Ed Bosanko

May 1, 2003 Daniel Vance

Photo by Jeff Silker

Historian Steven J. Keillor* writes in his book Cooperative Commonwealth that the cooperative was a widely used form of business organization in rural Minnesota through World War II because “business was distant” then. Rural residents and farmers organized cooperatives, such as the creamery, to provide goods and services to areas off the beaten track from big-city suppliers. Ownership in a co-op also gave these rural denizens a measure of local control over their economies.

Since then most all those ag-related co-ops have consolidated. Watonwan Farm Service of Truman, Minn. also consolidated, and has grown into a muscular business with $250 million in annual revenues, 2,800 voting members, and the honor of being “Minnesota’s largest local ag cooperative.” It’s managed by industry veteran Ed Bosanko.

Outside its circle of influence, WFS seldom is seen or heard. Yet its thousands of members/producershave played a role in regional economic expansion, helping create through their thousands of pocketbooks, for one, the Mankato retail miracle. People forget that cooperative members/producers shop and spend, too.

Besides Watonwan Farm Service, two other large, ag-related co-ops headquarter in south-central Minnesota: the $2.7 billion in managed assets AgStar Financial Services (Mankato), and the ?$1.0 billion in revenues Associated Milk Producers (New Ulm). Other co-ops, such as Cenex Harvest States, have large-scale operations here.

WFS and other ag co-ops are the oil of southern Minnesota’s economy, an essential lubricant that protects the engine from wear and tear. Co-ops keep hundreds of millions in cold hard cash and thousands of jobs inside the region. In no small measure the economic vitality of southern Minnesota rests on their successes.

CONNECT: Could you give our readers a taste of Watonwan Farm Service’s size?

BOSANKO: We’ve quadrupled since 1993. This year our sales volume will be more than $250 million, with an asset base of approximately $100 million. We operate facilities in 25 communities, all in south-central Minnesota except for one in Iowa. Our basic territory is bounded by Highway 4 on the west, I-35 on the east, the Iowa border on the south, and Highway 60 to the north.

And we have 260 full-time employees. We are Minnesota’s largest local co-operative. (Cenex Harvest States and Land O’ Lakes, for example, are known as regional co-ops.)

We’ve had to get our arms around growth. Since 1993 we’ve purchased L&H Grain, which doubled our size. In 1996, we added Grain Land and doubled again. We have been on a steep growth pattern.

Our challenge now is to make this company efficient, and to get the asset base at a profitable level. We will continue looking at growth opportunities. Much of our growth has been the result of buying co-operatives in financial trouble. We want to make sure we don’t get in that same situation.

We realize we’re operating in a mature industry. We don’t need to build another grain elevator. We’re saturated. And something else: we can’t grow land. Unless corn begins yielding 400 bushels an acre our overall volume won’t change much. It’s a matter now of being efficient and cost-effective.

CONNECT: And your divisions?

BOSANKO: We have five: grain, agronomy, petroleum, feed and finance. Grain is our largest, representing 65 percent of business or $130-140 million annually in sales. Our feed and agronomy divisions are both $30 million, and petroleum and finance would fall next.

CONNECT: Who is the end-user for your product?

BOSANKO: On the grain side, we ship to feeder markets in California, Texas, and the poultry market in the Southeast U.S. As for petroleum, agronomy and feed—that’s all local business done with producers and farmers. The finance division finances, predominately, our feed customers, but does handle agronomy and petroleum loans.

Our grain division supplies ethanol plants in southern Minnesota. Our feed mills also take a significant amount of our corn volume.

CONNECT: If ethanol subsidies are cut, how will that affect you?

BOSANKO: Ethanol production will be impacted with cuts in subsidies. However, our trade territory has successful ethanol plants. In general, if a plant has low leverage and a capacity of more than 40 million gallons, they should survive and continue providing ethanol. The ethanol business can survive without subsidies if corn stays above $2.40 and gas above $1.50. It certainly wouldn’t be as profitable as with the subsidies, though.

Ethanol works well in Northern climates because it takes water out of the gas line—you’ll never have to worry about gas-line freeze. It supports agriculture, and makes us less dependent on foreign imports. Over time the general public will accept it more and more.

We supply the majority of corn that goes into Corn Plus in Winnebago. We do sell corn to the Exol plant near Albert Lea, and the new plant in Lakota, Iowa. That business will increase.

CONNECT: But doesn’t high petroleum costs hurt your patrons?

