CROPP Cooperative The Cooperative Regions of Organic Producer Pools
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CROPP Cooperative
The Cooperative Regions of Organic
Producer Pools
A Case Study
Prepared for the North Central Initiative for Small Farm Profitability
By the University of Wisconsin Center for Cooperatives
Funded by the Initiative for Future Agriculture & Food Systems
A Program of the U.S. Department of Agriculture
Authors: Maria Powell & Greg Lawless
January 2003Introduction rise or fall, reflecting how much products. (Myers, 2000).
the farmers expect to benefit In 2001, organic sales at
This case study is one of four
from their membership in the conventional outlets accounted
in a series that are focused on so-
future. for 49% of total organic retail
called “new generation
cooperatives,” or NGCs. While The co-op in this case study sales—with most of the rest
might best be termed a “hybrid” (48%) accounted for by health
the first recognized NGC dates
back to 1972, most were formed NGC. Consideration of the and natural product store sales.
in the 1990s, and they continue CROPP Cooperative of La Sales of organic foods
to be formed today. Farge, Wisconsin will follow an overall in the U.S. are growing
overview of the organic industry 20-25% annually. Organic sales
NGCs differ from traditional
in which it operates. were estimated at $7.8 billion in
cooperatives in several ways.
2000, a 20 percent increase over
First, farmers invest significant
Organic Industry Trends 1999 sales. Sales over the
dollars up front by purchasing
Internet are expected to grow
shares in the business. Sales of organic food have
from $0.5 billion to $3 billion in
Second, each purchased grown dramatically in recent
the next 4-5 years.
share allows and obligates a years in the United States and
Organic sales are also
producer to deliver a set quantity internationally. In the early
increasing in world markets--
of raw product to the co-op. 1990’s, organic food became
Third, there are a limited particularly Japan, Denmark,
increasingly available to U.S.
France, Germany, Italy, the
number of shares, and in that customers as natural food stores
Netherlands, Switzerland, and
sense the co-op is closed or began growing in size and
the U.K. The Natural Foods
limited to a set number of product selection. The growth of
producers. This is intended to Merchandiser (NFM), an
natural product supermarkets
match incoming raw products to industry trade publication,
such as Whole Foods and Wild
estimates that exports accounted
the capacity of the plant and the Oats helped spur this growth.
for about 5% of total U.S.
demand for the end product. During the late 1990’s,
organic food sales throughout the
Finally, the ownership shares moreover, conventional
1990’s. (Greene, 2001)
can be traded among farmers, supermarkets began integrating a
Not surprisingly, organic
and the price of those shares may wider selection of organic
farming is increasing along with
organic food sales. According to
Share of U.S. Organic Food Sales by Retail the USDA’s Economic Research
Outlet Type (2000) Service, organic cropland more
than doubled in the U.S. during
Type of Outlet Share (%) the 1990’s. Organic certifying
Mass Market Outlet 49% agencies in several states
Supermarkets 44% reported substantial increases in
Other mass market 5% organic certification from 1997-
Health & Natural Product Sales 48% 1999.
Natural food supermarkets 31% In the livestock sector, eggs
Natural food stores 12% and dairy are growing even
Natural food cooperatives 2% faster than other areas. The
Supplement chains/stores 3% number of certified organic milk
Farmers’ Markets/CSA’s 3% cows nearly tripled between
Total 100% 1992-1997 and nearly doubled
between 1994—1997. (Greene,
* Drugstores, mass merchandisers 2000) Organic milk sales grew
** Community supported agriculture
by 500 percent between 1994
TABLE 1: From Myers, 2001 and 1999 as more organic milk
processors entered the market
CROPP Cooperative/Organic Valley 1Bulk Foods Dairy
8% 11%
Frozen Foods
8%
and more mainstream Packaged
Groceries
supermarkets began to sell 15%
organic products.4 Organic milk Soy 6%
sales reached $75.5 million in Snacks &
Candy
1999, and in 2000, organic dairy Beverages 2%
products made up 11% of U.S. 5%
organic food sales. (Myers,
Meat 3%
2000)5
CROPP Cooperative/
Organic Valley Produce 42%
CROPP Cooperative has Chart 2: Myers, 2001
ridden the crest of this wave of
growth in the organic sector. and a significant return on their to the national OCIA for critique.
