September 2001

Re:  Renewal Equity

 Dear Member-Owners of North Farm Cooperative,

 We are undertaking a decisive move on behalf of our cooperative; we would like to explain our reasoning and reassure you we have your best interests at heart.

The Board of Directors and North Farm Managers believe an equity increase is necessary for North Farm to continue delivering products to you at the service levels you expect and deserve. Please read about the Renewal Equity Plan here and in the North Farm Board Report. The Renewal Equity Plan, beginning the week of September 10^th, applies to all Retail and Buying Club members.

The Capital Story
Over the last four years, North Farm has delivered $116 million worth of natural foods and other products to you, our member-owners. During that period our expenses have exceeded the prices charged by about 3%. This has depleted our reserves and hampered our efforts to serve you properly.

We have heard and share your concerns about out-of-stocks, inaccurate orders and higher prices. We have been struggling to correct these problems; however, we find it extremely difficult to improve our services without working capital. The capital in a cooperative comes from you, the owners, through your equity investments. We are counting on your continued support to rebuild North Farm’s working capital, with which we can improve service.

Rebuilding Our Financial Strength
Our Renewal Equity Plan enables North Farm to regain financial strength and stability. The equity charge per invoice is being raised from 2% to 4%, beginning the week of September 10^th. The equity invested will be used throughout our cooperative to restock products, upgrade equipment, develop computer programs and improve delivery options.

Specifically, with increased working capital we will:

·   Ease Out-of-Stocks – We will reduce out-of-stocks immediately by paying suppliers more promptly and establishing inventory at optimum levels.

·   Improve Order Accuracy – By equipping our warehouse with much-needed management systems, we will decrease mispicks, BNRs and misdeliveries.

·   Lower Prices – Member equity will help us to eliminate double-digit interest rates from commercial bank loans by putting your money to work for you. Members who increase orders can also earn equity offsets. Details of the offsets will be announced in late September.

·   Stabilize Deliveries – We will be able to buy the trucks and equipment needed to meet your expectations of reliable, on-time delivery.

·   Simplify Ordering Processes – We will upgrade our electronic order entry systems to meet your needs. Web ordering by year-end!

Moving Ahead Together
Recapitalizing North Farm will enable us to be the best source of natural and organic products and services in the Midwest. While many mainstream grocery stores now carry a few dozen natural and organic products, North Farm offers thousands. Your continuing request for GMO-Free products is at the top of our priority list as we work on your behalf with suppliers nationwide. We will continue to help you secure the best offerings of small organic farmers and processors in our region. We are industry leaders in offering eaches and will continue to do so.

We are improving service levels and will keep you informed on progress through our publications. As one warehouse employee said about changes this year:

“It may not be apparent from the outside that anything has improved at North Farm, but from the inside I can say we have turned a decisive corner in how we manage the business and the warehouse.”

– Ian Wylie, Board Member, Warehouse Chapter

A Bright Future
On December 18, 2001 we will mark our 30th anniversary.  Over the last six months, we've developed the business plans to to revitalize North Farm.  Turning 30 can be tough, but this Renewal Equity provides just the lift we need.

We welcome your questions about Renewal Equity by e-mail or phone. We have set up a special e-mail address renewal@northfarm.com and Renewal Line (1-800-236-5880, ext. 2793) so we can respond promptly.

We are working diligently on your behalf and look forward to serving you for many years.

Your North Farm Cooperative Managers