VALUE - ADDED CORNER
Amazing Grains!
Montana grain growers use VAPG funds
from USDA to develop gluten-free flour
By William W. Barr
Cooperative Development Specialist
USDA-Rural Development, Montana
ook before you leap. But
not too long, because he
who hesitates is lost.
Those two somewhat
contradictory adages
have special meaning to anyone who
has ever launched a new business venture.
Make sure you test the waters
before you jump in, we are advised on
one hand. But wait too long for an
opportunity in a business market as
dynamic as in the United Sates, and
you may see opportunity snatched
away by someone who was more
aggressive and/or better capitalized.
The trick, of course, is to find the
right balance of caution and courage.
The development of Amazing
Grains Grower Cooperative represents
such an effort. Its producer members
began the journey as a search for a
market for processed, millable seed--
a market that would provide the most
value-added options for the lowest
producer investment. Helping them
along on this journey was a Value-Added Producer Grant from USDA
Rural Development, which provided
working capital for a number of the
co-op’s efforts.
Amazing Grains is a grower-owned
cooperative that produces, processes,
packages, markets and distributes a
gluten-free flour made from Indian
rice grass. The cooperative also supplies
state-certified native grass seed
for private
and federal
land reclamation
projects.
In addition to
the USDA
funding, a wide
range of public and
private partners contributed
technical and financial assistance
to guide this group of growers.
Dietary staple for Native Americans
Indian rice grass is a native grass
that served as a dietary staple of Native
Americans for many centuries before
the introduction of maize. The grass
was produced in limited quantity in
Montana for land reclamation projects,
but volatile price swings and an unreliable
market kept the producer base
small.
In the 1980s, Dr. David Sands, a
research scientist and professor in the
Montana State University Department
of Agriculture in Bozeman, determined
that
Indian rice
grass had
valueadded
potential for
producers.
The flour of
the rice grass is
gluten free and--
when used to make a variety of bakery
products-- it has fine flavor and is
high in fiber and protein.
Alternative gluten-free flours--
such as those made from rice, bean,
potato and corn-- do not exhibit
these combined characteristics.
Improved nutrition and better tasting,
gluten-free products are marketed
under the co-op’s trade name:
Montina. These products are of
interest to those who suffer from
gluten intolerance, or Celiac disease.
Celiac disease is a genetic autoimmune
disorder which can result in
overwhelming fatigue, diarrhea, vomiting,
malnutrition and eventual death.
While there is no cure, removal of
foods from the diet that contain gluten
can successfully control the effects.
The challenge for producers of
Indian rice grass was to develop a
solid, reliable commodity-producer
base to process high-quality seed into a
nutritious, good tasting, quality product
which is reliably gluten free.
The assured gluten-free reliability is
critical to those inflicted with Celiac,
for the market is very purity conscious.
The co-op is concentrating
on the European and North American
markets.
Crop scarce at first
At the start of this project, there
was a scarcity of cultivated Indian rice
grass and producers willing, and able,
to produce it. Project development was
initiated under the guidance of the
Montana State University (MSU)
research team, aided by a small
Indian rice grass producer team in
the Malta area of Montana.
In 1997, the Montana
Department of Agriculture
provided a $10,000 Growth
Through Agriculture Grant to
the MSU research team and
the project leaders to investigate
developing Indian rice
grass into a value-added food
product the emerging cooperative
could produce and market.
In 1998, USDA’s Agricultural
Marketing Service, Federal State
Market Improvement Program
(FSMIP), awarded a grant of $95,000
to MSU to determine market potential
of Indian rice grass as a gluten-free,
perennial grain crop. Study results suggested
that market potential was positive,
especially domestically. Product
development research was conducted at
Southern Labs Inc., resulting in a
nutritional profile.
MSU’s Central Agricultural
Research Station conducted an economic
analysis of cultivation, flour
production and weed management
studies. In addition, studies were conducted
addressing market penetration
and entry and development of a seed
crop, seed cleaning techniques and
requirements for a processing facility.
