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Adding Value and Flexibility
Diversity in the field and in the marketplace give this grain processing coop a leg up on the competition.

By Brian DeVore

Consider this the next time you slurp down a bowl of oat bran: a $4 box of cereal produces about 6 cents of income for the grain farmer. The cardboard costs more than the processed grain it houses. It's no wonder farmers are increasingly turning to ownership of "value-added" ventures to capture a bigger chunk of the income now being gobbled up by processing, packaging and transportation.

Ethanol plants that convert corn into fuel. Dairies that create cheeses for specialty markets. "Premium-beef" packing plants. These and other farmer-owned ventures all have a single philosophy at their core: We must stop making our rural communities economic colonies that are good for nothing else than exporting raw commodities.

Unfortunately, it's become clear that when these value-added ventures attempt to copy their corporate counterparts; they lock farmers into a frighteningly inflexible way of doing things. When corn prices rose to unprecedented levels two years ago, some farmer-owned ethanol plants couldn't compete with the sky-high grain market and had to delay or shut down operations.

That's a familiar scenario to agribusinesses like Cargill and Archer Daniels Midland: Last year both companies temporarily closed down corn processing plants when supplies of that crop grew tight. More recently, they closed the doors on soybean processing plants for the same reason. The Cargills of the world can lay off a few employees and ride out a temporary snag in the corn or soybean processing/marketing system by drawing income from their many other enterprises. Farmers who have invested their life savings into a processing plant don't always have that option.

Even the most well organized group of farmers can't slug it out directly with agribusiness giants. They must differentiate their product and focus on the kind of value-added processing the big boys can't or won't do. For example, in Kansas, where most mills are owned by large multinational corporations supplying the bulk flour market, several hundred wheat growers are gearing up to create a small plant that will process flour for the tortilla industry, a fast-growing niche business.

In North Dakota, the more than 300 members of AgGrow Oils have come up with an even more innovative way of balancing value-added processing with flexibility. AgGrow is an ambitious processing and marketing effort that is attempting to take advantage of the mega-processing companies' biggest weakness -- their inability to react quickly to change, in the market and on the land.

At the heart of AgGrow is a mini-plant located in Carrington, N.D., which is scheduled to start processing oilseeds in November. The coop, which got off the ground with a grant from North Dakota officials to research its viability, was born out of the idea that the greater the variety of crops grown in the Upper Midwest, the better off environmentally and economically rural communities will be.

A diversity of crop choices means farmers can rely more on rotations to naturally break pest and weed cycles while building soil quality, and less on harmful chemicals, according to agronomist John Gardner. And diversity that goes beyond the typical corn, wheat and soybean system means Main Street cash registers are less at the mercy of weather, markets and politics.

But growing a laundry list of crops does little good if a farmer has no place to sell them. That's why the plant and the coop's growing contracts are designed with flexibility in mind, says Gardner, who left North Dakota State University recently to become the general manager of AgGrow.

First the plant: The 200-ton per day capacity system won't use solvents to process oilseeds. This means the plant can be retooled to crush different types of oilseeds in a matter of hours. In contrast, most crushing plants can only process one or two oilseeds without a major, expensive retooling. For example, a solvent-based crushing plant recently built in South Dakota can crush 1,500 tons of soybeans, and only soybeans, daily. What happens when the soybean market throws those farmers a curve ball?

AgGrow's ability to shift gears quickly is important because its owners are shooting for several niche markets, not one bulk market. They've already sold their first year's production of oils from crops like crambe, safflower, borage and canola. Gardner thinks such a processing system could make the growing of a dozen or more different crops profitable in the Upper Midwest.

Now the contracts: Windsor, N.D., grain and livestock farmer Fred Kirschenmann has bought enough AgGrow Oil stock to allow him to grow 280 acres of crops for the plant. But if the plant's demand doesn't fit with the farmer's 1997 cropping plan, Kirschenmann can "rent" shares to another farmer attempting to diversify. He can even rent the shares back to the plant, which can in turn contract with someone who is not an investor in the operation.

Kirschenmann likes the flexibility such a system provides -- both to his farm, and to the local economy. "This could have been an all crambe plant, because there's a demand for that," he says. "But the farmers wanted to diversify. And what if the crambe market collapses?"

In short, AgGrow's founders recognize that stamping out more iron skillets than ever before is not a wise response to a market that's demanding microwavable dishes. "This plant's economic value won't be based on large volume," says Gardner. "It's economic value will be on switching to meet the demand."

Brian DeVore (Brian.A.Devore-1@tc.umn.edu) is editor of the Land Stewardship Letter, a publication of the Minnesota-based Land Stewardship Project.

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