Rural co-ops aren't just for electricity anymore. Now small towns, hospitals, schools -- and rural residents, too -- are joining forces to save on everything from paper to funeral services.
In rural America, most of us are familiar with cooperatives—businesses owned by the people they serve. Farmers, along with rural electric and telecom customers, have reaped the benefits for decades. You’ll also find rural credit, housing and grocery co-ops. But increasingly the cooperative model is changing. It’s evolved into hybrids that combine two or more business interests, and it’s expanding into new and unlikely service sectors.
Stephen Ronstrom forecasts that in five years his concept for bringing together farmers and institutional food buyers will go mainstream. Ronstrom, CEO of Sacred Heart Hospital in Eau Claire, Wisconsin, was recognized by the state of Wisconsin and the Wall Street Journal for buying local farm products for hospital meals.
“Local food is good medicine for everyone,” Ronstrom wrote in a 2008 newspaper editorial that got the ball rolling. “It preserves and expands family farms, provides jobs in production and processing, and keeps money in our community.”
Sacred Heart committed to spending 10 percent of its $2 million annual food budget on local products. In 2009, after dozens of planning meetings with farmers, the hospital and farmers formed Producers & Buyers Co-op. The state and the Cooperative Foundation provided start-up grants, and the U.S. Department of Agriculture awarded additional funding.
Sacred Heart produces as many as 2,600 meals a day, making it impossible to use local ingredients only. Still, says Rick Beckler, director of hospitality services, “We’ve had a tremendous outpouring of warm compliments from patients and employees about our food. Local food has a longer shelf life, is more nutritious, tastes better and is environmentally sustainable.” In the past two years, the hospital purchased $400,000 of local beef, pork, chicken, dairy, eggs and produce.
The change hasn’t been simple to accomplish. Institutional food buyers maintain long-standing relationships with suppliers, making it difficult for other producers to break into the market. Buyers can face limited local product availability, as well as problems in food processing and transportation infrastructure. “The co-op removes these barriers,” Beckler says, “because the organization is itself a mid-tier value-added food chain made up of producers, processors, transporters, and institutional buyers.”
He contends that the co-op enhances food safety. “Sacred Heart knows that each tube of ground beef came from a single animal and knows where and how that animal was raised.” Producers agree to practices that are good for the land, animals and consumers. Processors, while small, meet government food safety standards.
Eileen McCutchen’s family began farming in 1994 and now sells poultry through the co-op. “It’s been a constant struggle between the elements and the economy,” she wrote in an Oct. 2009 letter urging USDA to fund the co-op. “It would be easy to abandon farming altogether if it were not for the stabilizing elements Producers & Buyers Co-op brings to the table.” Co-op sales have helped her son, Michael, pay for college.
Shawn McMartin, an accountant and co-owner of Promise Farm Buffalo, sits on the co-op board. She says the co-op is in the black but needs to increase its sales volume to cover expenses. Future goals include added processing and storage.
At least one new job has been created—a part-time position at the co-op. And the co-op already helps producers. “The premise is to assure a fair price to all members, McMartin says. “To producer-members, that’s cost plus reasonable profit.” McMartin says. Local food costs more, but Ronstrom, the hospital CEO, believes it’s worth it.
Sacred Heart fields calls from other hospitals around the country asking about the co-op. “Our advice is to start small with one product and refine a process,” says Beckler, who’s in charge of the hospital’s food system. The local Resource Conservation and Development Council, a public-private partnership found in many communities, helped reach farmers, he adds.
Two other area hospitals now have joined in, and the co-op hopes to attract more buyers, including schools, universities, nursing homes and cafeterias, as more products can be sourced.
Cost savings for a Minnesota town
Purchasing co-ops serve all types of organizations, from hospitals to fast food chains, but it’s rare that governments participate. Lakes Country Service Cooperative (LCSC) is one of eight regional purchasing co-ops created by the Minnesota legislature in 1976. LCSC and the other seven began as health insurance pools for school districts, but over time, the infrastructure for cooperative purchasing has grown to include cities and other members.
Mark Sievert, city administrator for Fergus Falls, attests that the idea works.
“Belonging to Lakes Country Service Cooperative saved Fergus Falls hundreds of thousands of dollars over the past five years, and membership costs just $250 a year,” Sievert says. Buying goods and services through LCSC brings Fergus Falls, population 14,000, purchasing power that the small city can’t generate on its own.
Most savings come from health insurance for its 177 active and retired city employees. But Fergus Falls also uses the co-op to buy vehicles, equipment, office supplies and employee training.
Furthermore, Sievert is able to compare notes with fellow city administrators at quarterly meetings put together by LCSC, and the co-op also brings together mayors, public works and human resources employees to learn from one another.
Known as the Land of 10,000 Lakes, Minnesota is home, too, to more than 1,000 co-ops—more than any other state, according to Cooperative Networks, a trade association in Minnesota and Wisconsin. This heritage helps explain why the legislature believed purchasing co-ops could work for schools.
