Case53 Prairie Winds Pasta
Capital Budgeting Methods and Cash
Flow Estimation
53
PRAIRIE WINDS PASTA
Directed
In the early 1990s, the farm economy in the heartland of the United States was weak. Farmers in North Dakota produced hard, amber Durham wheat and exported 75% to Italy for the production of high quality pasta. Prices for raw wheat fluctuated radically, depending on weather and growing conditions. Many farmers were having difficulty meeting payments for the expensive farm machin- ery required for crop production. Small family farms were disappearing and non-farm jobs in the area were scarce. Although consumers were paying record prices for food, many farmers felt that processors, who converted the raw grains into finished products for sale in grocery stores, were generating large profits.
Jim Strongbeard, one of North Dakota’s largest wheat growers, read an article about a suc- cessful Nebraska pasta plant. It was established and operated by the local growers in order to process their wheat into consumer products. The winter had already been long, and Jim decided to visit his sister who lived near the plant. While there, he arranged to meet with company executives and the production manager to see if a similar plant could operate in the rural Dakotas. His visit was extremely fruitful. Not only did he determine that a pasta operation could be profitable, but Steve Hildeman, the plant manager and a North Dakota native, expressed an interest in establishing a new plant.
Jim returned home and started talking to other growers. The farmers were convinced that vertical integration, combining the production and processing of their wheat, would help them gain control over their product and also help with diversification. In 1993, Prairie Winds Co-op was formed, and 1,000 Durham wheat growers in North Dakota and Canada purchased shares. They pledged a specific amount of wheat, at a set price, for the production of pasta. If the wheat market is weak, farmers have an outlet for
Flow Estimation
53
PRAIRIE WINDS PASTA
Directed
In the early 1990s, the farm economy in the heartland of the United States was weak. Farmers in North Dakota produced hard, amber Durham wheat and exported 75% to Italy for the production of high quality pasta. Prices for raw wheat fluctuated radically, depending on weather and growing conditions. Many farmers were having difficulty meeting payments for the expensive farm machin- ery required for crop production. Small family farms were disappearing and non-farm jobs in the area were scarce. Although consumers were paying record prices for food, many farmers felt that processors, who converted the raw grains into finished products for sale in grocery stores, were generating large profits.
Jim Strongbeard, one of North Dakota’s largest wheat growers, read an article about a suc- cessful Nebraska pasta plant. It was established and operated by the local growers in order to process their wheat into consumer products. The winter had already been long, and Jim decided to visit his sister who lived near the plant. While there, he arranged to meet with company executives and the production manager to see if a similar plant could operate in the rural Dakotas. His visit was extremely fruitful. Not only did he determine that a pasta operation could be profitable, but Steve Hildeman, the plant manager and a North Dakota native, expressed an interest in establishing a new plant.
Jim returned home and started talking to other growers. The farmers were convinced that vertical integration, combining the production and processing of their wheat, would help them gain control over their product and also help with diversification. In 1993, Prairie Winds Co-op was formed, and 1,000 Durham wheat growers in North Dakota and Canada purchased shares. They pledged a specific amount of wheat, at a set price, for the production of pasta. If the wheat market is weak, farmers have an outlet for