1980s Farm Crisis: Origins, myths and realities: Jerusalem artichoke miracle crop was a sign
FARGO, N.D. -- Today's older farmers remember the 1980s farm credit crisis, but the younger ones who have farmed in the 2000s can barely imagine what it was like.
FARGO, N.D. - Today's older farmers remember the 1980s farm credit crisis, but the younger ones who have farmed in the 2000s can barely imagine what it was like.
Themes are eerily familiar: a dramatic rise in farm equity, followed by shocking equity loss, followed by disruptive international grain embargoes and threats of input cost inflation.
As farmers grasped for to regain prosperity they grabbed onto dreams, embodied by the spectacular Jerusalem artichoke scheme - a "miracle crop" that turned out to be too good to be true.
Joseph Amato of Minnetonka, Minn., is a professor emeritus of history and former dean of rural and regional studies at Southwest Minnesota State University in Marshall, Minn. He's written 25 books and in 1993 penned the "The Great Jerusalem Artichoke Circus: The Buying and Selling of the Rural American Dream." In it, he describes a pyramid marketing plan that in 18 months plucked $25 million to $30 million out of the pockets of some 2,500 farmers in several states - mostly Minnesota, South Dakota and North Dakota.
Go-go to 'Oh no'
The farm crisis didn't come like a "boom," Amato says, but there were signs.
Farm land values in Minnesota quadrupled after the Soviet Union dramatically increased wheat and feed grains purchases in 1972. The 1973 and 1974 crop years were prosperous, but things tightened up. By 1979, Federal Reserve policies drove farm interest rates from a 6.8-percent average in 1976 to 21.5-percent in 1981.
As the cost-price squeeze tightened, farmers in the Campo, Colo., area started the American Agriculture Movement. On Dec. 10, 1977, AAM attracted 5,000 people to a rally in Lincoln, Neb. In 1978, they attempted to organize a production "strike." Failing that, they staged a tractorcade into Washington, D.C., in December.
Activists were angry that then President Jimmy Carter and his Agriculture Secretary Bob Bergland (recently deceased, former Seventh District Minnesota congressman from Roseau, Minn.) would not halt foreclosures by the federal Farmers Home Administration (then the FmHA, now handled by the Farm Service Agency).
Amato remembers that the Minnesotans attending the event were driving "relatively big tractors." They wanted the government to artificially set commodity prices at least 90 percent of "parity," a theoretical figure dating from 1909 to 1914, an era when farm commodity prices were in line with input costs and allowed a profit. On Feb. 5, 1979, about 3,000 farmers occupied the National Mall in Washington. Seventeen tractors parked on the National Mall were "imprisoned."
In January 1980, President Jimmy Carter imposed an embargo on U.S. grain sales to Russia to retaliate for them invading Afghanistan.
Farmers were yearning for a miracle and found a Ponzi scheme.
Fred Hendrickson eventually was nicknamed "Mr. Artichoke."
Amato says Hendrickson was born in 1935, at Philip, S.D. Hendrickson was a son of a school superintendent. He studied for a political science degree at Huron, S.D., and went on for a law degree at the University of South Dakota at Vermillion. He worked in private law practices and for state attorneys general in western South Dakota and Iowa before ending up in Rapid City, S.D.
In 1972, after alcoholism and a divorce, Hendrickson joined an evangelical Open Bible Standard Church and organized a Full Gospel Businessmen's Association. He tried to form a cooperative marketing consortium for small, on-farm alcohol fuel plants.
In 1980, Hendrickson started promoting Jerusalem artichokes, a cousin to sunflowers, growing 10 feet tall with tuber-like roots that he thought showed promise for alcohol production. In 1981, Hendrickson moved to Sioux Falls, S.D., and gained credibility by promoting ideas of scientists such as B.B. Chubey, an agronomist at the Canadian agricultural station at Morden, Manitoba, and science teachers at Southwest State University in Marshall, Minn., and Augustana College in Sioux Falls.
