Saving an industry
Plant closure leads Michigan growers to form new turkey cooperative
By Laura Moser
When the 25 turkey growers supplying the Sara Lee plant in Zeeland, Mich., received notice that they no longer had a market for their birds, tough decisions had to be made. With no local market, these growers had to act quickly or suffer great losses due to transportation costs.
Like most farmers, these growers had weathered tight times in recent years. For some, the closure notice was the final hurdle and they left the business. But for 15 of them, this was just another challenge - another chance - to gain control of their business.
"It was really a blessing in disguise," says Dan Lennon, chief executive officer and plant manager. "Many of die growers knew they would be better off and have more security if they owned their own processing facility. But until they actually lost their market, the option wasn't seriously considered.
"Transportation is tough on the birds," he explains. "They needed a plant dose to their farms. We saw a significant mortality loss when the birds were hauled to facilities in other states."
Michigan Turkey Producers Cooperative
Forming a cooperative was the first step in creating a producer-owned processing business. In October 1998, just four months after receiving their cancellation notices, the growers formed the Michigan Turkey Producers Cooperative.
The 15 members operate 40 farms in west Michigan and farm more than 15,000 acres. The largest operation, owned by Harold Walcott, raises over 1.6 million birds per year. The chairman of the board, Harley Sietsema, raises 1.2 million birds on seven farms.
The vision of the growers to save Michigan's turkey industry captured the attention of many in the state. Michigan State University (MSU) poultry economist Allan Rahn supplied necessary market analysis and feasibility studies. The Michigan Farm Bureau, MSU Extension, the Michigan Department of Agriculture and USDA Rural Development also stepped forward to help the cooperative.
Rahn reported that in 1998 western Michigan turkey growers had $30 million invested in farm-related assets and were growing near 8 million birds a year. It is estimated that the turkey industry in western Michigan has an economic impact of $60 million. Ernie Birchmeier, Michigan Farm Bureau commodity specialist, says feed consumption for 4 million turkeys each year equates to 50,000 tons of soybeans, estimated at $6.5 million annually, and more than 4 million bushels of corn, valued at $8.6 million annually. Additionally, more than 200 people are employed on the farms and 300 at the plant with a combined payroll of $ 10 million. Over $6 million a year is spent on purchasing poults.
The group received a $95,000 grant from USDA Rural Development to conduct feasibility studies.
Producers took matters into their own hands to save the turkey industry in western Michigan, by purchasing a closed processing plant and reopening it as a farmer owned and operated facility. Photo courtesy Laura Moser
"USDA Rural Development has placed a strong emphasis on providing financial assistance to Michigan producers and has encouraged agricultural producers to find ways to add value to their agricultural products," says Donald Hare, Michigan state director for USDA Rural Development.
The grant was part of USDA Rural Business Enterprise Grant Program. This program is designed to help public bodies, non-profit corporations and federally recognized Indian Tribal groups finance and facilitate development of small and emerging private business enterprises located in rural areas.
"As commodity prices continue to be low and volatile, more producers are looking at forming their own cooperative," says Jason Church, a cooperative specialist with the Michigan state office of USDA Rural Development. "These cooperatives, such as the turkey growers', allow the producers to become more vertically integrated. It is not a guarantee for success, but it does give the producer more control."
Taking processing into their own hands was a good thing for the producers, Sietsema told Michigan Farmer, an agricultural publication. "It forced us to look at where we were in the food chain. I think it was just a matter of time, and we needed to do this anyway."
Finding the right facilities
In February 1999, armed with the work from Rahn and a feasibility and market study from Sparks Commodities Inc., the growers began searching for the right facilities and financial backing. They located a vacant potato processing plant in Wyoming, a southwest suburb of Grand Rapids, Mich. The location - within 40 miles of their farms suited their needs and had a large labor pool available. Once found, plans were made to convert the building into a turkey processing plant.
"We gutted the building and started over," Lennon says. "We had to build a new building inside the old building."
The 190,000-square-foot plant is furnished with state-of-the art equipment. Some of the equipment came from the Sara Lee plant in Zeeland. That plant, once used for raw processing as well as cooked products, was now strictly a cooked-product plant.
The newly renovated processing plant is targeted to process 4.25 million birds a year with annual sales projected to top $70 million. Over 300 jobs were created when the plant reopened.
"This is the first new turkey processing plant to be built in the United States in the past 15 years," Lennon explains. "We built the plant with an eye toward food safety and prevention of problems. So much has happened in the area of food safety in the past 15 years, we were able to draw on others' experiences."
