Riding herd: 'Natural' bison/beef business sees expanding markets

FARGO, N.D. -- Dieter Pape is president and chief executive officer of two North Dakota's biggest-scale meat businesses -- one in bison, the other in beef.

Pape lives in St. Cloud, Minn., but for five years has been is president of the North American Bison Cooperative. The co-op is officially based in New Rockford, N.D.

Also, in the past three years, Pape has been founding president and chief executive officer of the North Dakota Natural Beef L.L.C., based in Fargo, N.D.

A marketer by background, Pape led the state's signature value-added ag co-ops into a Chapter 11 bankruptcy and then out again. He set a new vision for getting into the custom slaughter business and entering the "natural" beef meat business, which seems to be succeeding despite a national economic recession.

The company's beef/buffalo processing business is bustling in north Fargo, amid major changes. Both bison and beef sides of the business in 2010 are each expected to run in the neighborhood of $30 million in revenue.

In the past few months, the bison co-op has converted to a North Dakota-based limited liability company. It has gone from a 20 percent share in the meat company to 54 percent controlling interest. The company's production at New Rockford soon will go to more than 800 head per week. In the next two months, it will remodel to expand that still farther to 1,400 head a week.

Here is a look back and ahead for this iconic business on the Northern Plains.

Iconic co-op's history

The bison co-op was established in 1993 and in 1994 opened in New Rockford, N.D.

It was one of the vaunted "new generation" farmer-owned processing companies of the decade that came on the heels of the farm credit crisis.

NABC's plant initially was designed to handle 5,000 head a year (100 a week). In 1999, the plant increased to 8,000 (160 per week.)

In 2003, NABC sales hit $22 million, but the company wasn't selling all the meat it was buying at a premium price from members. As meat supply exceeded demand, ground meat and trimmings eventually piled up. To get the meat sold, the co-op acquired New West Foods, a bison marketer, and Great Plains Food Co., to distribute products, but trouble kept coming.

The co-op faltered as it accumulated some $24 million on its books in frozen bison meat inventory and more than $20 million in "deferred" payments to producers. Some sales to government purchasers faltered. The co-op tried to get desperate members to sell their own bison meat through producer-owned store kiosks.

Out of the hole

In December 2004, the co-op changed management and hired Pape. In October 2005, he and the board took the company into Chapter 11 bankruptcy. It emerged in July 2006 after liquidating inventory and changed the debt to equity. The new equity shares can be liquidated only if the company hits certain profitability ratios.

Further, Pape announced the co-op would use its slaughter capacity to by seeking bison or beef slaughter on a custom basis.

In October 2007, NABC became the managing partner in a new venture, called North Dakota Natural Beef L.L.C.

The effort was accompanied by an $800,000 legislative appropriation for "Beef System Center of Excellence" program, administered by North Dakota State University. These funds were released when the project secured $1 million from a U.S. Department of Agriculture federal grant and then another $1 million from North Dakota Natural Beef.

Along the way, it was envisioned as a sort of working laboratory for meat science students at nearby North Dakota State University in Fargo.

Construction on the Fargo facility started in 2007 at a pre-existing former packing facility near NDSU in north Fargo. It was supposed to open in March 2008, but it didn't.

Unnatural delays

There was little said about it at the time, but there had been a dispute with the construction company.

"It got resolved through mediation," Pape says. "The ruling was in favor of North Dakota Natural Beef, but you never win those things. The cost structure it took to bring us up into operation, plus the delay, was serious."

Still, the plant was in place.

The 41,000-square-foot space for processing and distribution is described as state-of-the-art, but Pape acknowledges it took an extra $700,000 to bring the building to the specifications.

Live animals of either species are harvested in New Rockford, split into halves and hung into four trailers. The carcasses are cooled to 50 degrees and then shipped to Fargo, where they are broken down. Fabrication, steak cutting and grinding facilities were moved entirely to Fargo, so the employee numbers have shifted there, too.

There currently are 100 employees in Fargo, while New Rockford has 40.

The company's bison products are sold under TenderBison and its beef is sold under Dakota Farms.

A string of changes

Pape describes a string of changes that have taken place, or soon will:

- Ownership: The bison co-op had started as a 10 percent portion of the beef processing business, then 20 percent, and the co-op purchased equity to get the company to a 54 percent level. The other 80 percent was owned by 34 other owners -- individuals, companies and some trusts. The largest of the non-NACB owners were Rick Burgum and members of the Burgum family. Other players included the North Dakota Farmers Union, the North Dakota Pasta Growers and members of the Sather family in South Dakota.

