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 Mike Boland, AgMRC, Kansas State University
The USDA, state agencies, and private and public foundations have established many resources that can be accessed for business development. For example, USDA Rural Development's Rural Business Cooperative Service awarded competitive funds that established more than 30 Cooperative Development Centers in various states. These funds have been awarded annually for almost ten years (http://www.rurdev.usda.gov/rbs/coops/rcdg.htm.) Similarly, it has awarded competitive funds to establish ten Agricultural Innovation Centers (http://www.rurdev.usda.gov/rbs/coops/aic.htm.)
Many state agencies employ business development specialists. Likewise other organizations such as rural electric cooperative associations have business development specialists. Some foundations have established organizations to provide various expertise to help small businesses access technology and business expertise. And several land grant universities have research and extension specialists on staff. While the mission of these various specialists is different, they all have one common goal: research and education on business development.
How is AgMRC different?
Our goal for AgMRC at Kansas State University is to build information resources on business development, study food and agribusiness companies to identify factors related to profitability (or lack thereof) of these businesses, and provide specialized expertise in business development.
Information Resources
Two large projects that we have undertaken in business development are the development of:
n an ethanol prefeasibility calculator (http://www.agecon.ksu.edu/renewableenergy/) which is linked to the AgMRC Web site
n process verified materials (will be available this winter).
The ethanol prefeasibility assists users to help think through the economics of ethanol for their particular geographic region. The Process Verified materials can be used by groups in much the same way Dairy Herd Improvement Associations (DHIA) helps producers organize records. Why is this important to business development specialists? Both projects are examples of public goods that can benefit many groups of producers as well as business development specialists.
Success Factors
It is important to study businesses in order to identify factors that have made some businesses successful and others not as successful. Profitability is an obvious indicator of success. The ability to profitably enter an industry and then repeat performance over time is a common variable used to measure profitability. In studying various producer-owned businesses, we have found through statistical techniques that industry factors such as economies of size and the ability to provide a fixed level of supply are highly important in early profitability of businesses.
However, this does not guarantee long-term profitability. In particular, we have found that this is not enough to consistently allow a business to repeat its performance. For example, a case we did on Dakota Growers Pasta found that early success was due to being able to provide store-label or private brand pasta. Then DGP had to develop economies of size by expanding and finally, the group is seeking to build a retail brand which might help provide differentiation and a barrier to new entrants.
What does this mean to business development specialists? As the business strategy evolves in relation to competition, the business development needs change. For example, information on alternative organizational structures, access to equity capital, equity management, and governance are needed. These businesses still seek to operate on the principle that net income is distributed to patrons proportional to patronage but the organizational structure may need to change to accommodate its change in strategy. Thus, we need to help create the new information needed by these organizations to help them repeat their profitability. This research has helped us better understand how to provide business management education.
Specialized Expertise
In our state, we have an excellent relationship with the Kansas Cooperative Development Center and the state agency that works in business development as well as other organizations that work in the business development area. One missing niche in business development is advanced strategic thinking. For example, we have many businesses that have been provided business development expertise, written a feasibility study which led to a business plan (or commissioned a plan), and have developed or are developing a business. Their business development needs are more specific and specialized. Thus, we held a one day workshop for these groups to discuss and learn from each other issues related to strategic thinking. Why is such expertise important to business specialists? As organizations evolve and become more complex, the generic information that was helpful in the early stages of business development is no longer needed. Their needs are more specialized and we need to develop additional materials for these groups that have implemented a business plan.
Summary
The needs of business development specialists continue to change over time. We're creating and providing information to these specialists.
Kenneth Rutledge is President and CEO of the Iowa Turkey Growers Cooperative. His involvement in value-added agriculture happened by accident. Rutledge was looking for a summer job while teaching school and happened to apply at a turkey
processing plant in Jasper, Ind. “Once I started in the business I never left it,” Rutledge said.
Since 1973, he has been worked at Swift and Company, Norbest, Swift-Eckrich, Zacky Farms and has been at the Iowa Turkey Growers Cooperative since 1996.
"Food safety is of utmost concern for our company and our customers,” Rutledge said. “Any ag enterprise which is looking to discover interventions for bacterial control on food should be given support. These type ventures are most intriging to me.”
" I believe that as large agribusiness entities get larger through mergers and acquisitions, smaller agricultural concerns can find niche marketing opportunities to exploit,” Rutledge said. “These opportunities should allow value-added agricultural enterprises to spring up.”
