North American Bison Cooperative

     North American Bison Cooperative (NABC) was formed in late 1992 by a group of bison ranchers who wanted to establish a stable market for their bison and participate in the value added processing margins derived from the sale of bison meat.  NABC constructed a processing facility in New Rockford, North Dakota and began operations in February 1994.  It is the only USDA and EU approved facility in the U.S. that exclusively processes bison.  NABC has helped to develop the specialty niche market for bison meat.  Since 1994, the cooperative has expanded its facility at New Rockford and increased its membership.  Today, the cooperative produces the largest supply of bison meat in the world and has over 330 members from 18 states and 4 Canadian provinces.  In the year 2000 it is anticipated that over 10,000 animals will be processed by NABC.

Industry Profile
Formative Stages of NABC
Operations
Performance
Lessons Learned

Industry Profile

     Bison have a long and storied past in North America.  A native species of the North American plains and the largest land mammal in this continent, the animal was the key source of subsistence for Native Americans.  The bison provided food, clothing, shelter, and tools, and was a focal point for their culture.  With the arrival of European settlers, however, the bison was hunted to near extinction.  Estimated to number approximately 60 million in the mid-1800s, the North American bison population was decimated until it reached less than 1,000 by the end of the 19th century.  Due to the efforts of some conservation groups and private ranchers, the number of bison has slowly increased since that time.  The population was estimated to be at 30,000 in 1972; 98,000 in 1989; and in the late 1990s the number is estimated to be approximately 250,000.  In North Dakota alone, the bison population increased from 5,000 in the late 1980s to 25,000 in 1997.  Overall, the bison population is growing by approximately 20 percent per year.  Because bison have become economically viable due to the demand for its meat, people have been given an incentive to raise the animals and increase the size of North American herds.

     The number of bison available for slaughter is very small in comparison to mainstream meats such as beef and pork.  When the cooperative was forming in 1993, Ken Throlson, NABC's president, remarked that if the same amount of bison were slaughtered per day as cattle, than the entire domestic herd of bison would be wiped out in one day.  By the end of the 1990s, approximately 20,000 bison are slaughtered each year in North America, compared to 120,000 cattle each day.

     The main attractions of bison meat are its taste, nutritional aspects, and connection to the Old West.  If cooked properly, bison has a very sweet taste and is quite tender.  Nutritionally, the meat has been found to be lower in fat, cholesterol, and calories than beef, pork, or chicken.  Its protein content is similar to the others.  Another aspect of bison that is appealing to some is its connection to the past; there is a sort of romanticism attached to the animal and its connection to the wild, open frontier.

     In the early 1990s the bison industry was comprised mainly of independent hobby ranchers.  Individual ranchers would slaughter their own animals and sell them to their particular groups of customers, or make arrangements with local small-scale processors.  Because it was such a fragmented industry with no real organization or market structure, ranchers had little bargaining power in negotiating prices.  There were limited marketing channels for bison meat, and individual producers were responsible for marketing their own products.  Moreover, these ranchers often did not have the time or skills to develop marketing channels by themselves.  Bison ranchers tend to be oriented more towards production rather than marketing.  A cooperative could provide the marketing effort that they needed and would allow them to continue to focus on production.

Key Industry Problems: Supply, Quality, and Public Awareness

     The fragmented structure of the industry led to several problems, the main ones being availability of supply and level of quality.  Because the ranchers lacked coordination, there was no stable source of bison meat supply for commercial buyers.  For instance, restaurants that wanted to offer bison dishes could not be assured that the product would be available on a regular basis.  An individual rancher would not be able to provide a steady supply throughout the year because he would only slaughter at certain points within the year.  Without such supply assurances, restaurants were hesitant to list bison items on their menus.  Even if buyers did obtain bison meat, the product quality was often inconsistent because there were no uniform quality standards in the industry.  Inspection standards varied from state to state.  Customers did not know what to expect from shipment to shipment, as the quality widely varied.  There was also little public awareness about bison meat because the industry did not do much marketing and promotion of the product.  Some people thought that the bison was actually extinct.

     All of these reasons led ranchers to ponder the future of the industry at the end of the 1980s.  With no uniform quality standards or organized supply and marketing structure, many felt that the bison industry would never develop.  In addition to these reasons, the ranchers, like many other agricultural producers, began to wonder why they were not sharing in value added processing margins.  They wanted to move up the food chain into the processing stage, just like the sugarbeet growers and durum producers had done.  As NABC’s chief operating officer would later say, “Why should someone who handles the animal for two days make more money than the producer who handled it for two years?”.

Formative Stages of NABC

      A group of producers got together to examine the possibility of starting a processing business.  Among them was Dr. Ken Throlson, a veterinarian who became a full-time bison rancher in the early 1980s.  Mr. Throlson would later become the president and chairman of NABC, and has often been referred to as the project champion who led the cooperative through its early stages.  At the end of the 1980s Bill Patrie, who was then an economic development officer with the state, encouraged Throlson to establish a processing cooperative.  Mr. Throlson helped to promote bison production early on by setting up an information booth at North Dakota's "Marketplace" day in 1991 and teaching a seminar at the event in 1992.  (Marketplace is an annual event that helps to promote rural economic development in the state).    A steering committee was formed, and in 1992 a feasibility study was conducted by Senechal, Jorgenson, Hale & Company.  Funding for the study came from producers, the North Dakota Agricultural Products Utilization Commission (APUC), and the cities of New Rockford and Maddock, North Dakota.  Don Senechal, the firm’s consultant, estimated that the cooperative’s members could achieve a 47 percent return on equity.  Based on such a positive outlook, the committee was dissolved and replaced by an interim board of directors, and the cooperative was legally organized on December 16, 1992.  As with other emerging cooperatives, NABC received technical assistance and support from Bill Patrie of the North Dakota Association of Rural Electric and Telephone Cooperatives.  External financing for the business came from the North Dakota Development Fund, regional economic development funds, local banks, and the Bank of North Dakota, among others.  After conducting market research and developing a marketing plan that eventually evolved into its business plan, the cooperative was ready to move forward with an equity drive.  The cooperative received another grant from APUC to help with the membership drive.

NABC's Goals

     NABC’s organizers had several goals that it hoped the business would achieve.  Overall, they wanted it to bring some sort of structure to a fragmented industry so that the market for bison meat could develop.  By centralizing the processing and marketing of bison meat, they hoped to establish a consistent and dependable source of supply that would give producers access to customers who demanded minimum volumes of meat.  They also wanted the cooperative to establish quality and grading standards that would assure customers were getting a uniform and consistent product on every order.  The organizers also wanted to promote bison meat to potential consumers so that awareness of the industry would grow.  By accomplishing these goals, the cooperative’s organizers felt that they could provide a steady market for members’ animals and give them a fair price in return. 

     In an equity drive that lasted for approximately one month in 1993, the cooperative managed to raise over $1 million.  The cooperative used the Marketplace event in 1993 to help promote their offering.  Approximately 180 members purchased 5,000 equity shares at $250 per share.  One equity share represented the right and obligation to annually deliver one live bison to the cooperative.  The minimum individual required investment was 10 equity shares.  (The maximum amount of equity stock that any one member can own is limited to 10 percent of NABC's issued equity stock.)  Each rancher was also required to purchase one membership share that was priced at $100.  Producers actively used the Bank of North Dakota’s Agriculture Partnership in Assisting Community Expansion (AgPace) program to buy down the interest rate on loans they used to help build up their bison herds.  The program was used so much that the bank removed its categorization of bison ranching as “non-traditional” agriculture.  The cooperative did not choose a location for its plant until its membership drive was completed.  NABC hired a plant manager in the winter of 1993, who began working out of an office at the North Dakota Rural Electric Cooperative building in Mandan.  The cooperative received 49 applicants for the proposed plant site, and eventually chose New Rockford for the location. 

     In May 1993 the cooperative began construction on a $1.9 million processing plant in New Rockford, North Dakota.  That summer, NABC was the recipient of two $100,000 zero-interest loans from Dakota Central Telephone and Tri-County Electric, the same utility cooperatives that provided loans to Dakota Growers Pasta Company.  The facility was designed to meet EU requirements and to handle an eventual capacity of 10,000 bison per year.  The facility began operating in 1994.