Starting in 1988, they have equity investment. This involved a lot of research
grown from nothing to a $100 and meetings.
million company in just over Start-up Struggles CROPP also faced regulatory
thirteen years. obstacles. Wisconsin laws
For most of those years, the Like most other successful
businesses, CROPP’s startup was prohibit a group of farmers from
acronym CROPP stood for the shipping their milk together
“Coulee Region Organic filled with obstacles. The
company was initially formed to without appropriate licensing.
Produce Pools”. Only recently, Fortunately, several of the
in recognition of their now market organic vegetable
products. But according to co- original farmers were members
national scope of membership, of the NFO, which offered to
did they abandon the namesake founder Jim Wedeberg, they
soon shifted to dairy, in part handle the required licensing,
of their local area in favor of the write milk checks, and test milk
more expansive “Cooperative because they realized that a year-
round-market for organic dairy as long as CROPP dairy
Regions of Organic Producer members joined the NFO.
Pools”. products would be more stable
than seasonal vegetable markets. According to Wedeberg, the
And while familiar to “NFO was the reason we got off
consumers around the country by Furthermore, they decided to
focus on cheese products, which the ground.” (McNair, 1994) In
their brand name, "Organic addition to the regulatory and
Valley,” closer to home the co- have a longer shelf life than fluid
milk and therefore required less administrative assistance, the
op is known simply as CROPP. NFO helped finance the co-op’s
In 1998, the co-op was intense management and staff.
Getting into the organic dairy initial cheese inventory with a
recognized by the Governor of substantial loan offered under
Wisconsin as the state’s #1 Rural market, however, was difficult.
When Wedeberg approached exceptionally good terms.
Initiative. This was an
acknowledgement of the impact George Siemon in 1988 about
that the co-op has had in the forming an organic milk pool,
state, especially within the farm there were no standards available
economy. Driven by a company for certifying milk as organic. At
philosophy that is strongly that time, the Organic Crop
committed to the family farm, Improvement Association
CROPP’s success has been (OCIA) concentrated on fruits
transferred back to its farmer- and vegetables. Consequently,
members in the form of Jim and the other dairy farmers
consistently higher milk prices had to form their own organic
standards on feeding and herd
health practices and submit them
CROPP Cooperative/Organic Valley 2“Creative financing” was CROPP Mission Statement
another key to CROPP’s early
success. For instance, they We, the family farmers of Organic Valley, are committed to:
needed a building to house their
new operation, and found one in • Cooperatively market the finest in certified organic products
produced exclusively by our family of farmers.
La Farge that cost only $25,000.
However, the cash-strapped • Market nutritious, wholesome food as directly as possible to the
founders lacked the money for consumer.
even that modest investment. So
they worked out a deal with the • Establish farmer-determined prices which provide the farmer with
building’s owner to liquidate an enough profit to sustain his family and his farm.
old vat in the basement of the • Encourage a farming future that emphasizes ecological diversity
property, and they used the and economic sustainability.
income from that sale to cover
their down payment! • Enable a healthy human livelihood by providing quality
Ultimately, however, the employment, cooperation, organic education, and community
growth.
ability of the cooperative to
survive these early years was due • Practice environmental awareness and cooperative principles in
to the commitment of the all aspects of production, handling, marketing and operations.
