Buschette, Francis L.

English

Research Papers in Economics

Agricultural Outlook forum 1999                 Presented: Monday, February 22, 1999
VALUE ADDED: COOPERATIVES AND COMMUNITIES WORKING TOGETHER
Francis L. Buschette
Chairman, Co-op County Farmers Elevator
Good afternoon! I am pleased to be here today to share some thoughts and personal
experiences of value added agriculture in Renville, Minnesota.
Let me begin by telling you about my farming operation and my philosophy about value
added cooperatives. Growing up, I saw my parents add value to their crops raised on their 160-
acre farm by using most of their crop production as feed for 12 dairy cows, 10 sows and 200
laying hens. They would sell the produce and meat from this, as their value added income. As
farming changed and I started farming in 1960, our farm grew and today we farm 1,300 acres.
We raise corn, soybeans, sugar beets and wheat. This doesn’t allow the time and resources
required to take care of livestock in addition to the marketing, production, repairs, planning, and 
the new technology of Global Positioning Systems in crop production. 
Renville has the unique title of The Cooperative Capital of the United States. We are a
community of 1,300 people and have nine cooperatives. These cooperatives are both traditional
and New Generation Cooperatives. I will explain the difference later.
Presently our family is involved in the  Southern Minnesota Sugar Beet Cooperative that
produces sugar; Minnesota Corn Processes that produces ethanol and corn sweeteners, Golden
Oval, producing liquid eggs, ValAdCo that produces pork, MinAqua Fisheries, producing a fish
called Tilapia. These cooperatives are not the traditional cooperatives to which one could belong
by buying a product or selling a commodity. These cooperatives are known by a variety of titles
including New Generation cooperatives, New Wave Cooperatives and Value Added Cooperatives.
I believe that these cooperatives make our farm operation not unlike what I grew up with
as a child by adding value to the different crops that we produce today. We have done this
through the purchase of shares and the right and obligation to deliver a crop to the cooperative.
Midwest Investors, Inc. started as a new laying hen operation in 1994. First, the City of
Renville annexed 320 acres into the city limits of which Midwest Investors owned 80 acres. This
allowed the city to provide Tax Increment Financing and a low interest bond to the cooperative.
This was a big boost when the new cooperative moved forward to get a loan from the St. Paul
Bank for Cooperatives. 
Today, Golden Oval Eggs, a subsidiary of Midwest Investors has two million laying hens
and an egg breaking plant. Golden Oval sales in 1998 were in excess of 22 million dollars. There
are 80 employees working in the barns, the breaking plant, and the office. Many of these people
live in the Renville area and make their purchases there as well. Most employees are younger and
have children in local schools and attend community churches. The cost of the 16 laying barns
and egg breaking plant was more than $20 million, an investment that returns a substantial taxbenefit to the city.
As the egg laying cooperative was starting, ValAdCo was also growing and the need for a
new efficient feed mill became apparent. Co-op Country Farmers Elevator, a supply and grain
purchasing Cooperative, Golden Oval, and ValAdCo a 10,000 sow cooperative joint ventured in
building a  state of the art feed mill. Again, the City came to the assistance and provided TIF and
a low interest bond. Today, this cooperative, known as United Mills employs 12 year round
people.  This mill now grinds more than 70,000 bushels of corn per month or 77 unit trains with
54 hopper cars each year. This corn earns an added value in cash which is spent locally.
How did value added cooperatives begin?
In the early 1970s, Crystal Sugar, a privately owned sugar company closed  its processing
plants in Chaska, Minnesota and Mason City, Iowa because of environmental issues and obsolete
faculties. Former Crystal producers in Renville County worked together to form the first
cooperatively owned sugar processing plant in the United States. After much difficulty in
obtaining financing for  a loan to build the plant, the operation began in 1975.  This was the first
New Generation cooperative in our area, and we didn’t realize this until several years later.
Growers had to purchase shares of stock which gave them the right and obligation to produce one
acre of sugar beets for each share purchased, and deliver that product to the processing plant.
Risks involved in starting a Value Added Project
Organizers must be certain that there is  a market for the product to be produced  as well
as a profit in doing so.
It is important to establish a solid foundation with a solid equity. We have come to believe
that the equity required to start a new cooperative should be no less than 50%. This serves to
protect for unknowns that always seem to come along. For example, if a family should decide to
remodel their home and the estimated cost is $50,000, the final cost is frequently $65,000 -
