Community Food Systems and Cooperatives

1. Community Food Systems andCooperatives Nebraska Sustainability Leadership Workshop April 30, 2009 Norfolk, NE Michael Heavrin Center for Rural Affairs – Lyons, NE

2. Value-Added Programs • In 2002, Value-Added Agricultural Product Market Development Grant was known as the Value-Added Development Grant (VADG) Program • In 2003, the grant program became known as the Value-Added Producer Grant (VAPG) program.

3. Community Food Systems The food and agricultural systems in the US has changed a great deal through the last half of the 20th Century: • Trend toward industrialization of agriculture • Trend toward centralization of production and processing operatives • Farmer control over production, marketing and labor is being replaced by corporate control • The farmer share of the consumer food dollar was 41% in 1920, while in 1990, it had dropped to 9%. The number is now only about 4%.

4. Community Food Systems The food and agricultural systems in the US has changed a great deal through the last half of the 20th Century: • The nation is losing thousands of farmers annually. • Fewer farmers result in the deterioration of rural communities – both socially and economically. • Today, few consumers really know where their food comes from • In many areas of the country – especially in poverty areas – people are not able to access fresh, locally grown food

5. Community Food Systems According to Washington State University, a “community food system” is one in which sustainable food production, processing, distribution and consumption are integrated to enhance the environmental, economic and the social and nutritional health of a particular location.

6. Community Food Systems Today, food system issues include: • Improving access to an adequate, affordable, good tasting, fresh and nutritious diet. • Supporting a stable base of family farms and ranches that can and will supply local food to a specific area. • Most consumers prefer to buy from producers who use fewer chemicals and less energy, and who emphasize local inputs where possible.

7. Community Food Systems Other issues include: • Finding marketing and processing techniques that create more direct and beneficial links between farmers and consumers. • Development of food and agriculture-related businesses that create jobs, re-circulate money in the community, and provide for community economic development. • Value-Added Producer Grant program • Farmers Market Promotion Program grants • Creating food and agricultural policies that promote local food production, processing and consumption.

8. Community Food Systems It is essential that “community food systems” be established using a collaborative approach: • Local participation and support is necessary. • Relevant stakeholders throughout the food system need to participate in organizational activities: • Local elected officials • Farmers, ranchers or their associations • Public health personnel and nutritionists • Food processors and food retailers • Food and agricultural agency representatives • Small businesses and lending institutions • Cooperative Extension, Non-Profits and Universities • Area transportation, storage, labeling and packaging businesses

9. Community Food Systems Funding Resources are important to the successful formation of a community food system – some potential resources include: • USDA programs – VAPG, FMPP, CFP • Community, regional or national private foundations (i.e. Kellogg, Kraft, Noyes) • Churches – national and local • Civic Groups (i.e. Chamber, Rotary, Elks) • Local, state or federal government programs including CDBG; SARE; EPA and DOE Sustainable Futures • Individual donations, including fund raisers

10. Community Food Systems Due to the fact that farmers and ranchers will need to drastically revise the way they work, it is essential that funds be available to them in order to transition their farms from being “producers of feed” to being “producers of food.” One such USDA grant program is especially valuable – the Value-Added Producer Grant program.

11. Value-Added Producer Grant Program • Program Description • Projected status of this year’s program • Newest funding amount is uncertain at this point, but USDA expects the Notice to be released at any time. • Grant Purpose, eligibility, terms, & application process • Opportunities for projects • Funding; How & when to apply, preparing your application.

12. Value-Added Producer Grant Program Philosophy of the Program • Help producers expand the customer base (by opening EMERGING markets) for their products or commodities, and ensure that a greater portion of the revenues derived from the value-added activity is available to the producer – to allow farmers and ranchers capture a larger percentage of the consumer food dollar; and assist producers in their efforts to diversify their operations

13. Value-Added Producer Grant • Program designed to assist eligible agriculture producers or groups of producers add value to their commodity production. • This program provides grants for planning activities or for working capital to implement a value added venture. • Created via the 2002 Farm Bill, Reauthorized in 2008 Farm Bill

14. What is an emerging market? • An emerging market is a new or developing market for the applicant. That is, a market the applicant has not traditionally supplied. The venture must be focused on this new or developing market. • An example of this emerging market is the “community food system.” Farmers and ranchers are encouraged by this grant program to diversify their operations and enable them to supply fresh, healthy and safe food products to their own area.

