joined forces to establish the American Crystal Sugar Co. To add value to their corn, a group of Minnesota growers started ValAdCo. The co-op operates hog-breeding farms.

Several Indiana producer groups hope to establish value-added businesses, and many expect to use the NGC structure, Fulton said. A Jasper County corn growers' group is looking to process its crops into ethanol. LaGrange County fruit and vegetable producers who've established a successful market might expand. And corn growers in southern Indiana are evaluating the potential for investment in a corn masa flour plant.

"Purdue's getting involved because of the increased activity and interest we're seeing by the citizens of Indiana," Fulton said. "They're saying, 'Let's see what's available in terms of value-added processing of the products we produce.'

"We have some activities going on right now. In southern Indiana in the beef area, we've got different groups looking at value-added opportunities. Some are looking at freezer beef direct sale to home markets. Others are looking to work together to buy inputs so that they can gradually increase the quality of the breeding stock and increase the quality of the beef product and add value in that way."

Purdue's New Ventures Team is made up of Extension specialists in agribusiness marketing, consumer economics, community development, food processing and rural business development. Extension educators from 15 Indiana counties also serve on the team.

For more information, contact Fulton at (765) 494-0594 or by e-mail at fultonj@purdue.edu; or New Ventures Team co-chair Jerry Nelson, educator, Purdue Extension Knox County, at (812) 882-3509 or by e-mail at jnelson@purdue.edu.

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Sources: Joan Fulton, (765) 494-0594, fultonj@purdue.edu

Jerry Nelson, (812) 882-3509, jnelson@purdue.edu

Ag Communications: (765) 494-2722; Beth Forbes, bforbes@aes.purdue.edu; http://www.agriculture.purdue.edu/AgComm/public/agnews/

Related Web sites:
"Value Added and New Generation Cooperatives" (PowerPoint presentation)

Purdue News Service: (765) 494-2096; purduenews@purdue.edu


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