September 1997
Value-added ventures: A STATUS REPORT
By Stephanie Sorensen
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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.
AgGrow Oils, Carrington, ND
A 432-member limited liability company that began with a $3.4 million equity drive last fall, AgGrow Oils plans to operate a specialty oilseed crushing plant, extruding oil for consumption and industrial purposes, and sell the plant's by-products as feed supplement for cattle. The company plans to be fully operational Jan. 1, 1998. The plant will primarily crush crambe, but will also process some canola, flax, borage, safflower and sunflower. They will market in bulk at first, with plans to refine in-house in the future. There will likely be another equity drive within the next few years.
American Crystal Sugar Company, Moorhead, MN
The original company, formed in 1898, contracted its production needs with Northern Plains sugarbeet growers. In 1973, growers bought the company and it assumed co-op status. There are five plants today: Drayton, ND; Hillsboro, ND; Moorhead, MN; East Grand Forks, MN; and Crookston, MN. There is also a research center in Moorhead. The co-op now consists of over 2,400 farm families, who have one share of stock for each acre of sugarbeets they grow. Stock offerings are usually internal, although they occasionally open it up to new growers. A member of United Sugar Corporation alliance, the co-op recently announced plans to sell about 61,000 preferred shares of stock to its growers this fall. Each preferred share represents the right to grow one acre of sugar beets. With the additional shares, American Crystal will have 500,000 growing acres.
Dakota Brewing Company, Grand Forks, ND
Phil Omdahl, president of Dakota Brewing Company which makes Roughrider Beer, suffered a setback with the loss of his downtown office in Grand Forks, in the flood-induced fire last spring. His label is contracted for production at an out-of-state brewery. Omdahl would like to establish a grower-owned brewery in the Red River Valley, with a malting facility that would produce specialty and commercial malt barley for micro-breweries.
Dakota Growers Pasta Company, Carrington, ND
Dakota Growers constructed a $41 million pasta processing plant in 1993, producing 120 million pounds of pasta per year. They began operation in January 1994 with 1,000 wheat grower members. In the spring of 1996, they conducted a second stock offering, mostly for existing members, that expanded the member base to 1,100. In December 1996, the company undertook a $20.5 million expansion project that doubled its milling capacity, bringing it to 20,000 bushels/day. In May and August of 1997, new pasta lines were added, doubling pasta production capacity.
Drayton Grain Processors, Drayton, ND
Formed in February 1994, Drayton Grain was in full production by June 1996. They have invested in several companies that process hard red spring wheat into frozen dough, pre-proofed dough (baked by retailer on-site), par-baked and fully-baked bread products. They manufacture grain for other companies, as well as having their own "Two Sicilys" brand which can be found in grocery stores across the upper Midwest. Initially, Drayton Grain didn't plan to market its own brand right away, but demand pushed them to expand quickly. Drayton Grain consists of one processing plant in Fargo, ND and a research and development center in Drayton, ND. They are not planning any stock offerings in the near future.
Farmers Choice, Leeds, ND
Farmers Choice was incorporated in April 1995, after an equity drive raised around $3.3 million from 328 members representing 14 states and Norway. Almost all members are ag producers, but there is no requisite delivery commitment. Farmers Choice manufactures fresh, frozen, filled pasta (specifically, ravioli and tortellini) at their Leeds plant from already-processed semolina, which they get from the ND State Mill in Grand Forks. The product is packaged in bulk or sold to customers who retail it under their own name. Currently, Farmers Choice plant capacity is $3 million - $5 million per year. Additional equipment may be added in the plant to reach a total of $12 - $15 million annual capacity. Farmers' Choice is unrolling new products in September 1997 in conjunction with the North American Bison Cooperative. Among other things, there will be bison-filled ravioli and barbecue bison hot pockets.
Farmland Industries, Kansas City, MO
Established in 1929 as a petroleum co-op, Farmland is now owned by 1,400 local co-ops comprised of about 500,000 farmers, as well as 13,000 livestock producers. Farmland operates across 22 states, Canada and Mexico, in the areas of oil refinery, feed and grain products, pork and beef products, and crop production and protection chemicals. Farmland has also acquired existing regional brands around the country, such as Carondo, Ohse and Roeglein.
Harvest States Cooperatives, St. Paul, MN
The largest grain-marketing co-op in the U.S., Harvest States serves about 160,000 members across 18 states. From February to May 1997, they launched a value-added equity drive in which 800 producers and local co-ops invested in Harvest States' existing wheat milling and/or soybean processing and refining operations. Harvest States' intention is that investors are now able to receive more direct returns by making their investment more specific.