Financing the dream
The Michigan turkey industry was not the only commodity sector experiencing unrest in 1998. The failure of other commodity plants and depressed farm prices left lenders hesitant to extend the necessary capital for the processing facility. The location of the plant in a non-rural area also limited the amount of backing available through USDA Rural Development.
"We worked out a loan package with CoBank in May 1999 to finance the $20 million project," Lennon explains. "We were close to finalizing the loan when the equity position needed to be changed from 30 percent to 50 percent."
The growers had generated the 30 percent capital through stock purchases in the cooperative. Growers purchased stock at $1.50 per shackle (the hooks used to hold turkey carcasses in the plant); one share equals 1,000 shackles. The stock purchases gave growers the right to send birds to the plant as well as an obligation to keep the plant supplied. The growers subsequently increased their per-shackle commitment by 50 cents, to a total of $2 each, to help close the gap.
Eight of the producers received loan guarantees through the USDA Rural Business Guaranteed Cooperative Stock Purchase Program. Slightly more than $2.28 million was approved to the GreenStone Farm Credit Services for loan requests made by the growers.
"Agricultural producers in Michigan are searching for ways to be more competitive in the marketplace," says Hare. "If they are going to compete in the national and international markets, they need to find ways to cut cost, bring greater value to their products and reap higher bottom-line profits for their commodities." The additional capital needed to meet the bank requirements was generated through investments by "friendly parties" interested in the success of the cooperative. To allow outside investors, an LLC (limited liability corporation) was formed, with the cooperative as a member.
By April 2000, the necessary equity position had been obtained and the $20 million loan package was in place.
"We are anxious to conclude this start-up chapter," Lennon says. "It was stressful waiting to have all the financing in place so we could move forward." On March 7, 2000, just 18 months after the cancellation notices, the first turkeys were processed at the plant.
Dirk Pyle, Zeeland, Mich., is back in the turkey business as one of the 15 members who started the Michigan Turkey Producers Cooperative.
Photo courtesy of Farm & Country Journal
Building a Cooperative on the Fast Track
July 1998--- Twenty-five growers receive notice from Sara Lee-Bil Mar turkey processing plant in Zeeland, Michigan that they no longer have a local market for the 8 million turkeys raised annually in West Michigan.
September 1998-- Fifteen growers form a cooperative, Michigan Turkey Growers Cooperative, and begin their own business.
December 1998-- Turkeys no longer processed at the Zelland plant, growers begin transporting birds to out-state markets in Iowa and Indiana.
December 1998-- Cooperative receives USDA grant to conduct feasibility study.
May 1999-- Formation of LLC to generate additional equity.
June 1999-- Renovation of Simplot Potato Processing plant into a turkey processing plant begins.
February 2000-- Eight members receive USDA loan guarantees for stock purchases.
February 2000-- USDA inspection and approval granted.
March 2000-- First turkeys are processed at new facility.
Building a name and a market
"The key to success for new cooperatives looking to add value to their commodities is to hire professional managers," Church says. "The members need to be successful in their own individual businesses and bring in top management to run the processing facilities."
Before joining the turkey cooperative, Lennon was a sales and marketing director for Bil Mar products at Sara Lee. His experience in turkey product development and sales will be critical to the success of the cooperative. Lennon and Don Delardo, sales manager, began looking for customers months before the first turkeys were brought in.
"Our first phase is to sell to other industrial processors, we will then branch out into food service and the retail food markets," Lennon says.
As the customer base broadens, so will the line of products produced. Currently the facility is equipped for strictly raw processing. The growers are supplying heavy Tom turkeys (3436 pounds).
The growers have developed a brand name and "story line" for the products when they enter the retail market. The products from the Michigan plant will be marketed under the name "Legacy," or Golden Legacy for top products such as breast meat; Silver Legacy for "second-tier" products, such as thighs and drumsticks; and Legacy for the ground products.
Accompanying the brand and logo is a history of the cooperative and the name. This story captures the long history of turkey production in Michigan and lists the members of the cooperative.
"Raw turkey meat is basically a commodity," Lennon explains. "We hope to differentiate our product by adding flavors and create portioned cuts like steaks, roasts and ground products."
Long-term, the co-op plans to add more processing equipment to prepare product in vacuum sealed packaging for food service and to eventually move into a cooked-product line.
"I don't think people realize how close this industry was to being extinct in Michigan," Lennon said." Without the diligence and the commitment of the turkey growers to raise additional capital, this dream never would have become a reality.
Editor's Note: Laura Moser is an agricultural writer based in Williamstone, Michigan.