"AgMRC should then be recognized as the first step in the discovery process for anyone looking to form a value-added enterprise,” Rutledge said.
Rutledge has one guiding principle for business success, “Surround yourself with ethical people who will do whatever it takes to get the job done and they will make you successful in spite of your shortfalls,” he said.
Rutledge has been married for 34 years to Brenda and they have two sons, Scott and Andy.
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, West Liberty Foods, West Liberty, Iowa and
Chris Williams, 21st Century Producers Inc., Manhattan, Kan.
Business Development
Assessing the Feasibility of Business Propositions was added by staff of the Ag Marketing Resource Center at Kansas State University. This document presents an overview of feasibility studies from the viewpoint of its role in helping entrepreneurs determine the viability potential of business ideas that they come across.
This file can be found at: http://www.agmrc.org/business/marketopportunities.html.
Commodities & Products
New Commodities Added
Chufa, triticale, proso millet, rapeseed, mustard, safflower, hard cider and meadowfoam.
Updated Commodities
Niche pork, ethanol, agri tourism, bottled milk, cheese, lamb, chestnuts, wind, commodity poultry, ducks/geese, game birds, pastured poultry, herbs, organic corn, floriculture, commodity beef, elk, worms, bioreactors, apples and alligator.
New Analysis Tools
Factors Associated with Success of Fuel Ethanol Producers, listed under the ethanol section, contains three interactive spreadsheet models to analyze research assumptions and profitability factors for ethanol facilites.
The Whole Hog Value Calculator was added to the pork processing page. It was developed to provide producers interested in further processing a way to predict the amount of product associated with a given number of hogs.
Markets & Industries
New information was added to the food section of markets & industries. Food consumption trends, food safety and vertical
coordination have new information added to them.
State Directories
The state directories page is at http://www.agmrc.org/directories/dir.html. State pages updated this month include Indiana, Kentucky, Oregon, South Dakota, Mississippi, New Hampshire, New Mexico and New Jersey.
State marketing profiles were added to each state page. The pages, created by the USDA - AMS, provide locations and contact information for farmers markets, descriptions of AMS marketing projects and grants and information on how to find organic certifying agents and organic contacts in each state deparrtment of agriculture. There is also a brief marketing summary of each state.
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.
The Oregon Food Innovation Center is operated as a unique partnership between the Oregon State University and the Oregon Department of Agriculture. It is outfitted with laboratories, meeting rooms, kitchens, sensory testing and research facilities for the nation’s only urban based agricultural experiment station and the State of Oregon’s Department of Agriculture marketing, business development and quality assurance testing programs. The $9.2 million center was opened in 1999. The managing administrators in charge of the Center today are John Szczepanski, Assistant Director of Oregon’s Department of Agriculture and John Henry Wells, Superintendent of Oregon State University’s FIC Experiment Station
The Center’s mission is to foster the success of food and agricultural enterprises. Its staff does this through one on one meetings with clients, business development training programs, technical services, public forums and trade missions, and, through workshops, coaching and counseling sessions conducted through video- conferencing, webcasting and online technologies.
“Value-added agriculture has taken a number of forms in Oregon,” said Wells. “Large cooperatives such as Tillamook Cheese and Oregon Country Beef have set high marks for production and quality differentiation and enterprises such as Harry and David have demonstrated how much innovative marketing and distribution can multiply farm-gate prices.”
Many small, mid-sized and large producers throughout the state are looking for ways to add value to foods and crops by embracing organic and natural food standards while others are engaged in direct marketing and production of specialty foods or nursery products. “The state is also involved in efforts to produce energy with biomass and has a number of programs to
encourage producers to explore opportunities in this area and to support them in developing capacities in this area,” Wells said.
Oregon leads the nation in the production of Christmas trees, grass seed, hazelnuts, peppermint, raspberries, blackberries,
loganberries and other berry crops and is also a major producer of hops, sweet cherries, blueberries, strawberries, onions,
cauliflower, pears, green peas, and nursery products. “What we are doing in much of our work is helping traditional Oregon farm
production transition into a profitable, consumer-driven agriculture industry,” Wells said. “To do that, we emphasize the need to pay attention to what our market researchers are telling us that consumers in our local, regional, national and international markets want, need and value.”
