Renville: The Cooperative Capital

When the local economy falters, communities often look beyond their borders for a solution. A common approach is to try to convince a company to locate a new factory or branch office in the community. But, as one town has discovered, finding ways to extract more wealth from local resources may be a more effective strategy.

In the fight to save independent producers and wrest a portion of the consumer dollar back from agribusiness giants, farmers are taking an old idea—the cooperative—and giving it a new spin. While traditional cooperatives concentrate on marketing commodities or pooling resources to enhance purchasing power, this new generation of coops is adding value to farm products, processing wheat into pasta and corn into ethanol.

More than 100 value-added cooperatives have cropped up in the last ten or fifteen years. Most are in the Upper Midwest. One place in particular—Renville, Minnesota—has declared itself “The Cooperative Capital,” a title boldly emblazoned on the town’s water tower.

A small community of 1,300 located 100 miles southwest of Minneapolis, Renville was struggling to survive 25 years ago. Today, Renville is a thriving community of profitable family farms, hundreds of new jobs and a busy main street. The town owes its rebirth to value-added cooperative production.

Like many other places, Renville’s cooperative history began in the 1930s when area farmers built a series of grain elevators and a cooperative oil company. In 1937 the Renville-Sibley Cooperative Power Association began supplying electricity. Over the next decade Renville gained a credit union and farmers formed a transport cooperative to haul fuel.

That was the end of co-op-building for quite some time. By the 1970s Renville was in trouble. Farms were failing, jobs were scarce, and young people were moving out. Farm service and retail businesses closed as larger towns nearby gained a bigger share of the region’s trade.

The second wave of cooperatives started with what at the time seemed to be yet another disaster: in 1971 American Crystal Sugar Company closed its plant in Chaska (90 miles away), leaving Renville’s beet farmers with no market for their crop. The farmers responded by forming the Southern Minnesota Beet Sugar Cooperative and constructing their own processing facility. The co-op struggled financially for several years, but today it is Renville’s largest employer with 250 full-time employees and a payroll of $11 million.

The success of the Southern Minnesota Co-op became a source of inspiration when farmers emerged from the farm crisis of the 1980s looking to gain greater control over their economic future. In 1989 four of Renville’s grain elevators merged to form the Co-op Country Farmers Elevator. The co-op’s members wanted to diversify and increase their incomes. Rather than expanding horizontally—putting more land into production to make up for falling commodity prices—they decided to expand vertically by moving up the food chain and converting corn and soybeans into higher-value food products.

In 1991 ValAdCo, a large hog feeding operation, was launched by 39 corn growers. Today ValAdCo has 130 members and annual sales of about $20 million. In 1994 corn growers formed another cooperative, Midwest Industries Inc., whose 380 members invested and borrowed $22 million to build an egg production and processing facility under the name Golden Oval Egg. Three years later 400 soybean farmers started the MinAqua Fisheries Cooperative, which raises tilapia, an African perch popular in gourmet restaurants and Asian American markets.

All three are “closed marketing” cooperatives, meaning membership is limited to farmers and requires a substantial investment up front. Each share purchased grants the member the right (and obligation) to sell a certain amount of grain to the coop and to earn a proportionate share of the value added by the operation. Farmers joining Golden Oval, for instance, purchase a minimum of 2,000 shares at $5.00 per share (up from $3.50 in 1994) and supply one bushel of corn per share annually.

A tremendous success, Golden Oval began full-scale production in late 1996 and now keeps 2 million hens producing 500 million eggs a year. The co-op’s processing facility generates 60 million pounds of “liquid egg product” for food processors and restaurants. It employs 80 people and has a payroll of $2.3 million.

The co-op’s 600 owner-members reported net income of $3.17 million on sales of $21.8 million last year. Golden Oval is expanding into Iowa, where new members have invested more than $5 million to build production and processing facilities.

Not only do these operations add value to farm crops, but they work as a natural hedge against fluctuating commodity markets. Because corn accounts for half of Golden Oval’s costs, low corn prices can lead to greater profits and higher value-added payments, giving members something to fall back on in those years when corn markets are depressed.

Altogether, Golden Oval’s member-owners received $3.77 per bushel of corn in 1998. That’s the market price plus $1.58 in added value. In 1997 the egg coop added $1.70 to each bushel.

ValAdCo has experienced a much rockier start. The 10,000-hog feedlot has been fined by the Minnesota Pollution Control Agency for environmental problems, which the cooperative says have since been resolved. ValAdCo has turned a profit only once since 1991, but its management points out that neither did Southern Minnesota Beet Sugar Cooperative in its first decade. With hog prices dropping to record lows, ValAdCo, along with most producers and feeders, has struggled. The cooperative is currently undergoing internal restructuring and remains optimistic about the future.

One striking feature of Renville’s cooperatives is their interdependence and ability to recycle resources back into the local economy several times over. In 1994 ValAdCo, Golden Oval, and Co-op Country Farmers Elevator jointly built United Mills, a feed manufacturing co-op. Rather than shipping grain to an outside processor, farmers now mill their feed locally and the cooperatives are able to control one more link in the chain of production.

The excess feed not needed by the egg and hog operations is sold through the elevator coop to independent livestock producers. The elevator coop also markets the manure produced by Golden Oval as fertilizer for local farms.

Another example of recycling local resources can be seen at MinAqua Fisheries, a venture that would not have been possible without the sugar beet cooperative. The city of Renville, with the help of a U.S. Economic Development Authority grant, installed a heat exchange system for MinAqua that captures waste heat from the beet plant.

All of this development has been a boon to Renville-Sibley Cooperative Power Association. Though it is the smallest electric coop in the state (with fewer than 2,000 members), Renville-Sibley ranks first in kilowatt-hour sales per customer because of the area’s value-added production. The growth in sales volume has enabled the cooperative to retain the same rates for the last ten years. In turn, Renville-Sibley has invested heavily in backup systems to ensure power for the cooperatives and helps them find ways to manage their loads more efficiently. The electric co-op also helped Golden Oval secure a loan to build its first barn.

The town of Renville has done its part to support the cooperatives through planning assistance and tax increment financing. How have the cooperatives impacted the rest of Renville’s economy? One glance downtown will tell you, says Julie Rath, Renville County Economic Development Director. “What other town of its size has two hardware stores, two beauty shops, two florists, a drug store, a car dealer, a clinic, and a grocery store?” she asks. Renville’s cooperatives employ nearly 500 people or about 8 percent of the surrounding county’s total private-sector employment. While most of America’s smallest farm towns are dying, a new generation of cooperatives has set Renville on a different course.