University of Wisconsin Center for Cooperatives
Rural Cooperatives, May/June 1997, pp. 24-26
Published by the Rural Business and Cooperative Development Service
Show Me the Dough
Colorado Wheat Growers Baking Value into Their Crop
Dough isn't the only thing rising at Gerard's
Bakery in business expectations of the 227 wheat growers who formed the
Mountain View Harvest cooperative as a vehicle to purchase the bakery and
transform their crop into a value-added food.
Like their Dakota counterparts, Wyckoff said Colorado wheat growers were motivated by a strong desire to extend their market presence from producers of a bulk commodity to processors of a value-added food product.
"This desire is really no great mystery. As a wheat grower, I earn about a 5-percent return on my investment and labor," Wyckoff says. "But the food processors I have been selling my wheat to earn a return of about 15 to 20 percent."
The new co-op, chartered in August 1996, launched
its member/equity drive last November during the annual meeting of the
Rocky Mountain Farmers Union and the Colorado Association of Wheat Growers.
It quickly became apparent that there were plenty of like-minded growers
looking for an opportunity to climb higher up the food ladder. Nearly half
of the more than 500 farmers who attended a series of 60 grower meetings
opted to invest in the new cooperative.
The business plan was presented to a handful of growers at a time who met with co-op backers in small cafes, church basements and even farmers' homes. "We only had one or two growers attend the meetings who told us we were crazy," Wyckoff says. "Everybody else thought it was a pretty sound business idea—even those who did not opt to join."
To join Mountain View Harvest, a grower had to purchase at least one share in the co-op for $12,500. They also had to pay a $500 membership fee and agree to deliver 900 bushels of wheat to the co-op for each share purchased.
Any grower who wanted more than 10 shares had to be approved by the co-op board. "We didn't want a few growers to 'buy the co-op' by purchasing 30 or 40 shares each," Wyckoff explained.
So successful was the membership drive that all 400 shares were sold, raising $5 million of the $6 million purchase price for Gerard's Bakery and a grain elevator in Hudson, Colo.
Members deliver their grain to Hudson, where wheat graded appropriate for high quality baking is separated and milled for use at the bakery. The co-op is contracting with a Colorado firm to do the custom milling work to the bakery's specifications. The remainder of the wheat is being marketed through standard channels.
The willingness of members to put their own money into the venture minimized the amount of borrowed money needed by Mountain View Harvest, which is a "closed" or "select-member" cooperative currently not accepting any new members.
"For years, farmers have talked about moving forward
in the wheat processing business," says Dave Carter, president of the Rocky
Mountain Farmers Union, which promotes cooperative development in several
western states and is dedicated to the preservation of family farms. "Colorado
wheat farmers have now stepped up
Co-op Learns From Previous Failure
The roots of the cooperative go back to 1946, when Colorado growers formed the Farmers Union Marketing Association to supply members with feed grains and provide grain marketing services. By the late 1970s, the cooperative, by then known as the Farmers Marketing Association, had feed mills and grain elevators in Denver and two eastern Colorado communities. It was one of the largest agricultural marketing and feed cooperatives in Colorado.
In the early 1980s, things began to unravel. First
the Denver feed mill was hit by fire, forcing the co-op to face rebuilding
during a time of record-high interest rates. A train derailment caused
further economic stress for the co-op, which filed for Chapter 11 bankruptcy
in 1986. Its grain marketing facilities and milling equipment were sold,
although it continued to receive revenue through a joint venture with the
company that bought its milling assets.
Critical to the birth of the co-op was a grant from USDA Rural Development for a business feasibility study. "Prior to then, the five or so of us who had started the concept had some ideas about where we could head. Ideas such as producing wheat gluten sounded pretty good to us. But we knew we needed a thorough marketing study to get us focused and show us what was truly promising."
The co-op hired the Boston-based business consulting firm of Seneschal, Jorgenson and Hale to conduct the market analysis. This study focused on 14 value-added business opportunities. These concepts ranged from the production of cake mixes to tortillas and frozen dough.
