Business Article - Don Hofstrand, Co-direct, AgMRC, Iowa State University
Advisory Council Profile - Steve Hunt
Updates to www.AgMRC.org
How do I use this site?
Business Profile - Sweet Potato Growers Association Coop
New Research - Grader Bias in Cattle Markets
AgMRC Highlight - Game Birds
Upcoming Events
The AgMRC Action is the official monthly publication of the Agricultural Marketing Resource Center - your source for value-added ag information. The AgMRC is a dynamic collaboration of university research and outreach specialists focused on collecting and interpreting information and creating new research to support value-added agricultural activities. All information contained in this newsletter can be found on the site, www.agmrc.org.
This newsletter features new updates, information and resources available at the Agricultural Marketing Resource Center (AgMRC) to assist producers, service providers, rural development specialists and others with value-added agriculture resources. AgMRC was formed as a national virtual resource center for value-added agricultural groups. AgMRC exists to provide producers and processors with critical information in a one-stop-shop to build successful value-added agricultural enterprises.
The Center's Web site, www.AgMRC.org, contains information on various commodities and products, including many market niches farmers can pursue. There is also information on how to start a business and selecting a business structure. Other topics include how to write feasibility, marketing and business plans.
The site contains links and AgMRC-developed pieces on everything from networks of ethanol cooperatives to organic beef producers to a value-added worm business. Directories list value-added consultants, value-added agriculture businesses and applicable laws specific to each state.
I encourage you to visit the AgMRC web site at www.agmrc.org and take a few minutes to learn some new facts about a commodity, do some research on developing a food business plan or see what is happening in your individual state.
Please let us know your thoughts and suggestions for the newsletter. The center's email is agmrc@iastate.edu or call us toll-free at 866-277-5567.
Sincerely,
Christa Hartsook,
Communications specialist, AgMRC
By Don Hofstrand, Co-director, AgMRC, Iowa State University
When people ask “what is value-added agriculture,” the discussion usually focuses on how to define it. Most define it as adding value to the commodities and products that farmer produce. Some say that it should be called value-retained or value-captured.
Regardless of how you define it, the essence of value-added agriculture is a change in the vision for agriculture and rural America. A transformation from a vision of out-migration of people, declining standards of living and decaying infrastructure; to a vision of economic vibrancy and a growing rural America. The key to this new vision is generating economic activity, not from government programs, but from the marketplace. I am not saying the government does not have a role.
The government needs to play a facilitator role for this new vision.
This change in vision will not be easy, but it is doable. Below are six critical factors that need to be addressed to achieve this new vision through value-added agriculture activities.
1. Opportunities
Lack of market and business opportunities is the reason often given why we cannot achieve a new vision of rural America. But careful examination shows that opportunities do exist. Examples can be seen in the food and energy industries. Granted, many of these perceived opportunities may lead to dead-ends and failures. But the point is that there are true opportunities. We need to be smart enough to find them.
2. Leadership/Confidence/ Persistence
A critical element is identifying people with the leadership, confidence and persistence needed to find these opportunities and act on them. There is not an abundance of these people in rural America. This is the weakest link in the chain for achieving the new vision. When we do find these individuals, they need to be nurtured and used as models for others to follow.
3. Business Skills
Leadership, confidence and persistence alone will not achieve the new vision. It needs to be combined with business skills. This is the second weakest link in the chain. Business skills fall into three broad categories:
Idea identification and evaluation - This involves the ability to seek out business ideas and properly evaluate their business potential. The basic premise is whether you can provide “value” for the user or consumer that is not already being provided. Value may involve better quality, lower price, better service and a whole host of other things. If you don't do this step correctly, the next two steps are irrelevant.
Business creation - This involves creating a business venture that provides the value identified above and turns it into an income stream. Value-added businesses are usually quite different from traditional farm businesses. So new skill sets need to be learned.
Business operation - Once a business is up and running, you need to keep it running. If you expect to continue to generate income from the marketplace, you need to adapt as market conditions change. The skills needed for business operations are quite often different from those needed for business creation. Value-added groups frequently overlook this.
