Announcer:
From The Library of The New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership, and vision and global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism. Right here, right now at the NYSE and at ICE's 12 exchanges and six clearing houses around the world. Now, welcome inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
It's getting crowded, not just here in New York or in the United States, but across the world. The United Nations predicts there will be 9.8 billion people by 2050, and a piece in Harvard Business Review projects that will cause the world's food demand to increase anywhere from 59% to 98%. The result will mean more mouths to feed, more energy required to move and heat the population, and resources will be stretched to the breaking point. New sustainable and innovative solutions are needed along with the commitment to adopting the systems that allow what we have to stretch even farther than we could ever have imagined.
Josh King:
Fortunately, there's an NYSE-listed company that's been preparing for this future for over 130 years. Our guest today is Randall Stuewe, Chairman and CEO of Darling Ingredients, NYSE ticker symbol DAR. A company whose motto is, "Creating sustainable food, feed and fuel ingredients for a growing population." You might not be familiar with the Darling name, but there is a 100% chance that you've encountered or may have in the future use a pharmaceutical, biofuel, fertilizer, sports nutrition product, cosmetic, an animal, pet and human food that, wait for it, includes an ingredient that was waste. Destined for the landfill until Darling Ingredients gave it a second life.
Josh King:
How is Darling Ingredients creating value from waste and giving nature a second life? Why old oil is the new oil and why Randy thinks Darling is on to something bigger than Bitcoin. That's right after this. And now a word from Teledoc, NYSE ticker TDOC.
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Josh King:
Our guest today is Randall Stuewe, who's been chairman and CEO of darling ingredients since 2003 and has over a quarter century of experience in agricultural processing. Under Randy's leadership Darling has undergone a period of growth and diversification, including a long list of key acquisitions and innovations. The company now operates 200 facilities across the globe and employs 10,000 people. Before joining Darling Ingredients Randy worked for ConAgra that's NYSE ticker symbol CAG, including serving as president of Gilroy Foods. He began his career at Cargill, fresh out of Kansas State. Randy, welcome to the library.
Randy Stuewe:
Thank you.
Josh King:
I want to start by really going back both for Randy Stuewe's origins and also Darling's. You grew up in Salina, Kansas, which is an industrial center in the midst of wheat country. Did that set the scene for you to end up in agricultural work?
Randy Stuewe:
I think it did. It's a funny story for me. I grew up with a father that was a technical engineer at Beach Aircraft. I grew up with a brother who has his masters and his PhD in nuclear engineering and little Randy was supposed to be an electrical engineer. And so I went to school at Kansas State, enrolled in the engineering school and pretty much failed. And so I walked over, knowing I was pretty good with numbers, over to the finance side, into the business school and graduated quite well with my GPA and everything when you find something you love to do. As I looked back and think about it, I didn't really know what I wanted to do at that time. I'd finished a finance test, went down to the local bar town called Aggie Villa, split a couple pitchers of beer with my good friend, Dan Morris that went to work for IBM.
Randy Stuewe:
And I had an interview with Cargill the next day. All I can remember is I broke every rule. I took a cup of coffee with me into the interview because I was hung over from this really bad finance test and Cargill made me an offer. And I end up going into their merchant training program, management training program in, I think, June of '83 or '84. And then got assigned into the grain trading business from there. I had, although my grandparents owned a wheat farm, I had never worked on a farm. I had no idea about animals or agriculture, but I just very soon really fell in love with it. And it was something special that you get to do. And now you look back and as you noted, I'm aging myself, 36 years later, getting a chance to feed people, to see production agriculture around the world, to see the transformation of food products.
Randy Stuewe:
The globe is really a fascinating place. And for a kid from Salina, I just never thought I'd get to see the world that I get to see today, from China to Africa, to all of Asia, to South America. And when you get to see the world, you get to see the common values that, as a Midwest kid you grow up with, with family and that. And you look around the world and you realize that people want a safe place to live, clothing to wear and good food to eat. And to know you get to play a role in that is just the coolest thing for me today.
Josh King:
The Kansas Pacific Railway opened in 1867. And as I look at an old railroad map with Salina in the middle, it's a confluence of roots north, south, east and west. As that kid growing up that you were talking about, did you see the box cars filled with hogs going in one direction and fertilizer in another, oil a third, and get a sense of the globality of the agriculture ecosystem? Or was this all completely new to you?
Randy Stuewe:
It was 100% new to me. I had no idea. And I had no idea of the complexity of the global supply chain. I grew, as I said, with grandma and grandpa having a little bit of a wheat farm, and you would hope at Christmas time, there'd be that little extra check in the box from grandma that sold her wheat for a little more this year than last year. But that was really my exposure to it.
Josh King:
If I were to describe a business that is solely focused on creating value from sustainable and green friendly industries, most listeners would expect a young disruptor company. But Darling, as you mentioned from Rhode Island, is one of the oldest companies on the New York Stock Exchange. How did the company get its start?
Randy Stuewe:
It dates back to the Darling family in 1882 in Rhode Island. They moved to Chicago when a gentleman by the name of Mr. Swift, that you might remember the Swift meat packing family now owned by the Brazilian Batista family. But you know Armor Swift, Eck Ridge, Swift Meats, and Mr. Swift wanted to slaughter animals and distribute the meat and he needed something to do with the other product. And you think about it, about a half an animal in the case of beef, maybe a little less with chickens and pigs, is what gets termed as waste. And so the origin of the business goes back, as we talk about, is that Mr. Darling took the meat scrap, threw it in a cast iron kettle, cooked it. And what do you do? We call the process rendering, you cook off the water.