Heart of the Valley Cooperative, Portland, ND
This venture was unable to reach the minimum amount of capital it felt was necessary in its 1995 equity drive, and has since been working on developing relationships with existing companies to achieve its goal of processing dry edible beans into refried bean products, according to Kim Niesvig, Portland, ND, a leader in the project.
Minn-Aqua Fisheries, Renville, MN
The first of two buildings for this 307-member co-op are near completion. They will process two million pounds of the tropical fish tilapia per year. Minn-Aqua plans to send its first shipment of live tilapia to market in December 1997, most of which will be sold in Asian-American markets and Asian restaurants. Soybeans raised by member-growers will be taken to an outside-owned soybean processing plant, and from there to a feed mill that will grind it into floating food for tilapia. In the future, Minn-Aqua plans to build two plants to process the soybeans, as well as tilapia fillets for retail in upscale supermarkets. The venture looks to hold a second stock offering in 1999.
Minnesota Corn Processors, Marshall, MN
Organized in 1980 with 1,200 members, this co-op now has about 5,300 members, with plants in Marshall, MN and Columbus, Neb., that produce ethanol and corn sweeteners. Facing financial struggles due in part to last year's high corn prices and over capacity within the corn fructose industry, MCP members recently approved the passive investment by Archer Daniels Midland Co. of $120 million. ADM will own 30% of MCP's stock but will not own any voting stock.
Minn-Dak Farmers Cooperative, Wahpeton, ND
This co-op was formed in 1972 and has 481 members. Since November 1974, Minn-Dak has operated a sugar processing plant in Wahpeton, ND as well as a yeast plant using the molasses by-product of the sugar plant. The co-op began a $63 million expansion plan in 1995, purchasing new equipment and bringing the number of contributing beet acres to 98,500, double the original number. Minn-Dak employs about 200 people full-time, year-round, with peak employment during the harvest season reaching 500. Minn-Dak is a member-owner of United Sugars Corporation and Midwest Agri-Commodities.
MN Valley Alfalfa Producers Co-op, Priam, MN (office in Granite Falls, MN)
Over 500 members, 300 of which are alfalfa producers, purchased an existing plant and began operation in April 1996. The co-op produces pellets for livestock feed from alfalfa leaves and stems. They are conducting feeding trials with sheep and other livestock, and intend to separate leaf and stem in the future to process leaf meal. About 35% of the processed feed is exported in bulk to markets such as the Caribbean and Bosnia. Studies are also being conducted in Finland on using stems for gasification, with the goal of producing biomass electricity by the year 2001. The co-op may hold a fourth stock offering this fall. They plan to build a new plant in future, toward a long-term goal of 700,000 tons total capacity.
Mountain View Harvest Cooperative, Longmont, CO
This co-op held an equity drive from December 1996 to April 1997, when 227 winter wheat growers invested a total of $5 million to purchase Gerard's French Bakery, a wholesale bakery of fresh and frozen products near Denver. They also purchased a nearby 200,000-bushel elevator to handle grain for the co-op. The elevator will supply wheat to a nearby mill, which will in turn produce bakery flour for the group's bakery venture, as well as organic flours.
Mon-Dak Durum Producers, Crosby, ND
206 durum producers in northwest North Dakota and eastern Montana have invested seed money for a proposed $20 million durum mill and/or pasta plant. Feasibility research for the project is being funded by a grant from the ND Ag Dept's Ag Product Utilization Committee (APUC). The steering committee hopes to conduct an equity drive in winter of 1997 or spring of 1998. Estimated timeline: 2 to 3 years to full operation.
Northern Lights Vegetable , Cooperative, Brooten, MN
In a joint venture with Patterson Frozen Foods, 65 producers constructed a plant in 1995 to process frozen peas and sweet corn. They have since added lima beans, and are currently looking into processing additional crops such as dried beans, carrots and potatoes, as well as offering cold storage capabilities for other companies and re-packing bulk products for retail sale.
No. Plains Premium Beef, Cooperative, Mandan, ND
NPPB began with an initial feasibility study in May, 1994, to investigate the market potential for premium quality beef. A seed money drive to launch a venture attracted some 3,200 producers representing more than 430,000 cattle in six states and two Canadian provinces. A stock offering circular was distributed in January, 1997, and meetings were held to sell equity stock in the closed, limited membership cooperative. However, the brutal winter, tough financial conditions and general resistance to change made for a tough equity drive. The co-op fell short of raising the 250,000 minimum equity shares required by the terms of the stock offering. Still, the nearly 1,100 farmers and ranchers who stepped up to buy 113,000 shares represents the largest single mobilization of cattle producers in the history of the industry. The shares represent commitments to deliver 113,000 fed cattle annually. The co-op is in a holding pattern and exploring its various options, which may include an alliance with another company; a downsized processing plant; or a new business plan and stock offering circular that could be offered to NPPB members and other producers in the region. NPPB members could reach a decision on their next step in a meeting scheduled for later this year.
