Cooperative’s CEO & Prior President Talks About His Career in Sugar, Including Past & Current Challenges for Crystal & Beet Industry
Editor’s Note: David Berg has been an employee of American Crystal Sugar Company since 1987 and became the Moorhead, Minn.-based cooperative’s president and chief executive officer in 2007. Berg retires as of August 31. His successor, Tom Astrup, formerly Crystal’s vice president-operations, assumed the presidency in early March and will add the CEO title upon Berg’s retirement at the end of August.
In this interview with The Sugar-beet Grower, David Berg talks about his route to the presidency of American Crystal, challenges faced and challenges met — and some of the accomplishments that have provided the greatest satisfaction for him through the years.
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What was your background prior to joining American Crystal, and how did your responsibilities evolve after coming to work here?
How do you get to be the CEO of a company? I don’t think my path was what you’d expect it to be. I didn’t take a business class in college, I don’t have an accounting background, I don’t have marketing, and I don’t have human resources. I just kind of learned it all as I went – which is a tribute to the way this company allows people to grow.
I earned a degree in mass communications/broadcast journalism (from Minnesota State University-Moorhead) and then worked as a TV reporter for two years. I always smile when I think about the first time I entered the Crystal headquarters. It was to sit down with Al Bloomquist (Crystal vice president at the time and later president) and talk about Coke converting part of its sweetener usage from sugar to high fructose corn syrup. As a young re-porter not knowing anything about it, it felt like, “This is earth-shaking for American Crystal.” But Al calmed the waters and said, “No, we can accommodate it. The sugar program will be fine.”
I really became interested in report-ing on agriculture and figured I could use the undergraduate minor that I had in economics. Then one day a guy at NDSU said, “Why don’t you get an ag econ master’s degree.” I went, “Gee, that sounds like an interesting idea.” And literally within a few weeks I’d gotten approval from the chairman of the agricultural economics department at NDSU and jumped in.
My dad begged me to keep my [TV] job. “You don’t give up a good, stable job,” he said. But you have to explore yourself and explore the opportunities the world puts in front of you; and it turned out to be a pretty good thing for me.
So after getting the master’s degree, I worked for five years at General Mills in grain merchandising and ingredient purchasing. General Mills was great. I enjoyed it and had good relationships there. But when the door opened at Crystal, I said, “This is a good company in my hometown.”
My first title was “manager of economic research.” I joke that it was like the spare tire on the back of a Continental, the fifth wheel: you didn’t really need it, but it looked nice to have one. I was an economist, so I would forecast what would happen with the price of sugar. That drew me into Washington and the sugar program. I was also able to go out with salespeople and meet with our customers. That was really good because we’d argue about what was going on with the sugar program or what’s going on in the market. It was good exposure for me, and I think it benefited the company.
I was in the marketing department, given a little more responsibility, when Joe Famalette came to American Crystal. (Famalette was Crystal president/CEO from 1992 to 1995.) He wanted someone “younger” who would-n’t say, “Well, we’ve always done it that way.” So he promoted me to a director title and then a vice president title fairly quickly. Given the way Joe operated, there were a lot of things we were trying; discarding some fairly fast, but also retaining some.
When Joe Famalette left, Dan McCarty came here [as president]. We worked together closely, and he said to me one day, “If you really want a chance to grow to the top of the company, you have to get involved in the direct line operations.” He was absolutely right. I was purely a staff position up to that time, doing reasonably important stuff but not the “guts” of the company. He suggested that I go to the Moorhead factory and work there. So I went out there as a shift supervisor. I observed, and I learned a lot. The people on that shift were incredibly good at their jobs, and I was able to ask questions and follow them around. I did a minor amount of supervising; what I really did was I came to under-stand the guts of sugarbeet processing. Then I spent a short period of time in the packaging end of the factory.
Then Dan McCarty left and [new president/CEO] Jim Horvath brought me back as vice president of administration, which included human re-sources. He wanted me involved in negotiation of the next labor contract in 1999.
