Beyond silos: The farm co-op gets an MBA

Whenever Byron Fink comes to Craig, Mo., he doffs his farm cap, replaces it with a hard hat, and strolls through the Golden Triangle Energy plant, the nation's newest ethanol facility, as if he owns the place.

Actually, he does own it, sort of. Mr. Fink, a longtime farmer, serves as president of the new 300-member co-op. "I invested everything I thought I could afford in the ethanol plant," he says. "But to tell you the truth, I wish I had invested more."

It's a similar story two hours down the road in St. Joseph, Mo. There, AgraMarke Quality Grains Cooperative joined with another co-op to form LifeLine Foods, LLC. They bought a former Quaker Oats processing plant earlier this summer, and plan to turn hundreds of members' nonbioengineered corn into flour.

Tired of being squeezed out, owners of midsize farms are seeking safety, and profits, in numbers. By banding together to process their crops into everything from liquid eggs for fast-food chains to corn-based fuel for cars, they are becoming their own middlemen, and scooping up the profits that traditionally would have gone to someone else. Some experts believe these so-called "new-generation cooperatives" can save the nation's midsized farms.

"What we're seeing is this revolution of producer-led organizations," says Mike Cook, director of the Graduate Institute for Co-op Leadership at the University of Missouri at Columbia. "The middle group is not going to lay down and die."

"It's almost paradoxical," adds Christopher Merrett, professor at the Illinois Institute for Rural Affairs at Western Illinois University in Macomb. "By cooperating, the family farm can remain independent.... It's a new way of thinking about agriculture."

Nearly a century ago, during a similar period of low crop prices and new technology (in the form of the tractor), American farmers also banded together to form marketing and buying cooperatives. But the new-generation co-ops are different. Where the traditional co-ops opened membership to anybody and didn't require huge investments of capital, the new organizations invariably limit the number of members and require them to invest substantial sums toward the project.

Professor Merrett counts some 90 such ventures around the country. Earlier this year, a group of Wyoming lamb producers convinced the state to revamp its cooperative law so that even nonfarmers can now invest in the new-generation co-ops.

"As the farmers have gotten bigger, they have got to figure out how to make ends meet, and this seems like the next step," says Jerry Bryan, a farmer-co-op owner from Hiawatha, Kan.

LifeLine Foods hopes to begin milling members' grain this fall, and has already attracted interest overseas. If things go well, the coop could begin selling other specialty foods. Emmett Cole, a corn, soybean, and wheat producer from Highland, Kan., expects to make 10 percent to 20 percent extra on his corn because of the new LifeLine Foods plant.

Putting on a hard hat has also allowed farmers to remain more sanguine about what could have been a devastating development: the low price of corn. Every dime Fink's fellow farmer-investors lose selling corn to Golden Triangle fattens the bottom line of their ethanol coop.

"We're in the manufacturing business here," Fink says. "Everyone who invested in this plant took off their farmer hat and put on their corn-energy hat. And they want corn as cheap as possible."

With ethanol prices near record highs, the plant has proved profitable almost since its first day of operation. And some early new-generation co-ops in Minnesota and the Dakotas have seen the value of their shares double or even triple, says Professor Cook.

On the down side, the losses are greater when they fail. "Unfortunately, it turns out that a new-generation co-op is like any other business," Merrett says. When he and a colleague surveyed 60 such ventures in 1999, they found a failure rate of 40 percent to 50 percent. "New-generation co-ops represent an important component, an important strategy that will help a lot of farmers," he adds. "But it's not a panacea."

Many farmers see it a little differently. "There's always risk, but it's not any more risky than raising a crop," says Mr. Cole.

And for many, it beats becoming a contract grower hired by large food corporations, which has already happened in portions of the livestock industry.

"They've already done the chickens. Then they did the pork," says Doug Johnson, another co-op investor and farmer in Bendena, Kan. "If it keeps going the way it's going, farmers are going to go back to being serfs again. [With the co-op], I think I am maintaining my independence."