In early 2010, NACB became 54 percent owner. The NABC board internally made the proposal, which was adopted by the meat company board.

Beef is much more capital-intensive than is bison. The reason? Beef is governed by the Packers and Stockyards Act, which requires payment to producers within 48 hours, regardless of whether the beef is sold.

Bison are not covered by P&SA, and it is standard practice to pay producers within 14 working days.

- Governance: The co-op will change to a limited liability cooperative. The new entity was formed in December and is going through the legal processes. Expect that to be final in 30 to 60, Pape says. The co-op considered keeping the co-op form, but organizing in Minnesota (as did Golden Growers, recently) but decided to stay in North Dakota.

Originally, the beef board had nine seats, including two from the bison co-op. Now, the beef board has been cut to five, but three are from the NABC. Members of the beef board are Doug Griller, Rod and Duane Sather, Dave Lautt and Woody Barth.

Meanwhile, the NABC board continues with nine members. When the board filed for Chapter 11 reorganization, all of the term limits (three three-year terms maximum) were started anew.

- Toll business: In February 2010, Dakota Beef of Howard, S.D., (near Madison, and northwest of Sioux Falls, S.D.) moved its organic production from Howard, S.D., to New Rockford on a toll-basis (and leased out its plant to a company Dawson, Minn., plant). Dakota Beef promotes the fact that it acquires some of its organic beef on a 150,000-acre Angus ranch in eastern Oregon, as well as elsewhere. It bills itself as "the nation's leading producer of premium certified organic beef and sells under the "Dakota Beef" brand to retailers and food service distributors. Pape declines to disclose how much Dakota Beef meat goes through the New Rockford plant.

- New markets: In March, North Dakota Natural Beef started marketing through the Whole Foods Midwest chain, which caters to natural and organic consumers and often commands premium prices. This accounts for about 120 head a week, Pape says.

Also in March, the meat company landed a contract with Chipotle Mexican Grill Inc. of Denver, which has a focus on increasing "natural" meat and ingredients.

"Whole Foods buys the 'middles' and Chipotle buys the 'ends,'" Pape says. "It works out well."

In June, the meat company was set to add still another major customer, who Pape declines to name. That meat company will work with the new customer's organic work, and the majority of the meat will go to Europe.

- Ratios and procurement: In mid-May 2010, the New Rockford plant quietly marked its first full week where the company's beef numbers exceeded their bison harvest.

Pape says more than half of the company's beef cattle come out of North Dakota, where the company is looking to expand feeder interest.

"Our objective is to get 100 percent out of North Dakota, if possible," Pape says. "We're working with feeders to encourage them."

In May, the meat company started using contracts to secure beef animals -- up to a year in advance.

"You have to have enough critical mass to do that," Pape says. "With the new customers we've brought on board, we're at that level. On the conventional side (of the market) all of the larger guys contract cattle. We're doing it to secure and ensure an adequate supply on an ongoing basis."

- Expanding kill: The New Rockford plant is expanding to keep up.

The plant initially was designed to kill and process 350 animals a week.

Now, solely as a kill facility, the plant can handle up to about 800 a week. By July or August, the company is remodeling to nearly double that, to 1,400 a week. That's about 70,000 a year, assuming two weeks down for maintenance, Pape says.

Instead of harvesting 200 head of "never-ever" cattle a week, the company will increase that to 300 in the next 45 days -- about 10,000 to 12,000 head a year, compared with the 3,000 head of beef they dealt with when the plant started operation.

The cost of the changes will be some $150,000 to $200,000. The changes will be made over a total of about 14 days while the plant continues in operation.

Pape says a casual passer-by on U.S. Highway 281 may only notice some new pens. Inside, there'll be extensive rail changes and refrigeration equipment installations.

The Fargo processing plant has plenty of capacity, Pape says. Fargo operates on a single shift, five days a week for much of its operation, and occasionally six days. The grinding area runs a single shift seven days a week.

"We can do up to 400 animals per day," Pape says of the Fargo plant. "It's a matter of adding people. The mechanical capabilities are there. You have to add more people, more stations on the lines."

Pape, at age 63, says he is looking to stick with the new bison/beef meat companies he's helped restart. Is he thinking ahead to retirement?

"Let me answer this way," he says. "Four and a half years ago, Michelle and I adopted a little boy from Guatemala. He turned 5 in March. When you have a 5-year-old boy, it's hard to think about retirement."