Dakota Growers Pasta Co. — Ever changing, ever evolving

Reprinted from The Minot Daily News, North Dakota

CARRINGTON — The Dakota Growers Pasta Co. has changed and evolved throughout the years, as it has expanded its capabilities and found new markets for its ever-expanding list of products.

Tim Dodd, president and CEO of Dakota Growers, said it all started back in 1991 with an interim board that was kind of set up through the U.S. Durum Growers Association. Jack Dalrymple, current lieutenant governor of North Dakota, and Gene Nicholas were members of that board who had done a feasibility study on building a value-added integrated facility in North Dakota.

The idea, basically, was to form a farmer-owned pasta company.

“The study came back fairly positive and they decided to take a look at ... building this kind of plant,” Dodd said.

Dodd, who had been good friends with Nicholas for some time, was convinced to join the company in December 1991, and an equity drive quickly followed from January to March of 1992 to secure financing for the $40 million facility. The new facility was up and running by November 1993.

They were able to double the size of the mill and the pasta plant in 1996, and then they doubled the size of the operation yet again in 1998 with the purchase of a pasta plant in New Hope, Minn. Since the plant in New Hope doesn’t have a mill of its own, the Carrington mill supplies semolina, the granular product used to make pasta, to both pasta plants in Carrington and New Hope.

The farmer-owned co-op was doing well until scab disease devastated much of the durum triangle in north central North Dakota. Most of the co-op membership was east of Minot, which was a heavy durum producing area.

“And then as Fusarium head blight (scab) set in, basically the quality of the wheat wasn’t something we could produce pasta (with),” Dodd said. “So we had to go outside our membership procuring the durum, which ended up being western North Dakota and Montana.”

Because so much durum had to be acquired from outside of the membership, the board decided to turn DGPC from a co-op into a C corporation in 2002, which allowed non-farmers to become shareholders. Dodd said that as a co-op, only farmers were allowed to become shareholders in the company. The change enabled them to get more equity from outside of the farming circle that had been severely impacted by scab disease.

“It allowed us to bring in outside equity, which obviously strengthened our balance sheet. It allowed us to do some things (with) the modernization of the facilities.”

The move from co-op to C corporation allowed DGPC to raise an additional $5 million in equity almost immediately by issuing stock to a group in New York called MVC Capital.

At present time, the mill can grind around 12 million bushels of durum a year, which supplies not only the pasta plants at Carrington and New Hope, but other pasta plants around the country as well. At full capacity, the pasta plant in Carrington can produce approximately 270 million pounds of pasta per year, while the New Hope facility can do around 230 million pounds per year, giving DGPC a total combined capacity of around 1/2 billion pounds of pasta produced per year.

Dodd noted that depending on the shape and the amount of pasta a customer may need, the plant is capable of producing around one million pounds of pasta in a single day. The expansions of Dakota Growers has helped it become the third-largest pasta producer in North America.

Dodd said that they now get a majority of their grain from the area, beginning at U.S. Highway 83 in central North Dakota, including the southwest corner of the state, and extending all the way out to Plentywood, in eastern Montana. He noted that in the last couple of years, there hasn’t been much of a scab problem east of Highway 83, so Dakota Growers has been able to get more durum from that area and save themselves some shipping costs.

“We haven’t really had a scab problem in durum for the last two years, so we’re seeing some durum production coming back into the traditional durum growing areas. ... Which is good for us, because it’s closer to the plant,” Dodd said.

To help protect against future outbreaks of scab, Dodd said Dakota Growers has launched an agronomy program that has developed a new variety of durum that is very resistant to scab. He said they hope to have that seed in production within two years.

“Hopefully that will bring that durum production back into these traditional areas closer to the plant, so we don’t spend so much money on freight,” Dodd said.

Once the pasta is made, it can be sold in one of three avenues. Dodd said a big part of their business is producing pasta for store brands, which are also known as private labels. These are places like supermarkets and other retailers who in turn sell the pasta to their customers, primarily under their own store brands. This comprises about 40 percent of Dakota Grower’s business.

“When you’re producing half a billion pounds (of pasta) a year, obviously you can feed eight people per pound, so you’re not gonna depend on North Dakota to consume that much pasta,” Dodd said. “So our biggest customers in the private label would be on the East Coast, the West Coast and the Midwest. It’s kind of split up into three different regions.”

Another 30 percent of the business goes to the food service industry, with the pasta being sold under the Dakota Growers label. The food service industry is comprised of both distributers and restaurant chains.

The last 30 percent goes to what is called the ingredient business. Dodd said this is any company that uses the pasta as an ingredient in their own products, an example of which would be a microwave dinner.

These were the three markets that they had decided to pursue when a market analysis was done at the company’s inception. That market analysis done in the early ’90s ended up being a pretty accurate representation of how the business is doing now.

“We hit it pretty close to the nose, 30 percent in each of those categories,” Dodd said. “And that had a lot to do with the layout and design on the packaging floor.”

With their original markets firmly established, Dakota Growers has been extending its reach into new markets. In 2004, it started developing a new type of pasta called Dreamfields. This was a health-oriented pasta that had many of the health benefits of whole wheat pasta while tasting like traditional pasta.