Randy Stuewe:
And just like, as I always tell people, when I get public speaking, you're all honorary renderers if you've ever browned hamburger, sausage, bacon, because you're getting rid of the moisture separating the fat from the protein. And so then what do you do with it? Well, in the early start of the business, because you think about it, we didn't have refrigeration. And so animals, like you said, in the box cars were shipped to destination and slaughtered. And so then the processing was very much forward also at the time to remove the guts and the hair, the bone, the feathers. And they were cooked, separated into proteins and fats. The fats, great grandma, as we would refer in the model here, would put a little lye with it and make soap. That's the origin. And then the protein would be put back on the rose garden, the vegetable garden.
Josh King:
So Randy, you've given us story going back to the very beginning of Darling in the 19th century, but you show up in 2003. Curious about what brought you to Darling in the first place and what you saw when you walked in the door for the first time.
Randy Stuewe:
Yeah. As I think back because I get the chance to share with a lot of kids these days on career development and mentoring. I came out of school, went to work for Cargill. I found it to be just a fabulous, fabulous company with impeccable values, impeccable training, opportunity that were going to be limitless. And Cargill was very much a seniority driven, tenure driven business. And the one gift that God didn't give me was patience. And so about 13 years into it, 12, 13 years, ConAgra called me and said, hey, we'd like to build a new business. You want to do that? And so I wrote 10 things down on a pad of paper that said, these are the things that I need to make a career change. Flew down to Omaha from Minneapolis.
Randy Stuewe:
They nailed all 10 of them and I never looked back. Moved down to ConAgra. And I saw the exact opposite of the value system that I saw at Cargill. ConAgra was the ultimate shark tank of short term focus while Cargill was the exact opposite of that. I took over several businesses there. Moved out to Gilroy California in the late nineties, I think '99, 2000. Actually, during the.com era, which made for the most interesting time I could ever have trying to build and run a business in California. And Gilroy was the largest dehydrator of vegetables in the world, farming, I don't know, 44,000 acres. And I was like, oh man, would my grandparents be proud. Now I'm the biggest farmer growing garlic and onion. I had the plant that not only smelled good, but people loved in town. And they had the Gilroy Garlic Festival and it was all about us. And then ConAgra said, well, we'd like to move you back to Omaha. And that...
Josh King:
Got the College World Series going for you.
Randy Stuewe:
Yeah. You got the College World Series, 50 mile an hour winds, horizontal snow. And you're living in Monterey, California and looking out over the ocean and going...
Josh King:
Couple rounds at Pebble Beach.
Randy Stuewe:
Couple rounds once a year, every other year. And I had small children at the time. And I always describe it to people, I felt like I was starring on an episode of survivor and they went over to my torch, the family did, and snuffed it out. So they voted me off the island.
Josh King:
And it's back to Kansas. Almost like Dorothy in The Wizard of Oz at the end of the dream.
Randy Stuewe:
It was like, wake up Toto. I've got to go in and tell ConAgra, no, I'm not moving. And so, now as you get braver later in your career, you can acknowledge I got fired. And all of a sudden I was living in a place that's the world's most expensive in California. I got no job. I got little kids and I got a small little severance package that is like the calendar on the wall with the red line going through it each day, ticking down until you're flat broke. And so the pressure your cooker was building. And what you find out after you lose a job like that is you have all these networking friends that you've had, but about the third week you call them, they don't want to hear from you anymore.
Randy Stuewe:
And so then one day, one of the investment bankers that I'd worked with called me up and said, Hey Randy, there's a company called Darling looking for a new CEO. And I said, Darling. I said, yeah. When I worked at Cargill, I remember the guy sitting next to me, was trading with Darling. So early ages, to a degree, of the internet and what's available. You get out there and figure it out and you go, oh man, this company's in trouble. And you sit there and you start doing a little more research. And at the time you start digging in and you realize we were... Darling. When I say we, I am Darling now. And I look back and we were Drexel's one of their final junk bonds. And at the end of the day, in the nineties, they issued some junk debt.
Randy Stuewe:
And at the end of the day, we have the history of not being able to make the first coupon or interest payment 30 days later on it. So the company went into restructure. It had several private owners between. This is in the mid nineties, the late nineties, and then into the early two thousands. And at the end of day, when I came in at the end of 2002, we just completed a restructure whereby we swapped the debt for equity in the company. And we had the wonderful names like, like Cerevis and Prudential. We had what were called vulture funds or distressed debt funds as your shareholders. And so I walk in day one and I'm ready to rally the team and build the culture. And I get called into the board room and the board says, Randy, your shareholders would like you to initiate a strategic alternatives process. I'm going, dude, I'm here day one and I'm supposed to sell the company?
Josh King:
That's not what you signed up for.
Randy Stuewe:
Well, I don't think so. And I had kids and we were still living back in California and you go, well, this may not be a long term gig. And so we packaged up the company and we took it... We hired a BMO to help sell the company for us and went out and did all the dog and pony shows and brought the investors in and the stock is trading at 85 cents a share. All my options that they gave me at a buck of share were underwater. This was not going to be a good deal. But you do your best because you've been charged with it. You get up there, the same passion that I used today, I did then to tell them what I thought this company could be when it grew up. And I told people, I said the value of Darling at the time, which was like 26 or 31 plants is that no one can ever build one of these plants again. You're not going to allow me to build this in your backyard.
Josh King:
Not in your backyard. Not a lot of communities want rendering plants.
Randy Stuewe:
Nope. And at the end of the day, these plants needed a little bit of capital. They needed some love. The culture needed to be readdressed of what it wanted to be and could be and will be one day. So took it out there. The best bid we got at the time, I think was about a buck and a quarter. Just didn't make sense. And so we abandoned the project. I started on February 3rd, on September 13th we ended the project that year and I got my first full-time employment contract. But we still needed money to run the company. We couldn't pay our bills. And so the fun story goes like this. We take the company to Wall Street. And first thing you go as you start to tell people about Darling, they're trying to figure out what's Darling. Is it a lingerie company?