BOSANKO: As for our farmer/producers, fuel prices are a factor in their input costs. Given that, I still believe the marketing side of their business is more important to them than any fuel costs. We are seeing farmers doing a better job of marketing today than ten years ago.

We anticipate petroleum prices will go higher. But it won’t create a significant problem for our producers. Besides, our patrons primarily use diesel fuel—and consumption of that has been declining. Four-wheel-drive equipment, which is larger, is also more efficient. The fuel cost per acre today is probably significantly less than what it was just five years ago.

CONNECT: Are more farmers bypassing co-operatives altogether to contract directly with manufacturers in order to cut costs?

BOSANKO: We definitely have seen an increase in the size of our customer in recent years. Our feed division is a good example. Perhaps 70 percent of our feed business is with just ten customers—ones who raise a hundred thousand hogs or more a year. But they need someone local to rely on. Large producers occasionally have made attempts to buy directly from a seed or chemical company, but I don’t think that practice will evolve to the degree that some people speculate.

Often, our larger customers are more dependent on us for certain types of services. I believe our relationships with them are becoming closer. Most like sitting across the desk from the person they’re doing business with. When they deal with large, national manufacturers, they can’t do that.

Farmers need to have experts on their team—and our employees are trying to be those experts. Of course, all customers require you to have competitive pricing, and be a low-cost provider of goods and services. We’ve grown enough the last ten years to be that low-cost provider.

CONNECT: Archer Daniels Midland recently purchased a Minnesota co-operative. What was the driving force behind that?

BOSANKO: Some co-operatives have struggled recently and been forced into bankruptcy or liquidation. Co-operatives in general began as a competitive force to counter the independent market sector, which includes companies such as ADM, Cargill and Conagra. As we’ve come into this century, that situation hasn’t changed.

When a co-operative gets into trouble, and when another co-operative in its trade area isn’t in a position to take it over, an ADM very likely will do it. But it also goes the other way. The South Dakota co-op I worked at once purchased three Cargill facilities.

CONNECT: What pressures are packers putting on you to ensure feed quality?

BOSANKO: We have more requirements placed on us today than ever before in terms of quality and conditions. In the feed business, we now monitor the micron size of our feed. Of course, we have to keep very good records of additives and ingredients used. If you don’t do this, you can’t survive in today’s market. We realize we’re part of the production chain, and that the ultimate consumer is very concerned about food safety.

CONNECT: You ever wake up at night wondering if you could have a problem with genetically modified corn?

BOSANKO: That doesn’t keep us awake. The fact with GMO products is that we need them to increase production. We have a hungry world that needs feeding. Ultimately, I think that issue will go away. It’s primarily the European Union pushing it. Hungry people probably aren’t going to be very selective in what they eat.

The bigger concern I have with GMO is that there isn’t any proof it’s harmful to humans. It’s only a perception. There isn’t any evidence.

CONNECT: Isn’t it really more a political issue with the Europeans than food safety?

BOSANKO: I think so. A lot of politics is involved. European countries probably view opposition to GMOs as a means to protect their agriculture. Again, from a medical viewpoint, I don’t think anyone has any data to say it’s harmful. Until I see proof, I’m of the opinion we need to use GMOs to increase production to feed an increasing world population.

CONNECT: Why get into the ‘railroad’ business? You now own railroad engines.

BOSANKO: We own three, but we’re really not in the railroad ‘business.’ We just view them as sources of power to pull shuttle trains. With co-operatives in the 1970s, we would load six boxcars of grain a day and thought we were doing well. Ultimately, the railroad, in order to be more efficient and profitable as an industry, wanted elevators to load 25 cars a day. Then they wanted 50-car trains, and today it’s asking for 100-car shuttles. They give us incentives to load them in under 15 hours. Of course, to continually pull those cars along the loading system we need a power source. We can now load 400,000-bushel shuttles. It would take 500 semis to fill one of our shuttle trains.

We don’t operate our railroad engines on railroad company tracks, only on our own sidetracks next to elevators, which we either lease or own.

CONNECT: Will the proposed DM&E upgrades affect you?

BOSANKO: Not really. However, the DM&E has purchased the IMRL, a rail line that services some of our facilities. They have improved service to some locations. The coal line through New Ulm, Mankato and Waseca will not significantly affect us.

CONNECT: Why move Watonwan Farm Service headquarters from St. James to Truman?

BOSANKO: Even though our company began in St. James, and had been headquartered there for years, it was still the farthest northwest location in our territory. As an administrative office trying to serve locations extending clear to I-35, we felt it more prudent to become more centrally located. We’re still not in the center of our trade territory, but we did make it easier for customers throughout our trade territory to have access to management and administrative offices.

