Premium Standard Farms' savvy business entrepreneurs plan to maximize pork quality and profits through a standardized total systems approach, advanced technology-and by daring to be different
by Bryan Salvage, editor
In just six years, Premium Standard Farms has evolved from a start-up hog producer into one of the country's largest vertically integrated pork processors.
"In 1988, our original plan was to start the business with 10,000 sows," says Dennis Harms, president and co-chairman of the company. "We've grown quite a bit since then."
Growth is just one aspect of the Premium Standard Farms' story. More importantly, the Princeton, Mo.-based company has managed to build a unique, standardized production and processing system to ensure product consistency, control, quality and value from production to distribution.
Company managers claim this system is already rewarding Premium Standard Farms with efficiencies recovered at every step of the process, which in turn, increases product value and profits.
Fast-track growth
To say the company has grown beyond original expectations is an understatement.
Premium Standard Farms owns 97,000 sows in Missouri and Texas that annually produce more than 2 million pigs. The hogs are raised in dozens of standardized hi-tech, company-owned hog farms.
A new Premium Standard Foods fresh pork processing plant opened for business last year in nearby Milan, Mo. (see adjoining stories on pages 40 and 44.)
Presently, Premium Standard Farms' operations total $400 million in assets in Missouri alone.
Growth continues. Premium Standard Farms broke ground in January on a 50-square mile, $400 million expansion project in the Texas Panhandle.
When complete, it will be similar to the Missouri complex, including production farms and a processing plant, and will add another 63,000 sows to the total operation.
Close proximity to West Coast markets and Mexico are two major reasons behind the expansion.
Two men head up Premium Standard Farms: co-chairmen Harms and Tad Gordon. Prior to the Premium Standard Farms venture, Harms spent 15 years as an executive in the feed business with Cargill Inc. and Central Soya Co. Gordon spent 10 years as a securities trader on Wall Street. The two were friends for several years prior to Premium Standard Farms' start-up.
"We felt the combination was a good one," Harms says of his partnership with Gordon. "He had financial knowledge, and I had production knowledge. It seemed to be a good fit."
Harms puts the company's size into perspective. "Even though we're a large entity, we represent less than 2 percent of total pork consumed in the market," he points out.
Premium Standard Farms currently processes a range of products for four markets: HRI, retail, further processing and international.
Fresh pork products are manufactured under the Premium Standard Farms brand, including the Fresh & Tender case-ready line; premium smoked bacon and ham products are sold under the Mariah brand, processed at Mariah's plant in Columbus, Ind.; and the Bird Farm line includes fresh sausage, smoked sausage and bacon.
"We're not going to compete on the lower end; that's not where our niche is," Harms maintains.
Most products are for the retail market, and eventually 20 percent to 30 percent of the plant's output will be exported. Japan is Premium Standard Farms' largest export customer.
Counter-cycle investment
In discussing Premium Standard Farms' birth, Harms says: "It was glaringly obvious that there had been no new technology, capital or building of the pork industry infrastructure since the early 1970s-particularly in the Midwest.
"I believe in counter-cycle investments," he adds. "In the 1980s, everyone else was running away from production in agriculture. The height of the recession was 1988; that's when we began our business.
"Then in December 1994, when pork prices were at a 22-year low, we decided to make a $400 million expansion investment in Texas," Harms notes. "Again, we stepped into the market when everyone else was stepping away. You have to be careful and be well-funded, but we think it is the right posture."
To some, this daring business philosophy might be considered a big gamble.
"The pork industry is consolidating, and anytime you have a consolidating industry there will be volatility," Harms admits. "The question is what are you going to do during those volatile times? Are you going to retract, or do you see those volatility spikes as opportunities to expand market share and grow the business?"
Food company image
One of many unique things about the company is the modern design of its corporate offices, education center, breeding and growing facilities, and processing plant.
For example, the spacious lobby of the Princeton corporate office features large windows and a wide waterfall cascading down a marble wall behind the receptionist's desk. The company's "PSF" acronym is in big, gold letters and mounted on the wall above the waterfall.
"We must look like a food company and not a hog farm," Harms explains. "When I have a customer visiting, I want him to look at the lobby and feel he's dealing with a food company that can provide a product with added value."
Premium Standard Farms has also made a major commitment to recruiting workers and management. All employees, including those working on the kill floor, must have at least a high school diploma or GED equivalent.
Premium Standard Farms' management team contains some heavy hitters.
John Stadler, president, was formerly owner of Mariah Packing Co., which was purchased by Premium Standard Farms.
Rick Anderson, vice president of construction, previously built high-rise offices in major cities.
He is responsible for the modern design and much of the environmental technology incorporated into the operation (see story, page 44).
One of the newest officers to join Premium Standard Farms is Russ Sanders, senior vice president of marketing. He is the former National Pork Producers Council CEO.
"My move to Premium Standard Farms reflects my optimism about the pork industry's future," Sanders stresses. "I consider this company to be the best in terms of being positioned correctly for the long-term future."
Premium Standard Farms modern education center is located several hundred yards from the Princeton headquarters building.
Here, new employees receive classroom instruction and hands-on experience with farm and plant equipment, as well as with electronic control simulators that depict real-world conditions.
In search of quality
Quality doesn't have to cost much if the efficiencies are there, Harms stresses.
Both Gordon and Harms believe that their major goal is to continue adding value whenever and wherever possible. And there is plenty of incremental value for the taking.
"Whether we take that value because feed cost is $2 a head less than average, or we get seven more pigs per sow a year, or a penny a pound more from the product we sell-we're taking incremental pennies all along that chain that others are leaving on the table," Harms notes.
The quest for quality has cost millions of dollars, he adds, but the efforts are paying off because of efficiencies.
"We're in the top 10 percent in terms of production efficiency and production costs," Harms says.
All of the steps taken throughout Premium Standard Farms' quality chain lead to one final result-consistent, high-quality product.
"Consistency throughout the chain is what it's all about," Harms stresses. "Standardization of the process results in a premium quality product."
Future plans
Premium Standard Farms is a privately held company with few outside stockholders. That suits management just fine. "It allows us to grow more rapidly," Harms says.
Gordon adds: "Being privately held is very important in controlling quality. Fueling our growth is going to take a tremendous amount of capital, especially on the production side. Pork is one of the most capital-intensive industries I know of, especially when you own 100 percent of the assets like we do.
"We always keep our avenues open," he adds. "We've discussed the possibility of going public to attract more capital. But up to this point, we've been very successful in attracting capital."
In looking toward the future, Harms notes: "We're not in this for the short run; we're here to stay. We're really pleased with what we see in the numbers right now. They're telling us we're moving in the right direction."