Wells said that the state has shown continued interest in the Center and recently announced a branding program to advance quality assurance. “New brands for Oregon foods that are being proposed appear to be recognizing the value that Oregon producers achieve when they pay attention to consumer preferences and popular concerns about environmental protection programs and value added agriculture,” Wells said. “If all goes as planned, people will start to hear more about Oregon’s unique mix of specialty crops and foods through regional and national campaigns that will label and promote food products as being ‘Oregon born’ to highlight crops and produce grown in our carefully conserved soil, as ‘Oregon raised’ to highlight meats and wines grown in the state, and, ‘Oregon wild’ to highlight fresh fish, salmon, and range-fed livestock.”
When three households in the Flint Hills of Kansas learned that their long-time certified organic-compost provider was quitting the business, they searched for an alternative source of compost. After putting their heads together, they realized they could take on the business themselves and established Earth Pals, LLC.
Earth Pals, which began selling compost in February 2002, is a culmination of the efforts of families who live in the McDowell Creek Valley, just outside of Manhattan, Kansas. The group includes Earl and Sandy Robinson, Jayne Link and Dennis Groves, and Margy Stewart and Ron Young. Stewart said that when the group first heard their provider was leaving, they panicked.
"Once you garden with compost, you can't imagine doing it any other way. We put our heads together and realized we could take on this business ourselves and we would never be without compost again," Stewart said. "And of course we all have the dream of being able to earn our living right here by McDowell Creek without having to go into town to work. Earth Pals seemed like it could be an important component in that dream."
Their previous compost provider agreed to mentor the group for a year. Earth Pals then created a mutually beneficial arrangement with a nearby equerry in which they removed horse manure and bedding material that was considered "waste" to the equerry, but raw materials to the Earth Pals composting business.
The materials are piled into windrows for the composting process, which are carefully monitored for moisture content and temperature until the process is complete. The entire process from raw materials until the compost is ready for market normally takes three to four months, depending upon conditions and temperature. The final product is then tested for maturity, nutrient content, and plant compatibility. It is then sifted for a "root-friendly" particle size before it is sold to the public.
"Our compost is a superior product compared to anything else we have seen on the commercial market," Earth Pals member Jayne Link said. "The testimonials we have received from our customers bears this out. We also send samples of our compost for lab analysis so we know how our compost measures up to various composts on the market."
Earth Pals compost is a rich, odor-free garden soil that is sold in bags or in bulk to gardeners and local retailers such as nurseries, hardware stores, organic groceries, and produce market. It is also part of the "From the Land of Kansas" product line. Earth Pals has also been a regular vendor at farmers markets in two cities and at lawn and garden shows. Earth Pals' bagged compost was available in ten locations this past year. Goals include developing a market in northeast Kansas near more metropolitan areas.
Knowing that they would need assistance to help develop and grow their business, Earth Pals, LLC applied for an Initial Assistance Grant (IAG) through the Kansas Cooperative Development Center (KCDC) after seeing an article about the grant program in the Grass and Grain. They were one of ten groups to receive a grant that year. Stewart said that the process motivated them to evaluate their business and their goals and also boosted their self-confidence.
"In terms of specific benefits, the process of writing the grant application pushed us to do some necessary self-evaluation and planning. The process of writing quarterly reports helped us monitor our progress, define difficulties, and search for solutions," Stewart said.
David Coltrain, coordinator of the Kansas Cooperative Development Center at Kansas State University, had the first opportunity to work with Earth Pals when they applied for the Initial Assistance Grant.
Coltrain referred Earth Pals member Margy Stewart to the "Value-Added Business Management Seminar" in October 2003. Dr. Vincent Amanor-Boadu, who taught the course, is the Agricultural Marketing Resource Center (AgMRC) business development specialist at Kansas State University. "Both programs benefited me," Stewart noted as the "KCDC provided initial assistance in getting us started and then AgMRC provided specialized expertise in marketing and business development. We really benefited from the collaborative relationship of the KCDC and AgMRC."
Stewart said that they have learned a lot about business over the last year and a half, but it has not been without its problems.
"The steady growth of our business feels healthy and solid to us, as it appears to be based on customer satisfaction," Stewart said. "Nevertheless, we have discovered that business is one problem after another, and thanks in part to the IAG, we are more and more confident in our ability to problem solve."
Link says there have been two major problems that need to address and overcome if they are going to continue to be successful.
"The cost of production is too close to what the market will bear in retail cost and the cost of transportation has made it cost prohibitive to expand our market area," Link said.
They added vermicompost to their product line this year. Stewart said that vermicompost (worm castings), which is a type of soil that is made by worms and other microorganisms as they eat through scrap materials, is a natural offshoot of their operation and could financially benefit their business.
