By Stephanie Sorensen

Home

E-Mail

Back

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, new generation co-ops that have reached adolescence are in many cases benefiting from current low commodity prices, says Bill Patrie, president, ND Rural Electric Cooperatives, Mandan, ND.

Gary Lee, president and CEO of United Spring Wheat Processors (USWP), describes the new venture he oversees as a hedge against the weather and the market for farmers.

With members spread across Minnesota, South Dakota, North Dakota and Montana, weather conditions will vary enough for the new business to feel assured of getting quality wheat from its members, says Lee. Furthermore, low commodity prices which are damaging from an individual farmers’ standpoint, will mean lower costs and higher profits from a processing standpoint.

Still, while some farmer-owned ventures such as Dakota Growers Pasta Company, Carrington, ND, and North American Bison Cooperative, New Rockford, ND, shined in 1998, others, such as SnoFlake Products Cooperative, Oslo, MN and Northern Lights Vegetable Co-op, Brooten, MN, have folded.

So what sets successful value-added businesses apart from those that fizzle? Successful execs and wearier-but-wiser founders of efforts that failed all mention the same blend of ingredients: management, membership, financial resources, maturity of the business, and planning: knowing the market trend and competition before jumping in. Coming up with an idea for a creative new use may be exciting (ever tried soft-serve OatsCream, made by American Oats, Inc. in Minnetonka, MN? It’s out there, and doing well) but success lies in knowing which niche markets are feasible and accessible.

Although some value-added ventures are performing well for shareholders and members, the financial flipside is that it takes a big chunk of equity to create and grow a value-added venture that can compete in the marketplace. And right now, existing co-ops have already soaked up much of the producer capital available in the Northern Plains, says Allen Gerber, president of the Minnesota Association of Cooperatives.

Tight producer equity from tough economic times will make it difficult for new ventures to start up (case-in-point being Northern Plains Premium Beef, a good idea that couldn’t raise the capital it needed) and young ventures to raise capital for expansion.

Still, many value-added ventures are holding their own. Following is a closer look at the progress of many value-added businesses in the Northern Plains during the past year.

AgGrow Oils, Carrington, ND

Many value-added ventures have growing pains, and AgGrow Oils is no different. AgGrow extrudes oil for consumption and industrial purposes, with by-products sold as feed supplement for cattle. AgGrow processes about 12 different oilseeds in regular and organic versions. The producer-owned specialty oils company began producing oil last January, but at a capacity below that projected in the plant’s original specifications. Builders of the facility, the first full-press oilseed plant, have fixed the processing glitch, and it is now operating at about 90% capacity, according to AgGrow Oil CEO John Gardner. The company held an equity drive in November to replenish working capital lost in the first year of operation. If a minimum of $1 million is not raised, AgGrow will seek an equity partner pending member approval.

Central Minnesota Buckwheat Growers, Aldrich, MN

This 14-member venture is getting off the ground after a long planning and research process, funded in part by a Minnesota Department of Agriculture grant. They recently sold their first semi-load of buckwheat to Minn-Dak Ltd. Grand Forks, ND, for buckwheat flour. Thanks to an Agricultural Utilization Research Institute (AURI) grant, the group has purchased a buckwheat cleaner which will enable them to market their crop for such diverse products as mulches and pillow fillers.

Dakota Growers Pasta Company, Carrington, ND

Dakota Growers Pasta Company is currently the largest non-branded pasta company in the country. The 1,000-plus member co-op produces brand, store-brand, and ingredient (ie producing noodles for Hamburger Helper) pasta. In 1997, DGPC doubled its milling and pasta production capacity, and this year the co-op acquired Primo Piatto, Inc., a pasta processing company with two plants in the Minneapolis area. DGPC added a new production line to its Carrington plant this year for stamped and sheeted pasta items like farfalle (bow-tie pasta) and egg noodles. DGPC is now constructing a $10 million mill, next to the Carrington mill, to keep pace with its increased processing demands.

