USDA helps Colorado farmers cook up profitability

More than a decade has passed since a small group of farmers huddled around a breakfast table in a Denver area cafe to discuss opportunities to develop a new value-added business. These farmers understood the difficulties facing producer-owned businesses because they all served on the board of directors of a grain handling and feed milling cooperative that had been forced into bankruptcy from a series of disastrous events. Yet, they were confident that a new producer-owned venture could capitalize upon the emerging opportunities in value-added agriculture.

The question they asked at the breakfast was: "Which opportunity?" Discussion ranged from grain milling to straw fiberboard processing. They realized they needed help in finding the answer. With the assistance of the Rocky Mountain Farmers Union, the group approached USDA Rural Development and received a $100,000 Rural Business Enterprise Grant, which they used to finance a feasibility study into 14 potential opportunities for value-added processing for Colorado wheat farmers.

The studies funded by USDA Rural Development concluded that emerging developments in the baking industry presented a strong opportunity for a farmer-owned enterprise. The studies also encouraged the producers to partner with an existing business rather than construct a new facility.

Armed with the feasibility results and an ensuing business plan, the key leaders organized a new cooperative in 1996 as Mountain View Harvest. They located an existing state-of-the-art bakery north of Denver and successfully negotiated an arrangement to purchase the business. An equity drive conducted between November 1996 and March 1997 generated $5 million in producer capital, and on April 15, 1997, Mountain View Harvest Cooperative formally purchased Gerard's Bakery.

Gerard's was a small regional company producing roughly $6 million in baked goods that were sold primarily in the food service channel. Under the ownership of 225 Colorado wheat farmers, Gerard's generated $26.8 million in sales and earned a net profit of $1.2 million for its shareholders in 2004.

But that growth didn't come without pain.

At the time of purchase by the cooperative, the majority of sales from Gerard's went to one foodservice outlet. As that outlet grew rapidly, the bakery cooperative struggled to keep pace. Every dollar earned by the new cooperative was poured back into expansion. And, because of the low-margin business, the bottom line suffered significantly.

Again, the wheat farmers turned to USDA Rural Development. In 2002, Mountain View Harvest successfully applied for a $342,210 Value-Added Producer Grant (VAPG) to finance the expansion of its product line and to fund marketing efforts to diversify its customer base. With the assistance of the VAPG funds, the board and management were able to establish new products and outlets that helped transform a $1.3 million operating loss in 2001 into a $1.4 million net profit in 2003.

Editor's note: Carter is one of Mountain View's founding board members and a national consultant on co-op development and organic production.

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