Business Article - Roger Ginder, professor, Department of Economics, Iowa State University
Advisory Council Profile - Stanley R. Johnson
Updates to www.AgMRC.org
How do I use this site?
State Profile - Wisconsin
Business Profile - Bloomsbury Farm
New Research - Private Sales and Public Information: Does USDA's National Berry Report Provide Information on the Relationship between the Spot Market and Precommitted Sales?
AgMRC Highlight - Transition to Organic Farming
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 Roger Ginder, professor, Department of Economics, Iowa State University
Feedstock for biodiesel production can come from any of a wide variety of fat, oil or grease sources. Feedstocks are generally categorized as virgin (fats and oil that have not been previously used) or recycled (fats, oils and grease products that have been used for another purpose). Virgin feedstock may come from either plants (e.g., soy, canola, palm, corn, etc.) or animal sources. (e.g., hogs, cattle, poultry, or fish).
Annual production of animal based feedstock is estimated by the USDA NASS to exceed seven billion pounds. For U.S. plant sourced fats and oils annual production of soy oil is estimated at approximately 18 billion pounds; with fats and oils from corn, sunflower, cottonseed and canola estimated to be approximately five billion pounds. While reliable data on recycled fats and oils is more difficult to obtain, it is estimated that approximately 3-4 billion pounds of feedstock could be obtained from these sources (see Figure above). The goal of most firms who provide recycled product is to generate as little waste oil as possible since waste oil disposal represents a cost to them. Most would prefer to minimize the quantity that must be sold into the waste market and maximize the quality that is sold as part of the primary product they produce and sell.
Soyoil is among the lowest priced of the domestically produced (U.S.) virgin vegetable oils and is produced in the largest volume. The size and nature of the soyoil market makes it a feedstock with the best potential to expand. Soybean demand and prices may be driven by either the meal or the oil component. Either oil price increases or meal price increases can induce increased soybean production and crush and thereby cause soybean oil supply to increase. Although it is usually the meal demand that drives production and crush, oil does drive the market from time to time.
The supply of virgin animal-based products and recycled products is not as likely to grow by an increase in soydiesel demand. Both of these potential feedstocks are by-products. Their supply is largely dependent on the level of demand in another market. In the case of choice white grease and tallow, the supply will be largely determined by the demand for pork and beef. In the case of the recycled products the supply will be determined by the demand for fried food products. Increased use of these products as a biodiesel feedstock could drive up the price, but the supply response is likely to be relatively small.
Important considerations in selecting feedstocks for a biodiesel plant include: 1) per unit price (cost), (2) variability in quality and the chemical content feedstock, (3) regular availability of the feedstock, (4) flexibility to increase supply and (5) cost of transport and pretreatment. The comparison chart below shows how various feedstocks measure against these factors.
Costs per unit of feedstock are usually lowest for brown grease and yellow grease. These are typically recycled products from frying done in restaurants or food manufacturing firms. Costs for yellow grease are generally around $.10 per pound but can vary. Virgin animal fats such as choice white grease (lard), poultry fat or beef tallow are also potential feedstocks. Currently prices for these products are lower than virgin plant based products, but higher than recycled feedstocks. Virgin plant sourced feedstocks would include soy, palm, sunflower, corn, cottonseed and canola oils, as well as others. Soy and sunflower have historically had the lowest price levels with other vegetable oils being 15-25 percent more expensive. In the U.S. the volume of soy oil produced is much higher than the volume of other virgin plant sourced oils.
The fatty acid content and profile are important factors that must be dealt with in producing quality biodiesel. There are obvious differences between the fatty acid profile in feedstocks. These differences will need to be effectively managed if the plant is to be efficient. However, there may be less obvious variations, content and profile within the same feedstock types. Plant based virgin feedstocks are likely to have the least variation followed by the animal based products. Recycled feedstock such as yellow or brown grease can vary significantly from one lot to another.
While it is desirable to be able to process alternative feedstocks, managing feedstock variability is critical if consistently high quality biodiesel is to be produced and marketed. Frequently switching between feedstocks with various profiles can make this difficult to achieve. An aggressive feedstock pretreatment and blending strategy may make more sense.
The degree of pretreatment required also varies a great deal from one feedstock to another. Pretreatment requirements are typically lowest for the virgin plant based fats and oils. These feedstocks tend to have the most consistent fatty acid profiles and fewer impurities harmful to transesterification process.