CROPP farmers and their
willingness to take financial • Promote a respect for the dignity and interdependence of human,
risks. The seven original CROPP animal, plant, soil, and global life.
producers shipped 20,000 Sidebar 3: From the CROPP Website: organicvalley.com
pounds of milk every other day
in 1988. Cheese was made at market, Wedeberg says that the equity capitalization at the end of
Springdale Cheese Factory near farmers “were determined to this case study, at which point
Richland Center. At that point, hang in there and see it through.” we will also consider how
CROPP was not involved in (McNair, 1994) CROPP varies from the “new
marketing their products, but Fortunately, CROPP generation co-op” model.
relied instead on a distributor. received a grant at this time from
In those early years, the the Wisconsin Agriculture Creating a Marketing
prices that the co-op paid its Department’s Agricultural Company
farmers for their milk hardly Development and Diversification
covered their higher organic Jerry McGeorge is a member
(ADD) program. They used
production costs. That’s because of the CROPP management team
these funds to improve upon
their original distributor sold less and carries the title of
their label and hire more sales
than 40% of the member’s Cooperative Coordinator.
people. They began showing According to McGeorge, one of
production through organic their products at trade shows
channels, unloading the rest at CROPP’s biggest marketing
around the country, and they also
commercial market prices. challenges early on was
started cutting and wrapping
Through 1991, after creating consumer education. During the
their own cheese in their La
its own label and trying to co-op’s first few years, there
Farge headquarters.
expand its distribution network, wasn’t any money in the budget
Around this time the co-op
CROPP still only had 10 for consumer education about
also ran a successful equity
members. Organic premiums organics. General public
drive—members agreed to
held steady at about $2 per awareness of the meaning and
provide $11 of equity for each
hundredweight over the purported benefits of organic
100 pounds of average month
conventional price. And while food was still quite low, and
milk production. (McNair, 1994)
local lenders were leery of what consumers balked at the high
We will return to this issue of prices of CROPP’s organic dairy
was then a very unproven
CROPP Cooperative/Organic Valley 3products—which were the only As Wedeberg says, it’s an
Organic Valley Sales by Category
ones on the shelf in most stores. arrangement works out well for
Nevertheless, McGeorge all parties. Meat - 1% Eggs - 9%
believes that CROPP entered the Many of the co-processing
market at a good time. During plants that currently work with
the early-to-mid 1990s, the CROPP were operating under
organic market really took off, capacity when the co-op
and other companies began approached them to custom Dairy - 90%
offering organic dairy products. process on their behalf. These 3/02
At that stage, there was plenty of cheese makers, creameries and Chart 4: Source: CROPP Co-op
room for competitors, and bottling plants were willing to
McGeorge actually believes that adhere to organic processing brand, “Valley Family of Farms”,
the new entrants to the market rules in order to attract the new to market certified organic beef,
actually helped CROPP. “When business. pork, turkey, and chicken. (At
consumers saw that others were In 1990, CROPP introduced that point, USDA rules did not
st
charging prices similar to the nation’s 1 organic butter, permit organic meat to be
CROPP, they realized that the and in 1992, they became the marketed with the word
co-op wasn’t charging them organic milk supplier for “organic” in the brand name.)
st
unfairly.” In addition, America’s 1 nationally Currently, approximately
McGeorge and Wedeberg both distributed organic yogurt brand. ninety percent of CROPP sales
believe that increasing public Between 1995 and 2000, they are dairy products, 9 percent are
concern about Bovine Growth launched several more “firsts” in eggs, and 1 percent is meat. In
Hormone (BGH) around 1994 the organic industry, including recent years, the co-op decided
helped organic dairy sales Parmesan cheese, cottage cheese, to market other products like
tremendously. string cheese, “high heat orange juice, mainly because in
One of the keys to CROPP’s processed” fluid milk, as well as many stores these products are
success is that they never a lactose-free milk. sold in refrigerated cases
invested much money in “bricks In the meantime, they also alongside dairy products, and
and mortar”. Instead, they “co- built up a sizable business in having a wider space on the shelf
pack” with 45 different dairy organic egg sales. And in 1999 gives them more exposure to the
processors around the country. CROPP launched a second customer.
A big part of CROPP’s
success has been its development
of its primary brand identity:
“Organic Valley”. Currently,
about 75% of its sales are under
C
V PM that brand, compared to 7%
M
RM B PM H M private label, 11% bulk product,
PM CVM
C B E M
CP
R
E
and 7% for manufacturing
BH V
ingredients.