Hendrickson soon connected with James Dwire, a construction contractor from Lynd, Minn., just south of Marshall, another evangelical.
The AEFS birth
In October 1981, Dwire and Hendrickson formed America Energy Farming System and patterned it after Amway, a "multi-level marketing" company.
Dwire was president and chief financial officer of AEFS. Hendrickson was secretary and vice president of research. Despite Minnesota Extension Service warnings that the company was overestimating yields and potential for ethanol and human consumption, the company got traction.
Dwire started a long-standing practice of borrowing large sums of money from the company to buy farmland and other entities. He opened a branch office in Edina, Minn., and hired his sons, a brother-in-law and his wife's uncle.
In 1981, Warren Spannaus, then state attorney general from the Democratic-Farmer-Labor party, started an investigation at the request of Minnesota Agriculture Commissioner Mark Seetin, a Republican.
Spannaus said AEFS was selling "a seed with no purpose other than selling more seed."
Farmers were used to new crops becoming big crops. It had happened with hybrid corn and soybeans. They expected Jerusalem artichokes to be as successful, but without any laboratory, genetic agronomic or market work. And a buyer didn't exist.
Dwire and Hendrickson planned to limit seed growers to 200 in a six-state area but ended up with 450 in North Dakota, South Dakota and Minnesota.
The South Dakota Division of Securities in March 1982 temporarily banned artichoke sales but lifted the ban if the company would give growers a chance to rescind their contracts. None did.
Growers could buy seed for 10 acres for $12,000, or 1,000 pounds of seed at $1.20 per pound. AEFS would be the exclusive marketing agent, earning a fee of 50 percent of gross sales of tubers harvested in 1982 and 1983, and a 40 percent fee on all crops grown for the next two harvests. Company sales people talked about $6,000 per acre profit that would eventually settle down to $1,000 to $2,000 per acre. Meanwhile, soybeans and corn producers were hoping to get $100 an acre return.
Most people put in about $10,000.
Dwire talked about working 18-hour days, jumping into airplanes to fly to meetings. AEFS eventually would have nine planes for the purpose. Buyers included Jerusalem artichoke believers, early adopters, new crop believers, desperation investors and Christian believers (including Hutterites, Amish, Catholic, and Mennonites.) A third of them came from three states - Minnesota, 509; South Dakota, 288; North Dakota, 81.
"The whole thing smelled scam," Amato says.
At their first National Growers Convention in Marshall, Minn., in June 1982, Andy Van Zee, a grower from Platte, S.D., was feted for raising 43 acres of artichokes and earning another $500,000 by bringing in other growers. Two of the people offering testimony had "recently come back from the dead," Amato remembers.
The company promoted Jerusalem artichokes as easy to grow and a "double portion" crop, a biblical reference. It would produce "4 to 8 pounds of tops, 3 to 6 pounds of tubers and 1 to 2 pounds of roots."
AEFS promoted the idea that material wealth was God's way of blessing those who put Him first. Most sales were from grower-sellers, who were offered special bonus deals. AEFS had hired Dwire's brother-in-law, a music store salesman and self-taught clergyman, as their director of sales. Staffers at Trinity Bible College, Ellendale, N.D., exhorted wives to support their husbands' artichoke aspirations.
Don Sheehan, a member of the sales staff and author, gained fame for his catchphrase, "Anoint me with artichokes and set me on fire."
AEFS promoted a goal of establishing 10 million acres of Jerusalem artichokes in five years and at least 30 million acres in five to seven years.
"The dream astronomically exceeded reality," Amato wrote, noting that the maximum acreage goal would be met "only if each grower is responsible for ten new growers." "If a grower could convince eight other farmers, they'd have $96,000 in gross sales (if the price stays at $120 a pound) and his 50 percent share of that will be $48,000."
AEFS hired L.D. Kramer, an early televangelist for the Assemblies of God. Kramer had developed a $30 million Challenge Homes nursing chain based in Glenwood, Minn., then moved to Texas where he'd gone bankrupt.