Lawmakers expanded the co-op charters to serve cities and counties in the 1990s; in the last decade, the legislature opened membership in co-ops to nursing homes and nonprofits, too. Today, across the nine counties in LCSC’s territory, the co-op’s members includes all 50 cities and 35 school districts.
LCSC serves as an example of how co-ops could provide solutions to the health care crisis. Its health insurance pools cover 10,000 people through 3,000 organizations, with annual premiums totaling $44 million.
“We have documented savings of 4 percent on premiums,” says Jeremy Kovash, executive director for LCSC, headquartered in Fergus Falls. “In addition, we have some of the lowest administrative rates in the country at under 5 percent.” Nationwide, administrative rates hover around 10 percent, he says.
Many co-ops return profits to members in the form of patronage refunds. Rather than issuing checks to its 1,097 members, LCSC passes along savings. Last year, Kovash reports that $25 million in sales flowed through the co-op, resulting in $3.5 million in savings for members. Over the past two years, the co-op brokered more than $1 million in vehicle sales, saving about $3,000 per vehicle.
Most of LCSC’s 100 employees work on services for schools, including insurance, curriculum, early childhood education, special ed, technology, human resources and finance. Others concentrate on health, safety and purchasing for other clients. The co-op even buys paper in bulk and stores it in a warehouse, supplying members as needed.
“We are member driven and board governed,” Kovash says. “This proves to be a strong governance model.”
Thinking outside the box about funerals
John Eric Rolfstad thinks the world is ready for a new kind of send-off.
“Baby Boomers will soon make the lion’s share of funeral arrangements,” says Rolfstad, executive director of Peoples Memorial Funeral Cooperative in Seattle. “Pomp and circumstance are for royalty. Baby Boomers want good value, simplicity and convenience.”
For those living in the Puget Sound area, membership in the funeral co-op makes sense. You can purchase a lifetime membership for $25. You can also join on behalf of a family member upon his or her death. A cremation package starts at $649, including an alternative container and basic urn. An open casket burial, including a metal casket, goes for $3,299. By contrast, the National Association of Funeral Directors reports that the average American funeral costs $7,300.
“Last year, the co-op handled 1,068 funerals, making it one of the five largest funeral homes in the state of Washington,” Rolfstad says. Cremations, which make up 93 percent of Peoples’ business, are growing in popularity because they cost significantly less, and in today’s mobile society, cemetery visits are less practical.
The co-op reported sales of $1 million in 2009, and issued $164,000 in patronage dividends, though it ordinarily has distributed dividends in the form of discounts on funeral arrangements. “We basically broke even as a result of our low price structure,” Rolfstad says.
The co-op’s parent association, People’s Memorial Association, was formed in 1939 as a memorial society to provide affordable cremation and burial. For six decades, PMA served its members through a local funeral home. But that mortuary became part of a large multinational corporation, leaving PMA with no funeral home. Northwest Cooperative Development Center offered the association guidance in how to start a co-op, and PMFC launched in 2007.
Today, all 80,000 members of the association are also member/owners of the funeral co-op. The association works statewide to provide consumer education and advocate consumer-friendly laws. The co-op is based at a Seattle funeral home, but the association also serves rural members by contracting with 23 other funeral homes across the state. “The co-op model takes the profit motive out of the equation,” Rolfstad says. “Families can feel the difference.”
To keep costs down, PMFC rents a simple but comfortable space in a multi-use building with a dentist next door and apartments above. “There is no manicured lawn, no casket room, no chapel, no embalming room and no hearse,” Rolfstad says. Instead, the co-op shows customers photos of caskets, and rents hearses, churches and other facilities as needed. Rolfstad envisions purchasing a crematory, but for the co-op now contracts with others for embalming and cremation.
The co-op fits into the green revolution. “It is a matter of philosophy, leaving this world in simplicity and dignity—with minimal impact on the environment, your loved ones and their finances,” says its web site. “Simple final arrangements focus more on the spiritual and existential aspects of life and death, rather than on ostentatious materialism.”
PMFC plants a tree for each cremation and burial, and invests in solar and wind power to offset carbon produced by cremation. It also offers green burial as simple as wrapping the unembalmed body in a cloth shroud or placing it in a wooden or woven casket, and burying it in the ground with no concrete vault.
This isn’t the only funeral co-op in the U.S. A few other retail funeral homes exist in places like New Ulm, Minnesota, and Appleton, Wisconsin. But Rolfstad predicts that interest in funeral co-ops may grow. “In the next 20 years, there will be a radical reorganization of the funeral industry,” he says. “Large multinational funeral home corporations are losing market share.”
Could a cooperative structure benefit your school, town, or small business? You can find more information on these three innovative efforts at the links below:
Producers and Buyers Co-op
Lakes Country Service Cooperative
People’s Memorial Funeral Co-op
Journalist Nancy Jorgensen writes about food, agriculture, telecommunications, finance and a variety of rural issues. She lives in Pomerene, Arizona. This article was edited and excerpted with permission from a version originally published by the National Cooperative Business Association in its July/August 2010 Cooperative Business Journal.