By E. M. Morrison

Would homemakers buy quick-frozen apple slices for pie baking? Or could Midwesterners love the meat of a six-foot flightless bird from Africa?

And how many acres of cultivated trees are needed to win a contract with a paper company?

To help farmers form successful processing and marketing cooperatives, these and other marketing questions are being addressed by a new program of the Minnesota Department of Agriculture. The MDA’s Value-added Agricultural Cooperative Grant Program has been funding market research and business planning for qualifying farm co-ops for 18 months now. The practical results have been providing diverse farm groups with market advice and direction for these tough times.

Bring big bucks

When it comes to value-added co-ops, the three things that matter most are “market, market and market,” says Frank Blackburn of the Minnesota Association of Cooperatives. “The co-ops that succeed identify a solid market before they start.”

Steve Olson, manager of AURI’s Marshall office, underscores that. “There are opportunities out there for farmers to increase profitability with value-added processing. But farmers need to make sure there’s a market before they get into processing, not after.”

The problem is, good market research is expensive, says Terry Dalbec, MDA’s grant program coordinator. A small group of southern Minnesota chicken farmers, for example, recently spent $25,000 exploring broiler markets. Putting up that kind of money with no promise of a return is more than many farmers are willing to risk.

Pitching in, up-front

The Value-added Agricultural Cooperative Grant Program helps growers foot the costs by providing up to $50,000 in matching funds for market studies, product design and development, consumer testing and business planning.

The program began in late 1997 with a $200,000 appropriation from the Minnesota Legislature. The following year, state lawmakers allocated $160,000 per year to continue the program, a commitment which has attracted additional federal dollars and several local partners, including AURI, the Minnesota Association of Cooperatives and the University of Minnesota.

More than a dozen new cooperatives, most with fewer than 50 members, have taken advantage of the grant program. “We’ve worked with a wide variety of grower groups,” Dalbec says. “Sheep, poultry, beef, pork, fish, ostrich, dairy, alfalfa, apples.”

Squeezed by shrinking margins and global competition, “farmers are finding they need to cooperate — either formally or informally,” Dalbec says. Adopting the model used by sugar beet growers in the ’70s and corn growers in the ’80s, the newest wave of co-ops is venturing into an array of specialty markets.

A sampling: Northern Minnesota alfalfa growers are developing dehydrated hay bales for the horse industry. A group of Red River Valley farmers is exploring the demand for organic sugar beets. And a southern Minnesota sheep producers’ cooperative is working with scientists to develop convenience foods that feature lamb.

There are many more co-ops that have conducted research; some of their experiences are told on the following pages. “It’s really interesting to watch what’s happening now,” Blackburn says. “Minnesota has been a center for co-op development because we have the resources here to work with cooperatives. Plus, we have successful models.”

For more on the Cooperative Development Program, contact Terry Dalbec at the Minnesota Department of Agriculture, 90 W. Plato Blvd., St. Paul, MN 55107, (651) 215-0368.

Unfortunately, Sheets says, almost no money went into developing real markets for ostrich products, “which is what would actually sustain the industry.” When prices crashed in 1995, ostrich growers took their heads out of the sand and began to look for new markets, he says.

The 80-member Ostrich Producers Co-op of the Midwest formed that same year. With funds from AURI and MDA, the growers explored markets for ostrich meat, leather, feathers and oil, making contacts in the food and manufacturing industries.

Identifying meat as the most promising market sector, the group surveyed consumer attitudes about ostrich. It turns out that almost no one in Minnesota has eaten ostrich or knows anything about it — but most people who try ostrich in taste tests like it.

Still, it’s clear that creating consumer demand for the unfamiliar red meat will require lots of demonstrations, samples, advertising and, above all, education, Sheets says.

The ostrich co-op has devised a merchandising plan for five meat products under the Health Rich Farms brand. This year, the co-op will test consumer acceptance of the meats.

Says Sheets: “I don’t see how we could have gotten to this point without AURI and the Department of Ag helping us with the market research.”

What fosters co-op formation? “Tough times,” says Frank Blackburn of the Minnesota Association of Cooperatives. “Farmers don’t organize co-ops when times are good. It’s only when things get really tough that farmers come together.”

Such was the case for a group of southern Minnesota chicken producers. In 1997, Campbell Soup Company closed its Worthington chicken processing plant, and they found themselves saddled with big capital investments in empty poultry barns. Producers formed the Rangeland Farmers Cooperative in response. “We had to work together to get another processor, or build our own processing facility,” says Morgan farmer Jim Spangler, co-op president.

