June 28, 2001, Thursday
CAPITOL HILL HEARING TESTIMONY
COMMITTEE: SENATE AGRICULTURE, NUTRITION AND FORESTRY

TESTIMONY-BY: DAVE E. CARTER, SECRETARY - TREASURY
MOUNTAIN VIEW HARVEST COOPERATIVE LONGMONT, COLORADO

June 28, 2001
Testimony of Dave E. Carter Secretary - Treasury
Mountain View Harvest Cooperative
Longmont, Colorado

Mr. Chairman, members of the committee, I am Dave Carter, the Secretary-Treasurer of the Mountain View Harvest Cooperative, a new generation enterprise organized in 1997 by 225 Colorado wheat farmers who generated $5 million to purchase a modern bakery and enter the bread business. Our bakery is the sole supplier of product to a major high-end national sandwich chain--and through a joint venture with Farmland Industries and Bay State Milling--is involved in a series of branded bread products at the retail level.

This new cooperative emerged from the ashes of a bankrupt old-line grain origination and feed milling cooperative that had operated in Colorado since the 1940's. In the spring of 1994, I joined with the leaders of the cooperative, who were searching for a way to make a new start. In the fall of 1994, that group applied for--and received--a $100,000 Rural Business Enterprise Grant from the U.S. Department of Agriculture for the purpose of feasibility analysis. Those funds were used to hire a professional firm that researched 14 potential areas for value-added processing for Colorado wheat. They looked at everything from ethanol and wheat gluten to pretzels and pizza dough.

What they identified were emerging opportunities in the bakery industry--particularly in a segment known as par-bake, or partially baked bread.

That provided solid groundwork, but more than a year of additional work was needed before this concept took root. The steering committee separated from the existing cooperative and organized as Mountain View Harvest. With a $25,000 interest-free loan from a for-profit subsidiary of the Rocky Mountain Farmers Union, the steering committee hired a group to conduct due diligence on the feasibility analysis, and to begin developing the business plan for operation. That step was critical in bringing the feasibility information to a producer level. The problem with the bakery business is that you can make a lot of bread with a little dab of wheat.

The original concept would have required 500 producers to invest $22,000 apiece into a venture that would not even use the wheat grown on 20 acres per member. Working with a professional team consisting of an accountant, attorney, and investment specialist, the steering committee located an existing modern bakery in northern Colorado that could be acquired at a reasonable price. That led to the final business plan in which 500 shares of stock were marketed for $12,500 apiece. Each share carried the right and obligation to deliver 900 bushels of wheat to the co-op. The cooperative would utilize the best wheat for the bakery operation, and would market the rest on the open market.

Not too many wheat farmers have $12,500 lying around in the kitchen drawer to invest in a new business concept. But the local Farm Credit System stepped up to the plate with an attractive signature loan program in which producers could borrow the funds necessary for their equity investment.

The loan program was critical to the success of the equity drive launched in November 1996, that resulted in the successful acquisition of Gerard's French bakery in April 1997.

At the time of acquisition, the bakery had annualized sales of approximately $6 million. At the close of the last fiscal year, sales topped $17 million. This success has brought it's own challenges. Dividend payments to producers have been minimal, as all available cash has been needed to fund the rapid growth. In light of the difficulties facing much of agriculture, rapid growth is a welcome problem.

At the same time I was involved with the formation of Mountain View harvest Cooperative, I was working with another new generation cooperative that ended disastrously. That cooperative was a kosher beef processing project organized by 100 limited resource ranchers in southern Colorado and northern New Mexico. The lack of financial start-up support and the absence of an equity investment loan program led to under capitalization and hiring of inexperienced management, all of which contributed to the demise of this cooperative.

I believe the experience of Mountain View Harvest contrasted with the failure of other co-op ventures, provides some important lessons that can be utilized in crafting the rural development title of the next farm bill.

The next farm bill must target adequate resources to help producers further participate in the food chain to create viable competitive alternatives in a rapidly consolidating marketplace. New generation cooperatives are a valuable resource for producers. However, because of the high level of capitalization and businesses expertise needed in this new model, we must recognize that limited resource producers may be left behind while those farmers with money use new generation cooperatives as a tool to make more money.

The following provisions--included in the next farm bill--will provide resources necessary to assure that cooperatives continue to serve as a model for creating new wealth, and opportunities for producers of all sizes.

First, adequate funding must be allocated for feasibility studies. The farmers involved in Mountain View Harvest were tempted to pursue another venture until the feasibility analysis revealed the potential risk involved in that venture. Unfortunately, the expertise needed to identify viable business opportunities comes at a price, and we have to ensure that producers are not priced out. I suggest $1 million be allocated to each state Rural Development office, or $50 million per year, to support this program.

Second, the Rural Cooperative Development Grant Program should be funded at $50 million to allow for the operation of a Cooperative Development Center in every state. Mountain View Harvest received valuable assistance from the Rocky Mountain Cooperative Development Center. Producers in every region need to have access to similar resources.

Third, the Business and Industry Loan Guarantee program should be strengthened and revised to serve as a viable incentive and assist producers in making equity investments in new generation cooperatives. This program, and well as all other aspects of Rural Development, must recognize that successful new co-ops may involve the acquisition of an existing business, rather than green field construction of a new enterprise. Acquiring existing businesses often involves buying a high level of intangible assets known as "blue sky". Those assets, consisting of customer lists, delivery routes and established market outlets are vital to success. But they are not the type of brick and mortar that represent the traditional collateral lenders prefer. Without the ability to purchase marketing opportunities, too many co-ops will fail.

Fourth, the Value-Added Grant program that was initiated this year needs to be continued and expanded. Many co-op and other producer-owned businesses simply lack the capacity to get through the transition from the organizational phase to an operating enterprise. The value-added grant program provides the resources to help these businesses get a foothold in the marketplace. The $60 million in applicants for the first $10 million in available funding for this program certainly illustrated the pent-up demand for these resources.

Finally, the farm bill can help create some demand pull by directing federal agencies to increase the percentage of products they purchase from locally-based, producer owned enterprises, including cooperatives and minority-owned companies. This would create a consistent supply-line that can help locally owned businesses get established in their production, processing and distribution system.

Together, these small measures can help create new opportunities across the American countryside, and can help restore competitive opportunities that will provide American consumers with safe, healthy, quality nutritious food products while bringing profitability back to the farm and ranch gate.

Thank you again for this opportunity to bring the importance of value-added cooperatives before this committee.

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