Dakota Growers Pasta hums

FARGO, N.D. -- As Tim Dodd contemplated the president's message he'd deliver at the 17th annual meeting of Dakota Growers Pasta Co. in Devils Lake, N.D., he quickly boiled down his thoughts: "This is a good time to be in the pasta business."

Some 300 shareholders were expected Jan. 9 for the traditional noon pasta feed, followed by an afternoon business meeting.

Reports of success are nothing new. The net income profit in fiscal 2009 year, which ended July 31, was $17.7 million. That up 90 percent from $9.3 million in 2008 and a continuation of a steady march upward -- $6.7 million in 2007; $4.4 million in 2006; and $2.5 million in 2005.

Late last year, the company announced of a dividend of 62 cents per share of common stock. That's more than three times the previous high of 20 cents per share in the previous year. In the most recent fiscal year, the company reported some $297 million in net revenue, up 6 percent from 2008, which was $280 million.

"Pasta consumption is trending up for sure," Dodd says of the context for the success. "The economy has a big part in driving consumption up. Pasta is a great 'value food,' and nutritionally."

'Look at the map'

Dodd says Dakota Growers' success is surely related to the fact that the company serves chain stores in parts of the country that have been hardest hit by the economic downturn.

Nationally, the pasta industry saw an 8 percent increase in unit volume for "store brands" of pasta at the retail grocery levels, Dodd says. Dakota Growers was up a bit more than that national average.

"You can just look at the map," Dodd says. "The areas with the highest unemployment had a lot more growth in private label sales -- at least with our accounts."

Dakota Growers Pasta is responding with growth, Dodd says.

The company soon will be at 560 million pounds per year of production at two plants -- Carrington, N.D., and New Hope, Minn. The company employs about 250 people in North Dakota alone.

Dakota Growers currently is investing some $10 million in a north annex, adding 27,000 square feet, and one "short goods" line. (Short goods are what the name implies -- macaroni, penne rigati, elbows, shells -- "anything that goes through on screens or slats, vs. the spaghetti and linguine that hangs on poles," Dodd says.)

Carrington currently has seven lines, so the added line will make the eighth at the Carrington plant. With the expansion, the company will be at 330 million pounds per year of production at Carrington.

The New Hope, Minn. -- a former Creamette plant -- has six lines, with another 230 million pounds of annual production.

In addition, the milling facility in Carrington is twice the size of the pasta processing facility. Semolina production from the mill also feeds the company's New Hope facility, grinding nearly 1 million bushels a month.

Dodd wasn't planning any other announcements in Devils Lake.

"We're just going to get this (Carrington) expansion completed," Dodd says. "We haven't made plans to do anything else at this time. We're looking at opportunities, we always are, but we're not in a position to announce anything right now."

Dreamfields, retail

Dodd says the company's Dreamfields line of products, made only in Carrington, is doing fine, despite the passing effects of the Atkins Diet.

"Dreamfield is doing quite well right now, to be honest with you," Dodd says of a nationwide brand of low-carbohydrate products is a small part of the company's financial picture. That and the conventional Dakota Growers branded retail products, sold mostly in North Dakota and Minnesota, together account for less than 5 percent of the company's earnings.

A competitors is American Italian Pasta Co., based in Kansas City, Mo., which produces roughly twice what Dakota Growers does, operating from four plants in the U.S. and Italy.

Also there's New World Pasta Co. of Pennsylvania (former Hershey Pasta Group and much of Borden Foods pasta, includes product line Creamettes), with three production plants. Other biggies include Barilla America Inc., of Bannockburn, Ill., with its Ames, Iowa, processing plant.

Dodd says the key to Dakota Growers' competitiveness is for the board of directors to keep up with production technology and to keep production costs low.

Through the past three years, there has been a $20 million renovation of the New Hope plant. There's the $10 million expansion in Carrington.

"There's other project -- every year we're upgrading some of the equipment, big-ticket items," Dodd says

A year ago, the company did a conversion of one of its milling units, allowing it to "swing" between durum and spring wheat.

Strong, steady growth

The company started as a cooperative with its first annual meeting in 1992 and became a corporation in 2002. Since then, the company has had consistency in leadership.

Dodd, just 55, who started his pasta career in North Dakota in 1980, has been the company's only president. The original board is largely intact, headed by North Dakota Lt. Gov. Jack Dalrymple.

The only significant board changes have been addition of members representing LaBella Holdings L.L.C., an NBC Capital Corp., which have put capital into the company. This year's board members were all running unopposed and vetted through a nomination process.

Dodd acknowledges that the latest success has come despite periods of extraordinarily high prices for durum wheat, which has blended into the price structure. Much of that durum comes from North Dakota and eastern Montana, although some comes from Canada.

Dodd says North Dakotans often don't see the magnitude of a business that consumes some 15 percent of the state's durum -- a crop for which North Dakota the nation.

That's nearly 1 million pounds of pasta per day. One pound of pasta theoretically can produce a serving of pasta for eight people, at 2 ounces per serving, so this plant alone can feed 8 million people.

On the agronomy side, Dodd doesn't point to any durum production challenges, but notes that the company continues with its own seed program. Meanwhile, production has shifted to the west in North Dakota and to eastern Montana, where scab threats are less and quality threats aren't as great.

In 1999, the company linked with WestBred L.L.C. of Bozeman, Mont., to develop durum varieties with improved scab tolerance. In 2001, they added James Quick, to make selections. With WestBred, the company released Grande Doro in 2005, and Dakota Growers released DG Star in 2007 and DG Max in 2008.

Dodd says his company ships out a lot of byproducts -- pelletized wheat midds for livestock and "second clear flour" for pet food. But Dakota Growers has worked with researchers like Vern Anderson at the North Dakota State University Research and Extension Center in Carrington and others, to look for local opportunities.

"Our position on livestock is to support the industry entirely, whether it's the farmer who who has a few cattle, or a larger feedlot or dairy," Dodd says. "We'll do anything we can to market our products locally."

Dodd says there isn't anything on the horizon to upset the pasta cart:

"We're experiencing consumption continuing to rise. People are seeing the value of pasta."