Stanley R. Johnson chair of the AgMRC advisory council, is Vice Provost for Extension and Charles F. Curtiss Distinguished Professor, Department of Economics, Iowa State University. As Vice Provost, he has managed a major restructuring of ISU Extension including new budgeting and financial planning systems for county and area offices, a projects approach to program management and accountability, and closer cooperation with the research and education activities of the academic colleges. Results of the restructuring have been an increase of ISU Extension's annual budget from just over $50 million to $75 million.
In addition to his administrative and academic responsibilities, Johnson serves Iowa State University and the land-grant community in broader capacities. Examples include: chair of the search committee for the ISU Vice Provost for Research (2000), chair of the search committee of the ISU Dean of the College of Agriculture (2001), the ISU Strategic Planning Committee (2000), the Plant Sciences Institute Advisory Board (2000-2001), chair of the ECOP Legislative Committee of NASULGC (2000-2002), chair of the White Paper Committee of the NASULGC Farm Bill Task Force (2001), and NASULGC Farm Bill Task Force (2000-2001). Professionally, he is a member of the American Agricultural Economics Foundation Board, Editor-in-Chief of Agricultural Economics, the Journal of the International Association of Agricultural Economists, and a member of the Advisory Committee for the World Food Prize.
Before being appointed Vice Provost for Extension, Johnson was the Director of the Center for Agricultural and Rural Development (CARD) at ISU.
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.;
Kenneth Rutledge, Dakota Turkey Growers, Aberdeen, S.D., and
Chris Williams, 21st Century Producers Inc., Manhattan, Kan.
Business Development
A business profile on Liberty Hills farm was added. This Vermont dairy operation turned to agritourism to provide a farm experience for children and families.
Value-added ag producer grant templates for the federal value-added ag producer grant program were added from the University of Nebraska’s Food Processing Center and from Kansas State University. Additional resources to assist producers in applying for the value-added producer grants can be found at http://www.agmrc.org/business/valueaddedgrant.html.
Commodities & Products
Updated or created profiles for cabbage, dairy products, pumpkin, spinach, squash and watermelon.
New links were added for agritourism sections, citrus, international lamb, international pork, Midwestern wine, pumpkin, raisins, rice, squash, sweet potatoes, watermelon and wine tours.
“Demand, Supply and Trade: National and Northwest Raspberries, Blueberries, Strawberries, Sweet Corn and Snap Beans,” was added from the University of California and Oregon State University. Reviews principal trends during the past two decades in the national and Pacific Northwest markets for selected berries and vegetables. The authors looked at the sources and types of apparent shifts in U.S. supply and demand for these products, and the apparent effects of import competition on domestic production and prices.
A section on Missouri wine industry was added to the Midwestern wine page.
Specific information can be found at http://www.agmrc.org/ag/ag.html.
Markets & Industries
Updated sections in markets and industries include energy sections on industry structure and market trends and food sections on industry structure, market trends, understanding markets.
A new section in food, attribute marketing was created for functional foods.
“Supermarket Challenges and Opportunities for Fresh Fruit and Vegetable Producers and Shippers,” was added from the Agricultural Issues Center, University of California.
“Marketing California's Agricultural Production - Chapter 4 in California Agriculture: Dimensions and Issues,” was added from the Giannini Foundation, University of California Division of Agriculture and Natural Resources.
The markets and industries section can be found at http://www.agmrc.org/markets/markets.html.
Directories & State Resources
Updated the state pages of Missouri, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Tennessee, Vermont and Washington.
The directories and state resources section can be found at http://www.agmrc.org/directories/dir.html.
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.
Wisconsin’s agriculture is diverse in terms of commodities produced and industry structure. Dairy comprises more than half of the food and ag sector. Wisconsin has a wide array of small, medium and large companies (including many cooperatives) who are all pursuing ways to add value to their businesses. “For example, we have small producer-owned companies and co-ops who are adding value to their farms and businesses as well as large corporations adding value to their operations through product and marketing innovations,” said Will Hughes, Value-added Agriculture Bureau Chief, Wisconsin Department of Agriculture.
“We are seeing a growth in specialty cheese/artisan dairy operations, kitchen incubators, revitalization of smaller family owned specialty meat plants and small value-added farm processors,” Hughes said. According to Hughes, farmers markets are increasing in number and size as a major outlet for smaller operations. “We’re also seeing biotech start-ups and development based on technology coming from the University of Wisconsin. In the past two years, Wisconsin has invested heavily in ethanol plant capacity, with three plants on-line and two currently in construction whereby nearly 1 in 5 rows of corn will be used for ethanol,” Hughes said.
According to Hughes, Wisconsin is seeing an increased interest in anything that adds value to commodities produced in the state. This interest is primarily concentrated in the dairy industry and bio-energy. A new investment alliance for agriculture, called Badger AgVest, has formed to better position producers to take advantage of larger business opportunities. Because of a strong forage base, grass based dairy and livestock is a major area of development as well.