NABC's Specific Objectives

     From the outset, NABC set specific objectives to pursue.  One of the foremost of these objectives was to control the worldwide supply of bison meat.  This has remained as a focal point of the cooperative’s strategy.  By controlling supply, NABC felt it would be able to maintain some control over the market price for bison meat.  From its very beginning the cooperative set a goal to control 60 percent of worldwide bison meat production.  NABC also believed that in order to make bison products more attractive to consumers, they needed to develop a fresh product market for the meat.  Historically, most bison meat produced was marketed as a frozen product.  But people typically prefer to purchase fresh rather than frozen meats, so the cooperative considered establishing a fresh bison meat market as essential for the industry to be able to move forward.  NABC decided to aggressively pursue the fresh product market; it wanted an even greater share of this market segment than its overall target of 60 percent, and set a goal to control 90 percent of the fresh bison meat sector.  It was even willing to give up some market share in the frozen sector by providing other processors with frozen goods, so long as it would help to gain a greater portion of the fresh segment. 

     From its beginning, NABC also considered the export market as a focal point of its marketing plan.  European consumers showed an interest in unique specialty meats such as bison, and they were typically accustomed to spending a greater portion of their income on food than were North Americans.  With this in mind, NABC’s organizers constructed the New Rockford plant so that it would meet the certification standards necessary for exporting bison products.  They directed marketing efforts toward Europe, attending a major trade show in Germany and distributing multi-lingual sales literature.

Operations

     Although the cooperative had sold 5,000 equity shares that represented 5,000 bison to be processed each year, it did not require the full number of bison to be delivered until 1998.  The reason for this was that the market demand for bison meat was exceeding available supply.  One of the primary goals that NABC had in its beginning was to allow members time to build up their herds.  If they didn’t, then the bison would be depleted too quickly and the cooperative would not be able to meet orders in the long run.  NABC’s management was very careful not to take on more orders than it was able to supply. 

     In 1996 the cooperative doubled the capacity of the plant, increasing it to 10,000 head per year.  It offered 5,000 new equity shares for sale in order to reach the 10,000 head capacity.  By early 1998 NABC had sold all of its 10,000 available shares to producers.  Due to the lack of bison available for delivery, however, NABC did not expect that the processing capacity level would be reached until 1999 or 2000.  At the end of 1998 the cooperative began an equity offering to sell an additional 2,500 equity shares, so that bison commitments to the New Rockford plant would increase from 10,000 to 12,500 animals each year.  This resulted from management's decision that the New Rockford plant design could handle 2,500 more animals than the 10,000 originally projected.  By 1998, the cooperative had added an additional $450,000 in improvements to the plant's original $1.9 million cost.

     In addition to providing premium cuts of meat such as steaks and roasts, the cooperative uses its lower quality meat to produce products such as sausage, hot dogs, and jerky.  NABC does not treat its bison with growth hormones, stimulants, or sub-therapeutic antibiotics so that customers are assured of getting a natural product.  Producers must sign written affidavits witnessed by their veterinarians to attest that no synthetic growth stimulants were used, and all animals are checked for disease prior to processing.  NABC also promotes the fact that all of its animals are ranch-raised.  The cooperative sells to all sorts of customers, including private individuals, restaurants, grocery chains, and wholesalers.  The cooperative also makes sales through a mail order catalogue. Recently, NABC has teamed up with another North Dakota cooperative to produce and market bison pasta products.  Farmers Choice Specialty Foods based out of Leeds, North Dakota, and NABC have developed products such as bison ravioli.  In 1999 the two cooperatives received a $152,300 grant from the North Dakota Agricultural Products Utilization Commission to develop further products and market them nationwide.  The cooperative also sells bison by-products such as hides and skulls.

Demand versus Supply

     During NABC’s early years the demand for premium bison meat has been exceeding the available supply.  As a result, bison products have been relatively more expensive than beef.  Quality bison meat can typically be two or three times the price of beef.   Bison products have consequently appealed to higher-income customers and have been marketed as a specialty niche product.  It should be noted, however, that lower quality meats such as ground bison (made from excess trimmings of the carcass) have been a tougher market to develop.  In an effort to boost this market, the USDA’s Agricultural Marketing Service announced in March 1999 that it would purchase up to $6 million of ground bison, reported to be about one quarter of the bison industry's production of ground meat, through one of its food purchase programs. 