Hendrickson, Dwire and Kramer wanted to form a Christian Farmers Association to organize farmers around "God and the Jerusalem artichoke." Dwire started acquiring real estate for rental purposes. Within a year, he added several companies and counted $5 million in assets, with less than $1 million liabilities. He allowed preferential rental rates on his own farms where he grew Jerusalem artichoke seed.
AEFS entered a lease-purchase agreement for an ethanol plant at Sherman, S.D. The officers approached companies about purchasing the crop and took a trip to France. They bought farms and research laboratories and started conducting experiments. The courts would find that the officers embezzled from their own company, which had obligations to farmers. They became middlemen between the company and others. They tried to buy the Buffalo Ridge State Bank in Ruthton, Minn., which would later figure into a double-murder of a bank president and farm loan officer.
According to later court action, AEFS executives used corporate money for personal advances without accountability. Dwire purchased farms and created enterprises to exploit AEFS to sell AEFS research services and to secure insurance acres that would provide seed to farmers who received bad seed. Dwire formed Triple J Aviation with his sons to lease airplanes to AEFS.
$1.90/lb to zilch
Jim Nichols, a farmer and former DFL senator from Lincoln County, Minn., was appointed commissioner of agriculture in 1983 and served to 1991. Nichols pushed the attorney general to press for criminal fraud but they settled for a $40,000 fine for improper sales practices and an offer for farmers to rescind contracts.
"Farmers were desperate and when you're desperate you do foolish things,' Nichols recalls. "There was no market for Jerusalem artichokes."
Nichols nremembers Dwire "always carried his Bible" but was running "just a con job." "I remember I had some very intense meetings with him. I was pretty blunt about what I thought about him. It was a total pyramid scheme." Farmers ended up with tons of artichokes in storage, but they just rotted, Nichols remembers.
Dwire threatened with lawsuits whenever journalists or others told the truth. Among others, he threatened both The Globe in Worthington, as well as The Forum of Fargo-Moorhead.
On May 23, 1983, AEFS filed for Chapter 11 bankruptcy unable to pay $6 million in grower claims. In September, the court forced them into Chapter 7 liquidation.
In 1984, McLeod County Attorney Peter Kasal at Glencoe, Minn, and an investigator went after AEFS. Dwire eventually pleaded guilty to theft by swindle and served 180 days in jail with five years of work release and paid $5,500 in fines. Kramer spent a year in prison. Hendrickson was sentenced to six months and lost his attorney's license.
Jerusalem artichokes seed that was on the AEFS books for $1.20 per pound was worth nothing. Growers had at times mortgaged their farm to get into the business but now the federal trustee failed in an effort to sell them for 5 cents a pound.
Publisher's note: Agweek staff writer Mikkel Pates has family roots in eastern and western South Dakota. He's worked for 39 years in what are now Forum Communications Co. properties - The Globe of Worthington; The Forum of Fargo-Moorhead and Agweek magazine/AgweekTV. Here, he offers a series titled, "1980s Farm Crisis Flashback."
PART I - Dec. 24 - The 1980s farm crisis grew in myth and reality: tractorcades, Jerusalem artichokes. Joseph Amato, a historian with Southwest Minnesota State University at Marshall, Minn., talks about the rise of the miracle crop that turned into a scam.
PART II - Dec. 31 - Author and historian Joe Amato continues his account of the farm crisis with the account of a banker death at Ruthon, Minn.
Part III - Jan. 7 - As the 1980s farm crisis took hold, Sarah Vogel ,North Dakota lawyer and future state agriculture commissioner, sued the U.S. Department of Agriculture to stop federal ag foreclosures for five years. Minnesota legislator and Agriculture Commissioner Jim Nichols remembers the rise of controversy.
PART IV - Jan. 14 - Then and now. Ag lending reform, drought and time help sort out who survives or leaves the land. But farmer David Glinz of Jamestown, N.D., talks about how his family moved through the crisis. The advent of processing cooperatives and ethanol helps move needle toward brighter days.
Next week: Amato talks about the Ruthton, Minn., ag banker's murder case.