Farmland Industries, Inc.

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Farmland Industries, Inc.

12200 North Ambassador Drive
Kansas City, Missouri 64163-1244
U.S.A.
Telephone: (816) 713-7000
Fax: (816) 713-6323
Web site: http://www.farmland.com

Cooperative
Incorporated: 1929 as Union Oil Company
Employees: 14,500
Sales: $11.8 billion
NAIC: 324110 Petroleum Refineries; 311611 Animal (Except Poultry) Slaughtering; 325311 Nitrogenous Fertilizer Manufacturing; 325312 Phosphatic Fertilizer Manufacturing

Operating out of Kansas City, Missouri, Farmland Industries, Inc. is North America’s largest agricultural cooperative. It is owned by some 1,700 local co-ops, which represent approximately 600,000 agricultural producers. Embracing a farm-to-table mission, the co-op essentially divides its activities between “inputs” and “outputs.” On the input side, Farmland and its joint venture partners help farmers in their production efforts by providing such items as fertilizers, insecticides and herbicides, animal feeds, and petroleum products. On the output side, Farmland adds value to members’ food and fiber products, and markets them throughout the world. In recent years, a major part of the output strategy is to enhance the Farmland name and its copyrighted phrase, “Proud to be farmer-owned.” The co-op also employs vertical integration as much as possible. With petroleum products, for instance, Farmland pumps crude from its own wells, refines it in its own facilities, and markets the resulting products through its Ampride service stations. With hogs and beef, the co-op is involved in the raising of the animals through feed, the slaughtering and packaging process, as well as marketing the meats under the Farmland label.

Farmland’s Founder Active in Cooperative Movement in 1920s

Farmland’s founder, Howard A. Cowden, was born in 1893 on a southwestern Missouri farm settled by his grandfather. Unlike other farms in his native Polk County, which averaged less than 100 acres in size, the Cowden farm at 500 acres was one of the largest. Although his father was a progressive farmer who was hardworking, efficient, and put the latest ideas into practice, he struggled to prosper. Cowden became keenly aware that farmers were at an economic disadvantage in the market-place: they faced high interest rates on mortgages, paid high transportation costs, and had virtually no leverage in the pricing of their commodities. All too often farmers were faced with a “take it or leave it” proposition.

Rather than becoming a farmer, Cowden became a school teacher, spending a year in a one-room schoolhouse before teaching intermediate grades at a school in Pleasant Hope, Missouri. There he became inspired by a novel, The Brown Mouse by Herbert Quick, the hero of which was a young farmer who became a teacher and helped his community by advancing the concepts of progressive agriculture and cooperatives. Cowden emulated the book and organized Farm Clubs in Polk County. Cowden quit his teaching position during World War I in favor of military training with the Student Army Training Corps, but the war soon ended and in early 1919 he was at a crossroads in his life. Uninterested in returning to the farm and dissatisfied with teaching, he accepted a job as secretary of the Polk County Farmers Association, which launched a lifelong career in the agricultural cooperative movement. Cowden owed his position in large part to William Hirth, publisher of The Missouri Farmer and Breeder, which promoted the formation of local Farm Clubs. County associations resulted and by 1917 a statewide organization was established, the Missouri Farmers Association (MFA), which allowed Farm Clubs to buy supplies in bulk and pass on the savings to their members. Hirth urged that county associations hire a paid secretary to better serve members and help push the Farm Clubs into becoming fully realized cooperatives. He recognized Cowden’s potential when the young man had set up Farm Clubs in Polk County and wrote some columns for The Missouri Farmer. Hirth began an effort to enlist Cowden in the “Farm Club fight.” Cowden was 26 years old when he became secretary of the Polk County Farmers Association as well as manager of the Polk County Farmers Exchange, a local cooperative. In addition to pooling orders for supplies, Cowden began selling eggs to Kansas City, securing better prices for farmers than they were able to get from local producers. Out of this effort he formed the Producers’ Produce Company, which then purchased a cold storage facility to handle the eggs and cream of local farmers. When MFA expanded its statewide operations in 1920, the organization hired “fieldmen,” and once again Hirth was instrumental in securing a post for Cowden, who now made connections throughout Missouri. He also became familiar with cooperative efforts in other states, in particular the Cottonwood Oil Company in Minnesota. With the rising importance of tractors and trucks to modern farming, the cost of fuel and lubricants was becoming an important factor to farmers. After visiting Cottonwood, Cowden urged MFA to buy petroleum products in bulk for its members, and as a result the association began contracting with Standard Oil and other major companies.