M
C
During the mid-1990’s,
E CROPP grew dramatically. In
1993, orders from natural food
stores increased, and by the end
J of 1994, CROPP handled 2.5
PM million pounds of milk (a 150%
increase over 1993) and had 59
members. Milk routes expanded
3/02
to include eastern, western, and
Map 5: Source: CROPP Co-op
CROPP Cooperative/Organic Valley 4northern Wisconsin and Most CROPP farmers are distributing premiums in the
Minnesota. considered small to medium- milk checks every two weeks.
CROPP’s customer base sized—although classifications Not only is this a variation of
expanded nationally when vary depending on the region. the more traditional co-ops,
companies started using The average herd size for which often retain 70-80% of
CROPP’s organic milk in their CROPP dairy farms is about 50 profits each year in order to build
dairy products. And from the cows, but herd sizes range from equity, but it’s a variation from
mid-1990s to present, both co-op 20 cows to as many as 400. the new generation co-ops too,
membership and sales have CROPP includes very few which typically pay market rates
grown tremendously. In 2001, dairies on the high end of this for farmers product upon
CROPP’s sales reached $100 range—most of which are delivery, and wait until the end
million, and 2002 sales are located in California and the of the year to distribute profits
projected to reach $125 million. Pacific Northwest. By back in the form of a “value
Furthermore, it is estimated that comparison, in 2000, 12 percent added check”. CROPP members
their products are currently
found in some 25-30,000
stores, including many
Walmart outlets.
While CROPP’s dairy and
eggs sales are going strong, its
meat sales are not doing so
well at this time. That is
partly because of USDA
organic labeling issues. In
October 2002, however, new
USDA labeling policies
should finally allow them to
include the word “organic”
more prominently on their
meat label, which may
improve sales.
Impact on Co-op Members 3/02
As of March 2002, Chart 6: Source: CROPP Cooperative
CROPP had 417 producers—
296 dairy producers, 35 egg of dairy farms nationwide had 50 insisted that they receive larger
producers, 9 pork producers, 28 or less cows, 22 percent had milk checks up front.
beef producers, 31 vegetable between 50-100 cows, 35 CROPP’s “pay prices” are
producers, 4 broiler producers, percent had between 100-500 probably the number one reason
and 14 citrus producers. The cows, and 31 percent had over most dairy farmers joined the co-
citrus producers are under their 500 cows. (USDA, 2001) op. Essentially the dairy
own umbrella—only one of them Members benefit financially members collectively set the pay
is an official member of CROPP. in three ways. First and price based on their costs of
Producers are located in ten foremost, they receive significant production. As a result,
states: Oregon, California, premiums for their organic milk. throughout the 1990’s and up to
Minnesota, Iowa, Wisconsin, CROPP has essentially made a present, CROPP farmers
Illinois, Vermont, New York, decision to transfer its received milk checks that
Pennsylvania, and Florida. profitability back to its members hovered substantially above
on an on-going basis, by conventional prices.
CROPP Cooperative/Organic Valley 5In 2000, for example, the returned until they retire.) The Board of Directors is active and
Organic Valley price was state CROPP policy is to return farmer-controlled. All of the
$17.18, which, they reported, members’ retained equity on a produce categories are grouped
was $6.61 over the conventional seven-year cycle. If true, this into producer pools, and each
price of $10.57. (See Chart 7 would be a fairly quick pool meets monthly to make
below. Data for conventional turnaround compared to many decisions. Each region elects a
prices was provide by CROPP traditional co-ops, which may representative to make sure that
and was not verified by UWCC.) take fifteen tot twenty-five years concerns of farmers in that
In 2001, they reported that to revolve back equity. region are heard by the CROPP
conventional prices rose to There are many other management team.
