Co-director Article - Daniel Sumner
Advisory Council Profile - Mark Hanson
Updates to www.AgMRC.org
How do I use this site?
State Profile - Virginia
Business Profile - Neighborly Farms
New Research - BSE Information
AgMRC Highlight - Barley
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 Daniel Sumner, Director, Agricultural Issues Center, University of California
Value-added agriculture may be approached in many ways. These include farm investments in post-farm gate marketing to capture a larger share of the revenue generated after the product leaves the farm; creating enhanced products that add value on the farm; and creating new products, marketing channels or institutions to allow farmers to gain additional revenue. The unifying thrust of value-added agriculture is to raise net revenue on farms by improving the way farms produce or market. The challenge is to make sure investments add more value than they add costs.
Value-added agriculture, as characterized above, was everywhere in Suisun Valley, where I grew up four decades ago. For example, local farmers grew apricots and peaches, which were cut and sun-dried on the farms and then marketed through Sunsweet, the large dried fruit cooperative. The prunes were not dried on the farm, the investment in a dehydrator was just too large for most farmers, but they were dried and marketed by the cooperative on the farmers' behalf. The few winegrape growers in the valley sold family-produced wine from their roadside shops, while other fruit growers had fruit-stands to capture a few extra dollars from town and city visitors.
Much of these activities are now gone from that valley. The dried fruit business proved too labor-intensive as wages rose and regulations became more onerous. As farms grew larger, they found it more efficient first to "outsource" the drying to specialists, such as our neighbors, who diversified in the early 1970s into a commercial fruit dry-yard. The prune business, too, left the valley as farmers shifted to winegrapes that are now sold mainly to large commercial wineries, operated by wineries that buy most of the grapes they use. Neither adding value on the farm nor cooperative marketing is a guarantee of sustained success and never do they alter underlying economic trends.
These days, the most important value-added activity for farmers in Suisun Valley is planting grape varieties and producing the specific qualities that are most likely to be in demand by consumers and therefore the wineries. Farmers that are able to consistently meet these market demands secure multi-year contracts and do well. In recent years, economists have studied the wine market to determine how certain wine attributes determine the price of wine. We have also studied winegrape prices and contracts used to link the farm to this ultimate consumer market -- http://aic.ucdavis.edu/pub/briefs/brief18.pdf and http://www.agmrc.org/fruits/info/cqicalwine.pdf. Farmers who contribute to the success of the processing or marketing firm with which they maintain a strong relationship can profit from the market success of their partner. So, for example, farmers who supply grapes with the right mix of attributes to wineries who know how to profitably process and market them are positioned to profit as well.
Winegrapes may be the quintessential value-added farm commodity. However, there are many opportunities for adding value and these differ by the situation of the farm. In some cases, farms are vertically integrated from growing grapes through making the wine, through retail marketing at the farm winery or using direct mail or the Internet, such as http://www.agmrc.org/fruits/info/wineontheweb.pdf.
Many wineries in the United States are very small and produce on their own farms most of the grapes they process. However, only a small fraction of the winegrape farms in the nation produce wine themselves, and these farms account for an even smaller fraction of the total winegrapes or wine produced. A very large share of winegrapes produced is sold to commercial wineries that specialize in processing and marketing of wine. Hence, for most commercial winegrape growers, value-added marketing does not mean ownership of downstream processing or wine marketing. For these grape growers, value-added marketing means working closely with the winery for which the grapes are destined and tailoring the farm product to what the buyer most needs. Interestingly, a survey of winegrape contracts in California found that the farms in the winegrape industry that are most likely to use contracts, and have close working relationships with the buyer, are not the larger farms in the Central Valley of California. Those farms are likely to sell grapes with less product differentiation, in spot commodity markets, and without contracts. Smaller farms are more like to be more "industrial" in their approach to value-added and do their marketing through farmer-processor contracts. These have also been the more successful farms in the winegrape industry.
In value-added agriculture, it is well to remember that one approach does not fit all situations. And, of course, value-added
marketing often adds costs and is not the solution for all farms. Agriculture is a tough business and it usually pays to invest some effort to design a solution that really fits the problem on an individual farm.