Dreamfields pasta has only five digestible carbohydrates per serving versus 42 in traditional pasta, and it also has about the same high fiber as whole wheat pasta. Dodd noted that Dreamfields’ fiber content is comparable to whole wheat pasta, with Dreamfields having five grams of fiber compared to six grams of fiber for whole wheat pasta.

“As far as fiber benefits, you get it without sacrificing any taste or texture in the pasta,” Dodd said. “If you look at it and use it, it’s just like using traditional pasta, whereas whole wheat pasta is brown and it’s got kind of a bitter taste to it. With Dreamfields, you really won’t notice any taste difference or texture difference.”

When it first came out, it was marketed as a low-carb food because of the popularity of the Atkins diet. But now Dodd said that has pretty much passed by, and they now market Dreamfields to diabetics because carbs are converted to glucose, and its low digestible carbs make it perfect for that target group.

“Now no one talks about low carb (anymore), they talk about low glycemic index,” Dodd said.

He noted that Dreamfields does cost more than traditional pasta, but that hasn’t seemed to stop consumers who want a healthier lifestyle. Dodd said they are getting good results marketing Dreamfields as a healthy pasta, and the numbers bear that out as the label earns about $13 million in annual sales.

In addition to the good taste and health benefits, Dreamfields comes in six different shapes — spaghetti, linguine, elbow macaroni, penne rigate, rotini and lasagna.

While they have expanded out into other areas, DGPC has kept its eye on the core products that made it profitable to begin with. Dodd said they will continue to work on growing all three of their core market segments.

“Food service and our ingredients segment is probably growing the fastest. That’s where we’re seeing the growth on the pasta consumption,” Dodd said. “Retail pasta consumption is pretty much flat. It really hasn’t been growing that much.”

He said the Dakota Growers label is also doing well within its market segment. He noted that it does get sold a little bit in the South, but it is still pretty-much a local brand.

“(Dakota Growers) does well in North Dakota because people know who we are,” Dodd said. “We really don’t market it outside of North Dakota and Montana and Minnesota.”

While Dakota Growers may be a local brand, Dreamfields is a national brand and is being sold across the entire United States. Dodd mentioned that they have just recently started exporting it to Great Britain. He stated they’d just have to wait and see how it goes, but he is hopeful that it will do well over there.

“Europeans typically are more aware of these low g.i. (glycemic index) diets and benefits than Americans are. ... That makes it a perfect product for that market,” Dodd said.

Low stocks of wheat have been projected this year based upon a number of factors — drought and the heavy use of corn to supply the ethanol industry chief among them. Dodd said that low supplies of durum probably will have an impact on Dakota Growers, but he doesn’t see getting enough wheat to keep the mill going as being a problem.

“I think you’ll see the impact more just in what it’s going to cost to encourage farmers to put acres in,” Dodd said.

He noted that their board right now shows durum going for about $5.75 a bushel, whereas last year at this time it was hovering around $4 a bushel. He said the price has gone up primarily because durum acres have been reduced.

“We saw a 47 percent decline in acres last year, and I don’t expect it will probably go up too much this year,” Dodd said. “Even though durum prices being up almost $2 a bushel, we could see some increased acres because that would encourage farmers to plant (durum).”

Dodd thinks increased wheat prices are actually good for everyone. They’re obviously good for the farmers, and while price increases will trickle down the chain, he doesn’t see them being as big a deal to consumers as they would be to farmers.

“Let’s put it this way,” Dodd said. “If you had $2 a bushel increase on wheat, that’d be approximately five cents a pound at the grocery store for pasta. ... Is five cents going to make a difference to you when buying your pasta? Probably not. But it makes a hell of a difference to that durum grower out there.”

Dodd said North Dakota is a large milling state, with Dakota Growers being one of the largest durum mills under one roof in the country, the North Dakota Mill and Elevator in Grand Forks being the largest flour mill in the country, and Minot Milling in Minot being a large durum and hard red spring wheat mill. And those are just a few of the many mills in the state.

“You combine all that milling capacity, we generate a lot of byproducts in this state. And our byproducts are primarily what we call mill feed,” Dodd said.

Mill feed is used as a cattle ration and is made into easily transportable pellets.

He stated that they are conducting a research project at the North Dakota State University Carrington Research Extension Center to combine many of the byproducts produced in North Dakota, notably mill feed and distillers grain from ethanol plants, into a value-added feed in the form of a pellet. Some of the tests have even included pea flour. He noted that so far tests on cattle have been very positive.

While distillers grain is itself a fine cattle feed, Dodd mentioned that it is tough to transport across long distances because it is a difficult material to handle and has a tendency to cake in rail cars. But if this new feed can be perfected, it would be a boon for many North Dakota industries.

“And what we’re trying to accomplish if we come up with a feed ration that shows better gain in cattle by combining mill feed and ddgs (dry distillers grain) and pelletizing them, now you don’t have the transportation problems because pellets don’t cake. ... As long as the gain is as good or better than, say feeding corn, we have a very good value-added feed,” Dodd said. “Which could benefit all the mills, it could benefit all the ethanol plants, it would be a huge impact in this state.”