Randy Stuewe:
And then you say, no, it was named Darling Delaware. And the guys on Madison Avenue, the bond shops go, oh yeah, Darling Delaware, you tattooed me back in the nineties. And so we went out there and started telling the story and we watched the stock move. It goes to 1,85. It goes to 2,15 a share. And then we need some money and the phone rings and it's Michael Dell's private equity fund called MSD Capital. Oh, couple guys, they're all recycled. They were actually back at Drexel. They knew the history. And long story short, they loaned us 35 million bucks at 11.5% on December 23rd of 2003. And you say, well, how do you remember these dates? Well, that's the day, the first cow in North America went down with mad cow disease. And that's like a material event for a public company. And so I call up the Dell guys and I said, Hey, I got to be transparent. I got to be straight with you. This cow just went down and I don't know if our company's worth a dollar tomorrow. No problem. We'll loan you the money.
Josh King:
Good on Michael Dell.
Randy Stuewe:
And so they signed up for the money. Long story short, stock reacted from 2,15 to 4,35 bucks a share over the next couple years. And we paid back Michael Dell. I never had met him until about three years ago. And I went over and introduced it myself at a JP Morgan CEO event. And I said, Michael, Dell, blah, blah, blah. And he says, oh yeah, Darling. I remember that. Where's the stock at today? I said, ah, Michael it's 20 bucks. And his head went down. And I thought it was kind of fun to tell him that we'd been so successful from there. But from there in 2004 or five, we started off, as you mentioned on the acquisition trail and have built what we've built today.
Josh King:
So today the company operates nearly 20 different brands. What's the common thread that connects them all together under Darling Ingredients?
Randy Stuewe:
The common brand is Darling Ingredients. And the common brand is the people that have formulated the products. We've always taken an approach that when we buy a company, when we acquire and bolt on a company, we buy a great company with a great management team. And we don't try to force change into that company because I've learned in my Gilroy days that I wasn't always smarter than the next company you bought. So we would take these brands and we would ask people, do you want to continue? Do you want to rebrand it? And so at the end of the day, it's an amalgamation and conglomeration of brands that I'm not sure mean a lot to each other, but they mean, within the industry, as the leading, highest quality, safest brand in that space. I want to let people run their own businesses, but I want to make sure that they realize... We call it no surprises.
Randy Stuewe:
The fancy word is transparency. The numbers are the numbers. I wanted to take my long term view out of Cargill that this isn't a 90 day world. And then I wanted to take the execution side out of ConAgra that held people accountable and rewarded people for success. And so at the end of the day you have the entrepreneurship, the numbers are the numbers that's the transparency. The integrity was, and it still holds today, is that our brands are our brands and you get one shot at it. So you have to protect the brand at all costs. In many cases, as you reference, that's one of the 20 brands at our plants, at our factories across the world. That's the odor coming from the plant. You can't let the odor out. You have to mow the yard. The there has to be flowers planted by the sign.
Randy Stuewe:
You've got to make it look like it's somewhere that somebody wants to come to work or you're in trouble. And so we've created this wonderful culture around the world. It would be the same in China as it is in Europe today, as it is in South America where our management team has fun and we make sure that... And they say, well, what's the ultimate reward for you. It's when you want your children to come work at the company. And we have just a ton of that going on. So I think we've built something special.
Josh King:
You mentioned something just now, which I just want to have a sidebar because so many people who watch stories in the news might ask this question. It's one thing to keep the lawn mowed and flowers planted, but how do you contain the odor?
Randy Stuewe:
Technology is continuing to evolve there. The first thing you have to do, as we say, you can't process old material. So we operate one of the largest trucking companies in North America and in Europe that transport the materials from the slaughterhouses, the grocery stores, Costco, McDonald's within the same day. So it's a very much, you get it there. Once you get it to the building, the buildings we would say are under negative pressure. It means we're sucking air in not pushing air out. And then you use a different type of chemical and incineration treatment to take care of the air that's going back out. Hopefully if you go by one of the plants that you would have that smell of what I call pet food. You would smell the browning of meat and you go, that's really not offensive. Otherwise we get told it is offensive and it's an uphill battle then.
Josh King:
One of the fastest growing segments of your business is Diamond Green Diesel, which you launched with Valero Energy, also listed here under NYSE ticker symbol VLO back in 2011. What's the science behind the process that you describe as not only bigger than Bitcoin but, and I quote, the most disruptive thing in the history of the food chain is making a hydrocarbon out of animal fat.
Randy Stuewe:
I love it. How you said that. And I always have to tell a little bit of a story here that makes for support of the concept. And really you have to look back and say animal fats, and I take you back to my Cargill days. I was involved in acquiring the French fry oil business for McDonald's and what were they doing in 1989? They were getting rid of animal fat and beef tallow. Then they converted the corn oil. And of course I ran the corn oil business for Cargill at the time, so I benefited both ways. But at the end of the day, the point being is that animal fats because of saturation, because of heart health, because of cholesterol, you were led as a consumer then to believe that hydrogenated soybean oil was actually better for you than animal fats.
Randy Stuewe:
Now we know that was fake news. And so animal fats lost favor within the food chain, except in emerging markets around the world. And so at the end of the day, what could you do with them? You made some chemicals out of them. You could put them in animal feed. There were just a little bit that still went to food, but at the end of the day, it was so cheap. It was anywhere between 50 bucks and 150 bucks a ton cheaper than the other vegetable oils, if you will, in the United States and the world. And I kept saying to myself, that's not fair. And I said, we got to find something else to do with it. And I've always carried this vision and view in life, if you create a product that somebody wants, it's really easy to sell versus telling them they have to buy it.
Randy Stuewe:
We'll zero in on what that really means here. So we looked at animal fats. We looked at well, should we be burning them in boilers, can we burn them in our trucks? Nah, they really don't work. There was technology that was emerging in the mid to late two thousands, biodiesel. It's been around for a lot of years, but remember energy was running up at that time and I'm thinking back '08, '09, I'll be off a year or two when crude oil had $147 of barrel. There was a book out there that said we had 75 years of reserves left in the world. And the Energy Independence and Security Act was created in Congress to incent the production of, at the time, first generation, second generation, third generation fuels.
