Rose Acre Farms, Inc.

Rural Route 5
Seymour, Indiana 47274
U.S.A.
Telephone: (812) 497-2557
Fax: (812) 497-3311
Web site: http://www.roseacrefarms.com

Private Company
Incorporated: 1939
Employees: 800
Sales: $280 million (2001 est.)
NAIC: 112310 Chicken Egg Production; 311999 All Other Miscellaneous Food Manufacturing

Rose Acre Farms, Inc. is the second largest egg producer in the United States. Operating from a string of large chicken farms in the Midwest, the firm supplies grocers around the country with fresh eggs, and also makes dried and liquid egg products for foodservice use. Lois Rust, the ex-wife of company patriarch David Rust, owns a 49 percent stake in the firm and runs it with their seven children.

Origins

The beginnings of Rose Acre Farms date to 1939, when the Rust family began operating a farm near Seymour, Indiana. In addition to growing vegetables like sweet corn, they soon built three hen houses that could hold 900 chickens. In 1943 son David Rust graduated from high school and began selling the family's eggs and corn at a farmer's market 70 miles north in Indianapolis. Over the next few years the Rusts' egg-laying operations were expanded, until 3,000 dozen eggs per week were being produced for sale to grocery stores. In 1955 they added a new, larger chicken house, and by 1965 Rose Acre Farms had 100,000 hens, which were known in the industry as layers. This number continued to grow, topping the one million mark in 1975. By this time David Rust had taken full control of the business.

Rust, who had married in the late 1950s and with his wife Lois had seven children, found himself in a mid-life crisis in the early 1980s. In 1984, at the age of 58, he decided he wanted "more children and more chickens," as he later told Crain's Chicago Business. Leaving his wife, he took up with a one-time Polish exchange student, and also announced plans to add one new egg farm every year for the next ten years. Each facility, which would cost $10 million to build, was to house more than 1.6 million hens. Funding for the expansion came from a combination of bank loans, an industrial development bond issue, and Rust himself.

Rust was well known for his eccentric behavior, which extended to the way he ran his organization. He paid employees a $100 bonus if they attended monthly quality control meetings or drove a car that was painted eggshell white, and each week gave out a free vacation trip to Florida to his most productive worker. Rose Acre also printed Bible verses on its egg cartons and displayed huge American flags at all of its farms, while Rust himself had a tree house 70 feet above the ground from which he could view the company's main production facility, as well as his childhood home.

By 1987 Rust had built four new farms, three in Indiana and one near Winterset, Iowa, and had also fathered four new children. Rose Acre Farms now had more than eight million layers and was the number two egg producer in the United States. It shipped five million eggs per day and took in revenues of $70 million per year. Two more farms were planned for Iowa, the largest of which would employ 80 and house more than two million hens. The state had courted the firm, eager to bring in new jobs as well as to sell Rose Acre some five million bushels of corn per year for feed.

Rust's success was due in large part to his farms' efficiency, which allowed him to sell eggs for as much as five cents less per dozen than his competitors. The firm reduced costs by vertically integrating production—breeding chicks, milling feed, harvesting, cleaning, sorting, and packing eggs all at the same location and then shipping them in semi-trailers directly to retailers' warehouses. Rose Acre also did not box eggs in packages with grocers' names on them, which interrupted production, and did not have a full-time USDA inspector on site, which would cost extra money but allow packages to be labeled "USDA Grade A." Some grocers, such as leading Chicago chains Jewel Food Stores and Dominick's Finer Foods, balked at using Rose Acre eggs because of these restrictions, but the firm found many other customers who were not so choosy.

In addition to its stronghold of the Midwest, Rose Acre was now distributing its eggs to much of the rest of the United States. The company's aggressive growth was ruffling the feathers of its competitors, however, and some banded together to fight back. In California a group of egg producers launched a $2.5 million ad campaign that urged consumers to "Buy California," while a group of six midwestern companies sued Rust for alleged violations of federal antitrust laws. In the fall of 1987 a jury agreed with their claim that Rose Acre had used different price structures in different markets, and awarded them $9.3 million, which the law required be tripled to $28 million. A judge later overturned the verdict, however, citing errors in instructions to the jury.

1989: Lois Rust Takes Control

Meanwhile, David Rust's wife Lois, the corporate secretary of Rose Acre Farms, had filed for divorce. In the bitter fight that followed, she aligned with their seven children to wrest control of the company away from its patriarch. Although he would remain a shareholder, in 1989 David Rust was forced out of management, leaving Lois Rust, with a 49 percent ownership stake, to take the company's helm.

