Grand Forks Herald | December 29, 2003 LENGTH: 1335 words
United Spring Wheat Processors - a Fargo, N.D.-based, $30 million farmer-owned processing effort started in the late 1990s - is finished.
The co-op lost its plant to lenders in a foreclosure in early December, confirms Mike Warner of Fargo, the former Hillsboro, N.D., farmer who was the company's chairman of the board and driving force.
Warner wrote his "final update" letter to some 2,800 members of the co-op. Letters began arriving in members' mailboxes Dec. 22. In the letter, Warner says the company had failed to sell its plant in a way to meet "our financial obligations as well as retain enough additional capital to warrant a continuation of the business."
"In the absence of any assets, the company does not have the means to continue in business," Warner says in the letter, "and the board of directors has indefinitely suspended business activity." The queen mother
USWP, which did business as Spring Wheat Bakers, was formed in 1996. Initial meetings were held with a large media fanfare at the North Dakota Winter Show in Valley City.
When USWP was formed, Warner described it as the largest "new-generation" cooperative by membership, dealing with spring wheat - what he called the "queen mother" of the region's crops.
The effort was led by some of the heavy hitters in the region's wheat industry. Al Skogen of Valley City, former president of the North Dakota Grain Growers Association and a key strategist in the 2002 farm bill, was its vice chairman. Jack Dalrymple of Casselton, N.D., chairman of the Dakota Growers Pasta Co. since 1991, served on the USWP board until he was elected to North Dakota lieutenant governor in 2000.
Warner, 54, started farming in 1967 and rented the farm out in 2002, served on the board of American Crystal Sugar Co. from 1989 to 1996. In the spring of 1996, USWP raised $200 per member in seed money to finance business plan and market analysis. By 1997, it raised $23 million in equity capital from farmers in the four-state area. 'Army of investors'
USWP was billed as an "army of small investors." Fifty-six percent of the original shareholders were in at the minimum of $4,800 each and 85 percent were invested at $10,000 or less, he says.
While projecting confidence, Warner and his fellow steering committee board members made it a point to warn potential investors that start-ups are "extremely risky" and that they "should not invest any more than you're willing to lose."
The co-op was unusual in that the funds were raised before the specific market goal was identified. The co-op targeted frozen dough and partial-baked ("par-bake") market.
In August 1999, the co-op finished equipment installations in a $20 million factory. The Atlanta plant was expected to be followed by a series of bakery factories to penetrate high-population regions served by smaller, less-efficient bakeries.
The factory start-up was more difficult and lengthy than expected. Gary Lee, the first president and CEO of the company and a marketing expert, resigned in July 2001 as the co-op focused on its production problems. Short on capital, the company could not borrow additional sufficient funds, either from banks, nonbanks or government sources. Undercapitalized
"Even though wheat is the No. 1 cash crop in the four-state region, our start-up performance was only able to attract 25 percent of our capital needs from outside sources, and this was almost all from lending institutions," Warner wrote in the Dec. 12 letter, explaining the failure.
"This is low by comparison to other value-added projects in our region," Warner's letter states. He says other efforts have involved 50 percent to 60 percent of their capital requirements as loans. One thing against government-
related lending was that the factory was not located in North Dakota.
In the fall of 2001, the co-op hired CoBank veteran Lee Estenson as acting chief financial officer. Shareholders poured in $2.9 million and agreed to contribute another $4.4 million, but none of those transfers ever were made.
Warner says about 25 percent of the company's capital was financed by CoBank, with the Bank of North Dakota as the participating bank. In early 2002, the co-op lost a contract with Rich's, a New York-based co-packing customer and tried to replace it with a line of its own products, which also failed.
"Although the par-bake business held great promise when we started our efforts several years ago, it has never seemed to reach the promise of its potential," Warner says in the letter.
In September 2002, the co-op board voted to get out of the baking business and try to sell or lease the plant. The Monsanto deal
In a controversial move, USWP made a deal with Monsanto to revive its mothballed identity-preserved system as a possible way to assure segregation of certain wheat varieties within the market.
Monsanto paid $500,000, intending to prove that IP could segregate genetically modified Roundup Ready wheat in the market. Some anti-GMO members believed the co-op had sold out.
Explaining the results of that deal, Warner would say only that the co-op talked to Monsanto about how such a system could be developed for non-GM wheat and how it might be applied if GM wheat were commercialized, but nothing ever developed.
"USWP's advice to Monsanto was to work with us to make non-GMO identity preserved shipments of wheat and then demonstrate that it could be done successfully, both financially and operationally. That initiative never came to pass," Warner says. "They apparently reassessed the viability of that and didn't carry it through. They may have been concerned they'd have to finance all of the effort." For sale: Factory
In October 2002, Warner announced that the board determined the factory should be sold. At the time, Warner maintained it was "still in the right market" and that he'd be "surprised, personally," if it didn't "go forward as a substantial bakery." Warner says he now doesn't know if that's true.
The co-op engaged Insignia ESG, an experienced food facility broker, to help sell the factory and its contents. In the letter, Warner says there were many lookers, but no bona fide offer.
Besides USWP's specific problems, the entire industry has been experiencing mergers, consolidations or business failures, Warner explains in the letter. "There have been several closings in the Atlanta area alone. The result has been an increase in available bakeries and food-grade facilities," Warner writes.
Initially, Warner says he'd hoped the factory could be leased out in a deal similar to the Cargill/ProGold long-term lease of a corn fructose sweetener plant in Wahpeton, N.D.
There was no annual meeting in March, as typically was done. Warner says there was not much news to tell.
When it became obvious that plant sale wouldn't go through, the company held its annual meeting in June - "incrementally" at five locations. Fewer than 200 members attended the meeings, Warner says. The board distributed "financials" at the meeting, and follow-up information was sent in "a fairly detailed newsletter."
Despite the failure, Warner wrote he and the board of directors believed their service in the effort was a "singular privilege."
Warner has been teaching cooperative leadership at the Graduate Institute of Co-op Leadership at the University of Missouri-Columbia. He remains on the board of Dakota Growers Pasta Co., which changed from a cooperative to a corporation in 2002.
According to the Dakota Growers annual report, he serves on the board of Warner Equipment Co. and is a trustee of Meritcare Health Systems of Fargo, N.D. That report does not reference his chairmanship of USWP.
In the letter to members, Warner doesn't apologize for the effort, but does express his feelings."I personally wanted so very much for you to find the success in value-added that others have enjoyed. It is a deep personal disappointment it did not come to pass."Grand Forks Herald:
