Co-op born of growers’ frustration with
processor’s lack of long-term outlook
Editor’s note: The following article is largely excerpted
from “A Heritage of Growth,” which traces the history
of American Crystal Sugar and the Red River Valley
Sugarbeet Growers Association.
Nothing frustrates a sugarbeet grower more than not
being able to deliver harvested beets to the processing
plant on a cool, dry autumn day. But there were a lot of
frustrated growers around the Red River Valley on such
days in the late 1960s and early 70s. That’s because the
Valley’s dominant processor American Crystal Sugar,
then an investor-owned company was not investing in
piling equipment needed to keep up with farmers, who
had made giant leaps in their ability to rapidly dig and
deliver sugarbeets. Virtually no maintenance
was being done on pilers during the offseason,
which lead to frequent breakdowns
Indeed, it appeared more and more
that “the company was being bled to
maximize short-term profits, without
making the type of critical capital
investments needed for the long-term
future of the industry,” says American
Crystal board member Dave Kragnes, who
grows beets and grain on his Felton, Minn., farm.
“The growers [including his father] could see that there
was money to be made if the plants were operated more
efficiently; truck drivers needed to be paid to drive, not
sit. When the company needed money, it simply cut
back on capital expenditures. The trust was milking the
company dry. The growers felt they could run it better. ”
The Red River Valley Sugarbeet Growers Association
even offered to pay for some new facilities to help speed
the harvest and stockpiling, but the company refused,
fearing that growers might then want a voice in how the
facilities were operated. In 1971, growers became more
worried when the company suddenly shut down its plant
in Chaska, Minn., rather than investing several million dollars
to meet stricter air pollution standards. While earlier
plant closings had concerned growers, this one scared
them. The company was also threatening to cut back
acres, along with rumors of a factory closing in the valley.
In the face of these cutbacks, growers concluded
that they could only influence the company’s direction
from the inside. Al Bloomquist, the association’s executive
vice president, learned that food giant Borden was
willing to sell 100,000 shares, or 9 percent, of American
Crystal’s common stock, for $2.3 million. Through the
purchase of those shares, they hoped to gain a voice in
the future direction of the company. Bloomquist
informed the company of the association’s intent to buy
the shares while simultaneously including a note that
asked whether the company’s board would entertain a
buyout offer based on book value for its facilities.
During an industry meeting in Phoenix in March 1972,
the company indicated it would be interested in a sale,
although most officers and the directors had serious
doubts that the farmers could pull off such a deal. At
that time, the company’s book value was 66 percent
higher than its stock was trading for, hence ears
perked up when there was mention of a sale
at those terms. Bloomquist was told to
invite the growers’ executive committee
to meet with the American Crystal
board in Denver in one week.
If the idea of buying a sugar
company scared the growers, losing
such an opportunity was
worse. So the committee unanimously
decided to pursue the buyout.
Bloomquist may not have been universally
loved by the growers, but he was well respected
and known as a man of integrity who was not afraid
of big ideas. The growers also had faith in their attorney,
William Dosland, one of the Valley’s most respected
legal counsels. He advised the growers’ executive committee
that the key to making a good deal was to hire the
right legal and financial professionals who could help
them through mountains of paperwork, including
prospectus and proxy statements, and through potentially
rancorous negotiations with skilled corporate lawyers.
This they did, although the board had to swallow hard
before agreeing to spend $500,000 for such services.
The law firm they hired quickly concluded that the
company was not doing as well as indicated by the generous
dividends it was paying; they suspected the company
was playing tricks to keep stockholders happy.
Uncovering the company’s true worth, they advised,
would not be easy.
Undaunted, on March 8, the full 40-member association
board voted 37-3 to pursue a deal.
After meeting with the St. Paul Bank for Cooperatives,
it was decided the company should be operated as a
cooperative if a deal could be reached. Not only were
commercial lenders not interested in offering long-term
financing, but a co-op offered tax advantages and liability
protections that a for-profit business did not. The
cost was calculated at $60 million, plus $26 million more
to retire short and long-term loan obligations. The bank
wanted growers to come up with $20 million.
One week after making the initial proposal, the
growers’ team flew to Denver to meet the company’s
board. American Crystal directors were impressed by
what the growers brought to the table and gave them
one month, until April 15, to raise the money. The growers
then hired the Wall Street investment firm of Loeb
Rhodes to polish their offer and, at the bank’s insistence,
hired a German company, BMA, to more closely
appraise American Crystal’s seven sugar factories.
BMA concluded that the factories were in better shape
than the growers thought, and could be operated as
they were. The Bank for Cooperatives issued a letter of
credit for $66 million for the purchase, and $30 million
more for seasonal operating loans. It said it was willing
to study further loans for capital improvements.
The growers were advised it would be best to form a
stock corporation to buy American Crystal, which in turn
would immediately be purchased by the co-op. But that
also necessitated bringing in an intermediate lender,
since the Bank for Co-ops could not finance a stock corporation.
A consortium of four banks was forged to
finance the initial buyout, until the co-op took over.
To finance the growers’ $20 million investment, the
association developed a plan to expand the Valley’s
beet acreage and required growers to invest $100 for
each acre of beets they raised. Total acreage base was
set at 200,000 or 40,000 more than contracted for in
1972. Most growers supported the
plan, although some were unhappy
about having to pay for something
they previously got for free a beet
contract. But Bloomquist countered
that a beet contract was never guaranteed
as long as someone else
owned the company.
Organized grower opposition circulated flyers saying
it would be better to let American Crystal go broke,
or to ship their beets to processors outside the Valley.
The proponents’ education efforts stressed that the
buyout meant growers would own their beet contracts,
that they could vote in how the company was operated
and that they would share in any profits. Further, the
co-op would increase acreage and invest in plants for
the long term.
In the end, hope of success spoke louder than fear
On April 10, 1973, 1,500 growers jammed into the
Grand Forks Armory to vote. Seventy percent of them
(1,065) voted in favor.
The growers’ experts had to make sure there were
no unresolved liabilities or outstanding tax issues. After
a month of negotiating, during which the growers’ team
had flown 100,000 miles back and forth to Denver, a
deal was approved pending completion of financial
arrangements and approval by American Crystal’s
Financing for growers’ still hinged on the cooperation
of small, local banks and production credit associations.
In the end, nearly 60 Valley banks and PCAs
loaned money to cover the growers’ investment.
Company shareholders overwhelmingly approved
the sale on Jan. 23, 1973. On Feb. 21, Crystal Growers
Corp. paid $86 million, then merged into American Crystal
and ceased to exist as a corporate entity.
Later that night, a joint celebration dinner was held
at Denver’s Brown Palace hotel. Bloomquist recalls
that several company directors told him they had never
even been in the Red River Valley, nor ever seen a sugarbeet.
Most said they had doubted the farmers could
pull off the deal. “You really showed us
something” one said to Bloomquist.
The transition to a co-op was completed
on June 14, 1973, and after 74
years of being headquartered in Denver
or New York City American Crystal
had truly found a home in the Red
In the end, hope of success spoke louder than fear of failure.