MOORHEAD, Minn. -- Jim Horvath quietly marked a milestone Oct. 27. "I became the longest-serving president of American Crystal Sugar Co.," Horvath says, sitting in his office to talk Dec. 2. This interview came the day after Crystal's annual meeting -- in fact, the day after he once planned to retire.

Horvath's comment came the day after yet another newly reorganized board of directors voted him in for yet another year.

"If things had gone as I'd originally anticipated, yesterday would have been my last day of work," he says.

Horvath has been president since 1998, serving more than seven years and five months on Oct. 15 -- surpassing the tenure of Charlie Shamel, Crystal's second president as a cooperative -- the man who hired Horvath.

"When I became president, the average tenure since it had become a cooperative, had been three years and four months," Horvath says.

Horvath, acknowledges that his original plan was to retire as CEO when he turned 60 last July 19.

"Within the last year, the board and I had had some discussions about it," Horvath says. "As I approached 60, I felt better than I thought I was going to feel. I'm healthier than I thought I was going to be."

The early days

A native of Milwaukee, Horvath set a goal in his 20s of becoming a president of a company. His father was a "hard-working perfectionist," a machinist and later a superintendent for Allis Chalmers. His mother was at home while he was growing up -- a "social person" who valued manners and proper English.

"She is basically a kind person," Horvath says.

An only child, Horvath got his bachelor's degree in finance and master's degree in business from the University of Wisconsin in Milwaukee.

He started his career in 1969 with Miller Brewing Co., one of the three big breweries in town in that day.

His first mentor was controller Buck Adler, who sometimes passed him up for promotions but also gave him opportunities in many areas of finance. Another was Miller's president, John Murphy, who was very open and helped him develop his planning and budget analysis skills. Importantly, he introduced him to the top levels of parent company Phillip Morris in New York.

Horvath would become Miller director of treasury operations, director of accounting and, finally, director of information technology.

In 1985, a recruiter called and Horvath picked up his family and moved to Fargo, N.D., where became vice president of finance for American Crystal. It was the first time anyone in his family -- parents, grandparents, cousins -- had moved from Milwaukee.

Taking the reins

Much has changed since that date.

In 1998, Horvath was named president.

Horvath's first couple of years after taking the reins from Dan McCarty were difficult, with warm weather and big crops. Some growers questioned the company's strategy of expanding factories to handle 500,000 acres of beets. Horvath worked to overcome a "they-vs.-us" feeling between shareholders and management that had developed over the years.

"There was not a trust that management was doing the right thing," Horvath says. "One of the things I'm most proud of in my presidency is that we've always attempted to tell the truth and tell shareholders what drives their business, what makes it successful."

One of his predecessors, Joe Famalette, in the early days told shareholders that Crystal could support beet payments of $50 a ton per year, a statement that helped drive stock prices to the $3,500-an-acre range.

There's been none of that "irrational exuberance" from Horvath.

Horvath hasn't chosen a "specific retirement date," but would like to see a few things through -- a new "relationship established" for the ProGold L.L.C. corn fructose plant in Wahpeton, N.D.; a resolution to Mexican trade; and a new multiyear farm bill. That puts him out probably into the 2008 area.

"Once those three things are accomplished, you'd probably see me retire not too long thereafter," Horvath says.

Until then, here's how he sees some of the big issues:

NAFTA -- A TRAIN APPROACHES. Under the North American Free Trade Agreement, the Mexicans were given free and complete access to export whatever quality sugar they want into the United States. Tariffs have come down gradually since 1994 by a total of 80 percent. They'll disappear entirely Jan. 1, 2008.

"I think all parties involved view that as a train wreck," Horvath says of the deal. "We're looking for a reasonable' amount of HFC (high-fructose corn syrup) to be exported to Mexico, and a reasonable amount of sugar from the Mexican market to the U.S. -- amounts that won't destroy either market."

Since 2001, Horvath has been one of four members of a U.S. Mexico Task Force on sweeteners. He says the issue averages 10 percent to 15 percent of his time. Through him, Crystal has a taken a leadership role in crunching numbers on various policy scenarios.

"We've continued to have meetings with the Mexicans. It seems to go in fits and starts. As of now, the ball is in their court."

Discussions have taken place up to a dozen times a year, but only six times in 2005 -- usually in Mexico City.

The key issue is how much sugar comes in "standard" (96 percent pure) vs. "refined" (100 percent pure). The U.S. refinery industry believes the majority of the sugar needs to come in the form of "standard," which means it needs to be refined again in this country, Horvath says.

Standard sugar has a grayish-gold tinge, and the Mexicans use it as a table sugar, while it wouldn't qualify in the United States.

"I've been extremely optimistic and pessimistic," Horvath says about prospects for a Mexican deal. "Today, I'm leaning more toward pessimism vs. optimism, but I certainly haven't given up hope."

Horvath hopes that as the market gets closer to a full border opening, "the inevitableness of a train wreck will become more obvious."

