The international noodle: Two years after hooking up with Nippun USA, Pasta Montana is thriving

A quick walk through Pasta Montana’s 30,000-square-foot warehouse makes it clear where a large chunk of the business’ product is
headed.

By BETH BRITTON
Tribune Business Editor

Cardboard boxes marked in Japanese line the shelves, and company officials say export sales are steadily growing for the 5-year-old
company.

Anywhere from three to seven semitruck loads leave Pasta Montana each day. Not surprisingly, much of that product is destined for
Japan, a growing export market for the company.

It’s been two years since Nippun USA, a subsidiary of Tokyo-based Nippon Flour Mills, bought 70 percent of Pasta Montana. Today,
Nippun USA owns 86 percent of the pasta company.

The result, management and employees say, is a more efficient production plant and an increasingly healthy export market.

The pasta market

Two years after the Japanese entered the picture, Pasta Montana is working to expand its export markets, enter more American markets
and increase its production.

Total sales have increased by 20 percent in the past year, and in 2001, Pasta Montana’s total export sales totaled about $8 million, said
president and COO Mel Schulz.

Roughly half of the pasta produced at the Great Falls plant is exported — 20 percent to Canada and 30 percent to Japan. Last year, the
company was awarded the Governor’s Excellence in Exporting Award for its program to increase export sales of Montana-made products.

The remainder of the pasta remains in the United States; less than 1 percent of the pasta made in Great Falls is consumed in Montana.

While U.S. consumption of pasta is stable, consumption in the export markets, particularly the Asian markets, is on the rise," said
director of administration and sales Hiroshi "Joe" Suzuki.

"The pasta market is growing, so we need to have the resources to get the supply to the Japanese market," Suzuki said. "But our purpose
is to be a good American company."

Suzuki is one of five Japanese employees currently working alongside the American workers. He and his family will spend at least five
years in Great Falls; his two sons attend public school and are learning English, he said.

Changes

Schulz, who joined Pasta Montana 16 months ago, has worked with Japanese companies for many years, including a stint with Mitsubishi
in Portland, Ore.

"One major difference is the Japanese style of decision-making is more of a consensus," he said. "In the United States it is more
individualistic." Schulz said he is trying to merge the two distinct styles.

Lead lab technician Amy Parker worked for Pasta Montana in 1998 and returned to the company in October 2000 after a one-year
absence.

"The difference I noticed is that everything is much smoother," Parker said. "The equipment is better, and I think everything is more
fine-tuned."

Long-term employees, Parker said, notice the overall change in equipment and machinery. But something else Parker noticed was a
change in attitude.

"It is more serious; they are definitely more particular when it comes to product," Parker said of the Japanese owners. "They are more
detailed, but I don’t mind it. I just have to be more meticulous and more aware."

As for challenges, Parker points only to the language barrier. But even that, she said, is not a major problem.

"When I came back I was a little worried I wouldn’t be able to understand, but it’s amazing how I picked (some Japanese phrases) up," she
said.

Donna Hoey, who has worked at Pasta Montana since the company’s inception five years ago, said employees have been receptive to the
new management.

"Everyone tries to communicate, and I think they tend to be very patient," she said of the Japanese management. Today, Hoey works as a
human resource assistant and payroll specialist. Pasta Montana employs about 60 full-time workers, she said.

In the days when Nippon was simply a Pasta Montana customer, it sent its officials to Montana to visit the plant and meet its employees,
Hoey said, so everyone kind of knew who was buying the company two years ago.

"I think most of the workers just felt happy for the opportunity to keep Pasta Montana going," she said. "The employees were pretty
receptive because they could see that the Japanese had experience."

Nippon Flour Mills is Japan’s oldest industrial flour miller and a leading producer of flour-related products for industrial, food service and
consumer use. Before it entered as an owner, Nippon was one of Pasta Montana’s largest export customers.

Finances

More than anything, it’s the financial stability that Nippun USA brought to the company that has made the difference, Schulz said. Two
years ago, Pasta Montana was struggling financially; today, the company’s performance has increased substantially.

"Since the Japanese purchased the majority of ownership, profitability has expanded," he said. Nippon owns about 80 percent and venture
capitalists own about 20 percent.

According to Cheryl MacArthur, the deputy director of the Great Falls Development Authority, Pasta Montana borrowed a total of $2 million
from the economic development organization. A $1.5 million loan in October 1996 was used to purchase equipment and property. An April
1997 loan for $500,000 was used for operating capital.

In September 2001, the loans were completely paid off, MacArthur said, and the money returned to the authority’s revolving loan fund."The
Japanese have put a lot of money in there," MacArthur said of the pasta plant. "I believe they’ve broadened their markets, and the amount
of pasta the Japanese are buying is unbelievable."

MacArthur said the biggest change she has seen since Nippon came on the scene is an increased interest in marketing the products and
seeking more customers.

"They’ve certainly gone into more markets than they did in the beginning; it is more visible," she added.

Suzuki admits that the company is still working to become profitable.

"I think the past 10 months we have done very good," he said. "We control costs very effectively and increased sales."

Despite the improvements over the past two years, the company imposed a salary and wage freeze in March 2001. The freeze will remain
in effect "until financial circumstances are such that we can provide a return to investors," Schulz said.

Looking forward

Company officials are confident that the future is bright for the young company.

Pasta Montana is here to stay, Suzuki said.

"We are thinking of this commitment as a long-term investment," he said. That commitment has included the addition of high-tech
equipment and the construction last year of the large warehouse.

More changes are on the horizon, Schulz said.

"I would like to see our sales increase both domestically and for export," Schulz said. "We also anticipate a fourth production line, a $6
million investment in the next couple of years."

The company currently runs three lines. Two lines are devoted to short goods, including rotini and elbow macaroni. Those two lines are
running to about 70 percent of capacity, Schulz said. The third line, the long line, is devoted to spaghetti. That is where the greatest
demand is — 95 percent of the pasta shipped to Japan is spaghetti — and the line is running to 100 percent of capacity.

"We literally cannot sell any more spaghetti," Schulz said.

Today, Pasta Montana makes nine shapes for the retail market and 25 shapes for the food service market, which accounts for about 25
percent of total sales. The industrial market, where pasta is shipped in 800-pound packages and then placed in various products by other
companies, accounts for 30 percent of the domestic market.

Sales Manager Dan Thomas said the product is in 126 stores in Montana, and soon the company hopes to introduce the product
throughout the Pacific Northwest under the Pasta Montana name.

"It’s very difficult to break in initially, but once a customer does try it, they see the quality," Thomas said. "The Montana mystique is a big
factor, but it can also be a hindrance. There is a mindset that for pasta to be good it has to be imported from Italy."

Mel Schulz, president and chief operating officer of Pasta Montana, looks at pasta products to be shipped to Japan with Becky Thompson,
processing engineer, and Toshiya Maezura, director of operations, in the plant’s new warehouse.

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