Sumner is the director of the University of California Agricultural Issues Center and the Frank H. Buck, Jr. Professor in the Department of Agricultural and Resource Economics at the University of California, Davis.
Mark J. Hanson is an attorney with the Lindquist & Vennum, P.L.L.P. law firm in Minneapolis, Minn., where he chairs the agribusiness and cooperative group, which practices throughout the country developing agribusiness projects, forming cooperatives, and counseling mergers, acquisitions and joint ventures. The 12-attorney group consists of transactional, tax and securities lawyers practicing in agribusiness and cooperative law.
Hanson's practice focuses on developing farmer-owned agribusinesses and food processing businesses throughout the country. He authored a widely distributed book, Starting a Value-Added Agribusiness: The Legal Perspective, and wrote a book chapter on cooperatives.
Hanson also wrote an article entitled "Seeking Outside Capital" for the NCFC Cooperator, describing the need for a change in cooperative structure to allow outside investment. In 2001, he prepared a new draft cooperative statute for the Wyoming legislature that allows a cooperative to have a flexible structure and outside investment under taxation similar to a limited liability company. Hanson and his firm secured a favorable revenue ruling from the IRS regarding the formation of cooperatives under this new statute.
Hanson has written a number of legal journal articles on agricultural credit and financing, surface water preservation and use and groundwater protection. He is a graduate of Dickinson College, Carlisle, Penn., (B.A., physics), the University of Minnesota (M.S.C.E.), and William Mitchell College of Law (J.D.).
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.
A paper written by the Agricultural Issues Center at the University of California was added to the site under public policy. "Commodity Policy and California Agriculture” explores governmental programs that influence California agriculture.
Updated Commodities
Agri tourism, apples, azuki beans, biomass, certified/verified pork, cheese, commodity dairy, commodity lamb, cotton, cranberries, equine, herbs, international lamb, natural beef, natural pork, niche pork, onion, organic beef, organic dairy, organic lamb, peaches, pears, pecans, pumpkins and turkeys.
Commodity Profiles Added
Commodity profiles and links were added for the following commodities: almonds, apricots, artichokes, asparagus, avocados, broccoli, cauliflower, cherry, dairy, garlic, grapes, lettuce, melons, olives, peaches, plums, prunes, raisins, strawberries, tomatoes and wine.
Photos were added for blackberries, blueberries, bottled milk, cheese, cherries, commodity dairy, commodity pork, international dairy, organic milk, peaches, pears, pecans, raisins, raspberries, squash, strawberries and tomatoes.
Updated sections in markets and industries include bio-terrorism, co-packing, diet/health/obesity trends, ethnic food, food animal welfare, food consumer trends, food direct marketing, food market trends, food profitability, food safety, food safety centers, food vertical coordination, foodservice/retail trends, international markets, manufacturing, natural foods and organic food.
A new section entitled packaging was created with five new links to additional information.
Two new AgMRC-developed papers were added to the natural foods section - “Consumer Trends in Iowa and Greater Des Moines for Natural Foods,” and “Natural Products,” written by John Norwood.
The energy section of markets and industries was updated with new links in regulation, industry structure and trends.
State pages updated in the directories section include Delaware, Florida, Georgia, Massachusetts, New York and Oregon.
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.
Most of Virginia's value-added businesses are established as owner-operator businesses, though it might actually be a corporation from a legal standpoint. There are also some farmer-owned LLCs and cooperatives, according to Willliam Scruggs, project manager, agribusiness development for the Virginia Dept. of Agriculture and Consumer Services.
Virginia is experiencing growth in the wine industry with several vineyard producers setting up farm wineries to produce their own wine. Virginia Governor Mark Warner created the Governor's Wine Study in August 2002 to evaluate the economic position of Virginia's wine industry and make recommendations for strategies that would enhance the competitiveness of the wine and vineyard businesses.
Virginia has seen several value-added dairy businesses develop in recent years. These dairies are setting up small processing operations to supply fluid milk, cheese, ice cream and other dairy products in high-value niche market areas.
Virginia has also seen several high-value, specialty food processors develop and expand operations in recent years. These operations include specialty meat processors producing beef products such as jerky, ham processors and free range poultry.
Identity preservation is gaining interest and use among state and regional cattle associations. These producers match herd traits and management with buyer interest.