Union Oil Company Formed as a Cooperative in 1929

As Cowden gained more prominence in MFA during the 1920s, his relationship with Hirth began to sour. By 1927, Hirth, who apparently felt his own power was being eclipsed by the younger man, actively campaigned for Cowden’s dismissal. Rather than become involved in a nasty public spat, Cowden resigned, deciding to enter the wholesale oil business. Through a friendly executive committee he was able to secure the MFA oil contract held by Standard Oil, and as a result incorporated the Cowden Oil Company in January 1928. He was well aware, however, that his MFA contract would likely be short lived once Hirth succeeded in taking control of the association. Moreover, he faced statewide opposition from Hirth’s many friends. After running the commercial venture for several months, Cowden took steps to transform the business into a regional wholesale petroleum cooperative. In January 1929, he dissolved Cowden Oil and transferred all assets to a new firm, Union Oil Company, which he organized as a cooperative under Missouri statutes. Although six farmer-own cooperatives formed the basis of Union Oil, he made sure that his control of the organization was absolute.

Since Union Oil was intended as a regional enterprise, Cowden elected to operate out of Kansas City. By the end of its first year of operation, Union Oil served 22 local cooperatives and was supplied by Kanotex Corporation. Cowden was also able to purchase a two-story structure in Kansas City and some old equipment from the Continental Oil Company in order to create different blends of oil. Union Oil became the first cooperative in the country to run an oil-compounding plant. The need to take additional steps in vertical integration became apparent in late 1932 when Union Oil’s supplier, Conoco, terminated a five-year contract. Although major oil companies failed to crush cooperative upstarts, due to the intervention of President Roosevelt, it became apparent to Cowden that gaining control of basic supplies was essential, as was the need for a refinery.

In addition to petroleum products, Union Oil began offering a line of automobile accessories under the CO-OP brand, as well as a CO-OP paint and twine. With the organization becoming involved in a wide range of products, it was decided in February 1935 to change the name to Consumers Cooperative Association (CCA). By now the organization had 259 local cooperatives as members and was generating more than $2 million in annual revenues. CCA established a grocery division in 1935 and soon the CO-OP label was applied to over 200 products. Although operations prospered in some locations, overall the Grocery Department was not a very important part of CCA. It proved more useful as a public example of the power of cooperatives to meet consumer needs than as a significant profit center. Another enterprise that proved unsuccessful was the move to supply tractors. CCA fared better with the jobbing of lumber and building materials. Despite such diversification, however, the sale of petroleum products remained the co-op’s major activity, accounting for 82 percent of all revenues in 1939. To support its petroleum business, CCA built a refinery in Phillipsburg, Kansas. When it became operational in 1939, the facility greatly increased the organization’s income and led to a period of prosperity during the 1940s. CCA added producing wells to its business mix and emerged at the end of World War II as a significant independent oil company.

CCA became involved in a variety of other areas after the war, including the production of flour and feed, the manufacture of household and electrical appliances, and the development of insurance and finance associations. Of particular importance was the feed program, which in its first year generated more revenue than the grocery business did in its tenth year. (CCA ultimately closed the Grocery Department in 1953.) Another highly profitable business for CAA was fertilizer, which farmers began to use at an accelerated rate following the war. To meet the demand, as well as establish some verticality in the business, CCA decided to build a nitrogen plant in 1954, a very expensive endeavor that pushed the co-op to the brink of receivership. The organization was forced to make some difficult decisions, closing down some departments, but in the end CCA was better positioned for the future.

Company Perspectives:

Farmland is committed to serving the needs of its member-owners and the consumers who buy their products. Indeed, it is our mission: To be a global, consumer-driven, producer-owned, “farm-to-table” cooperative system.

By 1958, CCA topped $100 million in annual revenues, ranked 327th among the Fortune 500, and was one of the largest co-ops in America. In many ways it was an industrial powerhouse, controlling a wide range of assets: oil wells, pipelines, refineries, grease and paint factories, feed mills, fertilizer works, warehouses, and a fleet of trucks. Petroleum products continued to dominate the co-op’s business, accounting for 70 percent of revenues, but that percentage would dip below 50 percent over the next few years as fertilizer became an increasingly more important revenue stream. The emphasis of CCA was now clearly on the farm supply and service field, making the use of the word “consumer” in its title less appropriate. The organization also faced mounting pressure to better serve farmers by engaging in the marketing of agricultural products, an area which CCA had intentionally avoided. In 1958, the CCA Board finally agreed to become involved in marketing as opportunities might arise. A year later the co-op formed a subsidiary, Farmbest, Inc., to purchase the Crawford County Packing Company in Denison, Iowa, and entered the hog-processing business.

Cowden Retires in 1961

In 1961, Cowden, who was 68 years old, resigned as CCA’s chief executive but stayed on as chairman, a newly formed position. Dissatisfied with this diminished role, however, he soon relinquished the chairmanship as well, although he stayed on as a director-at-large until 1963. Replacing him was longtime CCA executive Homer Young, who had joined the co-op in 1931. It was during his tenure that the board decided to change the organization’s name from “Consumers Cooperative Association” to something that better described its contemporary mission. After paring down the candidates, the board settled on two finalists: Farmbest Industries, Inc. and Farmland Industries, Inc. The latter was chosen at a meeting on May 25, 1966. Ties to the cooperative movement were retained by the continued use of the CO-OP trademark on all products. Aside from the change in name, Young was also instrumental in expanding Farmland’s manufacturing capabilities, with a particular emphasis on the production of farm chemicals.