North American Fish Farmers Cooperative, Binford, ND
Established in 1994, there is no processing plant with this venture; rather, members produce fish at their individual operations, then market the product as a group. They raise tilapia, a tropical fish, using soybean-based fish meal. They are currently looking at using other, cheaper high-protein grains such as lupin and canola. The co-op's primary challenge: a small number of interested growers due to the high initial capital investment. In addition, although the tilapia market has increased 300 percent since 1980, much of the demand is for a live product sold to fresh-fish restaurants or markets. The group is trying to create a market for fillets of the mild-flavored, premium-price fish. There are 22 stockholding members, four of which have fish farms and three with farms under construction. Existing tilapia farms are in North Dakota, Minnesota, South Dakota and Manitoba. The co-op is working in conjunction with stockholder Minn-Aqua Fisheries in Renville, MN, a grower co-op to add value to soybeans.
North American Bison, Cooperative, New Rockford, ND
The co-op formed in 1994 by 180 members now involves some 260 bison producers. The plant in New Rockford, ND doubled its production in 1996. NABC held a second stock offering in January 1996, with plans for a third early in 1998. The co-op intends to build another plant, with the location scheduled to be decided by the end of this year. Bison meat is mostly sold in bulk, although they also have a sausage and burger patty line. Marketed mostly through upscale urban markets, the NABC exports about 20% of its products to Europe. Bison are fed forage until the last 120 days, when they are switched onto high-quality grain (mostly wheat), barley screenings and pasta processing by-products.
Pasta Montana, L.L.C., Great Falls, MT
The newest player in the U.S. pasta industry, Pasta Montana L.L.C. was on track to open its $18 million pasta plant mid-August 1997. The company will produce a variety of pasta shapes and products at the initial capacity of 100 million lbs of dry pasta per year. To help supply the plant, Minneapolis-based General Mills announced last fall that it will modernize and expand its milling operations in Great Falls.
Phenix Manufacturing Co., Mankato, MN
A soybean producer-owned co-op arm of a joint venture with Phenix Bio-composites, Phenix Mfg. was formed in 1994 to process soy flour and recycled newspaper into a building material called Environ. There's one manufacturing plant, and another under construction. The company's goal is to add one new plant each year, primarily in the upper Midwest (Minnesota, North and South Dakota, Iowa).
Prairie Premium Co-op Mills, Huron, SD
This group of South Dakota growers is currently trying to establish a marketing agreement, ie "pre-selling" flour that their future mill would produce. Their next step would be an equity drive this fall or winter to fund construction of a flour mill, most likely in SD. The offering may be extended outside South Dakota to include crop and livestock producers in Minnesota, North Dakota, and Montana. Any future expansion to the co-op would likely include corn milling.
Pro Gold/Golden Growers, Fargo, ND (plant in Wahpeton, ND)
Golden Growers formed in 1994, when approximately 2,500 corn growers initially contributed $1.7 million, followed by an equity drive that drew investment by growers of $54 million. They then joined with American Crystal Sugar Co. and Minn-Dak Farmers Co-op to create ProGold LLC, a limited liability company. A $261 million plant was constructed in Wahpeton, ND between May 1995 and October 1996. Operation began in January 1997, with a daily grind capacity of 85,000 bushels. The plant produces high fructose corn syrup, as well as natural products of corn wet-milling: corn gluten feed (primarily for cattle); corn gluten meal (poultry and pets); and corn germ, usually crushed for corn oil. Pro Gold has struggled early on in the marketplace, due in part to last year's high corn prices and over capacity within the corn fructose industry.
SnoFlake Products Cooperative, Oslo, MN
This co-op began with 60 members, who have been operating a plant in Oslo, MN since 1996. The co-op processes 750 to 800 acres of carrots, and hopes to expand its product base in the future.
South Dakota Soybean Processors, Sioux Falls, SD
SDSP began operation in October 1996 after raising $21 million from 2,100 start-up members. The co-op suffered from operational problems in the first six months, but its plant's initial 50,000 bu/day capacity is now exceeding 65,000 bushels. Their member base is primarily in Minnesota and South Dakota. Pending approval of board of directors, SDSP will have a 50% stock-split in September 1997.
Southern Minnesota Beet Sugar Cooperative, Renville, MN
This co-op started in 1972 with around 200 sugar beet growers; and now has 486. The group's plant produces 10,000 tons/day, relying on 100,000 acres for production. They operate at peak capacity in their present plant, and are considering expansion in the distant future. Products are packaged and marketed under the Crystal Sugar brand, and they are a member-owner of United Sugar Corporation.