Randy Stuewe:
First generation being really ethanol. It's easiest thing to make. Biodiesel was easy and then advanced biofuels and so, that started down the road. We looked at biodiesel and so we got really close to building our first biodiesel plant in about '08. We were going to buy an old chemical plant in Cleveland or Akron and we chose not to. And the answer was that what happens when you put animal fats in the refrigerator? They get hard. So biodiesel made out of animal fats? Well, it works, but it probably works better around the equator than it does in Minneapolis, Minnesota in January. So it really wasn't a good product in the sense of my views of good products. And so I said, guys, this isn't the right solution.
Randy Stuewe:
Let's stand down. Got a call, an old colleague at Cargill. And she asked me and said, Randy, have you heard of this thing called hydro treating? I said, no. So I'm on the computer again, trying to get up the curve and figured out what it was and figured out who the technology supplier was. And it was a company, a little company out of Chicago named Honeywell, United Oil Products, UOP. And so we met with them and they said, yeah, we got this beautiful little black box. You can put the animal fat in here. And this little reaction happens and out the other end comes this clear water, white liquid that's a hydrocarbon, and it's a complete drop in fuel. And it can be burned a tank load in Alaska in the middle of January. And I'm going, wow, that's cool.
Randy Stuewe:
And oh, by the way, we think it can be made so it can go into the pipeline. Because 80, 90% of the fuel in this country moves around by pipeline. So I'm going all right, this is cool. Solution found. So started to do the research, brought on our chief strategy officer at the time, a guy named John Bullock. He was running a company called J Bull Inc. He'd been my partner at ConAgra. We've been together 25 years, smartest man I know. And I go, John, figure this out. Because the kid from Kansas here, this was way above his pay grade. And so John went down the road, doing the research on what it could be. And the next thing you know, we figured out we had to go find a petroleum company or somebody else that wanted and could do it.
Randy Stuewe:
We went to Cargill, we pitched it, old friends, old colleagues. I got thrown out of there. Went to ADM, pitched it to them thought we would do it with them. That's when they had a CEO change. Then Patricia Worth came on board, I guess she didn't think it was a good idea. She came from Chevron. Then John and I decide, well, we're going to go out on the big oil tour. We can honestly tell you, we went to every oil company in America and pitched this thing. And I'm really good at pitching this stuff. I'm pretty sure I met with the night janitor that doubled as the business development manager. We found zero traction. We got laughed out of the room. I can remember being a conference and BP said, oh renewables, that's the little pink line in the pie chart.
Randy Stuewe:
It's just not going to be relevant. And so finally with the assistance of ADM, they took us down to meet Valero. Walked into a big boardroom and a guy named Jim Gillingham was running the renewable side for the CEO and chairman, Bill Klessy at the time. And we pitched it to Jim and at the time he looked at me and he said, now why would we go into a business that's dependent on government subsidy or mandate at the time? I said, Jim, didn't you just buy seven ethanol plants? And he goes, yeah. He says, but we got them cheap. I said, well, let's figure out that this works. So from there, the story even gets more fun. So he goes and works the internal sausage maker at Valero. I basically, I always joke with people, I meet with my advisors, which is basically me. And we kind of go, okay, let's go.
Randy Stuewe:
But Bill Klessy said, this is serial number zero one. It's never been done in the world. We really don't know the reaction to make it happen. But it looks like we're going to marry vegetable oil refining with basically hydro treating, which is basically the same process used to make diesel fuel within a petroleum refinery today. But it's going to be under much greater temperature, much greater pressure to get the reaction. And he goes, there's some money available. President Obama at the time was, and the Department of Energy, was promoting the second generation, third generation fuels. You would think of cellulosic, but this fit in that boat.
Randy Stuewe:
So we went to the Department of Energy. We worked for a year developing a term sheet by which they would loan us the money. And for public companies, this word non-recourse meaning if it didn't work, they wouldn't collect the money became important. And for little old Darling, it was even more important. And we got down the road with the DOE and then we woke up and on the headlines of the New York Post of the New York Times of the Wall Street Journal Solyndra is fraud.
Josh King:
Right. I remember he went out and stood in front of the Solyndra factory.
Randy Stuewe:
And oh, by the way, that's when the program stopped. And there we just spent almost two years negotiating the loan to build this place. So went home, went back to Dallas, probably as demoralized as I'd become. And the phone rang on Monday morning and it was Bill Klessy. And Bill said to us, he says, I'll do the loan. Same terms as the DOE. I believe in this project. He says, I got to know, by Friday. So immediately had to tee up a board meeting and tell them and boom, boom, boom. There were more questions than answers, but I said, let's go.
Randy Stuewe:
So here were the numbers. It was, we were going to throw in a hundred million. Valero was going to throw in a hundred million. And 223 million was going to be loaned to the joint venture. It took two years. Fired up on July 13th, 2013. And we've been running ever since. It's been highly profitable and we made a product that everybody wanted. And it was just so... I know I say that was such passion and dignitation, it's just, my God, this stuff was selling candy to kids. And so then...
Josh King:
Last year you broke ground after that first one on a second plant at your Louisiana facility. And just a couple weeks ago, it's reported that Darling Ingredients may be partnering with a Swedish refiner Preem, which is building a 265 million gallon, renewable diesel unit. These partnerships that go back to the moment that you came back from DC demoralized after Solyndra. And industries and leaders get together and say, let's put our own money where our mouth is and innovate together. Why are partnerships with Valero and possibly Preem the right business decision for Darling in the diesel refining space?