North American Provisioner

     Although NABC began its operations by functioning primarily as a wholesale distributor to other distributors, it has since recognized the need to strengthen its marketing efforts.  NABC began to recognize the need to invest in a marketing infrastructure that would develop an aggressive marketing strategy to pursue new markets for bison products.  With the supply of bison meat growing at an annual rate of 20 percent, the cooperative felt that strengthening marketing efforts was necessary to ensure that demand grows along with supply.  In order to strengthen the bison industry, NABC saw that it had to make the same commitment to marketing as it did to quality production, and decided to use the proceeds of a December 1998 stock offering to help fund its marketing efforts.  North American Provisioner, Inc. (NAPI) was established in 1999 as a wholly owned subsidiary of NABC to serve as its marketing arm.  NAPI is headquartered in Omaha, Nebraska and its customer service support is based out of New Rockford.  The cooperative felt that developing a brand name was an important part of its marketing strategy.  With the help of a Minnesota ad agency, NAPI established the brand name "Buffalo Nickel".  The majority of products sold by NAPI are sold under this Buffalo Nickel brand name.   In order to help promote the cooperative's marketing efforts, members approved a checkoff plan at their 1999 annual meeting, in which 7 percent of the price they receive for their bison will be kept in the cooperative to support marketing activities.

     Upscale, “white tablecloth” urban restaurants have been a key market for bison products.  As part of its marketing strategy to this segment, the cooperative’s marketing company North American Provisioner has promoted its brand of bison meat as a product that should be used “to extend your menu with an easy-to-prepare specialty meat that offers the prestige of lobster, the versatility of chicken, and an alluring mystique of historical proportions.”  If people begin to try and like high quality bison meat served in these types of restaurants, then it is hoped that they would be more willing to purchase lower quality cuts such as hamburger in grocery stores later on.

     In 1999, North American Provisioner merged with U.S. Bison Co., the marketing company that was established in 1998 by media mogul Ted Turner.  Mr. Turner owns bison ranches himself and has been a member of NABC since 1996.  Prior to the merger, NABC had exclusive processing rights with U.S. Bison Co., which was organized to sell bison meat in the U.S. Southeast market under the brand name “U.S. Bison”.  After the merger, NAP will use two brand names, Buffalo Nickel and U.S. Bison.

Delivery & Payment

     NABC will typically arrange for transportation of the animals to the facility.  If not, the cooperative provides a mileage allowance to the member so that he or she can arrange their own transportation.  The cooperative covers all border crossing fees associated with bison from Canadian members.  NABC consults with producers when planning the delivery schedule so that each members’ particular animal development patterns are taken into consideration.  The cooperative mails out "Intent to Deliver" forms to members who fill them out, indicating their anticipated monthly deliveries for the upcoming year.  Based on the information provided by these forms, NABC creates a delivery schedule for the New Rockford plant.  Every member must enter into a Producers Agreement, which is a contract between the member and the cooperative that binds each member to annual delivery of live bison to NABC.  The number of animals to be delivered is equal to the number of equity shares held by the producer.  The Producers Agreement also outlines issues such as pricing arrrangements and any remedies to be taken in the event that a member fails to make delivery.

     Payment to producers is made upon sale of the bison meat.  Interest is paid to producers between the time the animal is slaughtered and the member is paid.  Producers are paid the "market value”, which is determined according to the quality and quantity of the delivered animals multiplied by the applicable average local market price, which is set annually by the board of directors.  The board sets this price every fall for the upcoming calendar year, based on its business judgment of projected market conditions.  Later additional payments may be made at the discretion of the board.  Through any declared patronage dividends, the members have the opportunity to share in any marketing price increases or decreases above or below the annually set average price that may occur during the year.  Quality is measured according to standards that include the animal’s carcass hanging weight, fat content, fat and lean color, and bone ossification.

     If a member fails to deliver the quantity of bison stipulated by the number of equity shares held, then he or she must purchase the deficient amount of bison elsewhere and deliver it to the cooperative.  Otherwise, NABC has the authority to purchase bison to fulfill the member’s requirement and will charge the member for any related loss.

Competition

     In terms of competition from other entities within the bison processing industry, NABC believes that it has established a significant barrier to entry because of its control of the bison supply.  In fact, the cooperative feels that its member delivery commitments are one of its key strengths.  With the majority of available bison under contract with from its members, the cooperative feels that a competitor would have trouble obtaining enough bison to make opening a processing plant economically viable.  Although the bison meat industry is comprised of hundreds of small marketers, a substantial portion of sales are handled by two larger companies, Denver Buffalo Co. in Colorado and Durham Meat Company in California.  NABC has followed a strategy of conducting business with these other entities by becoming a supplier for their wholesaling needs. 