15. Value-Added Producer Grant Program • Nationwide Allocation Funded in Nebraska • FY02 $37.0MM $1.6MM 13 projects • FY03 $28.7MM $3.7MM 18 projects • FY04 $13.2MM $1.3MM 7 projects • FY05 $14.3MM $1.1MM 16 projects • FY06 $19.7MM $1.2MM 18 projects • FY07 $19.5MM $681,176 8 projects • FY08 $18.4MM $123,000 4 projects

16. Value-Added Producer Grant Program • Three Categories of Eligibility • Applicant Eligibility • Product Eligibility • Purpose (value-added activity) Eligibility

17. Value-Added Producer Grant Program • Applicant Eligibility (4 Categories) • Independent Producers • Farmer or Rancher Cooperative • Agriculture Producer Group • Majority-Controlled Producer Based Business Ventures (Producers have 51% or greater ownership and control)

18. Value-Added Producer Grant Program 1. Independent Producer • An individual producer of agricultural commodities or products (including products from aquaculture, fish harvesting, and wood lot enterprises). • An association of producers such as a producer owned corporation, LLC, or LLP solely owned by producers.

19. Value-Added Producer Grant Program 1. Independent Producer (continued) • A steering committee composed of agricultural producers in the process of organizing an association to operate a value-added venture. • An independent producer can not produce under contract or joint ownership with any organization other than their own.

20. Value-Added Producer Grant Program 2. Farmer or Rancher Cooperative • A business incorporated under state cooperative or corporation statutes that is farmer or rancher owned, farmer or rancher controlled, and benefits are returned to the farmer or rancher owner on the basis of patronage of the cooperative. • Farmer or rancher owned cooperatives must propose ventures that are entering into emerging markets.

21. Value-Added Producer Grant Program 3. Agricultural Producer Groups • Any organization that represents independent producers such as a producer trade association or a state or national commodity group. Agricultural Producer Groups must propose ventures that are entering emerging markets. • Corn Growers Association; Hog Producers Association; Cattlemen; and Grange are examples.

22. Value-Added Producer Grant Program 4. Majority-Controlled Producer Based Business Ventures • A corporation, LLC, LLP, or other type of business structures where producers have 51% or greater ownership and control of the entity. Majority-Controlled Producer Based Business Ventures must propose project activities that are entering emerging markets. * No more than 10 percent of the grant funds will be awarded to these ventures.

23. Value-Added Producer Grant Program • Value-Added Products • Four distinct categories are considered value-added. • A Value-Added Product Must: • Expand the customer base for the product or commodity, AND • Result in a greater portion of the revenues derived from the value-added activity that is available to the producer.

24. Value-Added Producer Grant Program • Value Added Product Eligibility • 1. The changing of the physical state or form of the product to the extent that it cannot be returned to its original state. • Examples include processing wheat into flour, corn into ethanol, slaughtering livestock or poultry, or slicing tomatoes.

25. Value-Added Producer Grant Program • Value Added Product Eligibility • 2. A product produced in a manner that enhances its value, as demonstrated through a business plan. • An example is organically produced products. • This category is not eligible for PLANNING funds.

26. Value-Added Producer Grant Program • Value Added Product Eligibility • 3. The physical segregation of an agricultural commodity or product in a manner that results in the enhancement of the value of that commodity or product. • Examples: include an identity preservation system for a variety or quality of grain desired by an identified end-user or the traceability of hormone-free livestock to the retailer.

27. Value-Added Producer Grant Program • Value Added Product Eligibility • 4. The term “value-added agricultural product” includes any agricultural commodity or product that is used to produce renewable energy on a farm or ranch. • Examples: collecting and converting methane from animal waste to generate energy

28. Value-Added Producer Grant Program • Planning • a defined program of economic activities to determine the viability of a potential value-added venture including feasibility studies, marketing plans, business plans and legal evaluations. • Working Capital • Funds which are used to operate the venture and pay the normal expenses associated with the operation of the venture. • Completed feasibility study & business plan on specific venture required.

29. Value-Added Producer Grant Program Costs that are Not Eligible include: • Plan, repair, rehabilitate, acquire, or construct a facility • Purchase, rent, or install processing equipment • Pay for the preparation of the grant activity • Pay expenses not directly related to the funded venture • Pay costs incurred prior to receiving the grant • Fund political and lobbying activities • Pay any expenses related to agricultural production

30. Value-Added Producer Grant Program • Maximum Planning Grant Amount $100,000 • Priority points for smaller requests • Maximum Working Capital Grant is $300,000 - Priority points for smaller requests • Applicants must provide matching non-federal funds at least equal to the grant • Matching funds must also meet the purpose eligibility • NOSA can be downloaded from web-site.

31. VAPG Application Process • An Application consists of these things: • SF-424 “Application for Federal Assistance” • SF-424A “Budget Information - Non-Construction Programs” • SF 424 B “Assurances - Non-Construction Programs” • Table of Contents • Proposal Summary • Eligibility Statement • Proposal Narrative • Project Title • Information Sheet • Goals of the Project • Evaluation Criteria • Verification of Matching Funds

32. VAPG Opportunities/Scenarios/Examples • Goat producers initiating a feasibility study. • Meat Cooperative requesting funds to complete a business plan and marketing plan. • Cooperative requesting funds to hire a marketing manager. • Producer requesting funds for advertising costs and office equipment. • Cooperative requesting funds to pay for attorney fees.