Randy Stuewe:
First off, I always like to tell people you do business with people that you share values with. And I am just a huge Valero fan of the culture that they built. We're the first marriage of big Ag and big oil on the planet today. And so we jointly manage the business, in the sense there's two directors there, two directors from Darling. Employees are employees of the joint ventures solely compensated on the performance of it. And what we found out as we built the business here is Valero needed our expertise in origination, supply chain management, meaning... We pick up from 200,000 customers around the world. A little barrel of meat scrap here, a barrel of a French fry oil there and transport it back to the facilities, do our little magic. And then put it in or tank and then put it in a rail car and then get it to wherever the next use is at the time.
Randy Stuewe:
And so they needed that expertise. Valero also needed the expertise of how do you get the bad stuff out of animal fats. The secret sauce within Diamond Green Diesel today is what we call the pre-treatment unit. That is the confidential proprietary. Because once you do that, they know how to crack the molecule with the best of them in the world today. And so that just became number one. That was key. Number two, they know the buyers. I think when people went into, and consumers of the product, when people went into the alternative energy businesses, I always told people the buyer of the product isn't the guy that left Woodstock in his '72 Mercedes and wants to burn vegetable oil in it. It's big oil. And big oil does business with big oil. They know how the trade works.
Randy Stuewe:
They know how the products price, they know the pipelines, they understand the contracts, the terms and all that. So, boom, it was just a seamless integration. Now, when we talk about Preem, once again, this is Diamond Green Diesel, so this is Darling Valero working with Preem. Number one, protect our technology. And number two, we have the same oil field of supply in Europe today that we have in North America. Preem's a very large customer of Darling today. And so it's just the next natural fit. And what does Preem bring? Number one refiner in Sweden. They also do some distribution in Norway. They've got the customer. And so you marry our supply chain with Valero's technology, innovation and drive and distribution, Preem's distribution, and it's just the lowest cost system in the world.
Josh King:
We've talked about transition fuels on this program. Most recently with Stewart Williams, the president of Intercontinental Exchange's, ICE Futures Europe, the business that owns the New York Stock Exchange. Where is the growth potential for sustainable diesel and how will increasing emission standards, particularly over where Preem operates in Europe, work in Darling's favor?
Randy Stuewe:
I don't want to go off on a philanthropic, esoteric discussion here because you either do or don't believe in climate change. And the reality is there's more people on the planet. There's more energy being used. And at the end of the day, it just is. So if someone says, I can bring you a solution to help with that, it's probably worth listening to. And so when we looked at emissions around the world and you get into these discussions, is it coming from the coal plants and Kentucky and Tennessee, and where's it all coming from. In North America, 45% of emissions comes out of the tailpipe. And so if someone said, I could give you a drop in fuel that would reduce those bad things by 85%, you probably ought to listen.
Randy Stuewe:
And so the world's listening, 66 countries around the world are striving for cleaner air. Maybe not cleaner energy, but cleaner air. And you can get both. And so at the end of the day, if you will, this little disruptive technology that UOP licensed to us, that we've developed and mastered has that ability. And so the US, led by the state of California and I got to give a shout out to Governor Newsom, which I've known for years as I worked in San Francisco and Pete Brown, they're just spearheading a way to clean up the transportation fuel supply.
Randy Stuewe:
Early on I said electric vehicles are going to play a big role in the future here. I'm probably going to be a little bit older, maybe a lot older when they get to the heavy industrial transportation. The world's figured out that you can drop this stuff in, get clean tailpipe emissions. Sweden has a 19.3% goal today going to a 30% reduction goal here in 2025 or 2030. And the US, led by California is a 20% goal. So this is, you just say, this is the secret sauce, the magic solution, at least today.
Josh King:
I was in Iceland a few years back amazed by their capture of geothermal energy to heat the nation. Darling also has a methane facility that turns food waste into energy, used to heat thousands of homes in the Netherlands. Are there other regions of the world that you're looking to expand into that that might be ripe for this type of greenhouse capture process?
Randy Stuewe:
The first thing you have to step back and say, why do those assets exist? And why did we take shareholder capital and deploy it to those? Once we started, when we acquired all our European assets and we started benchmarking against US, we found out well, we basically pay the slaughterhouses the same for the raw material. Maybe social costs are a little higher in Europe. And oh, by the way, our operating costs looks about the same, except one glaring thing, energy. Energy's about three times more expensive in Europe than it is today. Americans do not understand how lucky they are for that price of that gallon of gasoline. Given that as the backdrop, it makes sense to take some of these other waste streams, feed stock streams, which we do in Germany, we do in the Netherlands, we do in Belgium.
Randy Stuewe:
We built a new plant in Belgium last year. We're doubling the size. It ranges from plate waste to pig manure. And part of the animal production system challenges in the world today, we very much know it here in the US, is what do you do with the manure off the animals and what does it contain. And so we found a great way. In Europe we partnered with the Dutch government and built what we brand is ECOSUN, where we take manure, we digest it. It's fancy way for letting the bugs eat it and make gas. And then we take the gas and we make electricity and we power 12,000 homes. And then we take the dry solids, run it through a dryer, and we make a fertilizer for the wine industry.
Josh King:
Amazing. A couple of years ago, you launched at Darling a commitment to social responsibility that goes beyond just sustainable products. What does social responsibility mean at Darling now? And how are you measuring your progress?
Randy Stuewe:
So we launched down and said, well, what can we deliver? And we said, well, we already do deliver. We return a whole bunch of water, 5 billion gallons to the world. And you think about it. Well, how do you do that? Well, if those animals, we just left them in the field, or we send them to the landfill to rot away, that water doesn't go back. An animal is 50% water. So we clean it up. We send a bunch of water back to society today out of our plants. Then we say, well, what else do we avoid? We avoid the methane gas. You are hearing all of these discussions now that animal agriculture's under attack. And at the end of the day, no, it shouldn't be. It's not the source of the emissions.