The pros and cons of each alternative were weighed carefully, and a system was established under which numerical values were assigned to each proposal. Using this process, the co-op decided the baking industry held the most promise especially the wholesale bakery trade in "par-baked" (partially baked) breads. This is a growing segment of the baking industry in which breads and rolls are baked to within 10 percent of completion, then flash-frozen and shipped to restaurants. Restaurant cooks can then finish the baking process and dish up hot bread to their customers with minimal time and effort.
Mountain View Harvest first pursued several joint venture options with a large east-coast bakery. But when that deal "fell apart," Wyckoff said the cooperative began looking for a more moderate-sized bakery operation in Colorado in which it could purchase a controlling interest.
Their attention was soon attracted to Gerard's French Bakery in Longmont, about 40 minutes northwest of Denver. Gerard's, Wyckoff says, has an excellent reputation for producing quality breads and has received two consecutive "superior" ratings from the American Institute of Baking.
The bakery was not for sale when the co-op first approached the owner with a plan to buy a 70-percent interest in the operation. The owner eventually decided he "did not want to be a minority owner," and offered to sell the entire business to the co-op. "That suited us just fine," says Wyckoff, although he recalls the negotiating process as the most challenging part of the entire project to date. "It just involved an awful lot of intense effort," he said.
The co-op board and its advisor, Justin Eisenach—a farm-raised, former Merrill Lynch investment counselor hired to develop a business plan—felt a key to a successful takeover of the bakery would be to retain the existing management and staff of about 80 workers at Gerard's. "I'm happy to say we kept them all on board," Wyckoff says. The bakery employees were glad the buyer was a cooperative and not a giant food corporation, he adds, which probably would have replaced many of them with its own employees.
"We have established a unique partnership among farmers, millers and bakers to bring the highest quality breads possible to consumers throughout the Rocky Mountain region," Wyckoff says. "What made it work was that wheat producers invested $5 million of their own money to capitalize the venture." The co-op's operation is believed to be the only cooperative involved in wholesale bread-baking, he says .
At the dedication ceremony of the bakery when the co-op assumed ownership, Jill Long Thompson, under secretary of USDA Rural Development, hailed Mountain View Harvest as a prime example of the type of value-added cooperatives she hopes USDA will continue to support. "By using the resources of USDA Rural Development in this way (to fund the feasibility study), we will support the formation of farmer-owned cooperatives that allow farmers to produce value-added products from their crops, thereby keeping a greater share of the profits derived from their labor," she said. "By working together in cooperatives, rural residents can reduce costs, offer a service less accessible in rural areas and achieve greater returns for their products."
Long-range, Wyckoff says the cooperative may study other value-added business opportunities. "I've been really pleased with the way things have been going so far," he says. "There have been hurdles to cross every step of the way— we haven't flown over any yet. We just keep scrambling up one side and down the other. We surmount problems every day in a way that shows this cooperative will succeed."
Molz Heads Revamped CoBank Board
Otis Molz, Kansas farmer and a director of Farmland Industries Inc., will continue to head CoBank's revamped member board of directors. Wayne Martin, chief executive officer of Plains Cooperative Oil Mill at Lubbock, Texas, will be first vice chairman. Elected second vice chairman was Roy Orton, New York fruit farmer and former chairman of Welch Foods at Concord, Mass. John Fisher, retired chairman of Nationwide Insurance Group, was named the outside director. The election confirms a bylaw change approved overwhelmingly by members in 1995 to restructure the board from 39 to 23 members.
Sadler, who gained degrees from the University of Missouri, has been vice president of sales and marketing for Farmland Industries for seven years. He planned and controlled both the marketing of the organization's agriculture inputs and the field sales force within a six-state geographic region. This region has been recognized as a top performing region in Farmland with more than $500 million in sales serving 310 local supply outlets and other regional customers.
Sadler replaces Robert Dixon, who during his 10 years at the helm led the co-op through a growth period which included the merger of Southern Farmers Association with MFC Services of Madison, Miss. The merger created SF Services and the merger of SF Services with Delta Purchasing of Greenwood, Miss. These two mergers roughly doubled SF's geographic operating area of the cooperative. It serves an eight-state area of the mid-South. Sales for 1996 topped $600 million.