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Crowd learns how value-added cooperatives could work in Michigan
Noel Kjesco addressed the conference on the benefits of value-added cooperatives.
Lynn Rundle offered participants of the conference advice on value-added cooperatives.
About 250 people gathered in Lansing, Sept. 3, to find out how producers could pocket more profits through value-added cooperatives.
Speaking from experience, farmer Noel Kjesbo told conference participants that value-added cooperatives have indeed bolstered profits in his part of the country. Kjesbo is a board member of United Spring Wheat Processors, a co-op of 2,700 members from North Dakota, Minnesota, South Dakota and Montana.
United Spring Wheat Processors will make frozen, partially baked wheat products and frozen dough.
For Kjesbo, profits don't come from a large-scale operation. "We're not big farmers," he said. He's involved in three co-ops that help bring in the bucks. "Seventy percent of the growth on my balance sheet has actually come from value-added cooperatives."
While some Michigan producers may not think they're up to becoming value-added entrepreneurs, Kjesbo says farmers are often better at business than they realize.
"We should give ourselves some credit," he said. "The general view of a farmer is a long view. They'll buy equipment not for the next year, but for the next 10 or 15 years.
"That same view isn't always in the corporate world," Kjesbo continued. "Understand that we bring an attitude to the table that I think is on the asset side of the ledger."
As an example of value-added cooperatives' potential, Kjesbo points out that shares of MinDak (a grower-owned sugar company in Minnesota and North Dakota) were worth $250 in 1974. Today, they sell for $2,500.
Though he knows they can work, Kjesbo isn't about to tell anyone that value-added cooperatives offer only rosy returns. "The words farmer and cooperative don't guarantee success," he said.
He and other farmers put up money for a state-of-the-art flour mill under the co-op name of Golden Growers, all without doing complete market research.
"We got a real good lesson in what happens when a serious player wants to defend a market share," he said.
Kjesbo says anyone uneasy about putting money into a co-op simply shouldn't do it. "They're not for everyone," he explained.
"I think we need to not be afraid of risk; we need to measure it," he said. "We need to understand that farming is a way of life, but it cannot be a way of life until it becomes a business.
"We can't fall in love with the notion that we're farmers and it's a co-op," he said. "We have to get used to the notion that it's a business."
And if not? "The business world will chew you up and spit you," Kjesbo said.
When the market is right for a new value-added venture, it probably won't happen overnight, according to Kjesbo. "My experience is that they are slow."
Members of United Spring Wheat Processors invested their money in 1995. They'll produce their first product next May.
"It's gut-wrenching," Kjesbo said. "The temptation is to do it now."
Lynn Rundle, chief executive officer of the Kansas-based 21st Century Alliance, offered this advice to conference goers. The alliance, made up of 800 Central Plains farmers, has a few cooperatives that offer value-added opportunities for members in six states.
Rundle said his value-added companies got started when a group of Kansas farmers asked a titillating question. "If those guys in Minnesota and North Dakota are really making money and those sugar beet growers are driving Cadillacs, then why can't we?"
Rundle said successful value-added cooperatives often require some creative thinking. His group of Kansas farmers met with the world's seventh largest tortilla manufacturer and offered to provide flour from their abundant wheat crop. The company said no.
The group didn't get discouraged, but remembered that tortilla-company executives said they were searching for a source of pinto beans.
"We went back from that initial conversation and, two years later, we have a co-op," Rundle said. Today the 21st Century Bean Processing Cooperative has 40 members.
Rundle is general manager of another business in the alliance: the 21st Century Grain Processing Cooperative. Co-op leaders were able to secure a flour deal with a tortilla manufacturer but to be competitive had to mill the wheat close to the end market. The mill has a great advantage being located in Rincon, N.M., 430 miles from the nearest competitor. "We're feeding tortilla eaters," he said. "You don't want to go take on the big boys in their backyard. You want to go after small, niche markets."
Rundle says it may seem odd for a bunch of Kansas wheat growers to operate a New Mexico mill for tortillas, but the bottom line is the bottom line. "What do farmers want?" he challenged conference participants. "Do they want to deliver wheat or do they want to make money?"
After all, Rundle says, the average American eats 219 tortillas a year and his growers are happy to feed the need.
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