AgDM newsletter article, May 2002

The Iowa Turkey Cooperative experience -- West Liberty Foods

by Kenneth D. Rutledge, President and CEO of West Liberty Foods

West Liberty Foods has proven that a value-added cooperative owned by Iowa turkey growers can carve out a profitable niche in the marketplace. In just five years, West Liberty Foods has gone from a fledgling startup company of 425 employees to an industry leader that employs 1,350 and produces more than 120 million pounds of meat products per year.

Let’s begin by reviewing the short history of the Iowa Turkey Growers Cooperative.

The Growers found they needed to:

With the help of many, many individuals and organizations they were able to pull all the parties together and a program was launched. On December 27, 1996 the facilities of Kraft Foods in Iowa were transferred to the Iowa Turkey Growers Cooperative.

Now the real fun began.

The growers discovered that there was nothing easy about being in the processing and marketing side of the turkey business. The first turkeys were processed by the Cooperative in January 1997. A management team had been formed in November of 1996. A sales program was nonexistent. The only program in place was a commitment on Kraft’s part to take a certain portion of the product from the plant.

Unfortunately the Cooperative started processing product during a time of record production and the lowest price in the history of the modern turkey business. This low market condition continued through June of 1998. To give you an idea of how serious this situation was, the normal break-even level for turkey meat is in the $1.60 range. The market reached a low of $1.07 during the first year and a half of the Cooperative’s existence.

Significant developments

During the first year and a half; however, many significant events unfolded:

1. Two companies closed sizable turkey plants and idled or converted them to chicken.

2. The industry began to exercise serious production restraint.

3. Supply and demand came into balance. As an old friend used to say, “The law of supply and demand will never be repealed.

4. A major player in the business decided to discontinue slaughter operations.

5. The sales and marketing programs the West Liberty Foods staff had been pursuing began to bear fruit.

6. Strategic alliances began to be put into place.

In January 1999, a very viable Cooperative emerges from the trying 1997 and 1998 experiences. The Cooperative continues to seek out business opportunities to insulate it from the vagaries of the commodity turkey market, even setting plans for a natural turkey product line.

In 1997, the Cooperative processed 2.9 million head of turkeys from our members. In 1999 we completed the year with over 4.5 million head of turkeys processed. During the 2000 calendar year we not only processed 4.5 million head but also purchased the equivalent of over 1.0 million additional head in the form of deboned meat from other companies.

In 2000, the Cooperative concluded the purchase of another 50,000 square foot processing facility in Sigourney, Iowa.

Ninety percent of the products manufactured by West Liberty Foods are branded and sold by other companies and ten percent are marketed under the West Liberty Foods label.

The future opportunity for West Liberty Foods lies in selecting the appropriate partners from a co-manufacturing and private label standpoint, negotiating long term financially favorable agreements which will continue to insulate us from severe market swings, continue to seek out higher margin niche markets to blend in with the co-manufacturing/private label product and continue to improve to the most efficient production level at the plant.

If we are able to accomplish these tasks, we will provide to our grower/owners a profitable, sustainable business which can be passed down to the next generation as a financial investment worthy of their time and money. This is the key to a cooperative’s long term viability and survivability.

In a recent article from a trade publication ranking the top 200 meat and poultry processors based on sales revenue, West Liberty Foods ranked #157 in 1998, #90 in 1999 and #75 in 2000. We ended F/Y 2000 at over $135 million in revenue. We have arrived and we intend to stay a viable food production entity for the long term.

Drivers of the future

We are concentrating on three major trends that we believe will drive our business for the future and will also be applicable to any other cooperative food venture.

Brand Marketing
Brand marketing in the future will focus corporate shareholder attention on marketing of the end product and cause major food companies to look for strategic alliance partners to grow, slaughter and process product. This is already happening at West Liberty Foods. This trend has resulted in four separate co-manufacturing agreements at West Liberty Foods with four of the largest food companies in the country.

The example used as the ultimate brand-marketing program is Nike. Nike owns no production facilities. All of their product is co-manufactured. This trend bodes very well for the future of West Liberty Foods.

Private Label
Private label food production is very different today from the old generic labeled product you used to see in the grocery store. Major retailers today want to place their store’s name on upper end, high quality products. The private label business in 2000 grew at a rate of almost 10 percent. Branded product had a flat growth year. Most branded producers do not want to produce private label products, thus a continuing avenue of opportunity exists for West Liberty Foods.

Food Safety
Food safety is the issue of the new millennium. If you are planning to build a food production facility, you have a golden opportunity to build a state-of-the-art facility with food safety as the integral part. At West Liberty Foods we inherited an existing facility. We continue to remodel our facility to provide the safest environment for food production. An example of this is our newly completed segregated facilities for our cook side employees. This means no daily contact between raw side and cook side employees. If you expect to be chosen by major food companies and by retailers as the production facility of choice, you had better provide a reason for them to select your company.

 

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