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Published January 16, 2012, 04:34 PM

Is American Crystal Still Acting in the Spirit of a Co-op?

MOORHEAD - As the lockout of 1,300 union workers at American Crystal Sugar Co. stretches into a sixth month, a question is getting asked.

By: Dave Olson, Forum Communications

MOORHEAD - As the lockout of 1,300 union workers at American Crystal Sugar Co. stretches into a sixth month, a question is getting asked:

Is the cooperative formed by area farmers in 1973 more concerned with the financial bottom line than it is with the community-based ideals co-ops traditionally aspire to?

“The question is a tough one, and many, many people are asking it,” said Bill Patrie, executive director of Common Enterprise Development Corp., a nonprofit organization in Mandan, N.D., that helps co-ops and other mutually owned businesses form.

Patrie said it is not unusual for a successful co-op to evolve into a business far different from its origins.

“In the case of American Crystal – and many other co-ops of its age or financial size – there is a morphing into a more corporate model, where cash returns are the measure of the company’s success rather than the service provided to its members,” Patrie said.

Leap of faith

At its simplest, a cooperative is a business enterprise that provides services to its members, said Patrie, who added that the founding purpose of American Crystal was to process the sugar beets of its members and to sell the sugar.

He called the purchase of the company by growers in 1973 a pro-active move.

“If no one would have bought it, they would not have been able to sell sugar beets,” Patrie said.

At least, that was the fear.

In the late 1960s and early 1970s, tensions were high between growers and American Crystal, a corporation that operated out of Denver, Colo., and whose roots reached back to the 1890s, when a man named Henry Oxnard opened a beet sugar factory in Grand Island, Neb. Over the course of nearly a century, the company evolved into a large, privately held business with facilities in several parts of the country.

In the early 1970s, area sugar beet growers were becoming increasingly concerned about the company’s lack of responsiveness to grower requests, including calls that beet piling stations be expanded and improved.

Farmers were also aware of the company’s tendency to close unproductive plants. And with four of American Crystal’s seven facilities located in the Red River Valley, growers were concerned local facilities could be targeted.

When growers voted to buy American Crystal Sugar in a deal worth $86 million, they did so out of a desire to control their own future, said Minnesota State University Moorhead archivist Terry Shoptaugh, who wrote a book on American Crystal’s history.

“When they (growers) bought this company and turned it into a cooperative, that made them masters of their own destiny,” Shoptaugh said. “They could bring in the people they wanted to manage the company, and they would grow the beets that became the sugar.”

Big business tactics

As the co-op grew stronger over the years, management has displayed what might be seen as corporate muscle-flexing, with the current lockout being just one of the recent examples.

The co-op also embarked on a legal battle in a number of area counties in the last decade challenging the amount of property taxes the company pays. As a result, its tax burden was eased somewhat.

In Clay County, where American Crystal is one of the county’s largest tax payers, a settlement brought about by the litigation is expected to lower the co-op’s annual tax bill by more than $180,000 starting in 2013.

American Crystal has also established itself as a major political donor.

According to the website opensecrets.org, the co-op’s political action committee routinely spent between $300,000 and $600,000 each election cycle through the early 2000s.

That spending leapt to $2.1 million during the 2008 election cycle, according to opensecrets.org.

One benefactor of that spending has been Rep. Collin Peterson, D-Minn.

In the current election cycle, American Crystal’s $10,000 PAC contribution to Peterson’s campaign committee puts the co-op at the top of Peterson’s donor list.

Asked about whether the cooperative has evolved, the new chairman of American Crystal’s board, Robert Green, said in a written statement that its goals have remained the same – growers banded together because they saw potential to improve the business.

“Growers knew that the Red River Valley’s fertile soil, ample rainfall, and frigid winters offered an ideal mix for expanding sugar beet acres, extending sugar beet storage, and ramping up factory throughputs,” Green wrote.

“The original goals are still in place today – to find every way possible to become more efficient at improving our productive capacities from the farm through the factory to the customer,” Green said.

He added that decisions made by the co-op board are intended to fulfill long-term strategic goals, including producing low-cost sugar.