Drayton Grain Processors, Drayton, ND

Drayton Grain Processors, since its inception in 1994 and achievement of full production in 1996, has forged two different business efforts. One processes hard red spring wheat into frozen dough for products like Hot Stuff pizza, cinnamon rolls and sub sandwich buns, and has been doing very well, according to DGP officer Harold Helm. The other specializes in pre-proofed (baked by a retailer on-site) dough, marketed under the Two Sicilys brand in grocery stores. The Two Sicilys segment of DGP hasn’t reached profitability yet, says Helm, but is expected to do so in 1999. When it does, the co-op will begin discussing ideas for further expansion. DGP has a processing plant in Fargo, ND and a research and development center in Drayton, ND.

Farmers Choice Pasta Cooperative, Leeds, ND

This three-year-old co-op is forging a new frontier in pasta with North American Bison Cooperative of Binford, ND. The two organizations are developing traditional and new bison-filled pasta products. Among the most promising new products is the ‘Buffalo Nickel’ appetizer, which is currently being marketed to the food service sector as well as retail markets. The 340-member co-op is currently working on developing its distribution in the growing southeastern U.S. food service market, according to President Ron Hofstrand.

Farmland Industries, Kansas City, MO

A giant among co-ops, Farmland grew from a single petroleum co-op in 1929 to a conglomeration of 1,500 local co-ops across North America that sits among the top 200 Fortune 500 companies. Farmland has two value-added grain projects currently in the works. One is a three-way venture with Bay State Milling Company based in Quincy, Mass., and Southwest Grain Marketers (comprised of thirteen Oklahoma co-ops), to build a flour mill in Saginaw, Texas. The mill is expected to be completed in Spring 1999. Farmland has also formed Heartland Grain Fuels in partnership with South Dakota Wheat Growers, an Aberdeen, SD, cooperative. The success of Heartland’s first ethanol plant in Aberdeen has spurred construction of a plant in Huron, SD, scheduled to be fully operational in May 1999.

Cenex Harvest States, St. Paul, MN

Harvest States and Cenex Land O’Lakes’ merged just over six months ago, fulfilling the two companies’ missions of developing a fully-integrated business that could provide goods and services to growers from farm inputs to creating end products for the consumer’s table. CHS has moved forward uninterrupted on projects that were in the works pre-merger, such as the construction of a new soybean processing operation in Fairmont, MN, and plans for a new flour mill in the Orlando, Florida area.

Last spring, Cenex Harvest States wrapped up its first operating year since offering members the choice of investing their returns in the co-op’s soybean processing/refining or wheat milling operations. Over 800 producers participated, with such positive feedback that the co-op intends to hold another, similar offering in the near future.

Noel Estenson, former Cenex Land O’Lakes CEO, has been appointed CEO of the merged co-ops until his retirement in the year 2000. John Johnson, former Harvest States CEO, is currently president and general manager, and will take over CEO duties upon Estenson’s retirement.

Heart of the Valley Cooperative, Portland, ND

Heart of the Valley has bounced back from an unsuccessful 1995 equity drive to enter into a joint venture with Allied Processors, Inc. of Wisconsin, which specializes in custom dehydrating and processing ingredients for food manufacturers. The 20 million pounds of dry edible beans grown each year by the co-op’s 400 members go into ready-made burritos and other products. Steady demand suggests the possibility of increasing production in future. Heart of the Valley is owned by two area co-ops, Mayport Farmers Co-op and Central Valley Bean.

MN Valley Alfalfa Producers Cooperative, Priam, MN

Real promise lies in this two-year-old co-op, which processes alfalfa leaves and stems into pellets for livestock feed, as well as separating leaf and stem for leaf meal by a newly-developed process. MnVAP is currently scouting Minnesota and South Dakota for a location for a second plant. Membership has leaped from 500 to 785 in the last year, and the co-op has signed a purchase agreement with Northern States Power Company (NSP) to produce bio-mass electicity using alfalfa stems for gassification within the next one to four years. In the long-term, the co-op plans to build or acquire five to seven processing plants, which will use 700,000 tons of alfalfa per year to supply the NSP power plant.

