“ I Intend to Keep Trying ”

Leader of failed spring wheat cooperative still a value-added proponent

By Jerry W. Kram

Despite the failure of its major venture, the president of United Spring Wheat Processors still believes that value-added is the future of agriculture.

Hillsboro, N.D., farmer Mike Warner has been involved in the leadership of processing cooperatives for decades. While he is disappointed in the setbacks suffered by the wheat processing cooperative, he is still a firm believer in the power of the cooperative business structure for value-added agriculture.

USWP was organized in 1996, when the cooperative raised about $25 million from 3,000 members in the Dakotas, Minnesota, and Montana to build a par-baked bread bakery in Georgia, called Spring Wheat Bakers, which started production in late 1999.

Despite the large amount of equity funding, the plant was plagued with startup problems.  Even after a second equity drive, the co-op’s working capital ran out, and it was unable to get additional financing from banks or outside investors. The company closed the plant last October and is looking for someone to lease or buy the property.

Warner says shareholders could get some of their money back if a company can be found that wants to run the plant as a bakery. Otherwise, it may sell for the salvage value of the equipment. He would not comment on the progress of the sale, but did say that several potential buyers had toured the facility.  “When we will sell it, I don’t know. For how much we will sell it, I don’t know,” Warner says.

Contrary to one press report, the co-op did not go bankrupt. While Spring Wheat Bakers is history, the co-op is moving ahead under its legal name USWP with a project to develop an identity-preserved grain marketing system in partnership with Monsanto. The co-op developed a system for selling IP wheat into premium markets, but abandoned it in 2001 when the premiums offered by buyers didn’t cover the cost of the system.

“We couldn’t get the premium that was necessary to drive the volume that we needed,” Warner says. “But that was then and this is now.”

Warner wouldn’t comment on the progress of the cooperative’s partnership with Monsanto, stating that any new information has to be presented to the USWP membership before talking to the media. “All I can say is that we are working on it,” Warner says.

Although the failure of Spring Wheat Bakers was a disappointment to Warner, he points out that only a small fraction of new businesses succeed. Cooperatives, he adds, have a much better track record than private business, but even then the success rate is only about 50%.  “What causes a business to fail? Everything. There are things that are within your control and things that are not,” Warner says.

Warner looks at his investments in value-added ventures as research and development for agriculture. Someone has to be first, he says, just like some farmer is the first to buy a air seeder or is the first to grow a new crop. Sometimes the gamble pays off — Warner was involved in both Crystal Sugar and Dakota Growers Pasta — and sometimes it doesn’t, like Spring Wheat Bakers.

“From a personal point of view, I’ve invested money and won and invested money and lost before this,” he says. “I believe the marketplace wants farmers to add value to their crops. In my mind, somebody has to be at the cutting edge. Every farmer tries some variety or new piece of equipment before his neighbors. So we are comfortable doing research and development. I have always looked at co-ops like that. Let’s put some money in and see what works. It’s vital to farmers’ survival.”

The integration of the food industry is inevitable, Warner says. The cooperative business model is a way for farmers to be in the driver’s seat for that transformation.

“The model of farmer ownership is very hard to beat, once you establish it successfully,” Warner says. “It is hard to beat the efficiency of farmer ownership.”

Even if Warner loses everything he invested in USWP, he says he still will be looking for new opportunities on the horizon. “I intend to keep trying,” he says.

“ Sister Co-op ” 21st Century Alliance Finding Success

By Tracy Sayler

The Kansas-based 21st  Century Grain Alliance might be described as a “sister co-op” of United Spring Wheat Processors/Spring Wheat Bakers.  Both efforts were launched in 1996 within months of each other to add value to wheat.

Unlike USWP/SWB, however, 21st Century Grain (www.21stcentury alliance.com) has found better sledding down the often slippery slope of starting a value-added business venture.

“It’s been going really good.  We made it through the first three years of startup, and were able to leverage a position in the market,” says Lynn Rundle, CEO.

The Co-op began with about 400 members who raised $3.2 million and purchased a flour mill located 30 miles north of Las Cruces, New Mexico. One year later, after a $2.5 million renovation and construction project, the co-op began milling Kansas wheat at its new plant.

During the summer of 2001, the co-op acquired Farmers Elevator of Dawn, Texas and its subsidiaries, Panhandle Milling and Panhandle Corn Products. The flour mill, food-grade corn cleaning and bagging operation is located just southwest of Amarillo, Texas. This acquisition allows farmers to deliver identity-preserved wheat and corn from the Texas Panhandle to the origin mills and will expand the branded presence of the companies in the Southwest and Mexico.  It has grown from $10 million to $30 million in sales since being acquired by the 21st Century Alliance.

The mills serve the growing wholesale tortilla and bread manufacturing markets in the southwestern United States. Rundle says the majority of flour produced by the co-op is consumed in Los Angeles, Phoenix, Tucson, Albuquerque, Santa Fe, El Paso, Las Cruces, and Juarez, Mexico.

Other ventures have been spawned by the 21st Century Alliance, including a dry edible bean processing cooperative, a dairy, and a venture focused on marketing ag fiber.  Affiliated ventures under the 21st Century Alliance name have been established in California, Nebraska, and Michigan.

A grain merchandising program organized by the Alliance in 2000 has resulted in a milling wheat identity-preserved program that over the past two years has given participating producers an average premium of 25 cents for protein and quality.

Rundle says the Alliance envisions becoming the premier delivery system for food companies to procure identity-preserved food ingredients, from farmers’ fields to consumers’ homes.  “We’ve successfully created a wheat origination system, which the market is longing for today, and we’re positioned to be delivering about two million bushels of IP hard red winter and white wheat into market channels.”

The Alliance recently received a $500,000 grant from USDA to expand marketing, distribution, and processing channels for hard red white wheat. Ironically, that’s the same amount Monsanto paid USWP/SWB to “partner” in an effort to establish a similar IP system that may someday channel biotech grain.

Rundle credits the Alliance’s success to focusing as much or more on establishing strategic product distribution channels, rather than just on making a value-added product.

“When I look back five years ago, the trend was more about establishing value-added production, but now it’s more about establishing distribution value,” he says. “It’s been a huge challenge, but we’ve been able to carve out a niche by milling a quality product with strategic marketing outlets to get to the customer.   You just can’t become an entrant in the marketplace by making flour and putting up a sign that says ‘flour for sale.’ Wheat processing is bigger than just the plant and the product.  You need the distribution to make it work.”