$13.74, while CROPP prices advantages to CROPP Overall, CROPP producers
remained steady at $17.53. For membership in addition to good interviewed for this study were
farmers, the stable pay prices pay prices. As with all co-ops, very pleased with their
that CROPP maintains are a CROPP members are owners of experience of the cooperative.
welcome relief in a relatively the organization. Most All of the farmers (4 dairy
unstable farming environment. importantly, according to producers and 1 egg producer)
The second way that Wedeberg, even as the company were already organic when they
members benefit involves a grew from “seven farmers sitting joined CROPP, but were getting
CROPP policy of paying their around a table” to a large conventional pay prices and were
members 8% interest on their organization, it built in ways to having a hard time making it
equity investment. This is quite make sure that members could financially. CROPP gave them
unusual in the co-op sector. participate in the decisions of the higher pay prices and did the
Finally, members also benefit organization if they wanted to. marketing work that they did not
financial from a relatively fast Farmers still have a lot of say have time or background to do
return of their retained (non- in determining pay prices, on their own.
direct) equity investment. (Their marketing strategies, and other All five farmers interviewed
direct equity investment is not organizational decisions. The came into the program with a
Chart 7: Source: CROPP Cooperative. Data for conventional prices was provide by CROPP and was not
verified by UWCC.
CROPP Cooperative/Organic Valley 6strong commitment to organic about 13 years, whereas on the Several farmers mentioned
farming and sustainable big conventional farms, animals that they were pleased with
agriculture. Jim Grimm, a live much shorter lives. Both CROPP’s organizational
Wisconsin dairy farmer with 45 farmers believe that the quality structure and producer pools,
cows, said that he joined CROPP treatment of animals is one of because they encourage active
in 1993 after farming organically CROPP’s most important involvement and give farmers
on his own for about thirteen requirements, and one that more voice in decisions made by
years. He said that even though contributes greatly to the high the organization.
most of the farmers in his area quality of CROPP’s products.
were conventional farmers who Beyond their firm Growing Pains
just “went with the group”, he commitment to organic Despite the affirmative
“always knew that organic was production, the farmers attitudes of CROPP members
the right thing for the soil and for interviewed all felt that CROPP and the upward trend in the
the animals.” membership was helping them cooperative’s gross sales, major
Joe Placke, another survive financially. Joe Packe challenges lie ahead. Both
Wisconsin dairy farmer with 70 said that the “biggest thing is that CROPP farmers and managers
cows, joined CROPP four years CROPP helps me get a better expressed concerns related to the
ago after farming organically for price for my milk.” Bushman growth of the co-op and the
about six years. Like Grimm, he stressed that alone, farmers pressures of outside competition.
switched from conventional cannot make it in the organic Some of the farmers
when he decided that he “just niche market, but farmers interviewed (who wished to
didn’t want to use chemicals working together through remain anonymous) expressed
anymore” because he felt that CROPP can hold a significant concern about how the
organic was “healthier for the portion of the organic market increasing size of the
people and the animals.” and make a profit. organization would affect farmer
Duane Bushman runs an egg Bushman said that he participation and their voice in
and dairy farm in Iowa along appreciates the stable pricing organizational and marketing
with his three sons; altogether CROPP offers for his eggs and decisions. Moreover, to handle
they have 140 dairy cows and milk, and the fact that CROPP
marketing and sales, CROPP’s
between 18,000-20,000 “makes sure profit goes into
administrative staff has grown to
chickens. Bushman had an even farmer, not into the co-op.” Jim about 200—about one-half the
more personal reason for Grimm said “if it wasn’t for
number of farmer members.
switching to organic. In 1982, a CROPP, I’d get out of it.” (The Most of these employees are not
bag of insecticide broke in his challenge of balancing prices farmers, and have been trained in
hands, and he later got a brain paid to members with the equity conventional marketing. A few
tumor that, in his opinion, is needs of the business can be an farmers expressed concern that
connected to exposure to the Achilles heal of cooperatives. these employees might not be
insecticide. This will be discussed further in committed to the co-op’s central
Bushman marketed his the conclusion.) mission.
organic products on his own Busman described neighbors As CROPP’s sales levels and
until the early 1990’s, when who were desperately trying to national recognition grow,
CROPP began their egg compete with the bigger farms— farmers from around the nation
program. He expressed growing from 100 or fewer cows are joining the organization. One
particular concern about the to 500-600 cows—but never farmer said he was concerned
overuse of hormones in animals, quite able to keep up. Many of about commitment and
calling it “one of the saddest them, Grimm said, “don’t even experience of some of the
things about conventional own their farms and probably farmers joining the CROPP
commercial herds.” never will.” Several other bandwagon, and more
Jim Grimm, similarly farmers described similar importantly, the quality of their
claimed that his own cows live to scenarios in their areas.