4. Capital
Money is another critical factor for implementing a new vision for rural America. New structures need to be developed to link the financial resources currently existing in rural areas to the financing needs of rural business start-ups. Some claim that we need to attract venture capital from the financial markets. In some situations this may be true, but local investors are often willing to invest in businesses that affect their local communities.
5. Organization and Support
Factors often overlooked are the organizational and support needs of value-added business groups. This can be as simple as the need for office, meeting room and clerical support. Extension offices and other local organizations can provide a great service to these groups with a minimal outlay of resources.
More sophisticated organizational and support services are being provided by a array of value-added alliances being created across rural America. These alliance focus on business development support by providing an organizational structure for interaction among entrepreneurs with similar interested, access to seed capital for investigating business ventures, networking opportunities with other groups and individuals, and a host of other valuable services.
6. Rewards
To make the new vision for rural America sustainable, we must adequately reward the individuals and groups providing the sweat and skills that go into business creation. Structures are being developed where financial rewards for the business founders are tied to the financial success of the business.
In some areas, the idea of rewards tends to go against rural culture where it is believed that these activities should be conducted as non-paid volunteers for the good of the community. However, this new vision cannot be accomplished with volunteer labor. Business creation is serious business and takes an incredible amount of time and dedication.
Call to Action
Achieving this new vision for rural America will require the involvement of individuals from all walks of life, existing rural institutions and the public sector. Examine the six factors listed above. Identify where the needs are and how you can have an impact. Get involved.
Steve Hunt is Chief Executive Officer of U. S. Premium Beef (USPB), a cattle producer-owned integrated beef marketing
cooperative. As one of the founders, Hunt was instrumental in forming this unique company in 1996. Today, USPB owns Farmland National Beef Packing Company (FNBP), United States’ fourth largest beef processing company.
Previous to the formation of U.S. Premium Beef, Hunt worked in many areas of commercial banking including direct agricultural lending, credit training, finance, international and commercial lending. Most recently he worked for CoBank in Wichita, Kan., in the area of cooperative lending to some of the nation’s largest farm cooperatives. Hunt is a 1981 graduate of Kansas State University in agricultural economics and was recently named the 2001 Outstanding Young Alumnus and the 2002 K.S.U. Department of Agricultural Economics Distinguished Alumnus. He is also a graduate of the Graduate KBA School of Banking, K.S.U., the AIB Graduate School of Banking, I.S.U. and the Graduate ABA School for International Banking, C.U. Hunt was also the recipient of the 2000 National Cattlemen’s Beef Association’s Vision Award.
Hunt is a fifth-generation beef producer, raised on a beef / crop farm near Arkansas City, Kan.. He has been active in international, national, state and local trade and civic organizations.
Hunt resides in Liberty, Mo. He and his wife Mary have two children.
Current members include:
Duane Acker, Talycoed II, Atlantic, Iowa;
Mark Hanson, Lindquist & Vennum, P.L.L.P., Minneapolis, Minn.;
Elizabeth Hund, Rabobank, San Francisco, Calif.;
Steve Hunt, U.S. Premium Beef, Kansas City, Mo.;
Stanley R. Johnson, Iowa State University, Ames, Iowa;
Jeff Kistner, CoBank, Omaha, Neb.;
Barry Kriebel, Sun-Maid Growers, Kingsburg, Calif.;
Richard E. Rominger, Rominger Farms, Winters, Calif.;
Kenneth Rutledge, Dakota Turkey Growers, Aberdeen, S.D., and
Chris Williams, 21st Century Producers Inc., Manhattan, Kan.
" Developing a Business that Makes a Difference” was added from Kansas State University. There are no hard and fast rules for searching and building businesses that make a difference in our lives and those of others, but there are some guidelines to help the diligent increase their success probability. This paper provides a brief and broad overview of these rules to help with the primary steps towards successful business development.
A “Feasibility Template,” created by Oklahoma State University was added to the business development section. This feasibility template is designed to allow a company to consider the factors mentioned in the explanation guide and see the affect various factors have on their bottom line.
Biomass Research and Development Initiative - The U.S. Department of Agriculture (USDA) and the U.S. Department of Energy (DOE) jointly announce the availability of fiscal year 2004 (FY04) funds and solicit applications for financial assistance addressing research, development, and demonstration of biomass based products, bioenergy, biofuels, biopower, and related processes. This funding opportunity is intended to promote greater innovation and development related to biomass, and to support Federal policy calling for greater use of biomass-based products, feedstock production, and processing and conversion. Due March 26, 2004
Business Development can be access at http://www.agmrc.org/business/business.html.
