Co-operative Network

David Ward
Director of Dairy and Government Relations
Cooperative Network of Wisconsin and Minnesota

Background

David is from a dairy background and was a seven-term member of the Wisconsin State Assembly and Vice-Chairman of the Joint Finance Committee.

The Cooperative Network serves more than 600 member co-operatives owned by Wisconsin and Minnesota residents by providing government relations, education, marketing and technical services for a wide variety of co-operatives including farm supply, health, dairy marketing, consumer, financial, livestock marketing, telecommunications, electric housing, insurance, worker owned co-operative and more.


Dairy Co-operatives in the Upper Mid-West

The Upper Mid-West is seeing a steady increase in very large dairy farms. Farms with 1,000 cows or more tend not to have a bulk tank but rather put the milk directly into a milk truck parked in the “dairy”. This means that milk has to be chilled very rapidly before it gets to the truck. Electricity cost in the US is around 11 cents per kilowatt hour.

Most of these trucks are owned by the plant, in some cases they are owned by the farmer. In a few rare cases the farmer owns the tractor as well.

These larger farmers demand volume bonuses. By law these volume bonuses are restricted by:

1. The amount that can be justified by cost savings eg lower transport and administration costs, or
2. To meet competition.

In other words so long as the coop (or private dairy) up the road is paying very high volume bonuses you can too!!

There are 8 Dairy Co-operatives operating throughout the state of Wisconsin as well as a number of small local co-ops operating in specific areas. Dairy Farmers (especially the larger ones) will move from one Co-op to another. There tends to be more loyalty to the milk truck driver than to the Co-operative and if he moves jobs from one co-op to another many of the farmers on his old route will move with him.

The members of one co-operative Alto who were performing poorly accepted an offer from a private Canadian company to buy out the co-op. The Canadian company offered to pay the members all their revolving equity. Given that it was unlikely that these members where unlikely ever to see their equity otherwise they accepted.

There are also a number of “Swiss” type co-ops. In a traditional co-op (or private) milk supply contract the milk becomes the property of the co-op as soon as the milk is pumped into the tanker. In Swiss style co-ops the milk remains the property of the co-op member until the finished product (cheese) is processed, matured and sold on the market.

Many co-operative dairy plants are now running at capacity. This raises the question as to how co-ops pay for expansion. This is a difficult issue. One co-operative in Michigan has a capital program deduction of 10 cents / cwt. However this can be tricky is the co-op down the road isn’t deducting a capital levy.

David feels that the competition between co-operatives is a good thing as it keeps them on their toes. He wouldn’t want to see rationalising to the point were farmers had only one choice. He highlighted that in the State of Vermont there two dairy co-operative, however one has BST free policy so farmers using BST have only one co-op they can sell to.


Futures Contracts

Unlike Europe, farmers in the US have the ability to forward sell their milk on the futures market or by buying “Puts”. They can also lock in the price of their inputs.

Producers could have locked in the price for this entire years supply at $16-$17 / cwt. Only 6% of producers take advantage of this scheme which would be the difference between making a substantial loss or a modest profit. Most farmers didn’t take the option because they hoped for much higher prices.


Activities of the Cooperative Network

Around 15 years ago California took the title of Americas Dairyland from Wisconsin. To try and encourage expansion of Wisconsin’s dairy industry the Cooperative Network successfully lobbied the State Government gave tax credits for capital investment. Also land near settlements which had been zoned for building but was still being farmed was taxed at its full investment value. This was changed to the a valuation on the agricultural economic potential of the land.

One relatively new development was the formation of a Farmer Health Co-op. Most people in the US are provided with family health insurance by their employer. Individual policies can be very expensive and will often exclude cover for illnesses relating to pre-existing medical conditions.

The Farmer Health Co-op now has 2,600 members. It was expected that the average age of those joining might be very old, however this has not turned out to be the case. The average age is 38. Some of their members have seen their premiums drop by up to 50% since joining.

The Co-operative Network provides a variety of board training for its members this includes subjects such as:
• How to hire a CEO
• I can I or can I not do as a Director
• Directors legal responsibilities and liabilities.

They also run youth seminars in agricultural colleges and train co-operative employees on credit issues. They also have a committee of dairy plant managers to enable them to network and discuss common issues.

They also help organise the annual Co-operative Day at the State Capitol in Madison. Minnesota has a “Dairy Day” instead at their State Capitol in St. Paul.

They can also mobilise all cooperative members to aggressively lobby if one sector is threatened. A recent example was a proposal by the Governor and Legislature of Wisconsin to impose an oil gross receipts tax in the state budget. They pointed out that this tax would not just affect “big oil” companies but also co-operatives that distribute motor fuel. They got all their member co-ops to put a flyer in their monthly mailing to their members along with pre-printed post cards for their members to complete and mail into their local State Assemblyman and Senator.