Under her leadership, and with the help of her children, Rose Acre soon became a more focused and less eccentric organization. One of her first tasks was overseeing the construction of a new egg-breaker plant at the firm's Cort Acres farm in southern Indiana, which could process eggs into liquid egg product. It was a first step toward what would eventually become a major revenue source for the firm.

In the fall of 1990 eggs produced in six of Rose Acre's Indiana hen houses were linked to an outbreak of salmonella poisoning among 1,000 convention-goers in Chicago, which led the U.S. Agriculture Department to order Rose Acre to stop selling fresh eggs from those facilities. The company was allowed to use them for fertilizer or pasteurize them, but this resulted in its taking a loss on some 700 million eggs. Federal regulators also insisted on a thorough wet-cleaning of the suspect hen houses, which resulted in damage to their electrical wiring. Rose Acre later filed suit against the government for its actions and over strict new regulations that it had imposed for egg production. Several incidents like this one, along with Americans' growing worries about the high level of cholesterol found in eggs, helped drive per-capita egg consumption to a low of 233 in 1990. It had been in decline for years from the 400 recorded when David Rust first started selling eggs.

In spite of these problems, Rose Acre's expansion continued in the early 1990s, with several new facilities added in the northwestern corner of Illinois, including a plant that made dried egg products. In 1992 Rose Acre Farms was ranked the 25th largest firm run by a woman in the United States by Working Woman magazine. The company boasted $127 million in annual sales and employed 800.

In early 1993 Rose Acre made a deal to license a patented method of processing liquid eggs with microwaves to extend their shelf life. By this time the company's output of processed eggs had increased dramatically, growing from 5 percent of total sales in 1990 to an estimated 30 percent in 1993. Dried and liquid egg products were favored by institutional customers like schools and hospitals, which preferred them for convenience as well as their reduced potential for salmonella.

Expansion Continuing in the Mid-1990s

In 1994 Rose Acre built a third egg-laying facility in Iowa, which would house 1.5 million hens. The following year the company bought Agri-Foods, Inc. of Hawk Point, Missouri, an egg-laying operation owned by Schnuck Markets, Inc. Agri-Foods had 450,000 layers, which produced ten million eggs annually, and it continued to supply Schnuck with eggs after the sale. Rose Acre would later expand the operation. It was the firm's second facility in Missouri, the other being an eggbreaking and processing plant in Marshall. In addition to fresh, dried, and liquid eggs, Rose Acre was now also marketing brown eggs, organic fertilizer, and processed soybean products. The firm's fresh eggs were sold in 30 states around the United States.

The summer of 1995 brought a heat wave that killed more than 750,000 of Rose Acre's 13 million chickens. In addition to destroying more than 5 percent of the firm's hens, the heat reduced productivity in those that survived, with many of their eggs smaller or rough-shelled. In the heat wave's immediate aftermath, egg prices increased by as much as 50 percent in some areas.

In early 1998 Rose Acre introduced a new egg called Golden Premium that contained seven times the vitamin E of regular eggs and enhanced levels of omega-3 fatty acids. The eggs, which were produced by changing the nutritional content of a chicken's diet, cost a third more than standard ones. A total of 80,000 chickens were initially dedicated to their production. By now, the company's annual revenues stood at $280 million.

In the spring of 1999 Rose Acre began using laser technology to print dates on eggs to indicate when they were laid. The move came in the wake of a story that had aired on NBC that showed unsold eggs being repackaged by an Ohio egg producer in cartons that had new "sell-by" dates. Rose Acre initially indicated the date an egg was laid, but confusion among the public led to it being changed to a "use-by" date. The firm, which was the first in the country to do so, used a special inkjet printer that could mark 2,400 eggs per minute with food-grade red ink. In addition to the date, the eggs showed a Rose Acre Internet address, www.goodegg.com.

Company Perspectives:

Country Fresh Eggs, by Cage-Free Hens.So fresh to you, the hens don't miss them! These eggs are unique also in that the feed is completely all-natural, with no added hormones, animal fats or animal by-products. The chickens are free to run loose around the hen house.

In July of 2001 70,000 Rose Acre chickens were killed in an arson fire that destroyed a hen house at one of the firm's Indiana farms. The total loss was estimated at $900,000. Two men were later arrested and charged with setting the blaze.