Not only was Young’s replacement, Ernest T. Lindsey, not one of the organization’s “founding fathers,” he came to the job with limited farm experience. Although born on a Texas farm, he grew up in small towns and earned a degree in chemistry before going to work for Humble Oil Corporation, which eventually became Exxon. Nevertheless, he endeavored to maintain Farmland’s commitment to family farmers while at the same time making the tough business decisions expected of anyone at the helm of a major industrial operation. He oversaw the reorganization of the food-marketing business and in 1970 created Farmland Agriservices to purchase hogs, cattle, and poultry for Farmland Foods, Inc., which was formed to handle the co-op’s meat business. Under Lindsay, Farmland eliminated an unprofitable cooperative trucking company, National Farm Lines, but branched into insurance. Young had earlier saved from failure the Farmers Elevator Mutual Insurance Company because it insured many of Farmland’s member cooperatives. With control of one institution, Lindsay acquired the Farmers Life Insurance Company in 1967 and over the next several years expanded Farmland’s line of insurance services. In 1974, all of the insurance enterprises were organized under Farmland Insurance Services. Lindsay was also in charge when Farmland merged with Far-Mar-Co, Inc., which had been formed in 1968 when four regional grain cooperatives combined operations. The merger of the country’s largest farm supply cooperative and the largest grain-marketing cooperative was finalized in February 1977, resulting in Farmland topping $3 billion in annual revenues and moving up to 78th place on the Fortune 500 list.

For the most part, the 1970s were a bumper time for America’s farmers, but overexpansion led to serious problems when the economy slumped in the early 1980s. Despite its size, Farmland was still dependent on the plight of farmers, and in 1982 it posted its first losing year in its history. In 1985 and 1986, Farmland lost $210 million and because of volatile price swings elected to stop marketing grains, selling off Far-Mor-Co. Lindsay was succeeded as CEO in 1986 by James Rainey, who, during his five years at the top, managed to return the organization to fiscal health. He also took steps to ensure its survival should another lean period in agriculture emerge. He was replaced in 1991 by Harry Cleberg, who had been raised on a South Dakota farm and by the age of 17 ran a local grain elevator. During the 1980s, he served as Farmland’s trouble-shooter and played an important role in fixing ailing units. He took a more aggressive stance than Rainey and returned Farmland to the grain marketing business through a number of purchases, including Union Equity Cooperative exchange, a transaction that brought Far-Mor-Co back into the cooperative fold. He also turned to international markets, contracting to sell wheat overseas and forming joint ventures with foreign partners. In 1993, he oversaw the purchase of British Petroleum’s Tradigrain unit (an international grain trader with operations in six countries), as well as the acquisition of two major beef processing plants and a large refrigerated trucking line.

Cleberg’s stated ambition for Farmland was to gain a presence in “every sector of the global food chain.” Instead of being a regional cooperative, in his eyes Farmland was now a North American cooperative, even an international cooperative, one that was “a global, consumer-driven, producer-owned, farm-to-table” operation. He also remained committed to the Farmland’s original values, seeing the organization as taking the side of family farmers against corporate farming interests. Nevertheless, revenues grew steadily under Cleberg, increasing from $3.4 billion in fiscal 1992 to more than $10.7 billion in 1999.

Key Dates:

1928:: Howard Cowden forms Cowden Oil Co.
1929:: Cowden Oil is dissolved to form a cooperative named Union Oil Company.
1935:: Union Oil changes its name to Consumers Cooperative Association (CAA).
1939:: An oil refinery in Phillipsburg, Kansas, opens.
1961:: Cowden retires.
1966:: CAA changes name to Farmland Industries, Inc.
1982:: The company’s first net loss is posted.
1999:: Farmland’s revenues top $10 billion.

Cleberg retired in 2000, replaced by Robert Honse, who had 27 years with Farmland and was well groomed for the top position. He took over during difficult economic conditions, which resulted in a loss of $29.25 million for fiscal 2000, despite revenues increasing to $12.2 billion. Honse instituted cost-cutting measures, eliminating hundreds of jobs and shedding assets. Although Farmland lost another $90 million in fiscal 2001, he succeeded in paring debt by $268 million and cutting administrative costs by close to $40 million. While Honse was eager to move Farmland more aggressively into branded case-ready and precooked pork and beef products, he shied away from the international grain trading business, in March 2002 announcing that the Tradigram operations would either be sold or closed. Farmland was also facing pressure from so-called new wave cooperatives. After more than 70 years in operation, Farmland faced a period of uncertainty, but throughout its history the organization had always proved flexible enough to meet any challenge.

Principal Subsidiaries

Farmers Petroleum, Inc.; Farmland Foods, Inc.; Farmland Insurance Agency; Farmland National Beef Packing Co.; Pipeline Company; Farmland Securities Co.; Farmland Transportation, Inc.