CEOs give insight on farmer-owned co-ops

By Tracy Sayler

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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.

Indeed, it was a unique chance to hear what two of the top farm cooperatives in America have to say about the value-added movement in the Northern Plains. And it seems that Harvest States and Farmland are viewing new ventures, well, cooperatively.

John D. Johnson, president and CEO of Harvest States, said that his cooperative doesn’t view start-up value-added ventures as competition. Rather, the movement is necessary given the reduction of farm support programs, and should be recognized as a positive step in strengthening agribusiness and the role of all cooperatives in the future of agriculture.

Johnson said new ventures need: a good business plan, market analysis, customer niches, cost advantages, efficient transportation, a good labor pool and experienced management, lender involvement, and a production and financial commitment by growers. "There is no guarantee for success. A new venture shouldn’t over-promise and under-deliver, and it’s difficult to be everything for everybody," he said. Nevertheless, there are opportunities for new and existing cooperatives, partly because there is a trend among major food companies to focus more on marketing and less on processing.

Harvest States has a new 21,000-hundredweight flour mill in Kenosha, Wisc., operating under the co-op’s division, Amber Milling. The new plant’s hard wheat milling operations will enable the company to enter the bakery flour business. It also expands Amber’s durum milling capacity, making it the largest durum miller in the nation. At full production, the Kenosha mill will use about 50,000 bushels of hard wheat and durum daily, meaning the operation will mill the grain contained in a 52-car unit train in just over three days.

The Kenosha plant is one of the largest in the nation built from the ground up, and follows the industry trend of locating mills closer to the customer. With its rail connections, the new operation also is able to receive reliable unit train shipments of grain from Harvest States elevators in the Northern Plains. Kenosha has started production, and when it started making its new premium bakery flour recently, the names of about 300 Northern Plains wheat growers were printed— in their own handwriting— on the bags used to package the flour.

Harvest States recently broke ground for a smaller hard wheat mill in Houston, and another is planned for Pennsylvania. Bigger industry players aren’t welcoming the competition, says Johnson. "This entry isn’t going to be all peaches and cream."

It is clear that more growers want the crops they produce to be processed at a place they can call their own. Johnson recalled a conversation he had last year with a group of wheat and barley growers, who wanted to discuss with him the possibility of a value-added, joint venture with Harvest States. Never mind the fact that the St. Paul-based, regional grain marketing, farm supply and food processing cooperative is largely producer-owned and operated. "We don’t feel like we’re owners," said one grower to Johnson. "I haven’t forgotten that," said Johnson.

Stirring the Midwest

Indeed, value-added has stirred many producers in the Midwest. "By my last count, they’ve invested more than $600 million in about 70 new co-op ventures," said Harry Cleberg, president and CEO of Farmland Industries, the largest farmer-owned regional cooperative in the United States.

Sales for the Kansas City-based cooperative in 1994 totaled $6.67 billion, with business in all 50 states and more than 85 countries. Farmland owners represent 22 midwestern states and account for 80 percent of U.S. grain and livestock production.

Cleberg said that Farmland started in 1929 as Union Oil Company, on an investment of $3,000.

Cleberg said that Farmland’s growth has depended much on the willingness to act and take risks. "As Wayne Gretzky likes to say, ‘you miss 100 percent of the shots you don’t take.’"

Back in 1959, when the broiler industry underwent integration, Farmland founder Howard Cowden took the position that this integration was a fact that had to be recognized, and that the real issue was whether it should be expanded from the top down or from the bottom up.

"He asked, ‘would farmers control the integration process through their cooperatives, or would it be dominated by private business, which would deny the farmer his traditional right to make decisions about buying, feeding and selling? By means of cooperatives, farmers could get together and provide themselves with a collective efficiency to match that of large, private operations.’"

Cleberg said Farmland is the only grain cooperative in the United States that has 100 percent ownership in an international grain marketing subsidiary (Tradigrain). "Without it, we would be reduced to shipping grain for somebody else. We would become price takers rather than price makers."

The farmer’s share of the U.S. consumers’ dollar has continued to dwindle for the past 25 years, Cleberg said. "That means that future growth must come from

overseas market sales and from adding value. In both cases, it requires a fundamental shift in how we approach what we do as independent farmers and cooperatives."

Cleberg said U.S. agriculture has followed a philosophy of "produce it, and the buyers will come" for years. "Guess what? They didn’t come, and we’re not alone. Other U.S. industries, too, have had to make the switch. They’ve had to quit selling what they produce and start producing what will sell."

Growers who want to become stronger players in the marketplace should work with those who have the resources to help accomplish that goal, he said. Farmland is working with groups of its owners to invest in multi-train loading facilities across the Midwest. And the co-op is participating with growers in various grain processing ventures, including three ethanol facilities and a wheat-based products plant.

"Having John and myself on your convention program is a good first step. It’s apparent that you see there may be an opportunity of having existing cooperatives look at (value-added) with you, rather than just starting from scratch," said Cleberg.

One concern for value-added ventures, Egerstrom said, is venture cannibalism; the possibility of farmer-owned investments competing against each other, splintering each other’s business opportunities. Sectors of the value-added ag industry— ethanol plants for example— should establish marketing agreements or joint marketing efforts. A good model to follow is the United Sugars Corp., the sugarbeet marketing partnership of the Minn-Dak Farmers Co-op, Wahpeton, ND; American Crystal Sugar Co., Moorhead, MN; and the Southern MN Beet Sugar Co-op of Renville, MN.

Egerstrom said that while farmers need to step forward into value-added, there is still a need to keep some feet in Washington, D.C. "I know you’re talking about profits and not payments, but don’t totally forget about the political realities."

Nevertheless, Egerstrom’s own book underscores where farmers should turn for better profit opportunities, and that place doesn’t have a domed roof. Former USDA Secretary Bob Bergland wrote the forward in Egerstom’s book, and in one passage, said the following:

"The journalist, Lee Egerstrom and I have come to the same conclusion: The answer to the problems of rural America is going to come from rural America, not cities and policy centers like Washington, Ottawa, Brussels and Geneva. From the bottom up, not from the top down. We have seen exciting examples of rural America taking charge of its own future. Forward looking communities and farmers are taking the initiatives necessary to spur a true revitalization of the rural economy and they are doing it by simply finding their own roots. They are remembering and rekindling the cooperative spirit of our grandparents and great-grandparents as they search for solutions to frontier problems with markets and services. Put another way, they are adjusting to change and finding ways to pool resources and use new technologies."