Farmer co-operatives are effective at starting some businesses, but they can reach a point where the structure strangles the company’s future, says a director of Dakota Growers Pasta Company.
The company, a North Dakota-based new generation co-operative that owns three pasta plants, is considering loosening ownership restrictions that have been in place since it formed in 1994, said North Dakota farmer Jeff Topp.
“We’ve tapped our producers out,” said Topp, who spoke at a Crop Production Week forum in Saskatoon last week.
“After you get so big, you start to run out of options.”
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Dakota Growers Pasta opened its first plant in Carrington, N.D.
In new generation co-operatives members buy shares in exchange for rights to deliver product to the company’s plant. Traditional co-ops are also restricted to raising capital through membership equity, but accept product from people outside the co-op.
Dakota Growers Pasta originally planned to produce 120 million pounds of pasta per year.
But the company has done so well that it bought two more plants in Minneapolis, bringing its total production to 360 million lb. annually.
Playing in the big leagues has forced the company into a cash crunch, Topp said. Its competitors are able to raise money by going to the stock market and issuing shares. Recently one company raised $130 million in one week.
But Dakota Growers must rely on farmers and members. In its most recent share drive, Dakota Growers was able to raise only $27 million.
And Topp said farmers are not willing to pay nearly as much for a share of the company as he thinks the stock market would.
“The public stock market will give us 20 times, 30 times earnings on our stock, but we’re in a closed co-op where we can only get 10 times,” said Topp.
“The public sector will give you a whole lot more bang for your buck than a farmer will sometimes.”
Topp said the co-operative is considering ways to relax some of its self-imposed restrictions so it can more easily raise money.
Some in the co-operative have talked about including members from outside the company’s present membership borders, which include North Dakota, Minnesota and Montana. Topp suggested Canadians might be included. As well, the co-operative is considering a merger or partnership with another company that has access to lots of cash.
“Maybe we need a partner, if they’ve got the bucks to do it.”
Topp also said he wouldn’t recommend that anyone else locate a plant in the middle of the west.
“There are a lot better places to put that plant,” said Topp. “Don’t put it in an area for economic development purposes only. Put it where it belongs …. Don’t put it where it shouldn’t be.”
Pasta plants should be located near major population centres, he said. Producers don’t need the factory in their backyard to benefit from owning it.
“As farmers, we don’t have to control the whole thing. Let’s add the value to our bottom line.”