MinnAqua Fisheries, Renville, MN

This $4.7-million indoor aquaculture farm harvested its first crop of tilapia last March. The co-op consists of 350 soybean growers who deliver their commodity to an independent soybean processing plant, after which it is taken to a feed mill to be ground into feed for the white fish. A model of true cooperative spirit, MinnAqua’s tilapia are raised in tanks of water warmed by inexpensive waste heat from the nearby Southern Minnesota Beet Sugar Cooperative plant. Most of the two million pounds of tilapia processed each year is marketed live by the North American Fish Farmers Cooperative, Binford, ND, to Asian-American markets and restaurants. MinnAqua plans to build two processing plants, one for soybeans and one for tilapia fillets, following a stock offering next year.

Minn-Dak Farmers Cooperative, Wahpeton, ND

Minn-Dak has just completed a three-year, $63 million expansion plan this year — its 26th year of operation. The plan included three new sugarbeet storage buildings, improvements to its existing sugar mill, and a 23% increase in production acres. Minn-Dak has 483 stockholders and 246 full-time employees. The co-op is a member-owner of United Sugars Corporation and Midwest Agri-Commodities.

Mountain View Harvest Cooperative, Longmont, CO

Mountain View, a one-year-old cooperative formed by over 200 winter wheat producers, purchased Gerard’s French Bakery, a wholesale bakery of fresh and frozen products near Denver, CO, last year, and a nearby 200,000 bushel elevator to handle grain for the co-op. Mountain View has accomplished almost 100% growth in its frozen product business. According to Jerry Watson, President of Gerard’s, expansion is in the cards; whether that will include enlarging their current facility or purchasing another bakery has not been determined. In the first half of 1999, the co-op will decide whether a second equity drive will be necessary to fund the expansion.

North American Bison Cooperative, New Rockford, ND

This co-op seems to be stampeding toward success. The four-year-old co-op last year had $10 million in sales and returned its first annual dividend to its 270 members in 15 states, four Canadian provinces and Belgium. The plant has doubled its production capacity to about 10,000 bison annually and controls over half of the world’s bison marketing industry. Among NABC’s products: the Buffalo Nickel, a bison-filled appetizer, a bison barbecue hot pocket, and a bison ravioli product co-produced with Farmers Choice Pasta Cooperative in Leeds, ND. A 10,000-share stock offering for a new plant is set for this winter. The new plant will likely be built in western Canada, where most of the buffalo are raised, according to Sue Sexhus, NABC office manager and wife of CEO Dennis Sexhus.

North American Fish Farmers Cooperative, Binford, ND

The going has been slow for this co-op, in its fourth year of trying to introduce the primarily Asian-American-consumed tilapia fish to a Caucasian market. Making it tougher is the wariness of the co-op’s 110 members from Minnesota, North Dakota, South Dakota and Manitoba to make the high initial investment of capital needed to establish individual farms. Slowly but surely, however, farms are appearing. Since last year, two more have entered production, and a new farm is in the planning stage. The fish are fed with soybean-based meal contracted from stockholder MinnAqua Fisheries in Renville, MN.

Northern Lights Vegetable Cooperative, Brooten, MN

This co-op, formed by 65 vegetable producers as part of a joint venture with Patterson Frozen Foods, operated a frozen pea and sweet corn processing plant. In May of this year, the co-op folded and sold the plant to Lakeside Foods, a corporation based in Manitowoc, Wisc., that processes and cans food products for sale to private label companies. Some of the co-op’s former members then chose to enter into individual production contracts with Lakeside.