The value-added groups in Virginia interested in these types of projects and others have several options when seeking assistance. The Virginia Dept. of Agriculture and Consumer Services has an agribusiness development services office that works with the expansion, development and recruitment of agribusiness firms in Virginia. The Department also has a marketing division that assists with the marketing of agricultural products (both Virginia-produced and processed).
The Virginia Farm Bureau Federation commodity/marketing department has programs that assist with agribusiness enterprise
development for value-added products as well as product marketing activities.
Both Virginia Tech and Virginia State University Cooperative Extension have faculty and staff that provide technical assistance and advice on the development of value-added agribusiness enterprises and business organization.
"There appears to be a great deal of interest in the biofuels area such as ethanol and biodiesel,” Scruggs said. “Two USDA value-added producer grants were awarded to groups in Virginia to evaluate the feasibility of an ethanol plant.”
"Virginia is also seeing an interest in value-added meat processing and identity preservation of livestock and grains. Two groups have formed organizations to evaluate the feasibility of value-added beef processing and identity preservation.”
The agribusiness development services office offers technical services and contacts with professional staff to assist with business planning, capitalization; identification of potential sites for business location; assistance with development of infrastructure to meet business requirements; assistance with regulatory issues and permitting.
In a typical year, Scruggs estimated inquiries to the office at more than 200, but actual project numbers closer to 35-40.
For more information, visit the department at http://www.vdacs.state.va.us/index.html.
Overview
Nestled in the rolling hills of Randolph Center, Vt., Neighborly Farms, with its red barn and white post and beam farmhouse has established an organic dairy and cheese processing facility on the farm. Through one side of the viewing room, visitors can watch the 48 black and white Holsteins cows being milked or turn to the other side of the room and see cheese being made.
The cheeses produced at Neighborly Farms -- mozzarella, provolone, feta, muenster, ferbed and cheddar -- are all certified organic and are sold throughout the Northeastern United States. The family-owned cheese company, which has been in business for about three years is close to showing a profit, said Linda Dimmick, co-owner of the business.
Motivation
"Rob and I were married in 1989. I was originally from upper Michigan and working as a dental assistant in Vermont when I met Rob," said Linda. "He had grown up on a dairy farm and his family had gotten out of the dairy business to purse other business interests. Rob had always had a passion and a desire to have a dairy farm and raise our family on a farm. We were able to buy back the original family farm and tried traditional dairying in the early 90s, but eventually sold the cows. By 1997, we were able to get back into the dairy business. In 2000 it was suggested to us that we might want to have an organic dairy and consider making organic cheese."
After three years, the farm was certified organic by the NE Organic Farmers Association of Vermont. Linda noted that the organic certification process has forced the farm to be better managers, because everything must be documented.
In the original business plan for the cheese production, the couple determined they would need to process 900 pounds of milk a week to make a profit and could accommodate up to 1650 pounds of milk a week with their equipment. Their growth has been slow, but steady, which Linda noted has given them time to perfect both the process and quality.
The company has one full time employee, one ½ time worker and one person who works ¾ time. Neighborly Farms makes cheeses on Monday, Wednesday and Friday and packages on Tuesday, Thursday and Saturday. Some of the cheeses are sold immediately after packaging and some of the cheddar varieties are aged for several months before being sold.
"The first impression matters. It has to be good because if it isn't you won't get another chance. We have taken our time to try to get it right," lamented Linda.
Business Development
As the couple started out, they began by selling to grocery stores and restaurants. Linda noted in her business plan and in their cost of production, there is not much wiggle room and she does most of the marketing directly to the firms. "I haven't used food brokers because there is not enough margin for both of us at this time," she noted. Neighborly Farms has about 65 regular customers. One of the larger customers is an organic Mexican restaurant that purchases 500 pounds of their Monterey Jack every couple of weeks. He found Neighborly Farms when he was searching the Internet for a supplier of organic cheese.
Linda or one of the family members makes the five and a half hour trip New York City every other week to service the Mexican restaurant and other companies in the New York metro area.
To establish a market, Linda responds to requests and sends samples of the product. In addition to their Web site and store front at the dairy, she also attends food shows such as the Fancy Food Show, and does numerous in-store promotions. "If one of my stores is having a festival or running specials with Neighborly Farms Cheese, we will try to be there in-person to hand out samples, and let people see the farmers who produced their product, " commented Linda.