Dr. Duane Johnson, the Research
Leader at the MSU Agriculture
Research Center at Creston, demonstrated--
through research and test
plots production-- that Indian rice
grass could be grown as a cultivated
crop. He and Dr. Sands developed
guidelines for site preparation, planting,
weed control and harvesting. A
mill for processing the seed was located
and made available.
Opportunity vs. risk
During this period, there was widescale
regional drought in the Malta
area. Indian rice grass production does
not reach full potential until two to
three years after planting, and cautious
producers were hesitant about starting
to grow a new crop, especially under
these conditions.
While some growers saw the opportunity
for added income, they also saw
substantial risk. During times of
drought and poor crop prices, convincing
producers to take additional investment
risk is difficult.
Interested producers were unfamiliar
with how to start a new value-added
cooperative, how to manage the business
to produce the value-added product
and how to effectively market it.
Underestimating the amount of organizational
work required for the cooperative
project led to commodity production
delays, as well as delays in the
establishment of cleaning and milling
facilities. The bridge between research
and practical commercialized business
operations appeared to be a long one.
In spite of the initially discouraging
start, there was a high level of
interest among producers with strong
desire to develop the project into a
commercial, cooperative business.
Some timely developments designed
to reduce the risks occurred in 1999
when the state legislature made
changes to the Montana Code covering
legal incorporation of cooperatives.
These changes clarified legal
and regulatory cooperative development
issues.
Another key development came
with a grant for a Lake County
Community Development
Corporation project in Ronan,
Mont. Called Mission Mountain
Market, a state Department of
Agriculture grant provided in
1999 assisted in the establishment
of a commercial kitchen
facility and business incubator.
Other funding agencies also
contributed grants for the Lake
County project.
Lake County received USDA
Rural Development funding for a
cooperative development specialist.
Working for Mission Mountain
Market, Jan Tusick has become a key
partner with the statewide center. The
potential producers of Indian rice grass
now had a technically proficient cooperative
development specialist able to
work with them in their primary
planned area of production.
Cooperative development legal
counsel was provided by Steve Noack
of the Gunhus Law Firm in North
Dakota. He was contracted to assist
with bylaw development and capitalization
plans.
The cooperative was legally incorporated
in 2000 and its first organizational
meeting was held in January
2001.
Producer champion sought
Mission Mountain felt that a producer
champion with credibility
among growers needed to be found to
assist Amazing Grains Grower
Cooperative-- someone with business
experience other than just commodity
production.
John Sheldon, who lived, farmed
and owned Crestin Seeds in Kalispell,
Mont., had over 20 years’ experience
producing Indian rice grass seed for
mine site reclamation projects and in
applying direct seeding systems. The
co-op was progressing towards its goal
of stepping forward from commodity
production to value-added processing
and marketing. Using a 1999 USDA
Risk Management Grant, a series of
membership and production education
drives were held. In 2001, the co-op
held its first stock offering.
In 2001, the Montana Board of
Research and Commercialization
Technology awarded a $205,000 grant
to Montana State University, with Dr.
Sands as principal investigator, to facilitate
transfer of Indian rice grass technology
to the co-op and to support
development of their Montina
products. While producers continued
to be highly interested in the project,
when it came to investing in a new
business, they were still reluctant to
put in more than a toe. A number of
them adopted a position of phasing
their delivery right payments over a
period of time, or purchasing fewer
delivery rights than they could have in
order to see how the business was
developing.
The business needed more working
capital in 2002 than it was generating
to enter markets in a timely manner.
Controlled growth is important, but
being overly cautious can result in
under-capitalization and the loss of
opportunity. That’s when it applied for
a working capital Value-Added
Producer Grant (VAPG) from USDA
Rural Development to expand processing
capacity. Grant funds were used for
business operations, inventory development
and market development.
A feasibility study and business plan
were reviewed and approved by the
Montana USDA Rural Development
state office in
March 2003. The grant was designed
to provide assistance for the cooperative
as it progressed toward becoming
a commercially viable entity.