New links were added for certified/verified pork, cherries, commodity beef, commodity dairy, commodity pork, commodity poultry, direct marketing lamb, English walnuts, foodservice pork, game birds, international lamb, international pork, natural pork, niche pork, onions, organic lamb, organic pork,pork processing, raisins, strawberries and wool.
A new section under the wine commodity page was created to recognize regional wines. To date, information specific to Iowa is listed. As more state links are identified, they will be added.
To view the commodities & products section, visit http://www.agmrc.org/ag/ag.html.
The “Ecolabel Value Assessment: Consumer and Food Business Perceptions of Local Foods,” written by the Leopold Center, Iowa State University was added to Markets and Industries, food labeling. This study identified consumer attitudes and perceptions of food labeling issues and willingness to pay for locally grown foods.
Visit http://www.agmrc.org/markets/foodlabelinggmo.html.
State pages updated in the directories section include Kansas, Montana, Nebraska, North Dakota, Oklahoma, Pennsylvania and Virginia.
The information on www.agmrc.org is divided into different areas of an agricultural business.
>>To find information on a specific ag commodity in which you have interest, click on Commodities and Products. Different niches for each commodity will be under the main headings of each.
>>To find information on market trends, such as the organic industry or food consumption statistics, as well as broad industry structure information, click on Markets and Industries.
>>To find “how-to” information to develop or expand your ag business, click on Business Development.
>>Specific consultants, state contacts and laws and value-added businesses can be found in the Directories and State Resources section.
>>Upcoming value-added ag events are located in the Upcoming Events calendar.
In 1938, Louis Sanders’s father acquired forty acres of land through President Franklin Roosevelt’s New Deal program, allowing his family to move off of a plantation to their own farm in Mound Bayou, Mississippi, where he and his eight siblings were raised. He left the farm for college. After graduating, he took a job with IBM working with military contracts for the ongoing Vietnam War and later transferred to a computer company in Nebraska. When his father died in 1972, Sanders searched for work back home. However, while companies appeared interested in Louis' resume, when he interviewed in person he was told that the advertised job position was filled, though a job with significantly less pay was available. Frustrated with this situation, Sanders returned to farming with his brother to bide his time until he found a fair job offer. His temporary farm life grew from one month to one year to decades. “I guess I just never stopped farming,” Sanders explains.
Historically, the farmers of the Mound Bayou area focused on two major cash crops - cotton and soybeans. In the 1960s, the problem of malnutrition and hunger in the Mississippi Delta let to programs to encourage farmers to grow fresh produce for the community. To better market these new products, farmers formed the Mound Bayou Farmer's Cooperative. Sanders’ became deeply involved and his experience led him into a second cooperative in the 90s, a time when farmers were exploring fresh-produce alternatives to conventional grain and cotton production due to the instability of the market. During this time, Wardell Sanders (no relation), who had been trucking vegetables for 30 years, returned home to Mound Bayou with a desire to grow sweet potatoes. “He said the sweet potatoes grown here had a better taste than potatoes grown anywhere else,” remembered Louis Sanders. With help from Alcorn State University, Wardell convinced several farmers, including Sanders, to grow a test crop of sweet potatoes.
Sanders found himself at one of the cooperative’s meeting due to Ronald Thorton, a leader in the new coop. “He was a young, energetic man. At that time, I was young and energetic too, so we gravitated toward one another,” Sanders explained. Before he knew it, Louis became deeply involved in the cooperative, particularly enjoying his leadership in the cooperative’s Emergency Land Forum, which works to prevent the loss of black-owned farmland.