Randy Stuewe:
We talk about power plants and automobiles, animals really aren't. But if you left them there and they broke down to methane, yes they would be. And so recycling is the big deal or up cycling from our rendering plant. So we looked at it and we said, clean air, clean water. Oh, here comes Diamond Green Diesel taking another 450,000 cars off the road, going to a million cars here in two years. And then I said, no safe food, safe feed. We want to... Unfortunately the world now treats or fortunately, food and feed basically as the same. What you put in an animal, you put back into the human body and it's got to be transparent and safe. So we've got a commitment to that. And then we say, this was more driven off of when we to get to the employees and the communities. I've always said, this is a tough industry that I live in. If someone asks me what business are you in? Well, I'm a used cow dealer. I grind up dead animals for a living.
Randy Stuewe:
And you're telling that to a college kid and he goes, dude, I'm going to work for Google and Facebook. So we kind of had to say, the message has to resonate with, I hate to say it, the millennial. And at the end of the day, that we're good for the people. We're good for the planet. We're good for the environment. And you have to be part of the community. As I said, how the plant looks, how the plant smells are our trucks brand new? People want to work for Darling because not only what we do, but what we do for them. And so it's a resonating message. So safe food, safe feed, clean air, clean water and great communities with great employee opportunities.
Josh King:
After the break, Randy. And I turn our attention to how tariffs and the shrinking pig herds in China will affect Darling Ingredients and the world. We'll be right back right after this.
Josh King:
And now a word from Chip Burg, CEO of Levi Strauss and Company NYSE ticker, LEVI.
Chip Burg Audio Recording:
There's no other brand in the world like Levi's. We're here today because of the dedication of the 15,000 employees that we have around the world. Growth is being driven across the company. Men's, women's, tops, bottoms, outerwear. Virtually every country in the world grew last year. Being associated with an institution that goes back further than Levi's is special. This is where this company deserves to be.
Josh King:
Welcome back before the break Darling Ingredients, chairman and CEO, Randy Stuewe and I were discussing the company's development over the past 15 years since he joined the company, including the growth of Diamond Green Diesel. Randy, the rendering industry, and I'm not talking about the people who draw pictures of stuff, has been described as the original recycler. How much of the business today is still based on its core feed, fertilizer and fatty acid divisions that began in the 1800s?
Randy Stuewe:
Oh gosh. We process about 10, 11 million tons around the world. And it really is, I would say it's 100% still based within that arena for us today.
Josh King:
Grease collection, which underpins much of your US business and the occasional malfeasance that surrounds it seems to be endless fodder for local and national news. Let's take a listen.
News Audio Recording:
Nebraska City Police are hot on the trail of some grease thieves who failed to make a clean getaway. Investigators hope these surveillance pictures of the men in action at the Burger King there will lead them to the culprits. Detectives tell they're investigating several grease thefts in the area, but say in this last case, thieves slipped up and left a grease tail 16 blocks long through the city. If you know anything about what happened, call detectives...
Josh King:
Stealing valuable cargo aside and putting the local newspaper puns on the shelf for a minute, five years ago, 20% of your used kitchen supply was being way laid in situations like that. Is this still a problem? And is that why Dar Pro suggests indoor tanks?
Randy Stuewe:
Yeah, it is something that gets my blood pressure up. First thing I would say is that we've been very successful in trying to combat thievery out there. But as we refer to used cooking oil as liquid gold, it's liquid gold to us, and then you meet with the NYPD and I was with the Boston Police Department, and then they say, it's not a crime to steal garbage. And then you say, well, that container out there is worth 1,500 to 2,000 dollars. So these guys can drive down an alley and it's like, there's 10 Rolexes sitting on the sidewalk and they just pick them up and they go down the street. So we employ a fairly significant security force around the country that works with local police departments to protect our restaurants and customers.
Randy Stuewe:
Part of it was shame on us, and this is where I shoot us a little bit. The origin of the industry we talked about in the first half here and what it is, we refer to ourselves as the invisible industry. We didn't tell people what we did. Here we were, good for the planet, good for the people, recycling, up cycling, up scaling, renewing, repurposing. But we never told anybody that. So the industry thought that that little bin out there next to the solid waste dumpster was garbage. Now they know. But it's taken us a lot of years. I can honestly say our volumes here over the last two years have been growing rapidly. As people know, when I say who's the people, the restaurant owner knows that product's moving to Diamond Green Diesel and be made going back into potentially, into McDonald's distribution fleet and all that.
Randy Stuewe:
But no, it would blow your mind on how much thievery we see. And it is it to a degree, it can range from a couple, a husband and wife in an F-150 pickup truck. As I say, to be in the grease collection business, you need a 55 gallon drum and a Home Depot bucket. And then you drive by a Darling container and take it. So at the end of the day, we work hard. It's pretty frustrating. Unfortunately, back at the time, relative to the clip you played, there were some government programs out here that many... When I say many about a dozen or so have gone to jail for defrauding the US government saying that was biofuel they were actually selling.
Josh King:
I got to ask this question because it has nothing to do with having a national contract with McDonald's to take away their oil, but all of us moms and dads out there frying up four burgers in a frying pan or making bacon in the morning. You're left with a cup of this grease. And by golly, if you're just wondering what to do with it, and you think, do I put it in the trash? Do I throw it out in the woods? Is there a better way to handle what happens in the household?
Randy Stuewe:
We've looked at a couple solutions there. I think I'd give you a counter solution at plate waste. Portion size in North America, you get that giant... What do you do? We've tried plate waste recycling. We just can't make it work today. And unfortunately the help seems to always put knives and forks and other stuff in there and it's just pretty hard to separate. Consumer generated oils, many of your grocery stores now do have little buckets. What I would tell you is don't dump it down the drain. At the end of the day, there's some great stories, you can go out on... One of the London papers had a picture of an eight foot diameter blob. That's our other business that we call Torvac that is basically breaking up grease balls in public sewer systems. And that's where we work with municipalities around the country to make sure the consumer knows and restaurants know that you can't dump grease down the drain.