Barriers of Success
Currently the family is processing their own milk and not purchasing any from area farmers. Linda noted if they bought milk from other farmers, it would introduce a whole new set of regulations the family is not ready to tackle yet, or needs to since they are not able to process all the milk they produce.
Lessons Learned
"In the beginning of our business, I tried to be all things to all people. If someone wanted a 50 pound wheel of cheese, I would make it. If they wanted it aged for six months I would do that. I was running myself ragged, and not focusing more on our core business. I have now determined what my product line is and we put our efforts into producing a superior tasting, high quality line of cheeses for our customers," said Linda.
Another key to success is to market all the time. Neighborly Farms is a member of the Vermont Attractions Association (VAA), and although the fees are significant, Linda feels they are a good investment. It keeps the name of the farm out in the public eye. As a member of VAA, the farm is listed on all state maps and has signage on the Interstate that directs people to the farm. She also markets locally with a number of attractions and festivals.
Linda stressed the importance of ensuring a business has working capital to stay afloat. She noted in their business plan they had used up their working capital loan intended to last for a year in only three months. At that time, Rob went back to his old job and has been subsidizing the dairy the last few years. Linda noted, they hoped to soon be profitable, but it hasn't been an overnight, get-rich scheme.
Personal interview by Mary Holz-Clause, September 10, 2003. For more information, visit http://www.neighborlyfarms.com/.
Q: Has BSE been found in the United States?
Yes. The U.S. Department of Agriculture (USDA) announced December 23, 2003 that BSE had been diagnosed in a Washington state dairy cow. DNA testing confirmed the 6 ½-year-old cow, which investigators refer to as the index cow, was born in Canada and imported to the United States in 2001.
Q: What is BSE?
BSE is a degenerative neurological disease in cattle that scientists believe is caused by misfolded proteins, called prions, which build up in central nervous system (CNS) tissues eventually killing nerve cells. Scientists do not know what factors trigger this
conversion. Some believe an abnormal protein itself causes the conversion, while others believe a virus-like entity may be involved. Most scientists agree that the accumulation of abnormal proteins in brain cells results in altered function and eventual death of cells. The scientific name of the disease is Bovine Spongiform Encephalopathy. The media commonly refer to the disease as “mad cow disease.”
Q: How is BSE spread among cattle?
BSE does not spread from animal to animal, only through feed containing ruminant-derived meat and bone meal (MBM) from BSE-infected cattle.
Q: Can humans get mad cow disease?
Research from the United Kingdom supports anassociation between BSE and variant Creutzfeldt-Jakob Disease (vCJD), in that vCJD likely developed as a result of people consuming products contaminated with central nervous system tissue of BSE-infected cattle. Documented studies report that in naturally infected cattle the BSE agent has only been found in CNS tissue, such as brain, spinal cord and retina.
All vCJD victims to date have had a specific genetic make-up that may make them vulnerable to this disease. About 40 percent of the population has this genetic make-up. Research continues to determine the role genetics may play in this disease.
Q: What is the difference between BSE, sporadic CJD and vCJD?
BSE, sporadic CJD and vCJD are all Transmissible Spongiform Encephalopathies (TSEs) which are a class of rare brain diseases, some of which affect humans while others affect animals. All TSEs are associated with the accumulation of abnormal prion proteins in the brain. While BSE is found only in cattle, sporadic CJD and vCJD are found in humans. Sporadic CJD and vCJD are distinctly separate brain diseases, each with its own unique clinical and histopathological features. Sporadic CJD was first identified in the 1920s and has a worldwide incidence of approximately one case per million people each year.
Variant CJD was first documented in the United Kingdom in 1996 and, as of January 2004, the number of definite and probable cases is 155 people. No indigenous cases of vCJD have been detected in the United States. There are many unknowns about vCJD, including method and amount of exposure, route of transmission and incubation period. Significant steps have been taken in the United States to prevent exposure to the disease.
Q: Is U.S. beef safe?