The 19 poultry farmers raised a little over $7,200 in start-up money. Matching funds from MDA’s co-op grant program helped Rangeland study the poultry markets. Hoping to lure an established processor to Worthington, co-op members contacted the top 50 broiler processors in the country, meeting personally with many. At the same time, they explored doing their own processing for international markets.

The effort to bring a new processor to Worthington failed, and co-op members ultimately rejected moving into high-risk exports. Nevertheless, in late 1998, after more than a year of hard recruiting, the co-op landed a two-year contract with Agri-Processors, a kosher chicken processor in Postville, Iowa.

“It was very important that we’re an organized group,” Spangler says. With a capacity of nearly eight million chickens a year, Rangeland had the clout to negotiate fair terms for its members. “Being a co-op puts us on equal ground with the processor.”

Rangeland spent about $25,000 to get members back into production. “No one individual could fund this on their own,” Spangler says. “The grant initially convinced us to form a cooperative and pool our resources.”

Douglas and Stearns counties in central Minnesota lie in a thin-soiled transitional zone between prairie and forest. The region’s traditional agricultural base, dairy, is declining. But some farmers see a new agricultural opportunity here: wood pulp.

The Minnesota Agro-Forestry Cooperative is promoting intensively cultivated hybrid poplars, a fast-growing source of wood fiber for paper. An MDA grant and AURI helped Agro-Forestry survey the Minnesota pulp market, which now depends on local aspen trees.

The pulp industry projects a shortage of aspen trees in about ten years, says Montevideo grain farmer Dennis Gibson, president of the 33-member tree cooperative. “Our talks with end users indicate that they will have a need if we can supply a product.”

The problem for tree farmers is the lag between planting and harvesting. “Farmers can’t plant trees and then wait ten years for a paycheck,” Gibson says. The co-op is now seeking ways to pay growers while they establish tree crops. One idea under discussion is a revolving loan fund administered through the co-op.

“Our goal,” Gibson says, “is to pull together producers to grow 25,000 acres of trees — enough to sustain a small paper mill.”

For more information on growing hybrid poplars visit www.auri.org/poplars/poplars.htm

Through careful market research early on, two small Minnesota co-ops recently avoided costly mistakes.

Apple Crisp Cooperative, a group of seven southern Minnesota apple growers, abandoned plans to package quick-frozen Haralson apple slices for supermarkets, turning instead to the food service market.

AURI helped the cooperative develop the frozen apple slices to get more value from off-grade Haralsons, Minnesota’s most popular baking apple. An MDA co-op grant helped Apple Crisp evaluate the product’s chances in the consumer market.

A retail survey “provided us with valuable information on the grocery industry, which none of us in the co-op were very familiar with,” says LaCrescent apple producer Harry Hoch, co-op president.

The market findings convinced members that a retail product was unlikely to succeed. A survey of the food service sector was encouraging, however, leading the co-op to focus sales efforts on Twin Cities bakeries and restaurants.

Apple Crisp also discovered an unexpected demand for fresh Haralson apple slices. “We may pursue this as a way of getting apples from the 1999 crop to customers earlier in the season,” Hoch says, “and then offer the frozen product later.”

By contrast, Whole Farm Cooperative learned that its specialty cheeses weren’t a good fit for the price-sensitive food service sector.

Whole Farm is a loosely organized group of 30 central Minnesota growers who market farm products directly to consumers (see story, page 3). Co-op members wanted a product that would add value to their grass-fed dairy operations.

Supported by an MDA grant, Whole Farm identified profitable varieties of specialty cheese. “We found some that would be a nice niche for us,” says Long Prairie farmer and co-op treasurer Phil Arnold. “But we hit a brick wall when we couldn’t find a processor to make the kinds of cheese we wanted. So we ended up going with what we could get, instead.”

That turned out to be mostly cheddar.

The co-op’s first 2,500-pound test batch of cheese sold briskly, Arnold says. But the second batch was a different story: “There was a difference in product, and we learned this can bring booming sales to a screeching halt,” Arnold says.

This year, with help from AURI, the co-op will test four more cheese batches, developing specifications and quality controls. Arnold says this research has taught the group much about the nuts and bolts of manufacturing, transportation, storage, distribution and pricing.