West Liberty Foods

Overview
Paul Hill is a third-generation turkey producer. His son, now a part of the operation, brings in the fourth generation. When you listen as Hill relates the progression of the “old-line, independent turkey and beef production” family line, however, you begin to feel the enormity of risk and challenge the operation has seen during his years at the helm.

Hill is a graduate of St. Olaf College in Minnesota. There, he studied economics. He learned the risks involved in getting ahead in agricultural production through his heritage and hands-on experiences, both good and bad.

He’s seen bankruptcy, borrowed heavily, and, initiated substantial growth in his turkey production enterprises, especially in recent years as many have seen only increasingly tougher times. Through it all he has kept and spread his optimism. He puts deals together that work; and if they seem risky beyond what many would assume, he has always said, “I’ll make it work.”

Background
As Hill and his father entered the 1970s, they went into confinement production of turkeys. In the mid-70s, they joined a group, as minority stockholders, buying a processing plant in Storm Lake. Three years later, the majority owners went broke, and Hill and his father took over the plant. They sold it in bankruptcy.

In 1979, the Hill farmers began contract growing turkeys for Belmar, then a few years later contract grew for Land O Lakes. They built a new farm in the mid ‘70s in the same area they had always farmed, near Ellsworth.

The simultaneous cattle operation, which had grown to nearly 5,000 head, began to see troubled times in the late ‘70s; Hill and his father “rode that wave down.” But Paul Hill had “bought a lot of farm” by then. In 1984, the father and son team had to sit down with bankers and liquidate the cattle operation and 40 to 50 percent of their land. Rather than work with realtors who were having disappointing luck, Paul Hill sold the properties himself.

He put together a deal with Louis Rich to grow turkeys on contract. It was an optimistic venture for which he had to borrow heavily, cash in on useless buildings and do some major “dealing.” He let help go and used the kids. Money was borrowed at a hefty 14 percent interest.

But Hill knew that poultry was one of the few contract production areas that worked – you just had to run volume. To do that he had to be “big.” He had land and buildings; he had the knowledge; and he had the confidence. He borrowed from extended family, putting them into the deal package. He ran the operation for them, they made money if things worked. That Louis Rich contract was for 70,000 turkeys a year. Hill owned part and managed all of the partner group’s production, taking production to a total of 650,000 head.

Opportunities
All through his production years, Hill has been able to visualize opportunity. In the 1970s, he began dabbling in composting turkey manure for use as fertilizer and, using an aerobic fermentation process to remove all bacteria and create a high protein feed for cattle. His products have sold well. They are always sold out, he noted. He is registered as an organic fertilizer producer. Things were going well for the group. But unsettling times with risk involved, were ahead as usual. In 1995, rumors began to float that the Louis Rich operation near West Liberty was going to fold. Hill served on committees and the governor’s advisory group. They needed to focus on what could be done to get a big company to come in and buy the plant. Louis Rich announced it would close in December of 1996. Hill and 47 other growers were in the same position – up to 50 percent of the state’s turkey production would be gone if the plant left.

Hill said they began to organize with Farmland as a coop. “Farmland took us down a path toward gaining control. They said ‘you’ need to look at buying a processing plant, then Farmland would run the operation.”

A cooperative was formed and a manager hired. Hill estimates he spent every moment from May through December that year putting a deal together, working with Farmland and Louis Rich. During the process, Farmland began to have difficulties and the process wavered. But in late summer of 1996, the 47 producers decided to take on the risk themselves. The group received millions in USDA loan guarantees and through the VAPFAP program. They went to the public through meetings and press releases to build enthusiasm. The growers all invested heavily. The plant already had more than 400 experienced employees. Sixty percent of the producers operated near Ellsworth; the other 40 percent were near the West Liberty facility. Those near Ellsworth had to begin to purchase turkeys (rather than have contract turkeys) for the plant they now owned.

How much risk can people take on? In the case of these turkey producers, there was more to come. In 1996-97 the turkey market dropped substantially. “It was equivalent to $8 hogs,” said Hill. “We had many come-to-Jesus shareholders meetings. And we lost six or seven shareholders.” At its low, the group sat with 2.9 million turkeys.

But West Liberty Foods was soon to be on the rising end of the teeter-totter. By spring 1998, the market changed. Plus, said Hill, “We had learned how to grow turkeys cheap!” Last year, West liberty processed 4.5 million turkeys and now employs around 800 people.

“We have put a tremendous number of deals together,” said Hill. There are huge clients and their highly specific market specifications to meet – clients like Sarah Lee, Armour Swift Eckrich and Butterball. West Liberty also does private label products for Kroger, which puts a label on its turkey products claiming it to be the best product available. Nationally, private labels were up 7 percent in 1998. Branded products were flat.

One of the keys to success, said Hill, is the growers. Now there are people waiting to join the group. The growers all believed in what they were doing, and they attempted to do the “right” thing. Yet another key was to hire the very best person available to run the plant. Hill’s job as chair and CEO of West Liberty Foods, is to “understand the independent farm people and merge their ideas with those of corporate people in the real world of corporate meat manufacturing.”

West Liberty is a value-added company, with 18-20 percent of its business in “further processing” meat products. Everything else is sold as commodity. They add ingredients, slice and add other enhancements according to what the customers want. Fat-free, smoked, whatever, the company can accommodate. The goal is to grow the further processing work to 75 percent of business; currently it is at 52 percent.

The processing plant also is looking to enlarge business in chicken, beef and pork products in the next couple of years.

Some growers, like Hill, are also venturing into the “natural” or free-range type of turkey production on their farms, which will eventually add to the capabilities of West Liberty. As in other animal production, Hill has found some consumers, particularly on the East Coast, are willing to pay up to 25 percent more for those identified products.

“Control” has continued to be an increasing component of the success of Hill, his family of producers and those he has brought into the business venture. In order to make that happen, Hill has put a major chunk of his time and effort into building relationships with his customers and partners; relationships that allowed him to make those critical “deals.”

Fall 1999

For more information about West Liberty Foods, contact:
Paul Hill
P.O. Box 318
West Liberty, IA 52776-0318
Phone: (515) 836-4631

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