Several programs and services are available at the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP), including an Agricultural Development and Diversity Grant program. This program annually awards grants on a competitive basis to promote new value-added products and technologies, research and market development and feasibility studies. The DATCP and University of Wisconsin Extension are currently partnering to work with entities in Michigan and Ohio to develop an Agricultural Innovation Counselor Training program. UW-Extension is using an Emerging Agricultural Markets Team (of which DATCP is a member) to assist in outreach and education to entrepreneurs. For example, DATCP, USDA and the EAM team put on workshops to help producer groups apply for the USDA Value-added Producer Grants. In addition, the Wisconsin Department of Commerce has a wide range of financial services to assist business start-up and expansion.
DATCP offers business plan development assistance, marketing plan development assistance, references to experts in the field and potential sources of capital.
Contact the program at http://datcp.state.wi.us/core/agriculture/ or visit the Wisconsin state resources link on AgMRC at http://www.agmrc.org/directories/states/wisconsin.html.
When life hands you a tornado, stir up some fun!
Spring storm season handed Bloomsbury Farms a doozie this year. Strange clouds and alternating hot and cold temperatures gave Dave and Karen Petersen enough warning to head to the basement of their farmhouse, mere minutes before a tornado destroyed 70 trees, blew away an entire greenhouse and toppled several buildings on the farm.
However, the tornado has been a blessing in disguise for the couple's agritourism operation. Located near Atkins, just west of Cedar Rapids, Iowa, Bloomsbury Farm provides an entertaining, active and educational experience for all farm visitors.
Within an hour after the storm, 70 people arrived to begin cleanup and 200 were there the next day. The storm follow-up stories in the media have helped push the farm's name forward. New activities and rebuilding will improve the farm's existing structures and offerings.
History
The Petersen's have combined his love for traditional farming with her love of the public and floriculture to create a scenic agritourism operation that focuses on an expanding fall season combined with a traditional 2,000-acre grain operation.
Bloomsbury Farm's agritourism operation started as a floral/greenhouse. Karen received a degree in floral design and began doing weddings out of the couple's basement. "It was a way for us to bring income to the farm, which we needed and a way for me to stay home with our young family," Karen said.
She worked her way up to between 30 and 35 weddings per year and recognized a need for increased space. The couple began evaluating buildings on their farm and over the course of five years, turned an open-front cattle shed into an enclosed shop and greenhouse. Gradually landscaping was added to the business.
Then their daughter's first grade class wanted to visit, so Karen put out some fall decorations, gave the kids a hayride and had some pumpkins for them. In the meantime, the Petersen's drove past the Goebberts Farm Market & Pumpkin Farm outside Chicago, Il., and were continually amazed at the growth of the agritourism operation. After the couple visited the Goebberts in person, Karen came home and told Dave they needed to expand the agritourism side of the farm.
The couple started planting pumpkins and had a few hundred school kids visit the first year. Labor Day is the start of the fall season and the farm is open for eight weeks, closing right after Halloween.
The farm has grown to approximately 12,000 visitors annually, including 4,300 school kids. Karen credits their growing popularity to the farm's attention to detail. "We're selling an old-fashioned experience and farm memories."
Agritourism
The growth of Bloomsbury Farm is consistent with national agritourism research. People are taking shorter trips and taking most of them by car. Travel destinations are being planned at the last minute for the "experience." Iowa had 20.2 million visitors in 2003. Just over 40 percent were Iowa residents, according to the Iowa Division of Tourism, who define a visitor as someone traveling a distance of more than 50 miles. Ninety percent of those traveling in Iowa used a car and more than 50 percent of those traveling were visiting friends and relatives.
For more information, visit www.bloomsburyfarm.com or www.agmrc.org/agritourism/agritourism.html.
Coordination up and down the marketing channel is becoming increasingly important in U.S. agriculture. Consumer preferences increasingly affect production practices and shipping activities, as retailers focus more on selling value-added products such as prepackaged salads.
Value-added retail sales typically require coordination among the retailer, shipper, grower, and others in the product marketing channel in order to capture and utilize retailer information regarding consumer preferences. Often this coordination takes the form of formal or informal contracts between the retailer and its supplier.
The growth in the use of marketing contracts raises issues regarding price formation outside of traditional spot markets, and the consequences of such contracts for agricultural producers, retailers and others in the marketing chain. One marketing issue concerns the value of market information traditionally collected by the USDA. As the share of a commodity exchanged on a spot market declines, does this market information become less useful? How do increased nonspot
sales affect relative returns to market participants? This AIC Issues Brief addresses these two questions in the context of the California strawberry industry.