People were emotionally involved in this decision. After the initial shock, and the transition, the issue faded. People adjusted and adapted. Change is always difficult.

For most employees working at the headquarters, this location fits better than St. James. Our office staff commutes from all over. Our controller lives in New Ulm. We have an operations supervisor in Slayton. A feed division manager lives in Jackson. Our petroleum manager is in Mankato. Another operations manager lives in Easton—and they all commute to Truman.

CONNECT: What portion of your profits come from dividend payments you receive from business done with other co-operatives?

BOSANKO: Regional patronages and earnings from other co-ops account for 30-50 percent of total profit. This last year it was higher. Besides Corn Plus we do business with regionals Cenex Harvest States, AGP in Omaha, and Land O’Lakes. The ‘regionals’ like Cenex and ‘locals’ like us are tied together. Earnings at the regional level come back home to the local. By the same token, our earnings go back to our farmers and producers.

CONNECT: Two of the nation’s largest co-ops have filed for bankruptcy: Farmland and Agway. What’s causing this? Is this making you sweat at night?

BOSANKO: The Agway bankruptcy isn’t as much a factor with our company as Farmland’s. When a regional ends up in financial trouble, any losses from those regionals are going to end up back at the producer level. It’s unfortunate. What has caused those problems seems to be their inability to recognize quickly potential problem areas, and addressing those areas in a timely basis.

For instance: the fertilizer industry. It’s a huge issue in the United States. Because of higher natural gas prices, U.S. companies are not competitive manufacturing fertilizer and nitrogen. Fertilizer was one of Farmland’s core businesses. They have lost hundreds of millions producing it the last five years.

In the future fertilizer will likely have to come from overseas, from countries such as Russia or Trinidad, where they have cheap natural gas. Natural gas makes up 80 percent of the cost of fertilizer. Nitrogen manufacturing here will have to be downsized the next couple of years. Companies in the industry will have to restructure or exit or face consequences. Unfortunately, that’s what is happening to Farmland.

CONNECT: I’ve heard it said that in a fast-moving business climate, democratically based co-operatives are too slow to react to changing business conditions. Your reaction?

BOSANKO: There’s no doubt one of our strengths over time has been that we are producer-owned and -controlled. However, in times of difficulty, when you need to make decisions quickly, you can’t make those decisions as quickly in a co-operative. This can be a negative and a positive.

I certainly never want to see Watonwan Farm Service lose control, and have that control vested in someone other than our farmer/producers. To get our membership to buy into making decisions quickly we have to communicate and get our membership to understand the gravity of certain situations. We have boards elected by our farmer/producers. They can help make those decisions quicker. There’s no doubt: the business climate moves faster than in the past. We need to move right along with it.

CONNECT: Can you give me an instant where you realized change needed to be made fast—and how you tried to educate your members?

BOSANKO: One problem we’ve had in the co-operative system is the duplication of assets—more assets than we need to service today’s customer. That can start at the regional level. Land O’Lakes and Farmland both had feed mills. So they brought their feed divisions together and shut down eight feed manufacturing plants.

Locally, the same is true. There used to be many single location co-operatives, but hardly any today.

Today we are running elevators we don’t really need. In fact, in mid-March we made a decision to sell the grain elevators in Odin, Ornsby and Sherburn. This is because we now are able to load 100-car shuttle trains in Welcome and St. James. Grain flows to shuttle locations. That’s the economics of the grain business. However, the producer will be challenged in getting grain to those locations. This decision came up quickly. Our board knew why we needed to sell. We’ve been trying to communicate to our members the last few years on facilities that must be changed or downsized. When ‘D-Day’ occurs, though, it’s often hard for a farmer to accept a change, shut down or sale. These changes need to be viewed from a business perspective.

CONNECT: What about Fairmont’s new soybean processing plant? How will that impact you?

BOSANKO: As a co-operative, one of our goals is to improve the income of our farmer/producers and members. From an income perspective, the processing plant in Fairmont will bring a better bean price to our farmers/producers. There should be a 6-10 cent improvement in the soybean price in our trade territory because of it.

From a company perspective, and being purchasers of soybeans ourselves, we know we’re going to lose volume to that plant, perhaps 25 percent of our handle. We’ll just have to adapt. Maybe that means running less elevators. Maybe we’ll have to change our operations in order to accommodate the lost volume.

CONNECT: Do you often feel that large companies like HickoryTech and Midwest Wireless, which do far less in revenues than your co-operative, get more respect in this region than Watonwan Farm Service?