CAFTA -- THE PRECEDENT? Crystal, under Horvath and in conjunction with U.S. sugar producer interests, strongly bucked passage of the Central American Free Trade Agreement last summer. The opponents came up two votes short in the House of Representatives.

The agreement is supposed to be in place Jan. 1, but recent news reports from the CAFTA countries indicate that "implementing" laws on the nonsugar aspects of the deal have not been completed on time, Horvath says, which could delay implementation by three or four months.

Rep. Collin Peterson, D-Minn., and Earl Pomeroy, D-N.D., told audiences at the Crystal annual meeting and the Red River Valley Sugarbeet Growers Association meeting that the bruising fight actually increased sugar's clout. Horvath says it's too soon to say.

Ironically, the CAFTA impact has not been large so far.

"As we were going into the CAFTA battle, we were experiencing significant annual decreases in consumption in the U.S.," Horvath says.

Sugar consumption cuts came in 2000, 2001, 2002 and 2003 because of the Atkins Diet and other low-carb plans. Instead of growing, the industry lost about 6 percent of its market in that period.

The anti-CAFTA fight work started Jan. 1, 2004. By the end of January 2005, the industry realized a 2.5 percent increase in demand.

On Dec. 2, that final projected increase for 2005 consumption was a 3.7 percent, although some of that may have been because of sugar user "stockpiling." The 2006 increases may not be as large.

Meanwhile, the administration is in the process of completing trade deals with the Andean countries and Thailand -- both expected to be done in the first half of 2006. Deals with Panama, South Africa and the Free Trade of the America's agreement will follow.

"None of them have any potential of good news for sugar," Horvath told growers in his address.

"When you add that to whatever Mexican (increases are) going to be, and CAFTA, the numbers could approach 1 million tons. That's 10 percent of our (domestic) market," Horvath says. That would be "tremendously negative" on prices.

The U.S. Trade Representative's office indicates there have been "no offers regarding sugar" in any of these other deals. Sugar generally is considered last because it's a "sensitive product." Horvath says that if that's true, however, sugar shouldn't have the negative impact on other commodities and classes of goods, as the USTR generally claims.

Horvath says he's wary of all trade deals because of the larger, geopolitical issues.

"They're up at 30,000 feet, thinking they want peaceful democracies," Horvath says. The way to get there is to trade away a piece of the U.S. economy -- maybe sugar.

"What happens down here, at ground level, is somewhat immaterial to that vision," Horvath says. "What concerns me is what's going to happen to our society. As we give away these manufacturing jobs, we're not going to be in a position to serve hamburgers to each other. I have a concern about exporting all of the meaningful work in this country."

CARGILL'S DESIGNS -- Cargill Inc., which has announced plans to construct a huge sugar manufacturing plant in Louisiana, represents an interesting a paradox for Crystal -- sometimes a competitor, other times a business partner.

Cargill leases the ProGold high-fructose corn sweetener factory in Wahpeton. Crystal is a majority shareholder in that, with 51 percent of the ownership.

On the other, Cargill markets sugar for an expanding Southern Minnesota Beet -- another farmer-owned sugar beet cooperative and a former partner in United Sugars Corp, the sugar marketing arm for American Crystal and partners. United Sugars has 28 percent of the U.S. sugar markeet and is the second-largest sugar marketer in the nation. ("Southern Minn" remains a partner in Midwest Agri-Commodities, which markets sugar beet pulp and related products.)

Horvath notes that Cargill already is the largest marketer of sugar in the world, a fact that has been somewhat immaterial because Crystal isn't an exporter.

Now, Cargill is poised to become a "major player" in the U.S. industry. The Louisiana announcement is a joint venture with the majority of that state's raw cane producers.

"If built, this would become the largest U.S. sugar refinery and, without any question, the most efficient, as well," Horvath says.

Horvath says Cargill probably will be a "very responsible marketer," which is a kind of industry code for saying they won't low-ball or undercut the market.

"We have great respect for Cargill as good, solid business people," Horvath says. "They have a different economic model for how things should work. Essentially, they move products around the world and make a fraction of a cent on each unit. They'd be inclined toward free trade in the world.

"Regrettably, our (traditional producer-processor) industry in the U.S. does not view total free trade, with no limitations, as in our best interests. We have a different economic model."

There are no allotments on refiners, only on producers. The Louisiana Sugarcane Growers has an allotment, which will go to whomever processes for them.

"A new refiner in a Gulf port will utilize foreign raws' very effectively, which may be a model Cargill prefers to buying domestic raw sugar," Horvath says.

Imperial and Domino already have refineries in Louisiana, who also use raws from foreign as well as domestic sources.

"I think Cargill is going to take a similar view on that. They're making the margin."

PROPERTY TAX CHALLENGES -- It's been almost three year since Crystal started a controversial path toward property tax "correction," which could save the company about $1 million a year in the Red River Valley. With five factories in two different states, the company asked for cuts of about 65 percent to 80 percent in some cases.