In the fresh strawberry industry a substantial portion of the harvest is resold through an option called a precommitment between shippers and retailers. Using data from the USDA National Berry Report, we analyze whether precommitments raise mean spot prices by facilitating promotions and removing volume from the spot market or, alternatively, lower mean spot prices because precommitments do not create additional sales. We also investigate whether precommitments stabilize spot prices by facilitating the flow of strawberries when weekly harvests are large or, alternatively, destabilize spot prices by reducing the volume of strawberries sold on the spot market.
California strawberry industry
Strawberries are the seventh most important crop produced in California, with sales of more than $990 million in 2003. Strawberries are perhaps the archetypical agricultural produce: harvest volumes vary by season and depend heavily upon weather conditions, while the postharvest product is extremely perishable. Thus, timing is vitally important for the marketing of fresh strawberries, since there is a very limited window for harvesting and consuming the product. The California industry includes roughly 400 growers and 60 shippers. Shipping is highly concentrated, with the five or six largest shippers marketing over three-quarters of the annual harvest.
Each grower generally markets all of his or her fresh production through a single shipper each year. The shipper charges a per-unit fee for marketing services, including cooling and palletizing. Revenues from sales are pooled for a specified period, usually a week, and growers are compensated based on their deliveries to the pool. Shippers market strawberries to terminal markets, wholesalers and retailers. The terminal market share of total fresh volume has declined significantly over the last 30 years. Retailers are increasingly dealing directly with shippers rather than relying on brokers or terminal markets for their strawberry supplies. This growth in direct shipper to retailer sales has been accompanied by the development and increased use of precommitment sales, a type of contracting mechanism.
For more information on precommitment sales in the strawberry industry, or to read the full report from Agricultural Issues Center, University of California, visit http://www.agmrc.org/fruits/info/strawberryprecommitments.pdf.
When John Vollmer, a third-generation tobacco farmer in Bunn, N.C., decided to stop growing tobacco nd start raising strawberries organically, it was an unexpected move for someone who describes himself as a “chemical-oriented” farmer. Yet, Vollmer, whose main priority was finding a way to keep the family farm in the family, recognized that organic production might be a route to greater profits.
“It was not an easy transition for me to think in other ways,” said Vollmer, a former agricultural chemical salesman. Yet, as he read books on organic soil management, he soon found himself fascinated by organic farming concepts. Over the next two years, he built soil organic mater with composts and cover crops and carefully researched organic techniques. Then he began his transition.
Since then, his two acres of organic strawberries have been so successful that Vollmer brought another 25 acres into mixed fruit and vegetable production, using the same soil and pest management techniques. While he has not certified that new acreage because he still wants to apply agri-chemicals sprays if needed, he now considers himself more organic than conventional in the new field. In fact, asked whether he has any doubts about organic farming, Vollmer replied that he has only one: whether he should be transitioning those 25 acres now - or later.
Vollmer typifies the enormous changes that have occurred in organic farming over the last 20 years. Two decades ago, it would have been impossible to predict the huge expansion of the organic industry.
Since 1990, according to industry sources, growth in the organic retail sector has equaled or exceeded 20 percent per year, compared with 1 percent in the overall food industry. In 2001, according to the Nutrition Business Journal, organic sales reached $7 billion, accounting for approximately 2 percent of total U.S. food sales. Following he establishment of federal USDA standards for organic production in 2002, industry experts expect annual growth of 20 to 25 percent well into the next decade.
“The food industry clearly continues to be excited about the organic sector,” said Catherine Greene, an Agricultural Economist with the USDA Economic Research Service, who has been tracking growth patterns of the organic industry since the late 1980s.
Fueling this rapid increase in organic sales are large numbers of consumers who want organic food; according to a recent market survey by SPINS, 68 percent of consumers have tried organic products. Consumers also want organic foods across a wide range of categories, including pre-packaged meals, salad dressings and even pet food.
In response to this explosive increase in demand, acreage in certified organic cropland and pasture more than doubled between 1993 and 2001, according to USDA estimates. While organic acreage is still only 0.3 percent of the total U.S. agricultural acreage, some production sectors are much higher. For example, 3, 4 and 5 percent of all apples, carrots and lettuce, respectively, are grown organically.
This article is the first in a bulletin developed by the Sustainable Agriculture Network (SAN), the national outreach arm of USDA-SARE. The bulletin, Transitioning to Organic Production, is available at www.sare.org/bulletin/organic. For
additional information on organic trends, visit http://www.agmrc.org/markets/foodorganics.html.