“We have to make changes that make us competitive,” Green said.

Blurred divisions

The birth of a co-op requires a team effort, according to Patrie, and he said concern for community – one of the seven principles of co-op formation – is a big part of that.

The other six principles that co-ops live by, as delineated by the International Cooperative Alliance are: Voluntary and open membership; democratic member controls; member economic participation; autonomy and independence; education training and information; and cooperation among cooperatives.

“It’s not just a talking point,” Patrie said of the community/co-op connection, adding that all cooperatives grow out of a local setting and their formation requires such a struggle that the roles of workers, managers and owners become blurred.

“They’re all one thing,” he said.

But while a sense of common mission is essential when a co-op starts, it can fade when a business begins hitting its stride.

“Now you have three separate positions, and everybody’s squaring off,” Patrie said. “You get this division where people start playing roles, copying those roles from the rest of the corporate world.”

Stubborn quotient

In the current labor dispute, it’s difficult to know who is being unreasonable and who isn’t, said George Sinner, a former North Dakota governor who once worked as a lobbyist for American Crystal and whose family was once heavily involved in sugar beet farming.

Sinner said these days he is too far removed from the situation to be privy to behind-the-scenes information. But he doesn’t believe the issues surrounding the lockout are major.

“It may be there are some stubborn people on both sides,” Sinner said, adding that if that is the case, “people’s lives are at stake, and they better not play the tough-guy game too long.”

Over the course of the lockout, union representatives have said they are looking for a fair contract, one that preserves benefits and job security.

American Crystal CEO Dave Berg has said the company’s bargaining position, including a proposal that workers begin to pay something toward health insurance premiums, is aimed at keeping the co-op competitive in a global market.

Sinner said he was told by a source he trusts that the company’s board – not management – is calling the shots.

“Most of those board members are people like me who know these workers, love ’em, work with ’em and are not inclined to be selfish.

“And yet here we sit,” he said.

Green said in his written statement that the co-op board and company management “are in complete alignment on the issues under discussion and the company’s positions throughout the negotiations.

“While we all remain committed to reaching a fair agreement that gets our employees back to work as soon as possible,” Green added, “our board members and shareholders remain completely supportive of and in agreement with the company representatives handling the negotiations.”

Profitable times

Asked by a union member some months ago about what he thought of the issue of job security, Sinner said his answer focused on the potential for technology to change the workplace.

“I said, ‘You gotta remember, technology is moving at an incredible rate, and many of the tasks are probably being monitored by computer.

“ ‘That takes a highly sophisticated employee who is in touch with management. You can’t ignore that and think things must go on as they were,’ ” said Sinner.

Yet, Sinner said, it is clear today that the industry is a profitable one. He listed several factors he believes account for that:

• Sugar program legislation changes that eliminated costs to taxpayers. The program’s main way of protecting domestic growers is by limiting how much foreign sugar can come into the United States.

• A better market for sugar since South America began using much of its sugar for ethanol production

• A relatively weak dollar that makes U.S. products more competitive

“I think it’s a mistake to credit either the (company) management or any particular person with the progress the company has made,” said Sinner, who expressed sadness over the current labor situation.

“I don’t know what can be done. I pray that they get it settled,” Sinner said.

Looking into the future

Patrie, too, is hopeful differences can be resolved.

“My hope,” he said, “is that American Crystal is not like a typical cooperative evolving and that it will find within it this unusual ability – which almost no co-op I know has, to reform itself.”

What if, Patrie asked, American Crystal offered workers an ownership stake in the company?

“That would be an exciting way to look at it,” Patrie said, adding he would be willing to take a delegation of workers and company officials to a region of Spain where he said employee-owned co-ops have a long record of success.

“The data is in. The studies have been done,” Patrie said.

American Crystal officials declined to discuss the suggestion of employee ownership. But Patrie sees it as way out of the current dispute.

“When employees own the enterprise, they tend to get higher wages; they stay longer; companies are more profitable and adopt technologies quicker,” he said. “When it’s your enterprise, you take care of it.”

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