Renegotiating values with counties didn't work, and the issues ended up in court. In North Dakota, the company entered a negotiated settlement with Pembina County. In Traill County, the issue has gone to district court and aspects are on appeal to the state Supreme Court.

In Minnesota, the Polk County issue is headed to court in late spring. In Clay County, the company still is trying to settle out on a technicality over whether Crystal's agent correctly filed some of its papers.

Horvath sees the issue as fairness. Property taxes are "supposed to be based on the true economic value of the land and buildings -- the real property," Horvath says. (Of course, the machinery in the plant is worth more than the land and buildings.)

"The prices that have been paid for these in the real marketplace were substantially lower than assessed values we're seeing here in the red River Valley," Horvath says. Corrections are "normal business," Horvath says of companies seeking property tax assessment corrections, adding that the issue was fully vetted with the board of directors from the beginning.

"We've had full support from the board from the get-go," he says.

Horvath says Crystal wasn't the first sugar beet company to seek such corrections and is by no means alone.

Amalgamated Sugar in Idaho and Oregon were the first, with mixed results. Southern Minnesota Beet Sugar has been doing it, as well as growers in Michigan. Minn-Dak Farmers Cooperative has a formula in place with Richland County and isn't challenging at this point.

"The truth is, there have been very, very few comments about this anywhere, except at Hillsboro," Horvath says. "That's attributable to the way certain media professionals have elected to handle it. Even there, it's only a few voices we even hear from, even from our own shareholders."

PROGOLD AFTER 2007 -- ProGold L.L.C., which was completed in 1996, a $260 million piece Famalette's marketing dream of a "broad sweetener strategy."

The dream turned into a nightmare as Crystal locked horns with an oligopoly that had overexpanded production capacity. The fructose market collapsed as the plant was starting up. Facing a reported $30 million in losses per year, ProGold owners leased the plant out to Cargill to make the mortgage payments.

The 10-year lease deal expires Dec. 31, 2007, and the owners -- now just American Crystal (51 percent) and Golden Growers Cooperative (49 percent) -- started negotiating the next step about three months ago.

"For us, ProGold is purely an investment," Horvath says. "Has there historically been a return on the investment? Minimal."

There are a range of possibilities for ProGold's future, ranging from owning and running the plant to selling it.

While Crystal is downgrading the value of its five sugar factories, Horvath talks about increases in the value of corn fructose plants, based on its income generating capacity.

"Replacement costs for (corn fructose) facilities have gone up dramatically over the 10 years -- steel and labor, component parts," he says. List prices for cost to build have increased 25 percent to 30 percent in that period of time.

He says that while fructose markets continue to be challenging, the marketplace has grown tighter because of a lot of "swing capacity" that has been built into fructose plants for producing ethanol fuel and plastics.

Horvath, who was the original chief operating officer for ProGold, says the factory has been good for corn prices in the southern Red River Valley.

"If I could go back to 1994 or 1995, I wish we wouldn't have built it," he acknowledges. "But I can't go back and un-build' it. You have to look at what's there today."

As for the prospect of shifting some of the ProGold stream to ethanol, Horvath seems cool.

"As I sit here, today, I don't see that as a strategic direction. In fact, if we talk about sucrose ethanol,' there may be an opportunity there. If I make an investment, I'd want to make an investment that would protect my sugar beet growers. We have to wait and see the economics of sucrose ethanol. There are some studies going on right now within the beet side of the industry to answer that."

GENETICALLY MODIFIED BEETS -- With beets being such a management-intensive crop, producers have longed for a genetically modified fix, probably with glyphosate tolerance. American Crystal has held off on GM beets, largely because of U.S. sugar users who sell sugar-containing products in Europe, but there's even resistance in feed byproducts.

Horvath says that may change. Canada and Japan have approved GM sugar beets and sugar and the byproducts for feed.

"We've very close in Mexico, and Monsanto has indicated to us that kind of approval in Europe might be achieved in late 2007," Horvath says. "My belief is that if there's approval in Europe -- presuming it'll be approved in Mexico -- there will be no longer any reason we couldn't grow GMO beets."

Of course, Crystal would not start to grow GM beets until all of those approvals are final, so the earliest scenario would be for a 2008 crop.

SUCCESSION QUESTION -- With Horvath's original retirement plans, shareholders earlier had talk about the post-Horvath era. Two vice presidents -- David Berg, operations, and Joe Talley, finance -- are often mentioned as internal candidates. Horvath diplomatically notes that it will be the board's place to replace him. He says only that he's proud of his management team.

"It's my job, as CEO, to develop each of one of these guys -- have them prepared to succeed me," he says.

Meanwhile, Horvath is at his post. He and his wife, Carol, have spent winters in Arizona since 1990. They built a retirement home in Fountain Hills, Ariz., in 1998. Horvath spends his vacations there and makes stops en route to or from industry meetings in the West. Their two sons, Brad, 34, and Brian, 32, also are in Arizona.

When he chooses a retirement date, the board will be the first to know.

"I'll give them notice so there can be a smooth transition," he says.

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