It was the inquisitiveness of a lawyer that started this Illinois-based co-op. In 1998 Jim Burke, a private practicing lawyer in Belleville, IL, questioned local pork producers on why they were putting up with such high market losses.
Belleville producer Amy Heberer Bouvet explained that only limited marketing options were available. Unconvinced, Burke began looking for solutions to the producers' marketing problem.
Burke had lived in Japan and used his connections there to land some requests for sample products. Burke was brought back to reality, however, when Bouvet reminded him producers had hogs to sell, not pork products.
So Burke went in search of a packer willing to contract slaughter and process hogs to fill the Japanese's request for sample products. But Burke was unable to negotiate a satisfactory agreement. That lead him to consider a producer-owned packing plant and the possibilities to gain a share of a specific, unfulfilled market.
"The more we investigated the more we realized that contract slaughter might get us started, but long term, it isn't a realistic solution to the problem," he says. "We're convinced that you have to own a piece of the slaughter chain or you won't have control over your distribution channel."
Bouvet knew a prerequisite to owning and operating a packing plant was to have a market for their products.
The duo approached Marty Ward, owner of three packing plants and president of the Illinois Association of Meat Processors. Ward sees more and more small and medium-size processors struggling to find quality pork. These processors rely on small producers and there are fewer and fewer of them. So, processors turn to major packers to supply their pork needs. Since they are competitors, the processors usually receive a fourth- or fifth-sort product and quality and yield suffers.
Ward saw the potential for an alliance between small and medium-sized processors and producers.
With a potential market identified, Burke and Bouvet were ready to approach producers about forming a new-generation cooperative.
Co-op Formation After various producer meetings, American Premium Foods was established as a closed cooperative of small and medium-size pork producers.
The goal of the producer-owned co-op is to vertically integrate and capture the profits from processing value-added products by owning its own packing and processing facility.
American Heritage Farms was established as the management arm to American Premium Foods. Ward serves as chairman of the board for American Heritage Farms, and Burke is the president and CEO.
American Heritage Farms will be paid to manage the plant based on a fee of $1.25 per head.
Currently the group plans to build a 2,000 head/shift, single-shift packing plant with capabilities of adding a second shift. The plant will be complete with cutting, boxing, boning and other value-added capabilities, such as sausage kitchen and case-ready meat production.
The plant will be owned by the members of American Premium Foods. One share costs $482 ($50 deposit/share with $432/share due prior to construction). Each share in the co-op-owned plant entitles producers to have 50 hogs/year slaughtered and processed. There is also a one-time administrative fee of $150/member.
American Premium Foods members can vote the number of shares they own. However, the number of votes cast cannot exceed 10% of the total. Currently American Premium Foods has 83 producer-members and is halfway to its obligatory 28,000 sows to produce the 500,000 hogs/year needed for the proposed plant.
The producer investments will cover about 30% of the cost to build and equip the $16-million plant. At press time, American Premium Foods received a grant from the state of Illinois for $1.7 million. The money will be used for plant construction, equipment and engineering. The rest of the financing will be borrowed.
A site for the plant has yet to be selected, but engineers have been hired to design it. The latest automation and technology will be used wherever possible to ensure high quality and low labor costs, says Burke. The use of advanced technology will allow this plant to be as efficient as the bigger packers, he says.
The equipment planned for the American Premium Foods' plant is currently being used in smaller plants, primarily in Europe. The equipment is designed to be used in plants that run 300-400 head/hour compared to larger packing plants in the U.S. that run at 900-1,100 head/hour, he says.
Burke believes the new construction of a smaller plant allows this new technology to be adopted all at one time in one plant. "This plant will be the most efficient plant in the U.S.," he says.
The target is to break ground this summer or early fall, says Burke, with opening expected in September 2001.
Branded Product Producer-members will be paid the wholesale value of primal cuts from their hogs. Each carcass will be individually tracked through the plant. The profits from additional processing will be paid based on a producer's percentage of ownership.
American Heritage Farms is focusing on marketing, including the formation of a brand name meat company, Meadowbrook Farms, which is co-owned with the producers.
Meadowbrook Farms will employ a sales team to coordinate sales of combo, boxed and boned meat products to processors, distributors and grocers nationwide and internationally. It is owned by American Heritage Farms with a capitalization of $350,000 and priced at $10/share.
Producers are not currently marketing hogs through the co-op. But the collaboration has fourdifferent companies producing private label products for them. The group's goal is to get a head start on product development and finding markets for the products which will eventually come from the new plant. Under the Meadowbrook Farms label, American Heritage Farms is currently selling various products. The co-op has a grilled pork chop product featured in local fast food restaurants with proposed plans to go national. They also have an ongoing order with a national grocery chain for 10,000 lb. of sausage every two weeks.
"The fact that we don't have a manufacturing facility is slowing the project down," says Burke.
For more information on American Heritage Farms and its associates, contact Burke at (618) 222-1188 or e-mail [email protected] Or visit its Web site at www.americanheritagefarms. com.