CROPP Cooperative/Organic Valley 7products. As he said, “people “farmers become removed from CROPP, but focused on
who aren’t true farmers, a lot of what’s happening in marketing fluid milk and
them from out East, are joining management.” Newsletters, he eventually became the leader in
CROPP. These people could added “only tell us some of the that category. Horizon now
give Organic Valley a lot of story, the part the management controls about 50% of that
problems.” wants to tell, and other things are market, compared to 35% for
For example, he has seen hidden…they feed everyone the CROPP.
new CROPP members who were same information.” He added Buyouts by big dairy
new to egg production make bad that even though meetings and companies are also becoming
decisions about feed and cause other decision-making processes more common, intensifying
CROPP egg quality and were open to farmers, agendas competition in the dairy market,
production levels to go down. for the meetings were often set and making it difficult for
These bad decisions, he says, beforehand by management. consumers to know who is
affect everyone in the egg CROPP management is producing and processing the
pool—and ultimately everyone definitely aware of the product they purchase. The
in the co-op. He felt strongly that challenges that have come with entrance into the organic market
one of CROPP’s challenges as growth and success. They seem by companies like Suiza (which
they grow will be to “identify particularly concerned today recently merged with Dean
who is a farmer…the people who Foods, which itself owns a 12%
give us trouble are people are stake in Horizon) has further
aren’t real farmers.” intensified competitive
Several farmers said that pressures.
even though they were very
pleased with their past A “Hybrid” New Generation
experiences in CROPP, they Cooperative
were a bit worried about Before considering CROPP’s
CROPP’s current direction. strategies to deal with its capital
More specifically, they weren’t limitations, we will first return to
confident about the co-op’s the topic of “new generation
decision to “go big” and compete cooperatives, or NGCs, and
with the other major players in CROPP members shown in their explain how CROPP represents a
dairy and organic foods. As one promotional literature. “hybrid” version of that model.
farmer said: “As we get bigger, At first glance, it might
we try to compete with all the with increased competition and appear that CROPP reveals none
other products out there... the limitations of their capital of the four structural traits of
everyone thinks we need to have base. NGCs. Farmers are not required
it all. We’re trying to get bigger Jerry McGeorge says to make “up front” investments,
than Horizon. But that’s not competition is certainly but rather portions of their milk
necessarily where the farmers becoming more acute. When the checks go toward their equity
want to be.” co-op first started, there were accounts until they meet their
Moreover, a few farmers only a few other regional players commitment.
expressed concern that as the in the market– such as Brown Furthermore, CROPP does
organization and administrative Cow, which captured a large not utilize “capital shares” like
staff grow, they are becoming portion of the northeastern U.S. most other NGCs. Shares are
less able to address the wide market. not traded, they don’t change in
range of concerns of the farmers. Today, CROPP’s number value, and they don’t obligate a
The co-op increasingly depends one competitor is Horizon, a producer to deliver a set quantity
on newsletters to communicate private firm that entered the of raw product. Lacking all of
with its hundreds of producers, market about the same time as
and as one farmer stated,
CROPP Cooperative/Organic Valley 8From the packaging of Organic Valley products
these traits, how can the co-op be and income grows year-to-year, to do with it, often accepting low
considered a hybrid NGC? their capital requirement also prices from buyers and passing
One reason is that CROPP is increases, and they must pay little or no profit back to their
essentially a closed co-op, which more into their equity account. members.
