Producers Clinch the Sale

Four years ago, long before linking pork producers further along the pork chain became a popular notion, a group of 80 Minnesota producers seized an opportunity. They purchased the Ellison Meat Company, a beef and pork processor in Pipestone, Minn., that sells meat to the restaurants and institutions trade.

But such business prospects don't come without risk.

"My core business is raising hogs. When you get involved with and put money into something that's not your core business, that's an added risk," says Don Buhl, a Tyler, Minn., producer. "But I believe that processing is the right direction to go."
Today, that investment has lead to monthly shipments of 200,000 pounds of Minnesota pork to the Nichimen Corporation in Japan. Nichimen is one of the country's leading foodservice suppliers.

It starts with a system – in this case, the Pipestone System. "That's the key," says Jim Veldkamp, a Jasper, Minn., producer who was among the first to get involved with the Pipestone System in 1988. He was trying to decide whether he wanted to continue to farrow and finish.

"Getting involved with the Pipestone System kept me in the pork business." he says. Veldkamp bought into the system in stages as his comfort level allowed.

The Pipestone System has multiple layers that funnel into a common end. Production units are located predominantly in southern Minnesota, but also in eastern South Dakota and northwest Iowa. The system starts with seedstock multiplier units that supply animals to sow farrowing units. Independent producers purchase shares in a 3,000-head sow unit that supplies them with 10-pound weaned pigs every eight weeks. They finish out the pigs in their own facilities. "The sow units are operated as cost centers and individual farms are intended to be profit centers,"says Buhl.

The nursery/finisher system is set up similarly on every farm. Genetics are the same, but there are no mandated production guidelines. "We all make decisions independently," says Buhl.

Shareholders also have access to boar studs and artificial insemination services, as well as veterinary, management and financial services. Today, 250 producers participate in the Pipestone System.

It was actually through six of the sow units that the 80 producers purchased Ellison Meats in 1996. "The business was for sale and the shareholders thought it was a good fit," says Buhl.
The shareholders unanimously approved the purchase recalls Mike Baustian, another of the producer owners. "We like the fact that we're able to add value and keep the dollars in the community."

"As producers, we're really silent partners," adds Veldkamp. His advice: "Hire good people and then let them do their jobs."

There is a six-person board of directors, says Steve Perkins, who came on the scene in 1997 as president of the Ellison Meat Company. "It's organized like a corporation, but resembles a cooperative."

"When we started building sow barns, we didn't do it with idea of buying Ellison," says Buhl. "It was an opportunity that we could have passed by or embraced."

The opportunity was enhanced by the fact that the producers and the meat processor both had a relationship with Swift &; Company in Worthington, Minn.

Producers involved in the Pipestone System can market their hogs wherever they choose, but many have contracts with Swift. Ellison Meats had already been receiving some primal and subprimal pork cuts from Swift.

"The relationship that we have with Swift allows us to go from preconception to the pork chop on your plate," says Perkins. "We're probably the only truly family-farm based, producer-owned processing facility."

And that was the hook that reeled in Nichimen. While American's thrive on individualism, the Japanese are system and community oriented people.

"They want to see how everything functions; how you raise and feed the pigs, even how your employees work together," says Perkins.

In the past 1.5 years, representatives from Japanese companies have made more than 35 visits to Ellison Meats, Swift and producers" farms.

The Japanese also want documents that explain things like your organizational structure and USDA Hazard Analysis and Critical Control Points plans. "In the end, they'll know almost more about you than you do," adds Perkins.

A system that links producers to processing to a community is very appealing to the Japanese. "They seem to attach a real value to the fact that we are the owners, and that they can identify who has raised the food they're eating," says Baustian.

Ellison Meats had previously dabbled in exports using brokers. Swift's experience in exporting to the Japanese market certainly helped, as did the Minnesota Department of Agriculture, the state's Trade and Economic Development Department and Governor Jesse Ventura himself.

Ventura visited the producers and the Ellison Meat Company last October and was sold on their efforts. He added pork products from the Pipestone System and Ellison Meats to his November trade mission to Japan.

Nichimen's commitment to purchase premium center-cut pork loins and other processed pork products amounts to a 20 percent increase in Ellison's pork processing. There's no expiration date on the agreement, so as long as Nichimen officials remain satisfied, Ellison Meats will send over its pork.

Ellison Meats hope is to continue to grow its pork exports. "This whole Japanese sale is more a beginning than an end," says Perkins.

Ellison Meats is a work in progress. So far, processing plant profits have been reinvested in the business.

"You have to be patient,"says Buhl. "Hopefully it will add a return to my bottom line someday."

"Our primary goal is to add value to our owners" product by export and ultimately with a brand in America," says Perkins.
But he knows that could take longer than securing export sales. The company does have a label – Minnesota Farms – that could evolve into a brand.

Perkins also expects to explore more niche markets, which could require interested producers to follow certain production criteria. The Japanese have expressed interest in (and a willingness to pay for) organic, natural pork that received no genetically modified feed. "That's an opportunity for farmers," he says.

"The real message in all this is that pork producers have to work together, not just on the production side, but in other areas as well," says Perkins.

Baustian agrees: "I couldn't have done this by myself. It has made us more aware of what we're producing and what other parts of the chain need."
Buhl believes producers will have access to more processing related opportunities in the future. "But do your homework before you embark on something like this." Several Midwestern states have departments that can help you evaluate value-added opportunities.

Adding value to their product took these producers into new markets and secured an outlet for their hogs at home. "Producers won't be paid for raw commodities much longer," says Veldkamp. "You have to know where your product is going, especially if you plan to expand."

Today, these Minnesota producers know their product is headed for Japan.