Northern Plains Premium Beef, Bismarck, ND

Plans to build a producer-owned processing plant in Belle Fourche, SD, fell through after two failed equity drives, and NPPB voted to dissolve in September. Co-op leaders aren’t giving up however, and have turned over the intellectual assets of the venture to the Dakota Beef Development Corporation for safekeeping while they look at other options and potential funding sources to add more value to beef.

CEO and meat industry consultant Keith DeHaan, who worked with NPPB, says he has recently begun working with another livestock group on a new proposed value-added effort. The North Dakota Pork Producers plan to form a joint venture with Cloverdale Foods of Mandan, ND, supplying pork to the well-established processor and retailer of pork products. An aggressive timeline includes a business plan to be announced in the beginning of 1999, followed by an equity drive open to all pork producers, and production of hog-finishing units in the spring or summer of next year.

Phenix Manufacturing Company, Mankato, MN

This soybean producer co-op formed in 1994 in a joint venture with Phenix Bio-composites of St. Peter, MN. Phenix Manufacturing’s two plants—one in St. Peter and another, newly-built soy flour and recycled newspaper processing plant in Mankato, MN—annually produces 45 million square feet of the particleboard Environ from soybean and wheat straw. Lanny Jass, president, says the market looks promising and the co-op is currently considering locations for an additional manufacturing facility.

Prairie Organic Cooperative, Jamestown, ND

This four-year-old, 35-member cooperative is suffering from decreased international demand due to the Asian economic crisis and Europe’s increasing self-sufficiency in organic production. Last year, Prairie Organic outsourced its marketing to Heartland Organic Foods in Rosholt, SD. PO President Terry Jacobson, Wales, ND, feels positive about the move in light of Heartland’s established connections in the marketplace. In another recent attempt to turn things around, Heartland and Prairie Organic together reactivated a former Harvest States elevator in Moorhead, MN. The elevator, owned by an independent holding company, has excellent facilities and accessibility, says Jacobson, and the groups hope that marketing through it will prove cost-effective. Jacobson says the co-op has had to scale back its operations until the results of the arrangement are more evident.

Prairie Pasta Producers (formerly Mon-Dak Durum Producers), Crosby, ND

This new 550-member pasta cooperative being formed in northwestern ND and Canada named an interim board of directors this fall, including David Schnell of Lampman, Sask., as chairman and Jan Kostad, Kenmare, ND, as secretary-treasurer. The co-op will retain North Dakota co-op status for tax purposes, but Kostad says Prairie Pasta will have to tread carefully as US and Canadian members will receive different tax benefits, and Canadian members’ wheat may need to be purchased through the Canadian Wheat Board. The co-op will hold an equity drive in January 1999.

Prairie Premium Co-op Mills, Huron, SD

This group of South Dakota growers was brought to a temporary halt when a major potential customer pulled out at the last minute. The group’s plans to build a mill are in limbo while they consider a new potential customer who has stepped forward. The project is still alive, says South Dakota Wheat, Inc. Executive Director Rick Vallery, but whether the plan will move forward is uncertain.

Pro Gold/Golden Growers, Wahpeton, ND

Pro Gold, a Limited Liability Company created by the Golden Growers, American Crystal Sugar Company and Minn-Dak Farmers cooperatives, suffered early on from a saturated fructose industry. At its lowest point, with the plant producing at about 50% of total capacity, Minneapolis-based grain giant Cargill, Inc. stepped in with a proposal to take over operations of the Wahpeton, ND plant for 10 years. Under the agreement, Pro Gold’s founders retain ownership and share profits with Cargill. Mark Dillon, Golden Growers President, says the arrangement has been good for Pro Gold: it staved off bankruptcy, and the plant is operating at greater efficiency thanks to Cargill’s solid position in the fructose industry. Pro Gold and Cargill will come to the table again to discuss their options when the ten year lease is up.

