Farmland Foods, Inc. History

Company History:

Farmland Foods is the largest subsidiary and the third-largest business segment of Farmland Industries, Inc., which in turn ranks as the largest agricultural food marketing and manufacturing cooperative in the United States. Although Farmland Industries' Petroleum and Fertilizer-Chemicals segments cumulatively posted nearly $1.9 billion in 1992 revenues, Farmland Foods represents a crucial portion of the co-op's activity, especially as it moves toward a greater emphasis on earnings through value-added products and international distribution. Like its parent company, Farmland Foods serves a large owner-producer network spanning 19 midwestern states. Primarily a processor and marketer of pork products to retail and food service outlets, Farmland Foods and the Farmland label are complemented by Massachusetts-based Carando Foods, the largest U.S. producer of Italian specialty meats. With the 1991 addition of Carando, Farmland Foods operates eight processing plants spread across the country. Annual hog-processing capacity for the subsidiary is approximately five percent of the total U.S. output.

Farmland Industries began in 1929, under the name Union Oil Company, as a farm supply organization. As the company expanded its ventures, it altered its name to Consumers Cooperative Association in 1935 and to its present title in 1966. The company began experimenting in 1959 with pork production and marketing when it purchased a struggling plant in Denison, Iowa, and launched Farmbest, Inc. and the Farmbest label. In 1963 the co-op established another pork-processing plant in nearby Iowa Falls; sales for the year totaled $21 million. From that time until 1970 Farmland's food business developed into a $200-million industry, encompassing not only pork-packing, but beef-packing, turkey-processing, egg production, and swine-testing. Meat margins were then, as they are now, dangerously thin; yet Farmland committed itself wholeheartedly to the industry.

Under the direction of Farmland Industries' then vice-president, W. Gordon Leith, the foods branch of the co-op was officially launched as Farmland Foods in 1970. Central to its operations at the time were its line of hams, bacon, and sausages marketed under the Farmbest, Country Manor, and Farm-King labels.

Although primarily regional in focus, Farmland Foods had already marketed to major cities around the country and even entered the European and Japanese markets. According to a corporate news release that year, Farmland "undertook the marketing of meat at a time when other farmer-owned organizations were hesitant to face the uncertainties and pressures of the meat industry. The beef and pork operations under Farmland Foods are the largest that have ever been developed under farmer ownership and control." In addition to the Iowa plants, the original Farmland Foods consisted of a beef-packing plant in Garden City, Kansas; a turkey-processing plant in Cheraw, Colorado; egg plants in Hutchinson, Kansas, and Eagle Grove, Iowa; and swine-testing stations in Iowa and Nebraska.

During the 1970s the Farmland Foods label gradually supplanted Farmbest and the subsidiary entered the ranks of the nation's foremost meat packers. In 1976 it expanded its hog-processing capacity with a new plant in Crete, Nebraska, capable of high-speed skinning of 3,500 hogs per day. Overall hog-slaughtering capacity for Farmland now surpassed three million per year. During the decade the company also expanded its role as a beef processor through its participation in the boxed beef business. Farmland would later temporarily exit the beef-packing business to concentrate full-time on pork production. By 1989 Farmland Foods was the nation's tenth-largest pork processor. Farmland's parent company was at the same time entertaining the possibility of a historical merger with two Minnesota-based co-ops, Land O'Lakes and Cenex. The result would have been the creation of a $6 billion agribusiness. A tentative agreement between the three was signed in 1988, but by January 1989 merger talks had ceased due to a host of problems surrounding the proposed consolidation.

Farmland Foods entered the next decade committed to long-term growth. Beginning in 1990 it inaugurated a large-scale financing program. Improvement and operational loans of up to $1 million each were now being awarded to hog farmers in 19 midwestern states. In at least two of these states, first-ranking hog-producer Iowa and third-ranking Minnesota, controversies have arisen because of the financing, which some fear will destroy small hog-farming ventures in the name of big business. BCH Enterprises, a hog-breeding project established in Minnesota with Farmland resources, stalled in November 1991 due, ostensibly, to environmental questions. However, according to Sharon Schmickle in the Star Tribune,, the real issue revolves around "the very nature of farming and reveals a future that many farmers find frightening because bigger and fewer farms seem inevitable." The whole business of hog-contracting has become especially fierce in north central Iowa, according to Betsy Freese in Successful Farming. Not only is there ongoing disagreement among farmers about the merits of big business financing, there is also pressure between the firms themselves, including Murphy of Iowa, Swine Graphics's Pig Weighs and Means, Land O'Lakes's Swine Risk Sharing, and Farmland to become increasingly competitive in their deal-structuring. Better facilities, better technology, higher quality meat, and lower prices are the expected outcomes from such partnerships, but the future of small livestock farming remains far from certain.

"Perpetual white water" was the phrase applied by Farmland Industries' chairman and president in 1990 to the swift-moving field of agriculture. Farmland Foods' losses that year were $5.5 million, attributable to high live hog prices as well as higher processing costs. Other discouraging news included estimates that up to 25 percent of U.S. pork producers might vacate the industry within five years, sending prices even higher. The foods subsidiary, however, holds the key to the parent company's growth as a value-added producer, a goal it set for itself. In 1991 the company purchased Carando, headquartered in Springfield, Massachusetts. Sales volume for Carando prior to the sale totaled $68 million. Carando's Italian specialty meats, with strong markets in the Northeast and Florida, provided new opportunities for Farmland, as did its Riegel Foods division, specializing in quality hams and ham products.

Because of such attention to niche marketing, as well as the development of new products and a commitment to a $2 million annual advertising budget, Farmland Foods had strengthened its position by 1992. According to the company's 1992 annual report, "The long-term strategy to take Farmland Foods from a commodity business to a value-added marketing business is paying off. Farmland Foods, posting the highest sales volume in its history last year, became the fastest growing food company in the United States during 1992, according to Meat and Poultry magazine. Income before taxes for the subsidiary was $17.4 million, an increase of $14.4 million over 1991. In July 1992 the company broadened its "output" segment with the acquisition of Union Equity Co-Operative Exchange and Hyplains Beef. The purchases signify Farmland Industries' reentry into the grain and beef businesses and should provide a higher profile for Farmland as a major world food concern (Union's 1991 grain sales through its terminals in Houston and Galveston exceeded $1 billion). "Better Farming, Better Food" is the Farmland motto, and it can be expected that as the cooperative continues to serve its heartland members it will also continue on its high growth trajectory.

Principal Subsidiaries: Hyplains Beef, L.C.; Yuma Feeder Pig LTD, Inc.

Source: International Directory of Company Histories, Vol. 7. St. James Press, 1993.

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