Yes. The BSE agent is not found in meat - only in CNS tissue, which was removed from the index cow before the meat was processed. The USDA and the Food and Drug Administration (FDA) are taking all necessary steps to protect consumers, animal health and the food supply. Even in experimental studies, in which large doses of the disease agent are injected into the brains of cattle, the BSE agent has never been found in muscle meat.
Q: What safeguards have been in place to protect the U.S. beef supply?
Consumers should be confident in the safety of U.S. beef for a number of reasons:
Scientific studies show that the BSE disease agent is not found in beef muscle meats or milk. It is found in the central nervous system tissues of cattle, such as brain and spinal cord. The CNS tissues of this cow did not enter the human food supply.
In 1990, the United States became the first country without BSE within its borders to test cattle for the disease. The BSE surveillance program has mandated that all cattle with any signs of neurological disorder be tested for BSE and banned from the human food chain. Since 1990, meat from cattle showing signs of neurological disorder has not been processed for human consumption.
BSE affects older cattle, typically over 30 months of age. The vast majority of the cattle going to market in the United States are less than 24 months old and would not pose a risk of BSE. Even in European countries where BSE is prevalent, of the 1.6 million cattle less than 30 months of age tested there in 2002, there were no positive cases.
In 1997, the United States banned the feeding practices that scientists believe spread this disease. The United States was the first country without BSE within its borders to implement a feed ban.
The system to detect and eliminate BSE in the United States is effective. The cow in question was quickly identified, the farm of origin was located and quarantined, and products from this animal were identified and traced. The 2001 Harvard University Center for Risk Assessment report said that "measures taken by the U.S. government and industry make the United States robust against the spread of BSE to animals or humans should it be introduced into this country."
Source: National Cattlemen’s Beef Association.
Barley is the third largest feed grain crop produced in the United States, after corn and sorghum. Barley is a short-season, early maturing crop. Therefore, it is produced in a variety of climates and in both irrigated and dryland production areas. Production is concentrated in the Northern Plains and the Pacific Northwest. The United States is the eighth largest producer of barley in the world with current production estimated at 4.9 million planted acres.
Barley is classified as either six-row or two-row, depending on the physical arrangement of the kernels on the plant. Barley is also described as hulled or hull-less by the presence of beards or awns covering the kernels. Six-row barley is grown primarily in North Dakota, Minnesota, South Dakota, and Idaho. Two-row barley is grown in Montana, Idaho, Colorado, Wyoming, Washington, Oregon, and California. North Dakota, Idaho, and Montana are the three largest barley producing states.
Barley is used as livestock feed, food, and barley malt. Each of these uses is best met with specific barley varieties. Currently, 60 percent of the barley grown in the United States is used in food and industrial uses, while 40 percent is used for feed. Barley competes with corn and sorghum as a feed grain. It has higher protein content than corn which reduces the need for protein supplements in feed compounds. Barley grown for human consumption is used in soups, as an extender for vegetable proteins and is occasionally milled into flour. Barley flour is used in the Unites States in baby food and in North Africa and Asia for flatbreads or porridges.
The average difference between malt and feed barley prices from 1982 to 1986 was 13 cents per bushel. During that time period, feed barley prices were, on average, 95 percent of malt barley prices. From 1998 to 2002, the average price difference between the grains was 76 cents per bushel with malt barley carrying a 70 percent premium.
The yearly average price received for malt barley has increased 13 percent over the last 20 years and 45 percent from its low in 1986. Barley prices rose from 1993 to 1996.
Barley is one of the most highly adapted of the cereal grains, with production in climates ranging from sub-Arctic to sub-tropical. The leading exporters of barley are the European Union, Australia, and Canada.
Because of its use in malt beverages, barley is grown in many areas of the world as much for cultural as economic reasons. U.S. exports and market share have dropped substantially since the 1980s. Saudi Arabia, Japan, and China are the largest importers of barley. Barley exported to Saudi Arabia is used for livestock feed, while Japan imports barley for feed and malt production. A growing percentage of the world trade is in the form of malt.
Increased consumer demand for microbrews has increased the number of small breweries in the United States to more than 1,800 or seven times the number in business in 1990. Imports have grown consistently over the past decade. American brewers are increasing foreign shipments through licensing agreements and joint ventures with foreign brewers.
For more information, see http://www.agmrc.org/barley/barley.html.