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This Minnesota company wants to be the Cargill of organic food

October 13, 2018

Organic soybeans and corn fetch double and triple the money of conventional crops, but theres a catch for farmers who want to switch to them. They must change so much about how those crops are grown, then hunt down a place to sell them.

Selling an organic harvest is not as simple as dropping off at the local elevator. Most grain elevators cant accept it. Farmers must instead work to find customers, build relationships over time and figure out a different set of logistics for each sale.

A Minneapolis firm is trying to change that by streamlining the organic supply chain. Pipeline Foods, a private-equity-backed company started less than two years ago, in recent weeks took over a grain elevator in Atlantic, Iowa, its fifth elevator dedicated to handling organic crops.

There arent many organic grain elevators that a farmer can see, as opposed to being a conventional farmer where you can drive 10 miles in any direction and probably hit three or four outlets, said Eric Jackson, chief executive of Pipeline. One of the problems were trying to solve as a company is being able to provide a locus for these crops.

Sales of organic food are growing. Americans bought $45.1 billion in organics in 2017, a 6.4 percent increase from the previous year, according to the Organic Trade Association. Organics as a share of all food sales in the U.S. have risen from 3.1 percent in 2008 to 5.5 percent in the past 10 years.

But less than 1 percent of American row cropland is organic, and while the U.S. is by far the worlds largest grower of conventional corn and soybeans, it is a net importer of organic versions of those crops.

We still import a lot of organic corn and soybeans into the United States, which seems absurd on the face of it because we have such an excess supply of conventional corn and soybeans, said Mac Ehrhardt, the owner of Albert Lea Seed in Albert Lea, whose core business is organic seed.

Jackson and his Pipeline co-founders Jason Charles and Neil Juhnke, all of them veterans of the food industry, say that by professionalizing and bulking up what they consider a fragmented system for handling organic food, they can make it more attractive for conventional farmers, help increase domestic cultivation of organic grain and meet the growing demand.

About 60 people work for the firm, most of them at the headquarters in a strip mall off Hwy. 65 in Fridley, where they buy grain from farmers over the phone, set up the logistics to pick it up if the farmer isnt near one of the firms handful of facilities, and help walk farmers through the process of transitioning to organic.

A tough switch

Making the switch from conventional to organic farming is arduous. Since most synthetic pesticides and herbicides are forbidden, farmers must alter the ways they fight weeds and bugs. The work is more labor-intensive, they must rotate crops more often, and it takes three years to earn organic certification, a period during which the farmer typically loses money.

One question farmers often, and should, ask before they embark on all this is who will buy their organic crops, said Michelle Menken, manager of the organic services program at the Minnesota Crop Improvement Association.

The regulations say you have to have a rotation that includes small grains, sod crops, cover crops, Menken said. A lot of conventional farmers have no idea where to sell these other crops. How do you sell buckwheat?

When it comes to corn and soybeans, some companies in Minnesota buy organic. But the biggest ones Grain Millers and Scoular focus on specialty grain for human consumption, said Ehrhardt.

Grain for animal feed is a much, much bigger market, said Ehrhardt, and one of the largest buyers of grain for animal feed in the region is Cashton Farm Supply east of La Crosse, Wis. Pipeline is filling a gap in the marketplace.

Pipeline officials said they expect to attract organic grain at the new elevator in Atlantic from farmers within a 200-mile radius, which would include the western two-thirds of Iowa and the southwest corner of Minnesota. The grain would then be shipped by rail to organic livestock producers on the coasts.

Pipeline was able to buy the elevator in Atlantic because a massive new ethanol plant was built nearby, sucking up the local supply of conventional corn. As a result, the elevators former owner, Archer Daniels Midland, no longer needed it.

Pipelines cash bid there on Friday was $9.30 per bushel for organic corn and $18.25 per bushel for organic soybeans.

Finding a network

Thats too far away for Carolyn and Jonathan Olson, organic farmers for 20 years near Cottonwood, Minn., who raise soybeans and wheat for seed and corn for animal feed and vodka. But the infrastructure for organic grain is growing in their neighborhood, too. One of their grain buyers just purchased a grain elevator in Redwood Falls, about 35 miles from the Olson farm.

Weve been doing this for a long enough time that we have a network of buyers established, so we just know who to call, Olson said.

Olson said she knows of Pipeline Foods, but she hasnt sold any grain to the company.

So far they havent been quite as competitive for us as what some of the other buyers have been, Olson said.

Pipeline is just getting started, though, said its owners. The new elevator in Atlantic is its first to handle corn and soybeans. Pipelines four elevators in northern North Dakota and Saskatchewan handle wheat, field peas, barley, rye and flax. The company also operates storage and loading facilities.

Were only 18 months into it, Jackson said.

Pipelines leaders also hope, in the next couple years, to get into the grain processing business.

Adam Belz 612-673-4405 Twitter: @adambelz

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