$70,000. Been there, done that! Bankers frown when new cooperatives fall below 30% to 35%
equity.
Finding a top notch manager or CEO is the most important decision a board will make and
such a manager or CEO will be expensive. It isn’t easy  for a group of crop producers to pay
someone a salary which is much larger than they earn on their own farms! Don’t be afraid of
paying a good salary for an effective CEO.  This may be the best investment a cooperative makes.
There are a number of positions of responsibility in operating a value added operation.
Care must be taken by the board to make certain that decisions are made by people who have the
expertise to do their job well. When shares were being offered in our community, one nay-sayer
suggested that nobody locally was smart enough to manage a laying hen operation.  Golden Oval
hired the former owner of a laying hen operation in Iowa as production manager who does an
outstanding  job. Some times employees come from out of the  area, and at times key employees
are local people who have proven themselves. 
Risks in not being involved in a value added cooperativeA great risk is to lose the profit that could be made by working together and moving “up
the food chain.” In Renville, located two hours west of the twin cities, the basis on corn is 45
cents under CBOT.
The value of shares is connected to success of the cooperative. If a cooperative is doing
well, share value increases, and if doing poorly, the shares decrease in value similar to
investments in the stock market.
Local communities either ignored or opposed early value added cooperatives. They did not
understand and appreciate the role of value added cooperatives in economic development. That
has changed considerably and nonfarm business enterprises understand the value of cooperation in
the farming community and include these members in community development discussions. There
is a new viewpoint in the community, as some new employees are from different areas of
Minnesota and the United States, and bring in new perspectives. Renville is no longer a closed
community. 
In the case of Renville, a community of approximately 1300 people, since 1992,
approximately 170 direct jobs within the new cooperatives have been created. These numbers do
not include supporting jobs that are not easily identifiable, such as labor for additional fuel
delivery, repairs, and electricians, etc. Statistical reports tell us that for  every ten new job
positions one new supporting job is created. Renville is one of the few area communities in which
every building located on Main Street is occupied. Local comments are that new employees buy
cars and purchase groceries and supplies from the local stores. 
With larger farms and a decreased population, there is a potential of the loss of community
organizations. There has been a decrease in the membership of Renville County churches due to
decreases in the general population. However, in the Renville area, many churches are
experiencing growth due to the employees hired by value added cooperatives. In the past, nearly
all of the young people completed their high school education and then left the area. Today, the
New Generation Cooperatives offer opportunities for employment in a wide range of jobs,
including managerial positions. One of the biggest concerns in our community is the shortage of a
labor force. There is employment available for anyone who is willing to work.
There is risk in doing nothing. A young farmer from North Dakota said he is shifting
investment from land and machinery to investments in New Generation cooperatives. He said if
the venture fails, you lose the cash, but a bigger gamble is staying with the status quo. He ends
his talk by saying doing nothing has always been a sure way to go broke. That goes for
communities as well.
In summary, I would like to leave a message with you. There is a crisis in farm country.
There will be several farmers that will not qualify for operating loans this year. This is not
because of poor management, but because we have encountered the lowest prices farmers have
been paid in decades. We do need to add value to the commodities we produce and bring them up
the food chain to the consumers. We can and will produce the quality and quantity of products the
consumer demands. Because of the farm crisis, new ventures will need considerable help. I
believe a major help would be through low interest loans. When new projects get their necessaryloans in place, they usually have a very high rate of interest. This causes the new venture to begin
with a huge debt before any products are marketed. When rural electric came to the country,
cooperatives received loans at a discounted rate, and this helped jump-start these cooperatives. If
New Generation Cooperatives could start at 2% or 3% interest rather than 9% or 10%, this would
certainly help. The loans could even have a sunset after five or seven years.
I believe that value is added to both the cooperative member and to the local community
when they work together. 

VALUE ADDED: COOPERATIVES AND COMMUNITIES WORKING TOGETHER

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