Josh King:
The headlines have been dominated by the potential impact of the US/China tariffs. But I want to play a report from CNN about another issue that could have global reverberations.
CNN Audio Recording:
It's a familiar site in China, empty pig pens in provinces across the country. Or signs like this warning to keep clear of herds that are locked down under quarantine. China's pig population, the biggest in the world is being ravaged by the deadly African swine fever, a virus for which there's no vaccine. It's harmless to humans, but ASF is estimated to have killed millions of pigs in China since the outbreak was first detected in August last year.
Josh King:
We talked about that moment with mad cow, when your opportunity with Michael Dell, that continued on despite the first cow going down. But Randy, you mentioned on Darling Ingredients' earnings call that the company is well situated to weather events like this due to its global footprint. But how can a shrinking herd in China reverberate across the world's food prices and really bleed into your business?
Randy Stuewe:
It is one heck of a question. As I told people yesterday, I spent quite a bit of airplane time staring out that window, trying to figure out what's happening right now. I get the one time in life, occasionally that you can say, I told you so. But last April, I came out openly as I sometimes do, and I said, this is the single biggest event the world will ever see. And what did I know? Did I have insider information? A little bit. Because the Chinese government had been into our pork plant. We processed pork blood into red blood cells, hemoglobin and then plasma the white powder. And hemoglobin goes to feed aqua culture. And the white powder, the plasma, goes back as a baby pig starter feed, mother's milk type of replacer.
Randy Stuewe:
Well, I think they took 400 samples. And at the end of the day, it was everywhere. All five of the plants had it. We killed the pathogen, if you will, in the process through temperature and time and other little special things we do. But at the end of the day, the DNA was there. So it told me at that time, every pig in China's got it. And it just fell on deaf ears. And then the Chinese government, which God bless, comes out on August 3rd and says, we have a case of swine fever. No, you don't. And I kept telling our board of directors, I said, hang with me here. And I said, we're doing these things to make sure we're okay over there. And now we know that it's much bigger. At the end of the day, our guesses are that they're going to lose anywhere and have lost up to 30% of their pig herd.
Randy Stuewe:
And someone says, is that a big number? Yeah, that's one and a half times the size of the entire US pig herd. With three times, four times more people to feed. And yet one out of three Chinese have protein in their diet today. And they have only a limited affordability of what they can take. So fish is first, chicken if they have a little more money and pork, if they have a little more money. And then there's just a tiny bit of beef trade there. So you really just sit there and say the Chinese government has challenges on two fronts, one being on the bio-security side. How do they eradicate the disease? they're working hard at it. My hats are off to them. And as an industry, we're cooperating with them trying to bring best global practices. African swine fever comes exactly from where it said, Africa. It came from the warthog.
Randy Stuewe:
I think the first case was 1909 so we're not dealing with something that's exactly brand new here. But at the end of... And the warthog, amazingly, per the readings that I've done, has developed immunity. So they're working hard on a vaccine. If an animal contracts it, typically it's dead within 10 days, and there's a 95% more mortality rate or some 98%, some number that's huge. And so the Chinese are trying to isolate it down. The challenge in the Chinese market today is, we have a very commercialized animal production system here that's developed in the US and to a degree and same degree in Europe, and maybe a little less degree in South America today. But Chinese, somewhere between 40 and 60 percent of the animals are raised in the backyard. You can't control the disease there.
Randy Stuewe:
And the disease, to a degree, is airborne. It is spread through the animals to other animals. The backyard animals don't tend to complex feed rations. They eat table scraps and whatever they can find. And so it's a real issue that they've got to face. So now you say, okay, that's the world they live in. They're now caught in the middle of the Trump trade wars and tariff wars. They need to buy food. They need to buy ingredients to replenish and bring more animals into production. So it's a very dynamic situation. So in Randy's world, as I told people yesterday, and I still see today, the rest of the world is going to get to fill that food gap. It will be Canada, it will be the US, it will be Mexico, it will be Brazil, it'll be Europe that will send some type of animal, whether it's fish, chicken, pork, beef to the Chinese once it's there.
Randy Stuewe:
So as I said in our comments, our diverse platform is because we operate everywhere around the world. We're going to get the up lift from that. Now the question becomes, how long does it take China to recover? There's not consensus. I always tend to believe that people rebound quicker than we all want to think. But this one I think is somewhere between a two and five year issue that faces them. And President Xi has to figure out the systems to protect that and develop it. He's short water, he's short land, and now he's short food. And hopefully the world... The one thing that I feel so proud about as an American is that we have a pretty ample food supply to help the world when the world's ready and they can afford to pay for it.
Josh King:
As we wrap up, Randy, there are a number of the Darling Ingredients businesses that, unfortunately we're not going to have time to explore today in this conversation. But one I had to ask about, it is one of the solutions to the food shortage problem that we talked about earlier. Let's have a listen.
Audio Recroding:
You can get over 3000 times as much protein per acre with black soldier fly larva compared to cattle. Black soldier fly larva produce an excellent protein quality for animals and humans. Pets also thrive on protein produced by black soldier fly larva. Enviro Flight plans to expand its facilities to provide sustainable protein solutions, to help feed the world.
Josh King:
Black soldier fly lava, Randy. Right now Enviro Flight is only providing fly protein for fertilizer, livestock and pets, but how close are we to fly burgers?
Randy Stuewe:
Oh I love to talk about this for a few minutes because this is my $25 million science project. And I always have to tell you the genesis of it because you've always heard the line, you can't make this stuff up. And so my guys call me once again, my colleague, John Bullock says, Randy, you got to come see this. And I said, what do you mean come see? He says, well, a guy is growing flies. And we had been in discussions about waste streams that were coming out of slaughterhouses that couldn't really go to food or couldn't go to feed and had to be landfilled. Because you got this evolving regulation out here of what can go in and safe food and safe feed. And so I have had this dream that if I could find something to grow on stuff that you were going to send to the landfill, it'd be a cool idea.