BOSANKO: I don’t think we’re not respected. The issue with a company like ours arises from our customer base. With a wireless telephone company, for instance, most everyone knows of them because most everyone has a wireless telephone. We’re an agricultural company. Outside of our LP and fuel customers in towns, our only customers are farmers and producers. Farmers make up perhaps 10 percent of the population in this region. We mainly have rural customers.

I live in Fairmont. Many of the people I socialize with have never heard of Watonwan Farm Service because they live and work in town. It isn’t an issue of respect. It’s just that we’re not usually in the public eye.

All the income we help generate on the farm is spent in towns and circulated throughout southern Minnesota. We are a significant economic factor in this state and region due to our more than 5,000 customers, of which 2,800 are voting members.

CONNECT: Have you been approached by a regional co-operative to sell?

BOSANKO: No. One of the political issues in the co-operative system is that regionals should provide functions, supplies and inputs to the locals, and the locals have the relationship with the producer. There have been regional co-operatives, like Agway, who have been in the retail side of the business. They went into bankruptcy. Regionals need to be the manufacturing arm of the system. They need to own the flour mills, the processing plants, and the foods businesses.

Regionals should do for local co-operatives what they can’t do for themselves.

CONNECT: Why sell your convenience stores?

BOSANKO: Co-operatives should focus on what they do best. We owned four convenience stores. Although they were profitable, it wasn’t an area to which we could devote full attention. Again, size and economies of scale were an issue. A neighboring co-operative, Nu-Way of Trimont, Minn., approached us about buying the four stores—they already owned six. Our sale gave them a larger economy of scale, and more exposure, and a better chance of making the stores more profitable. Those stores are now branded under the Cenex name.

CONNECT: Your personal history?

BOSANKO: I was born and raised outside Aberdeen, South Dakota, and graduated from Northern State University in 1972 with a Bachelors in Business Administration. As a college student I worked part-time at the South Dakota Wheat Grower’s Association (SDWGA), which was a co-operative. After graduation I worked for Northern State University until I went back to SDWGA as Controller, and in 1986 became General Manager. In 1995, I went to a Kansas co-operative before taking my current position at Watonwan Farm Service in 1999.

CONNECT: When did you realize you had a gift for management?

BOSANKO: In high school I was class and student body president. It seemed as if other students respected my abilities to lead. I’ve always been a hard worker, and have a good background in ‘numbers.’ I think I know how to analyze situations fairly well. And I’ve always been very aggressive. In personality testing I always come out as a very high ‘driver.’ I push very hard.

One thing I did learn early on was that I needed people who will work with me. When I delegate authority to fellow workers they do better supporting the company mission.

CONNECT: ‘Delegation’ is often a tough lesson to learn.

BOSANKO: Yes, it is. It took me a while to understand that others can accomplish tasks in a different way and yet still be successful getting the job done. I learned that lesson early on—and it’s been very beneficial, and has led to any success I’ve achieved with co-operatives.

CONNECT: Can you remember one incident, in particular, early on, when you tried taking something on your shoulders and realized you couldn’t handle it yourself?

BOSANKO: It goes back to high school. When I was student body president, we had a Halloween ‘incident’ in town, when someone marred buildings with graffiti. Something had to be done. I got the student body together, and explained that the school had an image problem with the town. Students took charge, and we cleaned up the whole town in one weekend. That was a project I couldn’t have accomplished myself; simply asking people to help got the job done.

CONNECT: What do you buy in Mankato with your money? Do you shop there?

BOSANKO: My wife shops at the Mall. And our company does business in Mankato. We don’t have a Christmas party like most companies, but in March we did have a “Cabin Fever Bash.” Our 260 employees and spouses rented the Midwest Wireless Civic Center for an evening of food and fun.

What is a Co-op?

Rural Cooperatives magazine says a co-operative has three characteristics:

1. User-ownership users provide the equity investment and have a claim on assets
2. User-control users elect board members and democratically decide other issues
3. User benefits users receive co-op services and a share of earnings.

Types of Co-ops

Ag-related co-ops may be the oil of southern Minnesota’s economy, but they are not the only type of co-op around. The co-op model is being used to operate businesses in other fields:

• Banking (Minn. Valley Federal Credit Union)
• Wholesale Hardware (TruServ)
• Healthcare (HealthPartners)
• Electric Power (Benco Electric and Brown County REA)
• Insurance (New Sweden Mutual Insurance among others)
• Bottling (WIS-PAK)
• Grocery Retailing (St. Peter Food Co-op)