SnoFlake Products Cooperative, Oslo, MN

SnoFlake went bankrupt in the fall of 1997, a year after 60 producers came together and bought a plant in Oslo, MN, to process about 800 acres of carrots. Under pressures of a depressed market, the co-op tried to combine its efforts with similar developing ventures in Hillsboro, Hatton and Casselton, ND, but without success. Leading board member Tom Osowski, Argyle, MN, identifies the co-op’s downfall as haste. "We hurried too much. But maybe seeing our mistakes will make others more cautious."

South Dakota Soybean Processors, Sioux Falls, SD

This 2,100 member co-op overcame early operational problems at its $21 million soybean processing facility in Volga, SD, to double its soybean intake last year. A stock split in August helped achieved this, with growers committing a total of 22 million bushels, up from 13 million the year before. In the next year, the co-op plans to upgrade its plant and increase soybean storage space.

Southern Minnesota Beet Sugar Cooperative, Renville, MN

Primed for expansion, this co-op of 492 sugarbeet growers opened an equity offering this past August to partially finance a $100-million expansion and modernization of its existing plant. The anticipated purchase of an evaporation dryer will increase capacity by almost 30%, according to factory manager Jim Detar. The facility ships out bulk sugar as ingredient for other companies, including Quaker Oats, General Mills and Brach’s candy. The co-op is a member-owner of United Sugar Corporation.

21st Century Grain Processing Cooperative, Manhattan, KS

After engineering delays, this two-year-old co-op’s flour mill in Rincon, New Mexico is processing 2,000 hundredweight of hard red wheat per day. Most ends up as identity-preserved bakery and tortilla flour, under the name of New MexiKan Milling. The co-op, with corporate offices in Manhattan, Kansas, also identity-preserves wheat for General Mills. Members’ wheat is shipped to the mill from 15 different delivery points across Kansas, Nebraska, Oklahoma, Texas, New Mexico and Colorado.

United Spring Wheat Processors, Fargo, ND

USWP purchased an 86,000-square foot manufacturing plant near Atlanta, Georgia this past summer, and in the fall acquired all the needed major processing equipment components for the facility, according to President and CEO Gary Lee. The co-op’s management team is in place, and operations startup is projected for May 1999 with saleable product appearing in June—about three years after the co-op was formed by 3,200 spring wheat producers from Minnesota, North Dakota, South Dakota and Montana.

United Sugar Corporation, Bloomington, MN

Formed in 1994 by American Crystal Sugar, Minn-Dak Farmers Cooperative, and Southern MN Beet Sugar Cooperative, United Sugar deals in both industrial and retail products. In July of 1997, the corporation added another full partner, U.S. Sugar, a cane sugar growing and refining operation in Clewiston, Florida that brought Crystal Sugar marketing into the national arena. Since United signed a licensing agreement with Pillsbury to produce and market the Pillsbury Best brand of sugar last year, the brand has become available in 10% of the national sugar market, and is well on its way toward the corporation’s goal of reaching 30% of the market by Spring 1999.

Walton Bean Growers Cooperative, Englevale, ND

"Things are starting to percolate" for Walton Bean, says Executive Vice President Les Dale. The co-op is looking to expand its current business of supplying dry edible beans to school lunch programs in Minnesota and North Dakota to include more states. Dale says the co-op is also looking at making frozen ready-made Mexican products for convenience stores. Walton Bean currently operates a commercial bean processing plant in Englevale, ND, a navy bean processing facility in Clarkfield, MN, and a primarily-pinto bean facility in Wiggins, Colo. The co-op was organized in 1994 when 160 growers bought the Walton Bean Company, a privately-held milling and packaging company.

Fastest-growing value-added markets

• Ready-made foods, such as salads or potato side dishes.

• Dry-meal products like Hamburger Helper (for which Dakota Growers Pasta Company supplies noodles).

• "Functional" foods, promising to help people live longer, look better, and be happier.

• Ethnic foods: by the year 2000, one-third of the US population will be non-Caucasian.

• Smaller-portioned foods—the number of single adults in the US is increasing.

Source: Liz Reinhiller, director of corporate marketing, Dakota Growers’ Pasta Company, Carrington, ND.