After a couple years as vp-administration, I became vice president of agri-culture for a couple years. The vp-ag job at an agricultural cooperative is incredibly intense at times — notably during the first week of October when harvest is going well or not so well! I recall when the previous vp of ag decided to leave and I said “I’m going to go for that job,” Jim Horvath said, “That’s a dangerous job. It’s politically dynamite, and if it doesn’t go well, they’ll eat you alive.” I said if I have aspirations to run the company some day, I had to be willing to take this on. I did for a couple years, and I enjoyed every bit of it — including the negative rubs with people.
Then Jim asked me to be vice president of operations. I sat in this chair and said, “Do I want to be sitting here waiting for the next factory break-down?” It’s about maintaining continuous operations for many months. It’s a difficult job, but a rewarding one, too.
I did that for three years, when Jim decided to retire. I put my name in, and the board decided I should be president of the company.
People sometimes have said, “They really groomed you well for this job.” But I don’t think anyone really had a road map. McCarty said, “You need to be able to learn the guts of the company.” The road map from that point on was just the way things happened. And it’s turned out well for me and, I think, for the company.
Are there certain individuals whom you view as key mentors during those years leading up to the Crystal presidency?
Al Bloomquist certainly was one. It’s been so long since I worked with Al, but what I recall about him was that gentle nature. He knew ways to influ-ence people without getting in their face. He did it obviously with great knowledge of how things worked and who needed to have what information to make a decision. He just repre-sented the company so well — a kind, funny and neat man.
Joe Famalette was quite a different character from Al. They called him “Hurricane Joe” for a reason. Nothing ever went fast enough for him; he al-ways wanted to go faster. He challenged the company. He stretched the company’s opinion of itself in a very positive way. Famalette didn’t take a back seat to anyone. This area grew in volume, grew in stature — and took a higher profile in shaping the nature of the sugar program than ever before.
Dan McCarty was, of course, the one who pulled me in and said, “If you want to have a chance to run this company, you have to learn its real core operations.” It scared the bejabers out of me in that I was a [mid-career] person pre-tending to be supervising a sugarbeet factory when I don’t know the first thing about it. But there’s a tremendous amount of knowledge among the employees, and that carried me along. At the same time, I was able to learn what was most important out there.
I worked closely with Jim Horvath for many years. Jim was the one who, to me and also, I think, to the share-holders, focused on, “This is what we do, and this is how we do it. We’re a commodity processor. Our growers did-n’t hire us to market their wheat, corn or soybeans; they hired us to take their sugarbeets and get the most value possible out of that commodity. Let’s be the best we can at it.” Jim also did things through knowledge and effective communication without any bluster or threatening. He did it through his wisdom, maturity and sound knowledge.
What ranked among the most challenging and difficult issues you dealt with as president and CEO of American Crystal?
During the Mexico challenges, I heard second-hand that someone had asked the question, “Would David be the last president that American Crystal ever had?” Because we were — and I can say this with the benefit of legal decisions behind us — the victims of illegal actions by the Mexican sugar industry, dumping sugar onto our market and at the same time collecting massive subsidies from their government. While that was going on, growers were losing their shirts raising sugarbeets and sugarcane around our country. So you had to wonder if the domestic sugar program was sustainable under that kind of threat.
Congress passed NAFTA [back in 1994]. The president signed NAFTA. We have free trade with Mexico on sweeteners. What can you do about it when it’s free trade? Well, we have to compete with the Mexicans; but we don’t have to compete with illegal practices by the Mexicans.
But during that time, watching the market degrade and payments to growers go down, this comment about “Will David be the last president American Crystal ever has?” was a pretty awful feeling in the pit of the stomach. Now, it obviously wasn’t just me. I was privileged to be among a group of people who worked really hard to get this thing fixed. There were a lot of trips to Washington, a lot of evidence gather-ing. One thing that comes to mind is the surveys that the International Trade Commission put in front of our biggest shareholders to understand their costs of production and the revenue coming from sugarbeets and other crops, to demonstrate the harm being done to them by Mexico. Pulling that information together was an incredibly long, intense process, as well as every-thing else that went with it — building a very strong case to demonstrate (1) what Mexico was doing, and (2) that it was going to put the domestic industry out of business.