The VAPG helped Amazing Grains
Grower Cooperative hire key staff; to
provide cash for inventory and other
start-up costs; to provide financial
resources for market identification,
development and expansion; and to
accelerate business growth and commitment
by the producers to their
value-added venture.
Expert management hired
Producers realized they did not have
all the necessary business management
skills themselves, so they hired those
skills via the management team. Two
key management staff were retained by
the co-op’s board: General Manager
Bob Warren and Doug Martin, who
provides financial management expertise.
For 12 years, Warren had been
owner and operator of Cream of the
West, a Montana multi-grain, hot cereal
processing company. Martin had
financial experience and planning
responsibilities with a background
in operations.
Each does what he does well, says
Warren. The board doesn’t negotiate
broker-distributor contracts, and I
don’t tell them the proper ground temperature
for seed germination.
Warren knows that the market will
not commit to large, new product purchases
until customer reaction to the
product is known. The market must
also feel certain that a consistent, highquality
and predictable volume of product
is available. On the other hand, the
board and co-op members want to be
sure there is a guaranteed market for
their value-added product before they
invest in increased production.
Mission Mountain Market-- the
in-house incubator that has enabled
the cooperative to maintain low overhead
and start-up costs-- is not a
full-scale, commercial production
facility. But it enabled the Amazing
Grains to: get started, to enjoy a copack
arrangement, to get sales under
its belt, to get a marketing program in
place, to generate cash flow and to use
offices and amenities without creating
big overhead expenses. While
Mission Mountain can support the
business-production needs of
Amazing Grains to a point, at some
juncture the co-op will need to develop
its own facility.
The co-op employs three staff at
this point, but when it moves into its
own facility, four more jobs will be
created. Four jobs at Mission
Mountain will then be available to
assist another venture.
Timing significant moves
When is the best time for that transition?
What is the right timing for
marketing efforts? How big should the
business try to become? What level of
dependency is Amazing Grains willing
to accept? What level of sales will
enable the co-op to move into its own
facilities, use its own equipment and
labor?
In the first 18 months, Amazing
Grains has about reached break-even,
with $222,000 in gross sales as of
March 2004. For 2004, thanks to assistance
from the VAPG, the co-op
expects gross sales of $500,000. By the
end the year, it plans to be marketed in
30 states and two countries.
Tim Anderson, Amazing Grains’
board president, says that being committed
to a value-added business does
not lessen the production of risks associated
with growing a new crop. The
producers were very cautious about
purchasing delivery rights and paying
for them in a timely manner. This
caused an adverse cash-flow problem.
The VAPG assistance from USDA
softened the investment risk by providing
leveraged cash to allow the purchase
of seed inventory to accelerate the
growth of the business so that there was
adequate commodity product to meet
processed-flour demand. The cooperative
must ultimately produce its own
commodity and at a stable price. There
is no guaranteed backup market supply.
Warren and the board understand
the need to balance its supply with market
demands. In its attempt to increase
membership and commodity supplies, if
too much money is paid up front to the
producers for millable seed, then the
price for finished Montina valueadded
products may exceed what the
market will bear.
Since the board sets the price for
delivery rights for Amazing Grains
members, continuous dialogue and
market evaluation are vital. The co-op
continuously monitors and evaluates
changes in markets.
VAPG funds bolster
co-op marketing efforts
VAPG money was used for an advertising
program to develop a close relationship
with customers suffering from
Celiac. Warren has asked what they
look for in products and how the co-op
can gain their confidence in Montina
products. New product ideas have come
from these talks.
The VAPG has supported marketing
trips to Celiac conferences to learn more
about people afflicted with the condition
and to familiarize these people with
Amazing Grains. Amazing Grains will
ensure that there will be no question of
whether its products are truly glutenfree.
The standard it uses for gluten
testing is 10 times more stringent than
the FDA standard.
The co-op is assessing how to grow
and in what direction. It has come a
long way from the initial exposure to
academic and scientific research and it
has taken many committed public and
private partners to make this business
what it is today. USDA’s Value-Added
Producer Grant was the right tool at
the right time for this business. It provided
a resource to fill in gaps existing
in the business development process.