United Mills, Renville, MN
Incorporated in fall 1993, United Mills began operation in June 1994. UM consists of three co-ops that joined together to manufacture feed. Producers from a local hog co-op and an egg co-op deliver corn, which is ground into feed by the mill and retailed by the third owner, a farm supply and marketing co-op.
United Spring Wheat Processors, Fargo, ND
USWP was formed on March 5, 1996 with over 3,200 spring wheat producers from Minnesota, North Dakota, South Dakota and Montana committing membership stock. A business plan is expected to be unveiled at meetings later this year, when grower-members will have the opportunity to convert their USWP membership to equity stock. The cooperative will focus on processing a spring wheat product.
United Sugar Corporation, Bloomington, MN
United Sugar was formed in 1994 by the three cooperatives of American Crystal Sugar, Minn-Dak Farmers Co-op, and Southern MN Beet Sugar Co-op, to jointly market sugar. In July 1997, the corporation added another full partner, U.S. Sugar, a cane sugar growing and refining operation in Clewiston, Florida, taking Crystal Sugar products nationwide. United Sugar also recently signed a licensing agreement with Pillsbury to produce and market the Pillsbury Best brand of sugar.
ValAdCo, Renville, MN
Established in 1991 by 130 corn producers, ValAdCo produces genetically-superior pigs for resale to farmers for hog breeding. ValAdCo operates a 1,250-sow crossing farm, a 2,500-sow crossing farm, and two 2,500-commercial sow farms, with annual sales of about $23 million. ValAdCo is a member of United Mills, together with Midwest Investors, Inc., and Co-op Country Farmers Elevator.
Walton Bean Growers , Cooperative, Englevale, ND
This co-op processes pinto, navy, kidney and black beans. It was organized in 1994 when growers bought the Walton Bean Company, at that time a privately-held milling and packaging company. Plant operation began in 1995, packaging and marketing already-manufactured bean products. The co-op primarily services regional food service operators. WBG is currently looking into marketing frozen Mexican food products.
21st Century Grain Processing, Cooperative, Manhattan, KS
Organized in January 1996, and headquartered in Manhattan, Kan., this co-op is owned by 350 hard red winter wheat growers from Kansas, Nebraska and Oklahoma. $2.7 million has been raised to date in its current stock offering which will be open until October 30, 1997 (with a $5 million cap). In June 1997, 21st Century bought a 2,800 cwt/day capacity flour mill in Rincon, New Mexico, where it will process bakery and tortilla flour.
Support for ethanol increases, along with value-added opportunities
Minnesota is a major producer of ethanol, with 10 ethanol-manufacturing plants producing 120 million gallons per year. Three more plants are currently under construction. Seven of the existing plants, plus the three emerging plants, are cooperatives.
North Dakota has two commercially-owned ethanol plants, both of which are temporarily closed, but three new plants are in the idea stage. South Dakota has two operating ethanol plants producing 15 million gallons per year, one of which is a co-op. SD also has plans for another plant.
Trevor Guthmiller, executive director of the American Coalition for Ethanol, says that 550 million bushels of corn will be used in 1997 in the production of ethanol. This is good for wheat and barley growers as well, as increasing need for corn in other markets means more feed grain market share for small grains.
However, the ethanol industry depends heavily on state and federal programs for support. Ethanol backers say incentives are needed for the fledgling industry to gain a foot-hold in the petroleum-dominated market.
Ethanol received two big boosts in Minnesota this year. Minnesota's Oxy-fuel Law becomes effective Oct. 1, 1997, and requires all fuel in the state to be oxygenated (gas stations can have one pump for non-oxygenated fuel, used in off-road vehicles only). Ethanol is the most common fuel oxygenation additive, as it is clean and relatively inexpensive. The law should raise the use of ethanol, good news for corn growers. Also, $49 million was authorized in the 1997-98 Minnesota budget for ethanol producer payments, almost double the previous appropriation.
The federal tax/budget deal recently approved by Congress was a partial victory for ethanol; federal tax incentives (about $600 million annually) for ethanol production will remain in place through 2000, but an effort to extend the incentives through 2007 fell short.n
Success factors for the new generation of cooperatives
n Local leadership
n Realistic goals and assumptions
n Honest, open communications
n Realistic market-entry strategies
n Sufficient member equity
n Comprehensive business plan
n Engineering and design
n Capable Management
n Experienced consultants
n Commitment to pooling
Source: Dennis A. Johnson, St. Paul Bank for Cooperatives