So that was frightening. But the result we got — a 6-0 vote by the International Trade Commission — was incredibly gratifying. It felt very good to be a part of that effort.
Mexico imposed that situation on us. On the other hand, no one imposed the lockout* on us. That was a decision made right here. One of the biggest costs we have is that of hiring people to run our factories. Because I negotiated contracts for several years — I was the lead negotiator in 1999 and 2004 — I’d seen the pattern that when we have a crop that’s going to be harvested in the fall, not having a labor contract and thus not knowing if we’re going to have people coming to work to process the crop is a pretty vulnerable situation. So we made the decision that we were not just going to say, “Well, we hope we get a good contract; and if we don’t, we’ll just have to roll the old one for-ward.”
We had to give ourselves the opportunity to make some improvements in the contract. Most notably, we had to have drug testing. What industrial workplace cannot have drug testing today? Secondly, we wanted to bring our healthcare program in line with what most businesses pay for health-care costs for their employees today. And finally, we wanted to revise the contract so that promotions would be based more on qualifications and less on seniority. In exchange for these proposals, we offered what I think was a decent pay increase.
* After rejecting the company’s final contract offer, about 1,300 American Crystal union workers were locked out as of August 1, 2011. After 22 months and several votes, in late May 2013 the remaining union membership approved what was essentially the same proposal. By then, about half of the original workers had either retired or quit, with many moving on to other jobs.
In any negotiation you have to give and take. We didn’t think we’d get everything; we thought we’d get a few things, make some progress on a few and give up some other things in ex-change. Unfortunately, that “give and take” never really got going, for lots of reasons. So when August 1, 2011, came, we felt we needed to make sure we could retain the opportunity to bar-gain going forward — and that meant locking out the employees. It was in-credibly difficult — and I mean that for the employees who lost their pay-checks. I take that very seriously. And it was extremely difficult for the employees who stayed in the factories —supervisors for the most part, who held things together incredibly well. And for the shareholders, because of the public criticism that their company received.
Nobody liked seeing it happen. No-body liked the way it unfolded. And in the end, I’m sure there are a lot of people who feel American Crystal is a horrible company for having done that to its employees. But we all sit down and try to make the best decisions we can— and in this case, make the best deci-sions we can across a bargaining table. That’s the part that’s so regretful: we didn’t get it done across the bargaining table.
But the takeaway I have is that it was held together because the share-holders have this incredible pride in their company. They bought this company 40-plus years ago because they wanted to be able to sell sugarbeets into the future. They’ve invested, in-vested and invested — and this is one more place where they invested in its future.
I’ve joked several times — except that it’s not a joke — that I would have been fired had I rolled over and let the union just have their way with the con-tract. Because shareholders said, “Don’t you give in. We want to make sure we are viable for the future. You hold out until you get the right settlement for the company.” It took two whole years to get there, but I think it was the right thing for the company. Going forward, what do you con-sider as key challenges facing American Crystal — and the U.S. beet sugar industry in general?
Sucrose is sunshine. Sucrose is the energy stored through photosynthesis from the energy coming to us from the sun. Many people think that, “Well, if you’re this far away from the equator, you shouldn’t be making sugar; you should be somewhere in the tropics, raising sugarcane. Why should we buy sugar from people who live up here near the 49th parallel?”
The reason is because we have an-other natural advantage: cold weather. We’re the best at what we do, i.e., receiving and storing sugarbeets for a long processing campaign. So I think there’s a very good reason for us in the Red River Valley to be in the sugar business.