is a key feature of NGCs. New Members also contribute The theory behind new
members are taken on only as equity in the form of “retained generation co-ops, on the other
demand for organic milk patronage refunds”. When a co- hand, is to limit supply to match
increases. Furthermore, current op is profitable, the board of demand, and often they target
members only receive premium directors has the option of higher value markets in order to
prices for milk that is sold into returning some or all of the generate profits that can then be
organic markets. (Currently profits back to the members in transferred back to the members
about 98% of the co-op’s milk is cash at the end of the year, in cash as quickly as possible.
sold as organic.) Matching distributed in proportion to each CROPP is certainly market-
supply to demand is an essential member’s patronage. oriented. Bedessem explained
characteristic of new generation Alternatively, they may retain that they are not a production co-
cooperatives. profits and allocate them to op, in the sense that they do not
And while CROPP members members’ equity accounts, to be focus on “moving” raw product.
may not have made their equity “revolved” back at a later date. Nor are they a processing co-op,
investments “up front”, since Finally, the board may choose to focused on turning milk into
1988 they have made significant retain profits but not allocate cheese and other dairy products.
capital contributions. Some of them to individual members. Instead, they can best be
the larger members have up to The latter equity essentially described as a marketing co-op,
$90,000 invested in the co-op. becomes common property, and focused almost entirely on
CROPP members currently will stay with the co-op until it getting their “Organic Valley”
contribute capital to their co-op dissolves. branded products into
in two ways. First, there is the Another feature of NGCs that consumers’ refrigerators. They
“direct equity” investment, is often sited is their orientation invest approximately 14% of
which requires that every toward meeting market demand their earnings each year into
member make an equity in order to achieve profitability. promoting their brand.
contribution equivalent to 5½ Certainly many of the older Finally, the fact that CROPP
percent of their annual income generation of agricultural has been able to transfer its
from CROPP. (This can be paid marketing co-ops would also success back to its members
all at once or more typically is claim to fit that description. But would further establish them as a
subtracted from the milk check most traditional co-ops accept new generation cooperative. A
until the obligation is met.) That unlimited supplies of raw visit to their modest headquarters
means that as their production product and then figure out what in La Farge, Wisconsin is an
CROPP Cooperative/Organic Valley 9indication that cooperative investment. A major constraint dividend payments to preferred
profits are not being diverted is that their current and incoming stock would still apply. Also,
unnecessarily from where they members cannot supply capital these preferred shareholders
really belong: back in their as quickly as it’s needed. would no voice in the
members’ pocketbooks. Another option, which governance of the co-op, with
CROPP does not appear to be the exception of decisions that
Conclusion considering, is to lower the affect the value of the stock
Recent years have been prices that they pay for their (mergers, dissolution, etc.)
exceptionally good to CROPP members’ milk. High pay prices The limits on dividends and
and its members. The obvious are what attracted many voting power would typically
question is how long will the members to the co-op and to turn off many investors.
good times last? It will certainly organic production practices. However, Bedessem says that
not be easy to compete in the However, there is a balance that there is substantial support for
market with larger players like must be achieved. If high prices the company among consumers
Dean Foods. As members and are paid to farmers now, while in Wisconsin and nationwide,
managers have expressed, the neglecting to position the co-op and CROPP hopes to raise as
challenge before CROPP now is to be competitive in the future, much as $2-3 million from sales
whether and how it can continue then the gains now could turn of preferred stock.
to compete without forfeiting its into tragic losses down the road. Other agricultural co-ops
commitment to family farm In the past year, several have turned to additional
profitability. significant bankruptcies among capitalization strategies in recent
Essentially, they are facing a long standing co-ops have years. Some establish joint
problem that is common occurred at least in part because ventures with investor-owned
throughout much of the this delicate balance was not firms, which usually requires an
agricultural co-op sector, maintained. abdication of some control over
namely, how to compete with Rather than lower pay prices, the shared enterprise. One
private firms who have fewer CROPP is currently reexamining notable new generation co-op in
restrictions on access to capital. its approach to equity and North Dakota went so far as
There is only so much money capitalization. One option on the converting to a private
that a group of farmers can table is to end the policy of corporation.
