New Generation Cooperatives: Case Study The Role of Value-Added Cooperatives in Rural Economic Development: The Case of Heartland Organic Marketing Cooperative

The New Generation Cooperatives: Case Studies are made possible with support from the Illi-nois Council on Food and Agricultural Research (C-FAR) and the Illinois Institute for Rural Affairs (IIRA). A collection of ten case studies with an introduction is available from IIRA in print and on the IIRA web page. Quoting from these materials for noncommercial purposes is permitted provided proper credit is given. Introduction Rural communities have witnessed a secular decline in the number of family farmers during the 20 th century (Davidson 1990). This decline has accelerated during the past two decades due to a range of macroeconomic forces including the interest rate-driven farm crisis of the 1980s, the vertical integration of farm production, new technology such as precision farming, and the globalization of markets (Lobao and Lasley 1995; Schaefer 1997). The negative impacts of volatile commodity markets and low commodity prices have been further exacerbated, at least from the perspective of some farmers, by the " Freedom to Farm " Act passed in 1996 (Hage 1999). This federal act cuts farm subsidies on the theory that government support undermines the efficient operation of commodity markets; however, in the current era of low commodity prices, intensified market pressures have forced many farmers out of business. The declining numbers of farmers have impacted the rural economy and society (Hobbs and Weagley 1995). With fewer farm families living in rural communities, businesses, churches, schools, and hospitals have had to restructure or even close due to declining clientele (Hage 1999; Lobao and Lasley 1995). Because of this, some farmers are adopting new strategies to counter intensified market pressures and consolidation in the farm sector. One promising new strategy is evident in the numerous value-added or New Generation Cooperatives (NGCs) Cooperatives in general, and NGCs in particular, represent a local response to macroeconomic changes in the agricultural sector (English 1995). Large producers and processors can achieve economies of scale, lowering the per unit cost of production. Individual family farms are too small to match these economies of scale. In order to compete, some farmers are collaborating to form NGCs, also known as producer cooperatives (Groshen 1994). By joining forces, producers can achieve economies of scale in purchasing inputs, processing, marketing, and distribution (Duffy 1995). At the same time, NGCs allow small farmers to retain a large measure of individual control over farm operations (Boes and Rosman 1999). In short, the creation of …