We have to translate that message to people in Washington who make those decisions. First, to the administration. And most importantly, to members of Congress who vote on the sugar program. But it’s a constant struggle. And that’s the part I worry about. I understand completely, from my inter-face with customers, that they want to buy sugar for the most economical price they can. They see Brazil exporting 40 or 50 million tons of sugar a year, so
“Why can’t we buy that Brazilian sugar for the cheap prices they sell it for?”
The point we like to make is that we are efficient. If you want to have a domestic source of supply, you need efficient producers in this country, too; and keeping a sugar program allows that. I think many of our customers appreciate that. But not all. Some want to get rid of the sugar program and get rid of the domestic industry.
The part that scares me the most is the “free trade at all costs” think tanks (e.g., Heritage Foundation, American Enterprise Institute, Cato Institute). It doesn’t matter what the justification is; if there’s a trade barrier, they want it to go away. But we have a long legal case against Mexico demonstrating how they intervened in their sugar market and basically were dumping sugar to try to put us out of business.
There’s also plenty of documentation that Brazil and other countries subsidize like crazy — and that means if you say you’re going to get rid of trade barriers, you’re going to open up the country to subsidized sugar from foreign markets. Of course, the sugar users would say, “What a wonderful deal. We can buy sugar at subsidized prices from those foreign countries.” Well, they (foreign countries) won’t pay the subsidies any more. The price is going to go up — and you will no longer have a domestic source of supply. Do you think you will have won then? I don’t think so.
So that’s a concern. I can explain it. Many other people can explain it sit-ting across from a member of Congress or their agricultural staff person. The problem is, they just don’t think about it that long. It’s kind of a long, convo-luted story — a story we’ve been good at explaining. We just need to stay re-ally good at it.
Another one I worry about is work-force availability. It is tough. It doesn’t matter whether you’re running a fast food restaurant or a manufacturing operation. It’s hard to find people. So we have the challenge of making sure we have really good-paying jobs with good benefits and giving people work that they like to do. I think we already have that, but we need to market and mar-ket to make sure people see this as a place where they want to work. I like our workforce today, and I think we’ve been doing a good job of bringing people in. But it’s just a really competitive market for recruiting people. There are so many alternatives in the region.
Speaking of challenges, let’s ad-dress the GMO issue. How do you see that eventually playing out?
We are happy Sen. Roberts and Sen. Stabenow found a compromise that I think makes sense. But what I keep telling our shareholders is, you cannot legislate consumer attitudes. You can legislate what information is put on the package or what information can be gathered from the package; but you can’t legislate their attitude on GMO.
We know that GMO is safe, environ-mentally effective and helps agricultural productivity. But there are people who are very concerned about the planting of GMO crops. The National Academy of Sciences made it perfectly clear: there is no concern with the safety of foods from GMO crops. But there are still a lot of people who don’t like the idea of GMO. That is going to take some work going forward.
You’ve stated that as yet, about 3%of the beet sugar market has gone over to cane sugar due to the GMO matter. Is that a slippery slope that the beet sugar industry will need to grapple with for the foresee-able future?
That decision is being made now. The Vermont [GMO labeling] law went into effect July 1st. In advance of that date, several major customers — indus-trial users — decided to put on their own packages, “Contains genetically engineered ingredients.” We will see [what effect that has on sales] of those products.
So I don’t know if it’s a “slippery slope” or not. I’ve believed for a long time that if people had an active con-cern about [GMOs], they would have al-ready moved away from foods where they would have purchased GMO. Some consumers have, so we can’t lose those who’ve already left. We’ll see about the “average” consumer going to the “normal” grocery store whether this is a factor.
What would you rate as highlights of your career — trends or accomplishments that have provided the most satisfaction?
One is the “process technician pro-gram” in our factories. Someone put a binder on my desk when I was vice president of administration, and it de-scribed a skills-broadening, pay-for-skills program that had been done at another sugar company elsewhere in the world — and I and others decided we should try to do something like that. It awarded jobs on the basis of skills; you had to test-demonstrate skills. The old labor contract we had didn’t allow us to do that. Jobs were awarded based on seniority.