     The cooperative does not feel that it has any significant competition from mainstream meats such as beef, pork, and poultry because they are not perceived as substitutes for bison. 

Performance

     In its first year of operations, NABC processed roughly 25 percent of the worldwide supply of bison meat.  By its second year, the cooperative was processing between 35 and 45 percent of worldwide production.  In terms of actual numbers, it has been reported that NABC processed 1,700 bison in the first year.  In 1995 roughly 2,500 were processed, representing about one-third of worldwide production.  Although it had relied on one marketing agent located in Minneapolis during its first year, the cooperative began to use a number of representatives located throughout the world.  This change in marketing structure helped NABC to increase sales and its customer base so that it would not be reliant on a handful of key customers.  By 1996, approximately 4,500 bison were slaughtered and retail sales exceeded $8 million.  The animals came from as far away as 1,500 miles from the plant.  In that year, the cooperative doubled the capacity of the New Rockford plant, increasing it from 5,000 to 10,000 bison per year.  By 1997, the cooperative was processing roughly 6,500 bison, or about 50 percent of worldwide production.  It had sales of over $10 million, and a membership base of approximately 250 ranchers from 14 states and 4 Canadian provinces.

Source of graph: North American Bison Cooperative
    
     After three years of operating losses, NABC reported a modest profit for the year ended January 31, 1998.  It paid its first dividend that amounted to $41.06 per bison delivered.  In the same year the cooperative announced that it was planning to build a second facility within the next few years and appointed a committee to determine the location for the plant, which would most likely be somewhere in Canada.  By the end of 1997, NABC was processing 140 head of bison per week.  In 1998 the cooperative began to kill and process on a daily basis rather than its previous schedule of two to three days per week.

     By 1999, the cooperative has met its target of controlling at least 60 percent of total worldwide production.  It has also met its objective concerning the fresh meat market; by 1997, NABC reported that over 95% of its production is sold as fresh meat products.

     NABC has made a concerted effort to develop its export market.  In its first year, exports represented less than 5 percent of total production.  By the end of 1996 they had increased to roughly 10 percent, and by 1997, between 20 to 25 percent of the cooperative’s products were exported to Europe.

     The cooperative’s equity shares have been increasing in value.  Initially, the price per share was $250.  In July 1996, the price per share was reported to be $375, and by December 1998 the price had risen to $500.  As of April 1999, NABC was reported to be planning another stock sale within the next year so that the cooperative is able to build a second processing facility.  In a press release dated November 1, 1999, the cooperative announced that the second facility will tentatively be built in North Battleford, Saskatchewan.

Lessons Learned

     North American Bison Cooperative is an example of a new generation cooperative that was successful in entering an undeveloped niche product market.  It perceived the need to establish a company that could provide structure to an emerging industry and allow the industry to develop.  The opportunity for a new company existed and the timing was right.  NABC feels that its closed membership structure and delivery commitments from members have been key factors in its success.  By contracting with members to deliver bison to the cooperative, NABC has managed to control a good portion of the supply of bison meat entering the market.  The company set aggressive goals to pursue from the beginning, both in terms of market share and quality standards.  According to Dennis Sexhus, the cooperative's chief executive officer, NABC has accomplished the following:
 

  • It has provided a fair price for the members’ bison.
  • It has allowed members to participate in value added margins from the sale of processed bison products.
  • By creating a guaranteed market for the members’ bison, the cooperative has reduced some of the uncertainty concerning where the ranchers can sell their products.
  • Because the cooperative is responsible for processing and marketing their products, it has allowed members to concentrate their efforts on production activities.
  • It has facilitated better banking relations for members because lenders now see that there is in fact a market for bison.
  • It has contributed to the North Dakota economy.  By 1996, the New York Times reported that bison represented a new $50 million industry to the state.  It has also led to the establishment of many new commercial bison ranches in the region.  The increase in the price for breeding stock has also been attributed to the cooperative’s presence.
  • NABC has promoted the bison industry, especially because of the media attention that it has received.  The cooperative has received press coverage from organizations such as the New York Times, CBS, and media groups from Europe.
Sources

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