Sanders acknowledged, “Before I started growing sweet potatoes, I wasn’t a big fan. It wasn't anything special to me.” His niece, however, insisted that he at least try one of his homegrown potatoes: “I'll be honest with you. When my wife finally baked me one of our sweet potatoes, it was so good, I ate the hull. Then I said, ‘I’m gonna grow some of these.’” Sanders expanded his production, as did many other farmers who had tested the crop. In 1995, they formed the Sweet Potato Grower’s Association and joined the Mississippi State Association of Cooperatives. The Mississippi Association of Cooperatives (MAC), Jackson, Miss., is a member of the Federation of Southern Cooperatives. MAC has worked for 25 years to bring together and enhance the work of a network of primarily African-American producer cooperatives and credit unions.
There are currently thirteen community-based organizations within MAC across the state: nine cooperatives, two credit unions and two associate organizations. When farmers expressed a need for processing facilities, MAC responded, raising, to-date more than $5 million for four value-added processing plants.
The Mound Bayou growers have had mixed success with their crops. According to Sanders, “It's an up and down world. When we've had good seasons, we've had success. Unfortunately, three out of the past five years have been droughts.” However, prospects look strong for the coming years. The cooperative recently formed a relationship with Glory Foods, a major distributor for Midwestern supermarkets.
This relationship, created in November 1999 between the growers and Glory Foods, Inc., Columbus, Ohio, is one where a manufacturer of conveniently prepared heat-and-eat seasoned Southern-style canned vegetables, condiments and frozen dinners has decided to market both processed products and fresh produce under the brand Glory Foods Mound Bayou Sweet Potatoes. Introduced in the fall of 1998 at Schnucks supermarkets in St. Louis, Missouri, the line prominently centers on the Beauregard variety, a popular sweet potato with growers and consumers because of its natural sweet taste, plumpness and good storage life. Cured in approximately 45 days, the Beauregard sweet potato is viewed as the number one producing variety in the country. Glory Foods Mound Bayou Sweet Potatoes are available in Chicago at Jewel-Osco Supermarkets, in St. Louis, Mo., Schnucks and Albertson’s Plant City, Fla., and additional markets.
With consumers becoming increasingly health conscious, sweet potatoes are becoming a vegetable of choice. A spokesperson at the USDA notes that consumption of sweet potatoes is on the rise because of their natural nutritional value, (high levels of Beta-Carotene, Vitamins A and C). In 1999, 4.6 pounds per capita were consumed.
“I want Glory Foods Mound Bayou Sweet Potatoes to be the destination of choice for consumers who want a high quality brand of sweet potato,” explains Bill Williams, president of Glory Foods, Inc. “During the holidays, sweet potato usage is very high, but we want Glory Foods sweet potatoes to be an important part of the family meal year-round.”
The company’s commitment then, as it is now, is to provide resource and development support to insure their future in the 21st century. This effort is seen in partnerships formed with the 20 member Sweet Potato Growers Association Co-op (SPGAC) in Mound Bayou, Miss. Mound Bayou is a historic black township founded in the late 1800s by ex-slaves. Today, because of its designation as an Empowerment Zone, the town is experiencing an economic revival because of companies like Glory that provide investment resources to assist in rebuilding and strengthening its infrastructure. Glory leased land from SPGAC to grow sweet potatoes for its canned and frozen line, and market a percentage as fresh produce. Glory’s support gives the assurance that the crops will be sold and the farmers will reap a return on their investment.
Sanders sees obstacles for farmers, specifically African-American farmers, in accessing land and resources. What scares him the most, however, is the dwindling labor supply. “Land has gone out of favor with the majority of our people. Farming is not viewed as a viable profession.” So what keeps this man farming? “I guess it could be in my blood. The first commandment God gave man is, ‘Here is the earth. Subdue it,’ ... it’s a tricky balance. You don't want to overdue it, but you want to let the land serve you. It’s like mining a diamond.”
The pricing of slaughter cattle in U.S. markets increasingly depends on carcass quality attributes assigned through so-called grid pricing mechanisms. The carcass attributes most widely employed for this purpose include U.S. Department of Agriculture (USDA) “quality” and “yield” grades. These two attributes are intended to reflect meat palatability and the quantity of usable meat on an animal in relation to total carcass weight, respectively. Although the adoption of grid-based pricing mechanisms is a relatively recent occurrence, very little has changed in the way the USDA grades carcasses. In the majority of commercially graded cattle, grading is accomplished through visual inspection of each animal, without the aid of physical measurement.
