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Baking no more: Spring Wheat Bakers closes its doors

(Tuesday, Oct. 8 2002 -- CropChoice news) -- Mikkel Pates, Grand Forks Herald: HILLSBORO, N.D. - Spring Wheat Bakers is out of the baking business.

Mike Warner, a Hillsboro farm owner and chairman of the board of Fargo-based United Spring Wheat Processors, confirmed that the co-op's board has closed its plant in McDonough, Ga., and put it up for lease or sale. Letters started hitting mailboxes for the co-op's 2,600 shareholders Saturday.

The news comes on the heels of the recent failure of Walton Bean Growers Cooperative of Englevale, N.D.

USWP, doing business as Spring Wheat Bakers, has laid off all but the staff preparing the plant for sale or lease. Main mission ends USWP's only immediate role will be to revive its “identity-preserved and variety-specific” marketing system. The sale should not disturb a deal announced this summer in which USWP would revive its IP system with Monsanto. IP system is a possible way to assure market segregation if and when Monsanto commercializes the genetically modified Roundup Ready wheat it is developing.

Meanwhile, USWP's signature mission is gone. USWP was created in 1996 and raised $23 million from farmers in North Dakota, South Dakota, Minnesota and Montana. The big strategy was to become a national, farmer-owned bakery system. The co-op studied and chose the frozen dough and partial-baked (“par-bake”) market.

In August 1999, the co-op completed installations in a $20 million bread facility near Atlanta. Plagued with start-up glitches in its factory, however, the co-op foundered.

Gary Lee, the company's president and chief executive officer, resigned in July 2001. The co-op improved efficiencies later that summer, but the co-op's banks were “reluctant to provide any additional capital.”

Warner wrote that “nonbank risk financing and support in existence in all four states” also was denied. Government-based financing was “denied,” presumably because the plant and its jobs were located in Georgia.

In fall 2001, the co-op had hired CoBank veteran Lee Estenson as acting chief financial officer. Hopeful for a turnaround, shareholders contributed another $2.9 million in equity capital in late 2001. (Growers also agreed to “options” to contribute another $4.4 million in two stages - this fall and next fall - but those transfers never were made.)

In early 2002, the co-op lost a key co-packing customer. Warner declines to name the customer or say what happened. At any rate, the co-op took on new financial losses and lost support from lenders.

The co-op scrapped its old business plan and changed directions. It hired John Parr as a consultant and went to one shift, producing a dozen products under its own Spring Wheat Bakers label. But this process proved fatally slow.

“In today's highly sophisticated marketing systems, attracting new customers and gaining vendor approval is a process which takes from four to six months,” Warner writes in the letter.

“During the time from the beginning of our restart to the present, our capital sources were reaching critical levels as we waited for numerous customer product approvals. We believe this also became known to our potential customers, and may have adversely affected the completion of those sales, as well.”

No partners

Over the past year, the board has searched for a partner or joint-venture partner. There were three “very close calls,” but the potential partners “were unable to deliver the amount of capital required to consummate the partnership,” Warner says.

Two weeks ago, the board voted via conference call to call it quits.

Warner declines to say how much money the co-op lost or discuss its debt situation. Numbers were not included in the letter. The co-op is required to have an annual meeting in or close to March.

“Other than this notification, people are more than welcome to contact board members,” Warner says.

How much shareholders will get out of the deal depends on how the lease or sale deal works out. In the letter, Warner prepares the members for a range of scenarios.

“(W)e believe we have finally completed the shake-down of this plant and it is ready for production,” Warner writes. “This plant is still located in the right market and can make par-bake products, which are still experiencing growth of over 10 percent per year.

“Indications are that there is still under-capacity in the par-bake business and this plant can easily be expanded to increase its production as much as 200 percent. The plant is very clean and shows well.”

On the other hand, Warner writes that “unsuccessful bakeries often bring poor pricing, and on some occasions, the equipment goes for salvage value and real estate.”

Still potential

In an interview, Warner says he'll be “surprised, personally, if this doesn't go forward as a substantial bakery” in its own right. Warner says the co-op soon will list the plant with professional broker-sellers. A long-term lease (similar to the Cargill/ProGold corn fructose plant in Wahpeton, N.D.) would be “a great way to capture the lion's share of the equity that might be available to us and possibly would leave the door open for some kind of business relationship with whoever does run it, that traces back to the identity-preservation part of our business.”

Warner, who has been on the board of American Crystal Sugar Co. and remains on the board of Dakota Growers Pasta Co., says farmers “should not abandon” efforts to own value-added businesses. USWP was conceived 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.

“We are going to have our wins, and we are going to have our disappointments, but we still need to persevere. The alternative (marketing commodities) is not good enough. We'll be OK, doing that, but it's not good enough.”

USWP was unusual in two ways - first, that grower-members invested first, before they knew what they would be manufacturing, and second, because the primary facility was located in another region of the nation, which meant it didn't create local manufacturing jobs. The long-term strategy was that when the Georgia plant became profitable, the co-op would have repeated its design in the Southwest and other high-growth areas in the country.