Randy Stuewe:
I also have grown up with a fundamental belief in the world that the world is short protein. As we started the show early on and we talked about that 8.5, 9 billion people. They're not making any more land. They're not making any more fresh water. Yeah, we can put Africa under cultivation, but we've been trying to do that for the last 50 years. So if there's a cool way to make something that's economic that can help the solution in the world, whether it stays in animal feed or food, we'll see. So that was the thought process. So they put me in a car. They drive me up to the metropolitan area called Yellow Springs, Ohio, which you might have to Google that out there and find out that might be where everybody went after Woodstock, and has the highest pot consumption of any county in the United States.
Randy Stuewe:
And I'm going okay. Oh man. Oh man. And we pull in a little metal, Morton building or whatever metal shed. And it's got a little green Coleman tent attached to it and they go, yeah, you got to see this. And so they walk me in and they show me and they say, well, here we're growing it. And here's what we're using for food supply. And these black soldier flies mate, and they really only have about a two week life. And then half of them have to go back into the mating stock. And you bring the larvae to a certain level, and then you euthanize them for a better word. That's an incredible source of protein and it's really economic to do it. So the first thing they did, they take me out to the mating tent and I go, wow, this is in there.
Randy Stuewe:
These are creepy flies that look like Jeff Goldblum should be with you. And they're really big and they're buzzing all around. And I said, well, how do you get them to mate? And they said, watch this. They hit the music, Barry White. And I'm going okay, I've just taken a day out of my life. And so we worked with the founder.
Josh King:
That loving feeling.
Randy Stuewe:
Yeah. And you just... You're bringing it home. And so we spent the next three years and brought in a partner in Trexon the bioengineering group. Their thesis behind it was, they had just developed the first commercially available, genetically modified, which I know gets a bad nomer, salmon. And the belief was that they wanted... The number one feed for fish in the world is insects so that was the business case, if you will. We then said, okay, it's time to ramp this up. We figured out how to do it. We brought in Liz Kustis a PhD from Land O'Lakes, genius lady, to lead the product. We found a big empty warehouse down in Maysville, Kentucky. That's about 50 miles south of a Cincinnati. And we have built the world's or North America's first fully automated, robotic black soldier fly business. It's been up and running since early December. We're learning stuff every day.
Randy Stuewe:
The genetics, the learning to figure out why they mate, why they don't mate, what they like. What we're finding that's just fascinating to me is that they're really not animals that you can just throw them anything. They like a steady diet. And so at the end of the day it's made for some incredible boardroom discussions. I would tell you, it started with the word, my lead director looked at me and says, Randy, this is like entertainment value. And now he's moved to saying, I think we got something here. But like I said, it's a science project today. First plant's going to run about 600 tons a year. Scales up to three four thousand tons. We'll see where it goes. I asked Liz the other day. I said, Dr. Liz, I said, can we make it into human food? And she says, well, we have all the capability. We just haven't really found that application yet.
Josh King:
Do you think, because we're not making any more land, do you think the world is moving fast enough in the Darling Ingredients way to sustain 9 billion people in 2050?
Randy Stuewe:
I really spend a lot of time am thinking about that. And I always like to think back a little bit. I was my early career out of Kansas state, and I was a grain trader and I was doing corn buying and risk management for a large soda company in Atlanta, Georgia, where of course they'd converted to high fructose, and I was helping them with the risk management and that stuff. And I can remember every year they would come in for their annual presentation
Josh King:
NYSE ticker symbol KO.
Randy Stuewe:
Exactly. Wonderful product. And we would show them what's going on in the world. And you got to remember, this is the 1980s. You had a couple satellites up there. The best thing you could do was take a picture over China or over the Soviet Union, and you'd see how green it was, or it wasn't green. Were they getting enough water and rain? How were the crops? Trying to manage the price exposure they had into the ingredients into that bottle of Coke and the other products. And so at the end of the day, I remember at Cargill, the economic analyst at the time was a guy in the named Chuck Erickson. Wonderful man. Chuck came in in 1989 and declared that a 100% of the arable land in the world was under production and corn would no longer be $2 a bushel. Pretty bold.
Randy Stuewe:
And what we found out is production agriculture has been able to invent itself, reinvent itself through hybrids, better farming practices, precision agriculture, track drive tractors, global GPS, special fertilizers. And so the answer is, we've been able to sustain now for 30 years when I was led to believe we wouldn't. And so, as I look at the world, we've got to get through the issue of, the genetically modified issue. Still an issue today, probably more of a marketing faux pas 30 years ago than a reality, but nonetheless perception is reality in the world. We can feed the world. We've just got to bring the right seeds, the right technology and make it happen.
Randy Stuewe:
And if you look longitudinally, latitudinally, you've got areas in the Southern part of Africa that have the same exact climate and growing season as Iowa and Nebraska. We've just to... When you try to bring production agriculture to tribal systems, it becomes very, very difficult and a longer road. So at the end of the day, the China situation, they're going to have to source more food from around the world. So that's where I say, they're going to have to de-risk their food supply chain. And that probably means you're going to see them make more investments around the world geared at food. And then we'll see where it goes.
Josh King:
We will see where it goes. Randy, thank you so much for spending some time with us at the New York Stock Exchange inside the ICE house.
Randy Stuewe:
Thank you.
Josh King:
That's our conversation for this week. Our guest was Randall Stuewe, chairman and CEO of Darling Ingredients. That's NYSE ticker symbol, DAR. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or question you'd like one of our experts to tackle on a future show, email us at icehouse.ice.com or tweet us @icehousepodcast. Our show is produced by Pete Ash and Theresa De Luca with productions assistance from Ken Abel and Ian Walt. I'm Josh King, your host signing off from the Library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Announcer:
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