afford to invest off their farms. paying interest on members’ There seems to be no
A related challenge for equity. This policy is relatively indication that CROPP is
CROPP, and for most rare in among farmer considering such strategies. As
agricultural co-ops, is the need to cooperatives, and those interest long as they maintain their
revolve equity back to the payments could go instead current level of profitability, they
members. CROPP members toward capitalizing the co-op. will have some flexibility to
currently have about $5.5 million Nevertheless, discontinuing the convert profits into much needed
in equity invested in the co-op. interest payments would be a equity capital. But as the
In recent years, about 20% of the clear retraction of member organic industry becomes more
co-op’s profits have been used to benefits. competitive, that will be harder
revolve back the members’ CROPP is also in the process to do.
retained equity. To continue of getting a 521 IRS exemption It would seem that the
their present rate of revolvement, so that it can meet the members of CROPP are facing a
CROPP must maintain requirements of the Security and critical juncture in the evolution
profitability. Exchange Commission (SEC). of their cooperative. Together,
But for CROPP to stay This will facilitate the sale of they have been part of something
profitable, it needs to remain preferred stock to the general very successful, watching their
competitive, and that will public. sales grow to phenomenal
undoubtedly require new capital As stipulated by Wisconsin heights over the past fourteen
statutes, an 8% limitation on years. Where they go from here
CROPP Cooperative/Organic Valley 10will depend a lot on the growth marketplace. They must the mission and the principles
of organic markets and the maintain a sufficient level of that got them where they are
actions of their competitors. capitalization to compete there. today.
They must identify where they Hopefully, they can accomplish
will fit best within that those goals while staying true to
2003 Update: On December 30, 2002, a CROPP press release reported 2002 sales surpassed $125
million. They are projecting sales of $212 million by 2005. They report that the organic industry is still
growing steadily at 20%, driven in part by organic milk sales, which are growing at a rate of 27%.
CROPP continues to ride this wave of growth with their Organic Valley brand of food products.
Ninety-four new farms joined the CROPP family in 2002, increasing their national membership to over
500. Their members brought 94,000 more acres into organic production in 2002, for a total of 75,000
acres. 3,810 cows were added to their system, for a total of 17,800 cows.
CROPP CEO George Siemon reported that in November 2002 CROPP members in Wisconsin received a
pay price of $20.02 per hundredweight, while the conventional price, as they reported it, was about $11.
Competitive pressures, of course, have not lessoned, and the co-op still faces the fundamental challenge of
meeting their capital needs in order to remain competitive and profitable in the future.
Meanwhile, the Wisconsin Federation of Cooperatives and the Minnesota Association of Cooperatives are
each working in their respective states to create new co-op legislation. Modeled after a new Wyoming co-
op statute, the new co-op laws, if passed, should make it easier for co-ops to attract outside (non-farmer)
capital. In exchange for the flexibility on capital acquisition, farmers will forfeit some degree of control
as well as a share of any profits the company earns.
Reorganizing a preexisting co-op like CROPP into the new co-op structure will probably involve
prohibitive tax penalties. However, the new state laws, which would essentially create a modified limited
liability company (LLC) with a co-op name, may be the best option for farmers who are looking to start
new ventures but lack sufficient capital to do it entirely on their own.
CROPP Cooperative/Organic Valley 11REFERENCES
Green, Catherine, “U.S. Organic Agriculture Gaining Ground. Agricultural Outlook. Economic
Research Service/United States Department of Agriculture. April, 2000.
Greene, Catherine, Dimitri, Carolyn, & Richman, Nessa. “Organic Marketing Features Fresh Foods and
Direct Exchange.” Food Review. Volume 24, Issue 1. January-April, 2001.
McNair, Joel. “Wedebergs Worked Hard to Get $17 Milk.” Agri-View 1994
Myers, Steve and Somlynn Rorie, “Facts and Stats: The Year in Review.” Organic & Natural
News.December, 2000.
________. U.S. Department of Agriculture, National Agricultural Statistics Service, Dairy and Poultry
Statistics. 2001.You can also read