"All six of us Earth Pals have a strong concern for the environment and Earth Pals isn't just a business to us - it's something we believe in," Stewart said.
A series of food safety crises, the discovery of bovine spongiform encephalopathy (BSE) in the domestic cattle herd, and a series of labeling scandals in Japan have shaken the trust of Japanese consumers in the safety of their food supply. The Japanese government has responded by implementing a series of new regulations and creating the new Food Safety Commission. The food industry has responded with assurance programs to reduce consumer anxiety over food safety and
wholesomeness.
Many of these new regulations and assurance programs are based at least in part on traceability systems. So far, attempts to require traceability for imported meats have failed. Some industry experts contend that traceability will never be mandatory for imported meats. However, most experts agree that traceability will play an increasingly important role in the Japanese livestock and meat industries.
Traceability
In the livestock sector, traceability was implemented to track animal movement and identify cohorts in the event of animal diseases or food safety problems. In July 2002, the Law Relating to Special BSE Countermeasures was enacted. The law requires mandatory traceback for cattle from the feedlot to the packing plant. In a system regulated by the Japanese government, each cow is identified with an ear tag displaying an individual identification number. Producers must submit data on each animal’s date of birth, sex, and breed; name and address of owner, location of fattening and date fattening commenced; and date of slaughter. These data are entered into the “family register” of the domestic herd.
In June 2003, Japan passed legislation requiring traceability from the farm through retail sale. Under the new law, processors, distributors, and retailers will be required to provide traceability information from the slaughterhouse to the retail outlet by December 1, 2004.
Summary
Although beef has been the main focus since BSE, many restaurants and retailers want consumer assurance programs for pork, and legislation requiring traceability is being considered for domestic pork. Japanese importers have begun initiatives with North American, Australian, and New Zealand beef suppliers and want to develop initiatives for pork as well. The goal of many importers will be to purchase meat from suppliers who can provide low-cost products with marketable assurance programs, many of which will require some degree of traceability. In the short to medium term, the bulk of Japanese imports will continue to be dominated by commodity products, but demand for higher value, differentiated products for the retail and hotel/restaurant/institution sectors will increasingly supplant demand for commodity meats in Japan.
Full paper at http://www.agmrc.org/markets/info/meattraceability.pdf. By Roxanne Clemens, managing director of the Midwest Agribusiness Trade Research and Information Center (MATRIC), an affiliate of the Center for Agricultural and Rural Development at Iowa State University.
Pastured poultry or free-range poultry is a niche market that taps into increased consumer demand for more natural and humanely raised protein sources. Consumers demanding this type of poultry product are generally willing to pay more for the system that includes raising poultry on grassy pasture to deliver a product that is considered by many consumers to be healthier and tastier, as well as more environmentally sound. Pastured poultry production generally has lower entry costs and thus is attractive to smaller or limited resource farmers.
Pastured poultry taps into the growing natural foods market. The Food Marketing Institute found that 59 percent of consumers look for and purchase products labeled as natural; and 37 percent look for and purchase products labeled as organic. Natural Business Journal estimated "natural" and organic meat, fish and poultry sales reached $763 million in 2002, just barely 0.6
percent of the total market. However, that figure was up 25 percent from the previous years and analysts predict the numbers will continue to climb faster in the next few years.
Pastured meat products and the growth of that market can be attributed to the fact that a growing number of consumers have a set of values that prefer animal products that result from a pastured system, who are opposed to livestock raised in confinement and who support smaller farmers.
In a 1996 nationwide consumer survey sponsored by the Food Alliance, 2900 households were asked to determine the extent to which consumers would support small family farmers and practitioners of sustainable agriculture. The Hartman Group published the research, which strongly indicated that American consumers want to support sustainable farmers. Of the consumers surveyed, 52 percent of the population indicated a willingness to support sustainably-produced products.
The USDA ERS concluded in its "America's Changing Appetite: Food Consumption and Spending to 2020” that due to increased population, an increase in educational attainment, and wealth, U.S. consumers would be demanding more quality. Quality purchases look at differentiated products and include foods marketed with specific production techniques such as pastured poultry, for instance. Total poultry purchases are expected to have market growth of 19 percent for at-home meals, and 18 percent for away-from home meals. If specific qualities such as environmental concerns and animal welfare continue to gain consumer support, these types of production systems will provide a growing market for pastured poultry producers.