St. Anthony: Homegrown sunflower oil business is at a crossroads

PIERZ, MINN. ­– Tom and Jenni Smude almost lost their farm in 2007-08 due to consecutive drought years and hailstorms that devastated their corn and bean crops and forced them to buy expensive feed for the cattle.

Tom Smude, 42, an entrepreneurial farm kid who also has worked selling John Deere equipment and building grain-storage systems, turned to the internet and other industry contacts to explore cheaper feed crops than the corn and soybean staples that also require a lot of fertilizer, pesticides and water.

The central Minnesota land around Pierz is not as rich and the yields less than that of southern Minnesota, increasing the interest in alternatives. The Smudes settled on sunflowers, a long-rooted crop that also needs less water and chemicals and pulls up nutrients that restore depleted soil when their nutrient-rich remnants are plowed into the fields in the spring.

The Smudes, who grew up on farms near Pierz and the Morrison County seat of Little Falls a few miles away, survived and hung on to the 160-acre tract they had acquired for around $200,000 in 1998 thanks to their off-farm jobs and improving commodity prices.

They experimented with planting 60 acres of sunflowers in 2010.

"Our idea was to just sell the oil and feed the byproducts to the cattle," said Tom Smude.

Today, the Smudes operate what has morphed into Smude Enterprises, a several-million-dollar business that uses sunflowers grown on their land and on 800 acres by nearby farmers. The crop is processed into oil and animal feed at their half-million-dollar, on-site factory; it's then bottled at a facility they lease in town into hundreds of thousands of glass and plastic bottles of Smude Extra Virgin Sunflower Oil in sizes up to 2.5 gallons that is sold over their website and at grocery chains such as Target, Lunds and Byerlys, Cub and Coborn's.

Multiple markets

They sell 55-gallon drums of their vitamin E rich, heart-healthy oil to food processors who tout the clean taste and low levels of bad fats. Huge, 250-gallon plastic containers of oil are shipped to makers of high-end pet food. And Smude Oil is even peddled as massage oil.

The byproducts are compressed into a protein-rich, low-fat animal feed and the rest is plowed back into the soil.

The Smudes capitalized on emerging consumer interest in local, healthy foods that also tend to command premium prices.

"We got it to positive cash flow," said Tom Smude. "Now, how do we take it to the next level?"

The Smudes, friendly and unassuming, have gone from nearly losing the farm to poster children of the burgeoning Minnesota specialty foods business that centers on homegrown, healthy and greener practices.

"I never expected this," said Jenni Smude, 42, a college business major who like Tom has quit her day job to focus on a vertically integrated business and brand that could be worth millions of dollars one day. "I figured we would just farm and continue to work outside home and contribute to our 401(k)s and save a little.

"Now I know customers who call us from Minnesota around the country, Mississippi to Hawaii. We know Sen. Amy Klobuchar and her staff who see us at Farm Fest. And Dave Frederickson, the Minnesota agriculture commissioner, just brought by Lt. Gov. Tina Smith."

Tom Smude, a homespun marketer who employs about eight full- and part-time workers and several contract farmers in the area, is trying to figure out how to finance next year's demand, at the same time he puts thousands of miles on his SUV traveling with loads of samples to Midwest trade shows.

"The Smudes are model Midwest Pantry members," said Chad Gillard, co-founder of the seven-year-old business, formed to help small food companies grow through trade shows and other links to wholesale buyers that has grown to 200 member-producers. "Tom has a history of creating community and collaborating with other local food companies to increase benefits to all. The company has been an active participant in our annual Local Food & Gift Trade Show for several years. They maintain existing relationships and make new ones."

Growth creates challenges

The Smudes ran out of seed for growers last year. Tom is unsure whether $200,000 worth of seed, which he needs to order soon, will be enough to meet demand from wholesale and website customers. He anticipates that he could double the acres planted and not satisfy growing demand for Smude Oil, which is marketed as healthier than imported olive oil with a neutral taste that blends with the food.

"I draw the line on mortgaging the house," said Jenni Smude, the business manager.

The Smudes have collateralized about everything else. They are strapped for expansion capital.

It's possible they might sell out sooner or later to a larger food company that would be willing to keep the "Smude" brand. There have been overtures.

"We cold-press our sunflower oil without any chemicals," Tom Smude said. "We [have positive] cash flow. We have a healthy, popular product. But how do I compete against Cargill?"

The local food market is a tiny percentage of the output of Minnesota farms and retailers. But it's growing faster than food sales overall.

That growth is evident through Midwest Pantry's ranks, according to Gillard and co-founder Zoie Glass. Glass also is the owner of Lucille's Kitchen Garden of St. Paul, maker of Minnesota-made jams and jellies.

Midwest Pantry has seen attendance at its regional trade show grow from 100 buyers and owners in 2013 to more than 200 at the most recent show this year.

Gillard, a veteran marketer who met Glass at the Mill City Farmers Market in 2003, formed Midwest Pantry to give small Minnesota food companies exposure to wholesale buyers from supermarkets and elsewhere without having to travel to national food shows that can cost thousands for a booth, travel and accommodations.

That has given small operators access to a growing Midwest food bazaar every spring as well as seminars on financing and logistics, among other topics

Compared with the cost of a trip to either coast, most vendors can display their wares through Midwest Pantry for less than $1,000, including a $350 or $450 booth, online marketing and access to related forums and resources.

Gillard said the Smudes might be the biggest example of successful members having growth pains. Many retail grocery stores now provide up to 10 percent of precious store shelf space for "local" foods amid national brands. And some Midwest Pantry members, who started out in kitchens, increasingly are faced with expanded financial, manufacturing and distribution challenges.

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.