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The Western Sugar Cooperative Board of Directors recently voted to increase the assessment — what some growers call a penalty — on co-op farmers who don’t plant their required share of sugar beets.
The increase in the assessment from $380 to $600 per acre furthered frustration among some area growers, who feel trapped between the risk of planting beets that may not turn a profit or paying a penalty if they choose not to grow.
The cooperative was formed in 2002 to save the region’s sugar factories, which were then on the verge of closing — a move that would have effectively ended the sugar beet industry throughout the region. The factories have fixed costs, and to turn a profit, they need growers to deliver a certain amount of beets every year.
Written into the cooperative’s bylaws is an obligation that shareholders, which are the farmers who own the cooperative, grow an acre of beets for every share they own or pay the assessment.
Heather Luther, vice president and general counsel for Western Sugar Cooperative, said the new, $600 per acre assessment more accurately reflects inflation and increases in fixed costs.
“Western Sugar Cooperative’s agreement with its shareholders allows it to impose liquidated damages against any shareholder who does not meet [his] obligations to … fellow shareholders,” Luther explained.
While some farmers feel the assessment was increased to ensure growers plant beets this year, Western Sugar board member Tod Stutzman said that wasn’t the case. He reiterated that the change was an adjustment to reflect increased expenses for the co-op, which all shareholders bear.
“It’s not punitive,” Stutzman said. “It’s actual damages.”
Even in retirement, farmers must grow beets or pay the assessment. The only way out of the obligation is to sell their shares, go bankrupt, or die.
While the co-op has paid growers $70 per ton in good years, those payments have fallen considerably. Last year growers received about $17 per ton. They need about $40 per ton to break even. This means shares currently have no value and farmers can’t get rid of them.
David Northrup, who grows beets on the Willwood, said he knows of at least one farmer offering cash to anyone who will take over his shares.
“Not only can you not give them away, you can’t pay people to take them,” Northrup said.
Lyle Evelo, who grows beets near Ralston, said a dozen growers got together for an informal meeting in Burlington in March to discuss the problems as planting season approached. A number of issues came up, including how to improve the quality of the beets that go into the pile and the impacts of the weather. Some of the beet growers — Evelo among them — believe a big part of the cooperative’s financial problems stem from how it’s being managed.
For example, Evelo believes the co-op’s decision to invest in improvements to its factories in Scottsbluff, Nebraska, and Fort Morgan, Colorado, was not a wise move; Northrup agrees it was not a risk the co-op should have taken.
“You can’t gamble that hard and hope it will be OK,” Northrup said.
The debt the cooperative is carrying is hurting the growers’ payments as well, Evelo said.
Each grower typically receives two payments a year and the cooperative takes out $2.50 per ton on each year’s initial payment to finance the company, which is a normal practice in cooperative models. In the past, those payments eventually cycled back to the growers, but they haven’t in several years. Since 2008, Evelo said he’s paid $205,000 in these charges.
“Now, it looks like the company is in a dire financial position. And it doesn’t look like we’ll ever see those again in our lifetime,” he said.
Evelo and his wife invested $50,000 to buy shares in the cooperative in 2002.
“When we initially signed on with Western Sugar, we were quite aware of the penalty for not planting our beets,” Evelo said. “Those were different times. Our shares could be sold for good value. Quite the opposite now.”
Evelo said not all sugar beet farmers agree the problem lies with management, nor do they agree on exactly how to fix the problems.
Ric Rodriguez, who is a member of the co-op board and produces beets near Heart Mountain, said the co-op has fallen on rough times, but these are not the result of bad leadership decisions. Rodriguez wasn’t at the Burlington meeting, but he is among those growers who have a different take on what’s caused the co-op to have several lean years.
“We’re following a business model that has been successful in the past, and as of late, we’ve struggled with pricing, production issues, and the weather,” Rodriguez said.
Rodriguez said the goal of the investments in the Scottsbluff and Fort Morgan factories was to lower the cost of processing, and those savings will eventually benefit growers.
Evelo said the quality of the beets here in the northern part of the co-op’s region is much higher, meaning the north is effectively subsidizing operations in Nebraska and Colorado.
However, Rodriguez said a number of factors impact how many bags of sugar you get from a crop, including the sugar content of the beet and the size of the yield. The farmers in Colorado and Nebraska tend to have lower sugar content in their beets but higher yield. It’s just the opposite of the north.
Stutzman characterized the claims that the south has inferior beets as an “urban myth” and argued it’s advantageous to the co-op to have a wide geographic area.
Over time, Rodriguez points out that the co-op was formed in order to sustain the industry, but the way the co-op model works is by sharing not only the benefits reaped when things are good, but also the losses when times aren’t so good.
“The goal of the cooperative is to pay growers as much as possible,” he said.
Evelo also pointed out that other cooperatives, including Wyoming Sugar Cooperative in Worland and American Crystal in the Red River Valley of Minnesota and North Dakota, faced the same weather issues last year that Western Sugar growers faced. Yet, they paid growers more per ton.
Rodriguez said Western Sugar payments have not been that different from the other cooperatives — annual Western Sugar payments have averaged $48 per ton since 2002 — and disagrees that the difference is an indication of a poorly run cooperative. Other factors, such as sugar content of the beets produced, affect how much growers of various cooperatives get paid.
Farming is always at the mercy of events over which growers have no control. That included a damaging freeze last October.
“We just haven’t had any luck with the weather,” Rodriguez said.
He insists that things will turn around. Sugar prices, which caused problems in the past, are much better now, and the market is more stable. With good weather, the payments to growers will go up, and when the improvements to the Scottsbluff and Fort Morgan factories are realized, there will be cost savings as well.
Evelo, however, believes things won’t improve until changes are made in how the cooperative is run. He would like to see two directors added to the board who are not members of the cooperative or beet growers, but have business backgrounds. These outside directors would bring a fresh and objective perspective, he said, providing “guidance as to risk management and good corporate governance practices.”
Evelo also said the cooperative needs a new business plan that operates without imposing penalties on growers — and better protocols for the beets it will buy to ensure a higher quality beet.
Evelo said he and other growers don’t feel the board is being responsive to their concerns.
“I want this co-op to succeed. I don’t want it to fail,” he said. “And it’s difficult in how it’s being managed right now that it is going to succeed.”
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April 17, 2020 at 03:07PM