Building an industry: Ralco's Tru Shrimp venture builds on region's crops
BALATON, Minn. — It's counter-intuitive to start an inland shrimp business here in Minnesota, but Michael Ziebell is building more than that.
"We're building a very large, fully-integrated shrimp company," he says.
And by the way — a new protein industry for the Upper Midwest.
Ziebell is president and chief executive officer of Tru Shrimp Systems Company, formally incorporated in Delaware in January 2017. Tru Shrimp started as division of Ralco Nutrition Inc. of Marshall, Minn. Ziebell is a former chief marketing officer of Schwan Food Company of Marshall.
Tru Shrimp wants to run a hatchery that supports a network of facilities that grow shrimp. The company hopes others will invest in "harbors," or farms, and that Tru Shrimp will process, market and sell them into American consumer packaged goods and food service markets. They think they can nab a significant piece of the U.S. shrimp market. Consumers eat 1.6 billion pounds of shrimp, and about 80 percent of that is imported from southeast Asia.
Ralco has lots of experience in livestock nutrition. It is a 46-year-old technology company, with about $80 million in annual sales, with products centered around livestock nutrition. The vast majority is "natural" animal nutrition and a soil health company called Agnition. Ralco was founded April 21, 1971, by Bob and Lou Galbraith.
In 1990, Randy Galbraith, along with Jon and Niter Knochemus, purchased the business from Bob and Lou Galbraith. Jon led sales and Randy managed the operations. Ralco promoted "natural" products to promote digestive and immune functions for livestock. Products were called Relief, Regano, and then Birthright, a baby pig milk replacer.
In 2004, Jon and Niter Knochenmus and their son, Brian and his wife, Mindy, purchased the company from the Galbraiths. In 2011 they introduced Generate, a product for soil and crop health, using their "founding Microbial Catalyst technology." In 2015, Brian was named the company's president and Jon remains as president emeritus. Ralco has about 225 employees, including 60 at Balaton. They have six offices across the world and do business in more than 20 countries.
Ralco in December 2014 bested 40 companies to acquire a patent license for technology developed at Texas A&M. Texas A&M scientist Addison Lawrence, now retired, traveled to Minnesota to advise on the project. Lawrence developed the concept of "super-intense shallow-water raceways," 12-inches deep and in 4-by-10-foot tanks.
In five years, Knochenmus anticipates growth in all of Ralco's business units, but he thinks the shrimp will be special.
"I think the difference in this shrimp opportunity is the size of the market," he says. In the past 12 years, the company has been "de-risking" the project. "We're probably at least 80 percent confident in our end model," but there is "very little doubt in our mind."
Buying into shrimp
Tru Shrimp calls its production raceway tanks "tidal basins." They stack them eight high in a system they call "shrimp production harbors."
They've built tanks 37 feet long and are in the process of making them 50 feet long. This summer they'll build them 150 feet long — stacked eight high, with about 28 inches between them. That's enough room for a robotic feeder (designed by Action Manufacturing, Inc., of Marshall, Minn.) to travel the length of the tidal basin. The feed is "very coarse pepper put into pellets."
Ziebell says the system capitalizes on the life cycle of a shrimp. Male and females mate and produce "nauplii" (NAW-plee-eye). In about 10 days the egg sack is consumed and they become post-larvae — about the size of a kernel of rice, or about .003 grams.
At this point Tru Shrimp puts the post-larvae into the tidal basins "Our model today is that in 140 days we'll have a 35-gram shrimp, which in the world of the retail consumer is a 16- to 20-count per pound, which is considered an 'extra jumbo' shrimp," says Ziebell.
The company is continuing to cut the number of days in the process, even before it starts on a large-scale basis. The company will harvest shrimp in nine sizes, starting with the smallest shrimp — a 71- to 80-count per pound "salad" shrimp. They go up to jumbo-sized and could go to "colossal-sized," but probably won't.
Tru Shrimp hopes to start building the first harbor in 2018. A single harbor system will cost about $54 million. The construction phase would have a $48 million annual impact on a five-county area, would "touch the employment" of 330 people, and generate over $14 million in payroll. The first will probably will have 70 percent equity.
Tru Shrimp already has a private placement memorandum, seeking to raise $21 million in two stages. The minimum investment is $500,000 for "qualified" investors. The first stage is launched for convertible notes and the second stage will be launched in early 2018.
The company hopes to have an investment offering for which minimum investment hasn't been set but could be $5,000 or below. Those investors may participate to support the industry in Minnesota and the upper Midwest, or to support their local community.
The first they're considering are in Minnesota — Lamberton, Luverne and "of course" Marshall. "We can build harbors eight or ten hours away from here and still be able to service them. There will be a certain level of money and commitments to start the project. Figures haven't been finalized, but that might be more than $30 million," Ziebell says.
Tru Shrimp hopes to build three harbors in five years in the Upper Midwest. Each of the harbors will be independently owned, with investment opportunities for local people. The harbors will sell the produce to Tru Shrimp for processing, which involves beheading, peeling, veining and cooking. They're working with Nova-Tech Engineering, a Willmar, Minn., company that makes equipment for the poultry industry, on automating some of the process.
In a separate but coordinated effort, Tru Shrimp will build a hatchery yet this year. They are working to lease a vacant food processing plant owned by Schwan Food Company in Marshall, Minn., for their first processing facility. The facility is approved by the U.S. Department of Agriculture, which should help it qualify for the Food and Drug Administration, which regulates shrimp processing.
Shrimp are grown in salt water in rooms at about 80 degrees. Texas A&M developed two patents on the design of the tanks. Tru Shrimp has a patent pending on a water chemistry management system, and more patents are pending on the basin design and water chemistry.
The tanks create a "very gentle counter-clockwise current" which saves energy for the shrimp as they move. The basin has an apex in the middle and the current carries away fecal matter, any uneaten feed, or shrimp molt shells. Unlike traditional ponds, the shrimp "never live in their own waste." The system is designed with a sump that takes the waste away.
Each harbor would have an annual $30 million impact. The harbor itself will have nine acres under one roof, would produce more than 7 million pounds of shrimp annually and would employ 60 to 70 people involved in technical tasks, husbandry and harvest. Each harbor would have its own wastewater treatment plant large enough to handle the city of Balaton.
Ziebell says a big plus for the company and the region's farmers is that over 45 percent of the shrimp diet is "soybean-related." The process also needs hard red wheat, also produced in Minnesota and the Dakotas.
"And we are very proud of the fact that we are the first ever to be able to feed corn to shrimp," he says. "It's never really been done before. We are now up to 300 pounds from every ton of feed that is corn. We're pretty proud of that."