33. VAPG Future Funding Periods • Call for applications once a year • Application announced via NOFA • Information can be found on USDA RD website or can be mailed to you by contacting the Center for Rural Affairs or USDA RD: --joan.scheel@ne.usda.gov --mikeh@cfra.org • Template based on this year’s NOFA found at: • http://fpc.unl.edu/marketing/grant.htm

34. Other USDA Rural Development Funding Resources • Business & Industry Guaranteed loan program • Business & Industry Cooperative Stock Purchase Program • Rural Business Opportunity Grant (RBOG) • Rural Business Enterprise Grant (RBEG) • Rural Cooperative Development Grant Program

35. Cooperative Marketing Center for Rural Affairs Rural Opportunities & Stewardship Program Kathie Starkweather, Director Nebraska Sustainability Leadership Workshop Madison County Extension Office April 30, 2009 Norfolk, Nebraska

36. What is a Cooperative? • Cooperatives are owned and controlled by the people who use them. • Cooperatives operate for the benefit of members, rather than earn profits for investors. • Cooperatives are incorporated under State Law.

37. What are the differences between a cooperative and other businesses? • Differences can be expressed in three basic principles: • the User-Owner Principle • the User-Control Principle • the User-Benefit Principle • Cooperatives are a form of corporation, and as such, have some protection from risk

38. Why organize as a marketing cooperative? • Increase supply for larger markets • Improve bargaining position • Reduce costs • Expand new and existing market opportunities • Improve product or service quality • Increase income • Enhance the local economy • Efficient management of risk

39. Cooperatives involve: • Member-Ownership and Control • Risk Management advantages • Benefits (Common marketer) • Opportunity for larger markets • Quality and production standards are uniform • Connections (Market and Production)

40. Nebraska Food Cooperative

41. Join the Co-opJoin the Co-op as a ShopperClick here to join so you can purchase from the cooperative. Join the Co-op and register to sellWant to buy and sell through the Co-op? First complete this membership form. Then you will have the opportunity to continue to the producer application.Current members register to sell (you will need to login first)Click here if you have products you would like to offer for sale and you're already a member. Gift MembershipsClick here if you would like to purchase a membership for someone. (You don't need to be a Food Co-op member to purchase a gift membership.)If you've already registeredIf you've registered as a member but haven't yet paid for your membership, click here. Renew Your MembershipClick here if you would like to renew your membership.

42. Steps in Organizing a Marketing Cooperative • Identify a market, product or project • Form a leadership group of potential members (steering committee) • Authorize Feasibility Study • Prepare a Business Plan • Secure Legal Assistance • Organizational structure • Liability issues • Articles of Incorporation

43. Steps in Organizing a Marketing Cooperative • Contact CPA for financial advice • Contact resource persons for advice regarding risk management • Insurance coverage • Farm Liability • Product Liability • Risk analysis • Hold a meeting of potential members to determine interest in forming a marketing cooperative

44. Steps in Organizing a Marketing Cooperative • Conduct a survey of producers to determine feasibility of forming a marketing cooperative • Raise start-up capital • Seed Contribution from members • Grant Funding • USDA Value-Added Producer Grants • Nebraska Cooperative Development Center • Foundations • Loans • Investors

45. Steps in Organizing a Marketing Cooperative • Compile an inventory of current and future product availability and supply • Present a financial analysis to potential members (CPA) • Develop a marketing plan • Hold a general membership meeting to discuss current plan and determine whether or not to proceed.

46. Steps in Organizing a Marketing Cooperative • Prepare Articles of Incorporation • File the Articles of Incorporation with the Nebraska Secretary of State Office in Lincoln • Establish membership standards • Prepare Cooperative Bylaws • Hold a general membership meeting • Adopt Cooperative Bylaws • Elect Board of Directors • Board will elect officers of the Board

47. Steps in Organizing a Marketing Cooperative • Call first meeting of the Cooperative Board of Directors • Board of Directors should elect officers • Secure working capital as outlined in the Business Plan: • Membership / Stock Certificate • Grant Funding • Loan Funding • Investor Funding

48. Steps in Organizing a Marketing Cooperative • Hire necessary staff (Complete with compensation package and job descriptions): • Manager of the Cooperative • Marketing Representative • CPA • Attorney • Logistical Coordinator • Transportation / Shipping • Storage • Distribution of products • Certifying Officer (Farms/Feed Facilities) • Quality Assurance / Control Officer (Meat)

49. Steps in Organizing a Marketing Cooperative • Contract with buyers • Contract with distributors • Contract with shippers • Contract with Cold Storage facilities where necessary • Acquire facilities (if necessary) • Begin operations

50. Potential Problems