Wading through that process and instituting the program has completely transformed the way our factories work. Previously, we had very narrow job specialties, and people would move from job to job with no real chronology or progression, i.e., “I’ve learned this, so I can do that.” Because of seniority, you’d kind of bounce through different jobs, and it wouldn’t give you the broad understanding of the entire factory. Now the process technician program rules. We have people who come in knowing nothing about processing sugarbeets; but they eventually get to where they understand everything that happens in the factory. And they get paid for that. They have to work hard to gather those skills, but they get paid for it. I really think it gives you better processing results: more beets through the factory and better sugar extraction.
Another one I feel really good about— and this was my idea — was a thing we call “shareholder development seminars.” It’s about governance of the co-op: how decisions are made. In other words, “What is it that’s important in allocation of the money you’ve invested in this company in delivering a result back to you?” We’ve done it three times so far, running 35-40 people per time. It about governance: how a director is elected, what a director’s job is. Then we give them a detailed case study.
Time and again, [grower participants] have sat back and said, “I had no idea what is going on” in the board-room. Now, we’ve had 100-125 people going through, and we have 2,800 shareholders. But an informed share-holder is going to be a lot better at selecting their director — or maybe being a director in the future. Or coming to meetings and asking good questions, rather than just, “Why is the truck turnaround so slow at my piling site?” It’s more like, “Tell me about the capital allocation process for the entire company.” Because that’s why your truck turnaround is what it is: we have lots of places to spend your money.
But the macro thing I feel best about is the Mexico situation. Since as president of the company I was the liaison with United Sugars Corporation, I was watching in real-time what was happening as the market degraded. And because I’ve been involved in Washington for so long, I thought I was pretty well positioned for understand-ing exactly what was going on and what we needed to do to get it fixed. Obviously it came about with some extremely good lawyers working for us in Washington and a lot of other people assisting. But being part of a group that steered us toward the right legal result, I feel good about that.
The many personal relationships through the years obviously weigh into the equation as well.
Of course. I have this visual image on my mind: I was on the Minnesota Chamber of Commerce Board of Directors, and I went to a meeting, got home later, couldn’t sleep. It was late and during harvest. So I went to the Warren piling site because a guy I was close to on the ag staff was covering the site that night. I jumped out, we sat and drank coffee, and he said, “Let’s go out to the field and see ‘so-and-so.’ ” It was about 4:30-5:00 in the morning by then. We got to the field, he leaned back from the steering wheel, and the farmer sitting in his tractor looked across and said, “What are you doing here?” He climbed down, we talked, and he said, “I’m really happy to see the president of the company here in my field at 5:00 in the morning.” I won’t say 5:00 was a typical time, but I tried to do that sort of thing as much as I could.
And that goes for factories, too. When a factory breaks down, it’s stressful as heck. It’s important to be on the ground.
The pride that people have in this co-op is remarkable — and I’m not just talking about the shareholders who de-liver beets and get a check; I’m also talking about employees who’ve worked here for many years. Understanding the complexity of holding it all together and making sure you have lots of people who maintain it right and run things right . . . knowing them and the pride they take in things being done safely and effectively has been pretty rewarding.
What are your plans as you head into retirement?
Well, I’m not going to look at my phone for anything more important than a Twins score!
I’ve loved my job, but I’ve loved it long enough. It’s mainly the calendar— being committed every minute of every day, and then what carries over into the weekend. It’s time to back off from that.
I have a couple motorcycles that I’m going to ride. I’m going to ride my bike. I’ve signed up for softball in Arizona. So what it comes down is, I’d kind of like to be a kid again.
Of course, what I am looking for-ward to most of all is spending more time with my beautiful wife, Becky, and three great kids — Andrew, Charlie and Kathryn.
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Editor & General Manager of The Sugarbeet Grower