The year 2002 saw the firm introduce an improved milk replacement product for dry animal feed that used the inedible portion of eggs as a protein substitute. The patented product was one of a number of new ways of using eggs under development by Rose Acre researchers. The firm now had more than 16 million layers and had eclipsed rival Michael Foods to again become the number two egg producer in the United States, after Cal-Maine Foods, Inc. Egg consumption was now on the rise, with each American eating an average of 253.5 per year.

Winning the Salmonella Case in 2002

In the late summer of 2002 Rose Acre Farms was awarded $6 million plus 12 years' interest by a federal judge in compensation for the losses the firm had suffered during and after the salmonella outbreak of 1990. The judge found that the government's new regulations "were misguided because they relied on ineffective testing methods." The regulations had not been enforced since the mid-1990s.

The year 2002 also saw the United Egg Producers organization adopt a new set of animal welfare standards under pressure from animal rights activists. The guidelines recommended giving each hen 40 percent more room. Most chickens on factory farms spent their lives in cages that gave them a space the size of a half-sheet of typing paper, with no room to even raise their wings. Their beaks were clipped so they could not peck their cage-mates to death, and they were alternately fed and denied food to yield increased egg production. The voluntary standards would reduce the number of chickens each hen house could hold by 16 percent, though the number of eggs laid per bird was expected to increase slightly. Rose Acre adopted the new standards, while also offering some eggs from uncaged "free-range" chickens for consumers who desired them.

In the summer of 2003 Rose Acre entered the early stages of planning for a massive new production facility in North Carolina that would house three to four million chickens. The farm was expected to cost $55 million and employ 125. While conservationists were concerned about the operation's possible negative impact on a neighboring wildlife refuge, many citizens of the rural county it was proposed for welcomed the prospect of new jobs.

More than 60 years after its founding, Rose Acre Farms, Inc. had grown from a small family farm into a network of giant egg-production facilities. The firm's 16 million chickens supplied fresh eggs to customers in most parts of the United States, as well as dried and liquid egg products for use by the foodservice industry. Plans for further expansion were on the drawing board.

Key Dates:

1939:: The Rust family farm is founded in Seymour, Indiana.
1943:: David Rust begins selling eggs and corn at a farmer's market in Indianapolis.
1955:: A new, larger hen house is constructed.
1965:: The number of chickens tops 100,000.
1975:: The hen population reaches one million.
1984:: David Rust begins an expansion program of adding one new farm per year.
1989:: Lois Rust takes control of the company after divorce from David Rust.
1990:: A salmonella outbreak linked to the firm's eggs leads to losses, new federal rules; Rose Acre builds its first egg breaking and processing plant.
1999:: The company begins printing "laid on" dates on eggs.
2002:: The firm is awarded $6 million plus interest in a lawsuit over the 1990 salmonella outbreak.

Principal Competitors

Cal-Maine Foods, Inc.; Michael Foods Egg Products Company; DeCoster Egg Farms; Buckeye Egg Farm.

Rose Acre Farms, Inc.

views updated

Rose Acre Farms, Inc.

Rural Route 5
Seymour, Indiana 47274
U.S.A.
Telephone: (812) 497-2557
Fax: (812) 497-3311
Web site: http://www.roseacrefarms.com

Private Company
Incorporated: 1939
Employees: 800
Sales: $280 million (2001 est.)
NAIC: 112310 Chicken Egg Production; 311999 All Other Miscellaneous Food Manufacturing

Origins

1989: Lois Rust Takes Control

Expansion Continuing in the Mid-1990s

Company Perspectives:

Winning the Salmonella Case in 2002

Key Dates:

1939:: The Rust family farm is founded in Seymour, Indiana.
1943:: David Rust begins selling eggs and corn at a farmer's market in Indianapolis.
1955:: A new, larger hen house is constructed.
1965:: The number of chickens tops 100,000.
1975:: The hen population reaches one million.
1984:: David Rust begins an expansion program of adding one new farm per year.
1989:: Lois Rust takes control of the company after divorce from David Rust.
1990:: A salmonella outbreak linked to the firm's eggs leads to losses, new federal rules; Rose Acre builds its first egg breaking and processing plant.
1999:: The company begins printing "laid on" dates on eggs.
2002:: The firm is awarded $6 million plus interest in a lawsuit over the 1990 salmonella outbreak.