Capital Budget

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. Fanners in

NOIih 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 fanners were having difficulty meeting payments for the expensive farm machinery

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 fanners 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 successful

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 fanners 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 NOIih 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, fanners have an outlet...