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What Main Streets Have Over Wall Street

November 29, 2011 By Lee Egerstrom, Economic Development Fellow

Far from America’s money center, community-based, farmer-owned and consumer-owned cooperative businesses in Minnesota are helping create jobs and wealth, and investing in their communities.

That became apparent in an event advisory sent by Frank McDowell, general manager of New Vision Co-op, a southwestern Minnesota regional agricultural co-op now based at Brewster.

“There is a lot of strength coming from agriculture for the last three years or so, and it is good for the whole economy,” McDowell said.

The co-op is “retiring” (paying back) about $4 million in equity to original members who formed New Vision in 1998, a merger of two large co-ops in the area.

About 3,000 farmers in southwest Minnesota and nearby border areas of Iowa and South Dakota will receive these checks. “Our local merchants will be glad to see this money show up on ‘Main Street’,” McDowell said.

Such actions are expected as companies, of any ownership structure, prepare for the future and positions themselves to cope with changing market conditions and business opportunities.

In contrast, critics of big stock corporations and high-finance note that corporations now have about $3 trillion stashed away, not being reinvested in the economy. While this stunts job growth and further holds back economic progress, other critics warn that when corporations start “investing,” much of it will likely be in merger and acquisition (M&A) activity that won’t necessarily grow the economy or put people back to work.

More often than not, M&A activity creates “redundancies” and “synergies,” said Gerardo Espinoza, executive director of the Local Enterprise Assistance Fund (LEAF) at Brookline, Massachusetts, in a recent interview. They usually lead to layoffs and more unemployment and further weakening of the economy.

That is a danger for America down the road. But that isn't the case with New Vision Co-op and a new merger partner, the Wilmont-Adrian ag co-op that merged into New Vision on September 1, or other co-ops based in Minnesota.

Back on Wall Street, another danger is the debt being acquired by U.S. companies, according to AP business writer Bernard Condon. In gleanings from Federal Reserve data, Condon said companies have added about $358 billion in cash to their holdings since the start of the 2007-2008 Great Recession while debt increased by $428 billion in that time.

At this point, it’s unclear how big a threat corporate debt might represent for the national economy and how it is being used by companies and industries. Some debt accumulation may be nothing more than companies responding to low interest rates from Fed policy that will position them for more aggressive business action in the future.

Regardless, the inactivity of Wall Street companies does make a striking contrast to what is visible from the Minnesota countryside. Let’s look at recent developments:

Growers and food consumers in the Red Wing area announced before Thanksgiving that they’ve hired Sharon Becker to be general manager of the Riverbend Market Cooperative, soon to open in the river city.

The Good Food Co-op at Rochester is merging into the La Crosse-based People’s Food Co-op. Rather than create redundancies and job losses from synergies, this merger will lead to a doubling of store space in Rochester and more jobs.

Two recent announcements from the farmers and their local co-ops that own CHS Inc. has the Inver Grove Heights co-op expanding its soybean processing businesses.

It acquired Creston Bean Processing LLC, at Creston, Iowa, and will transport soybean oil from Creston to Mankato, where CHS will process it into food ingredients for human consumption. More recently, the Minneapolis Star Tribune reported CHS is purchasing Solbar Industries Ltd., an Israeli soy protein processor, for $133 million that will add two processing plants in Israel, one in China and one in Nebraska to CHS operations.

At around the same time, CHS announced fourth quarter and year-end results that made its fiscal year the most profitable ever. Tom Webb, writing in the St. Paul Pioneer Press, noted profits soared 91 percent and revenue climbed 46 percent, to $36.9 billion.

That should move CHS, the nation’s largest farmer-owned enterprise, up from sixth place among Minnesota Fortune 500 companies ahead of 3M and Supervalu, Webb said.

First half results for Arden Hills-based Land O’Lakes, another major farm co-op, found sales up 15 percent to $6.93 billion and profits up 75 percent, to $168 million.

Across the metro area, Bloomington-based HealthPartners Inc., proudly announced it was the top-ranked health plan in Minnesota for the seventh consecutive year and a national leader, based on National Committee for Quality Assurance rankings for 2011-2012.

Espinoza, whose LEAF organization participates with Minneapolis-based Northcountry Cooperative Development Fund and other groups to finance cooperatives and employee ownership programs, said similar “ground up” development efforts are visible in several parts of the country.

Unlike corporate profits that concentrate into a few hands at the top, co-ops’ successes funnel back to workers, farmers, and customers.

People are realizing the importance of community development, he said. The answers to our economic problems “aren’t going to be found on Wall Street.”

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