New-generation cooperatives, startups and prospects alike, feel their way up the agricultural value chain.

Like a lone seedling tree that has sprouted from the most inhospitable crack in a sidewalk, generation cooperatives are pushing the vitality of the family farm through increasingly inhospitable market realities.

It's been nearly 10 years since the birth of Missouri's new-generation cooperative movement. It was March 1995 when the first members of Northeast Missouri Grain Processors filed incorporation papers with the state-thus putting in motion their move for legal status and a drive for membership equity. In a state whose motto is "Show Me," those papers were monumental.

The formation, and ultimately, the success of an ethanol plant in Macon was the "showing" farmers needed. It was also an abject lesson in the fact that, even as a project promises to move farmers a stair or two above the basement of commodity prices, organizing isn't easy. There was tax-credit legislation to shepherd through state government. Moreover, there was trail blazing to do through the jungle of Missouri's corporate law.

And among farmers, there was a dearth of substantive knowledge about how a new-generation cooperative works. Farmers needed to be educated.

But that original Northeast Missouri Grain Processors board plodded deliberately toward their goal, surpassing these challenges, building membership even in the face of high-priced corn that made the offering an investment of less obvious benefit. That they've since better than doubled the plant's capacity is testament to their original message: Farmers, if they cooperate, can move above the mere commodity.

"These things are difficult," said Dale Ludwig, director of the Missouri Soybean Association. Ludwig's involvement with the new-generation co-op scene includes TransCon AG at Belton, Mo., Alma Meats and Missouri Food and Fiber as well as a current membership drive for Missouri Farms Dairy. TransCon AG is working toward manufacture of straw-based erosion control materials and specialty grain malting. Last year the cooperative acquired a brewery, which is currently producing and distributing Pony Express beer. Missouri Farms Dairy is recruiting members to build a 1,260-cow dairy in southwest Missouri.

"The limiting factor and part of what makes them so difficult is that farmers have limited capital," said Ludwig. "And I think the amount of equity [for a new-generation cooperative] is critically important. If you take a look at businesses that tend not to do well, it is either because they are under capitalized or have poor management.

"There's a lot of people who'd like to put money in these kinds of operations that just don't have it. There are several reasons. There's been a couple years of drought and the fact is many farmers just don't have the money."

Ludwig said that it is probably more accurate to say that farmers currently lack financial liquidity given that many of their fortunes are tied up in the hard assets of farming.

Jerry Bublitz, CEO for Alma Meats in Alma, MO., sees the same trend.

"There's just so much disposable income in the country. And we had a serious drought last summer. Livestock guys, just like crop guys, get conservative when that happens."

Bublitz is overseeing the second phase of a membership drive to expand operations for Alma Meats. The existing Alma facility, which has been a successful processor for many years, is reorganizing under new-generation rules to form a membership that, with sufficient equity, will build a processing plant nearby. The plant would be a dual species facility, processing both hogs and cattle.

Aside from bank accounts siphoned by the age-old malevolence of drought, the Alma membership drive encountered a newer obstacle to enrolling members. Their initial membership drive coincided with a spate of other new-generation cooperative membership offerings. While the processing functions and end products are different, and most new-generation cooperatives won't compete for the commodities their facilities will use, in-state cooperatives' geographic juxtaposition make for competition of a sort-for capital.

Meanwhile, with some new cooperatives fully funded and a recent upturn in the general economy, Bublitz and the board at Alma have redoubled their educational efforts and are actively signing members.

For now, Ludwig believes that such competition for farmers' capital is a dwindling issue.

"I think we've seen the peak as far as new ideas that are coming out. But I think we'll see a larger percentage of the offerings out there end up coming to fruition," he said.

Rural booster
Like the cooperative push in the 1920s, there is a social factor to today's new-generation culture. Both Bublitz and Ludwig talk about the benefits of building processing infrastructure in rural areas.

"You know these smaller communities are starting to shrivel on the vine," said Bublitz.

"If you put in a plant like the proposed Alma Meats plant, it adds 80 new jobs. An ethanol plant does the same thing. It isn't going to create hundreds or thousands of jobs, but these smaller communities don't need that. They're gradually diminishing in importance. But it doesn't take that many jobs to impact a community of 500 or 1,000-to bring them back to the level they were when we were kids."

In the case of the Missouri Farms Dairy, Ludwig thinks in terms of bolstering an entire industry.

"Part of what we're looking at here is that if we aren't successful with something in dairy now, we will no longer have a dairy industry [in Missouri]."

Fulfilling the niche
All the cooperative and community spirit that can be mustered won't do much good to a new enterprise if the marketing and sales haven't been thought out.

Bublitz said that starting a meat processing-based cooperative is a bit of an extra challenge because other meat processing startups haven't succeeded.

He said that Alma is different. It has been around since the 1940s and has an existing market from which to build expansion.

If the plan had been to build a processing plant that was intent on sending product to the meat case, I wouldn't have joined on."

Bublitz added that any new venture needs to consider its market carefully. In the case of adding value, it is critical to find the niche market; something that isn't being and won't be served by huge corporate food processors.

"This isn't the populist movement of the 1920s. That worked well then. But today's marketplace and centralized control of the items being marketed to stores makes it tough to break into.

"The thing I tell people is that we are, to the best of our knowledge, the only new-gen meat co-op that has not only marketed product but is currently engaged in the business."

The niche targeted by Alma Meats is the upscale market-both restaurant and custom meat case.

Bublitz said the goal for the operation, within 5 years, is to distribute to upscale markets from central Kansas to just east of St. Louis, from Des Moines to Springfield, Mo. and into the resort/recreation market of the Ozarks.

"The thing that is interesting about restaurants and upscale meat shops is that they charge so much for their product that they don't mind spending the premium price for the product," said Bublitz. "But they want quality and they want consistency. That's a marketplace in which we can deliver. And it's something that a huge processor is less interested in. They want to move meat off the truck by the pallet."

Joe Effertz, president of TransCon AG, said that finding the niche isn't the end of the challenge for a new-generation cooperative. For once the decision is made about what to produce, there are the looming challenges of manufacturing, marketing and distribution.

When TransCon AG acquired the Pony Express brewery, they reformulated all the beer recipes and rolled out new product and packaging. That took time. And working with alcohol, said Effertz, is notoriously difficult in terms of the licenses and paperwork that must be completed. That took time. Finally, once they had product and a legal right to sell beer, there were distribution channels to access. Effertz said that getting wider distribution is one of the brewery operation's main goals right now. And, he said, it will take time.

Aside from their own brew, including a new "original wheat," Pony Express contract brews Flying Monkey beer.

"From the time the first bottle is filled to the time of any significant market penetration, even in a 100-mile radius, is 6 months," said Effertz.

"Once a cooperative has raised the equity, there's not some tap that turns on and starts pumping out money. When you make something for the first time, it takes time. From my standpoint, there is a certain amount of expectation management."

"Expectation management," said Ludwig, is a dead-on term.

"I think that for the most part these projects will take a few years to become profitable. We're still in the phase with most of these that we have to prove we can make them profitable.

"A number of people have invested in these, but they haven't had the opportunity to enjoy the rewards. If these go well, we'll probably see another flush get started."

And like the conditions for the seed that sprouts from a crack in the sidewalk, there's an overarching force to reckon with when it comes to new-generation cooperatives.

"The bottom line is they take a lot of work. Nothing comes easy," said Ludwig.