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Pasta co-op in North Dakota may begin selling stock

Dakota Growers owners say new capital is vital for success

BISMARCK, N.D. — Since it began production eight years ago, Dakota Growers Pasta Co. has built a reputation not just for the spaghetti
it makes but for how the company is run.

By Dale Wetzel
Associated Press writer

Now, many of its farmer owners want to abandon the company’s oft-praised cooperative structure and sell
stock to the public.

Proponents say the ability to raise new capital would help the company’s future prospects in a cutthroat
business.
"We are in competition with very large, very aggressive companies that want to put us out of business,"
said Lt. Gov. Jack Dalrymple, a Casselton farmer who is chairman of Dakota Growers’ board of directors. "If
you are weaker than the enemy, then you’ve got a problem."

Opponents say the change goes against Dakota Growers’ founding principles and could discourage the
development of new processing cooperatives in North Dakota.
Dakota Growers’ 1,155 members have been debating the proposed change at meetings across the state.
They face a May 23 deadline for voting on the idea.

"People are wondering how it’s going to work," farmer Mark Birdsall of Berthold said.
Dakota Growers began as a business owned by farmers, who agreed to supply the durum wheat the
company needs to manufacture its spaghetti, macaroni and lasagna noodles.
It was envisioned as a way for farmers to profit directly from the processing of what they harvested.
Everett Dobrinski, who farms near Makoti in northwestern North Dakota, thinks of the connection when he
sees Dakota Growers’ distinctive blue box on the supermarket shelf.

"It gives you a certain amount of pride to be able to say that this is
something that I might have grown," he said.
The proposed changes would allow anyone to buy Dakota Growers
stock, and would eliminate the durum delivery requirement.
Some antitakeover rules are part of the package, including provisions
that restrict turnover on the company’s board of directors and discourage
individual investors from buying more than 15 percent of Dakota Growers’
stock.

Dalrymple argues the conversion will not mean any loss of Dakota Growers’ rural essence.
Its farmer shareholders will still hold a controlling stake, he points out, and the conversion plan requires
that its nine-member board of directors include five North Dakota residents and three farmers.

Other traditions will continue, including regular consultations with farmer stockholders and a spaghetti
dinner before the company’s annual meeting, Dalrymple said.
"We will still have a lot of the touch and feel of a cooperative," Dalrymple said. "We will still be,
essentially, a farmer-owned business, even if we have a lot of nonfarmer shareholders."

A corporate structure will allow Dakota Growers to be more nimble in responding to opportunities to
acquire existing pasta brands or factories, or make deals with customers, he said.

Since it began making pasta in January 1994, Dakota Growers earned praise from U.S. agriculture
secretaries and rural development advocates as an example of farmer ownership of food-processing
ventures. It inspired the formation of dozens of other cooperatives.
However, the proposed stock-market foray has brought to light some lesser-known aspects of Dakota
Growers’ operations.

While the company boasts of quality control "from the field gate to the dinner plate," hundreds of Dakota
Growers’ farmer members no longer grow durum and simply buy it elsewhere for delivery.
Farmers blame the decline on problems with a recurring fungal disease called scab, which makes it difficult to raise top-quality durum.
"So many of the original investors in Dakota Growers quit raising durum," said Robert Finken, who farms about 30 miles southwest of
Minot in northwestern North Dakota. "Now, they want a high share price. They don’t look at it the same as a durum producer."

Since 1994, North Dakota’s durum production has dropped almost 30 percent, from 76.4 million bushels to 54.6 million bushels annually.
Durum is grown in six states, and U.S. production last year was 83.6 million bushels, the U.S. Agriculture Department says.
Dakota Growers’ "blue box" retail brand is a small part of the company’s business.

Most of its pasta is marketed by supermarkets and club stores under their own labels,
and sold to food service companies that supply cafeterias and restaurants.

Its biggest competitors are American Italian Pasta Co. of Kansas City, Mo., and
New World Pasta Co. of Harrisburg, Pa.
American Italian made $26.3 million in profit on $310.8 million in sales during its
last budget year. New World lost $2.23 million on $400 million in sales.

Dakota Growers lost $1.8 million during its last budget year on sales of $135.9
million. However, SEC filings show the company has bounced back, reporting a $4.3
million profit from July through December of 2001, the first six months of its new
budget year.

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