Naturally, there is grading error in this process. Modern slaughter and packing facilities are highly focused on efficiency and move carcasses through processing at a rapid rate. As a result, graders are typically asked to assess the quality and yield attributes of an individual carcass in less than 10 seconds, and grading error is an inevitable occurrence. However, so long as this grading process is “reasonably” unbiased, or at least consistently biased across time and location, it may be reasonable to expect little effect on efficiency or the distribution of returns in marketing cattle. The purpose of this paper is to examine whether bias exists in a sample of loads delivered to three different Iowa packing plants during the years 2000 to 2002, and, if so, to assess the direction and economic consequence of this bias.
The data that make this exercise possible include carcass measures, in addition to quality and yield grade, that allow computation of the true yield grade. That is, we have data on individual animals delivered to various packing plants for which we observe the USDA called yield grade and the true yield grade. An econometrician or statistician usually uses the term “bias” in reference to the difference between a sample estimate of some population parameter, and the true population parameter. In contrast, the grading bias that interests us is the difference between the distribution of called grades and true grades. Moreover, even this comparison is not quite what we want since at present no grading technology can costlessly measure true grade without error in the time frame demanded by current processing standards. Thus, it is also necessary to develop some reasonable model of how we think graders should perform and to compare the distribution of called grades with the distribution predicted by this model. If these two distributions differ significantly, then we will say that grading is “biased.”
In this paper, we briefly describe the grading procedure that is carried out in U.S. cattle markets and develop a formal model of bias estimation. Then we describe the data in greater detail and present results. The final section discusses directions for future research and summarizes results.
Written by the Center for Agricultural and Rural Development (CARD) at Iowa State University.
To view the paper in its entirety, visit http://www.agmrc.org/beef/info/graderbiasinmarkets.pdf.
Game birds are those birds that have traditionally been wild or hunted, but have been raised commercially for release in hunting reserves, for meat or for egg production. Commonly raised game birds include pheasants, partridges, guinea fowl, quail or squab (a young pigeon), wild turkeys, swans, pigeons and doves, peacocks, and some ducks, such as Mallards or wood ducks. Game birds are also raised for exhibit or for hobby purposes.
The production of game birds requires specialized housing, netting, or fencing systems; specific knowledge in the diseases common to game birds and an identified market. The key markets for meat game birds are whole birds, cut-up birds (in some instances), and specialized gourmet-type of products such as sausages. Eggs are sold in gourmet stores or direct to consumers as fresh or pickled. Game birds raised for flight are raised to be hunted or for wildlife re-stocking.
As early as 1990, the U.S. Department of Agriculture Natural Resource Inventory (USDA 1990) documented that the United States was losing 4,000 to 5,500 acres of agricultural lands each day, the direct result of urban expansion. This development limits the available habitat for many wildlife species. Game farms producing birds for urban meat markets or as recreational shooting preserves, assist in diversifying traditional farming operations. In some cases they help to transform farmland into more
sustainable wildlife-friendly habitat for both game- and non-game species, as well as encourage agritourism through multi-use recreational development.
Game bird production can take the form of “flight-ready” birds for release programs (where the birds are for sale to state game departments, private individuals, or shooting preserves); an “exotic bird” business for the pet trade (pea fowl, guinea hens); or as a domestic poultry business specializing in gourmet table fare or ethnic specialties (pheasants, quail, duck). On the West Coast of the United States, native quail species, decimated by habitat loss, are produced for reintroduction by bird lovers and sporting organizations. In the Midwest, pheasants and Chukar partridge can provide a profitable means of income by supplying grown birds to outdoor sporting clubs for recreation, as well as frozen birds to restaurants. There even is a niche market of those consumers whom purchase farm-raised game bird eggs as an alternative to large-scale commercially produced chicken eggs. Pickled quail eggs, canned or frozen smoked pheasant, and duck for oriental cuisine are increasing in popularity as gourmet specialty items.
The game bird industry in the United States raises millions of birds for sale to restaurants and direct marketed to consumers. It is estimated that the number of birds in the United States is around 10 million pheasants, 37 million quail, four million Chukar partridges, one million Mallard ducks, 200,000 wild turkeys and several other bird species.
For more information, visit http://www.agmrc.org/poultry/gamebirds.html.