Business Article - Don Hofstrand, Co-director, AgMRC, Iowa State University
Updates to www.AgMRC.org
State Profile - Kentucky
Business Profile - Our Daily Bread
New Research - Does Five a Day Pay?
AgMRC Highlight - Certified/Verified Pork
Upcoming Events
The AgMRC Action is the official bi-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
Should You Participate in Value-added Agriculture?
By Don Hofstrand, Co-director, AgMRC, Iowa State University
Value-added agriculture has been touted as the solution to the problems facing farmers and rural residents. People promoting value-added agriculture claim that it will increase income and reduce financial stress in the farm sector and lead to the revitalization of rural communities. However, for farm families suffering from low incomes and rural communities suffering from the loss of economic vitality, value-added agriculture may not be a panacea. So, should you participate in value-added agriculture or stick with traditional farming? The following discussion will shed light on the topic.
Long-range Solution
Value-added agriculture's potential lies in creating long-term solutions rather than short-term fixes. It contains the elements for solving many of the problems facing farmers and rural America over the coming decades. It allows for an increase in the amount of income flowing into the pockets of farmers and rural residents. By doing so, production agriculture will rely on market forces and move away from the annual infusions of money from the federal government.
Value-added allows you to move away from the “Pac Man” growth strategy so common in farming in recent decades. This is a growth strategy where farmers gobble-up neighboring farms. This results in fewer farmers and smaller rural communities.
Value-added agriculture provides an alternative growth strategy that allows you the opportunity to expand by moving upward in the food chain rather than expanding horizontally. An opportunity has emerged because the food supply chain is becoming more integrated. By moving aggressively, farmers have the opportunity to play a role in the development of this new integrated system. It will provide farmers a greater role in the ownership and control of the new system.
However, because of value-added agriculture’s long-range focus, it takes time to implement. If you are considering any of the value-added opportunities that are available, you must remember that it may take a considerable amount of time before the benefits from these activities are received. So, if you are expecting value-added agriculture to be a “silver bullet” that will provide a “quick fix” for the problems you are facing, you will probably be disappointed.
Capital Required
A major ingredient for many value-added businesses is money. This is especially true for value-added business ventures where farmers commit commodities (corn, soybeans, hogs, etc.) for processing. These processing facilities are usually capital intensive. Although the potential payoff from these ventures can be significant, there are many value-added business ventures where the payoff has been low, and some that have failed. So, if capital is limited, you must determine whether your limited capital will yield greater return by investing in your farm business, investing in a value-added business venture or some of both. This will require a careful risk/reward analysis on your part.
New Skills Required
New skill sets are required if you are going to participate in value-added business ventures. Whether it is producing organic foods, growing specialty grains, or processing agricultural commodities, you will need to develop a whole new set of skills that are not commonly used in commodity agriculture.
New production skills will be needed in the production of value-added crops and livestock. For example, preserving the identity of crops and livestock, certifying the quality of crops and livestock (ie. ISO 9000) and keeping detailed records on the production, handling, storage and marketing of crops and livestock are practices and procedures in which commodity producers usually don't participate.
In addition to new production skills, new business skills are also needed. Creating and operating a value-added business venture is different than most farm businesses. For example, marketing a food product is much different than marketing a commodity. Product marketing involves identifying customers, designing and implementing a promotional plan, pricing your product, identifying and analyzing competitors and a host of other activities. You will also be involved in conducting feasibility studies and designing and implementing business plans.
Other skills involve human relationships. As you move from commodity production to value-added activities, relationships with others become more important. Value-added activities often involve groups who work together to accomplish business objectives. Teamwork, communications and conflict management skills become more important. Working with customers, employees, producers, distributors, processors and others are important to your success.
From working with value-added groups, I have assembled the following list of skills that are important for successful value-added business development
Leadership skills Entrepreneurial skills
Decision making skills Teamwork skills
Business management skills Negotiation skills
Strategic management skills Public relations skills
Time management skills Marketing/selling skills
Communication skills Inter-personal skills
Conflict management skills Stress management skills
Financial and risk management skills
Personnel management skills
Organization and planning skills
Over the coming year, AgMRC will be providing information and tools to help you improve your business, relationship and production skills. Keep abreast of these activities on our Web site.
Developing and honing these new skills can only be accomplished gradually over a period of time. But the payoff can be great. Individuals who develop these skills will have an advantage in creating and maintaining successful value-added business ventures.
AgMRC Launches New Look on Web Site
The Agricultural Marketing Resource Center (AgMRC), launched a new Web site design March 3 to provide information, education and research to producers about business development and marketing related to value-added agriculture.
The Web site, www.AgMRC.org features updated content and a new graphical look. The site contains state-specific contacts and directories, as well as new business development and commodity-specific information designed to help build successful value-added agricultural enterprises.
“Beginning a new farming venture can be overwhelming,” said Mary Holz-Clause, Co-director of AgMRC. “We wanted to provide easily accessible information for producers, expand the existing content of the Web site and enhance the graphics on the site, without adding to download time.”
The Web page is designed to link producers with electronically available information and resources on a variety of agricultural commodities and products. The Center works with leading agricultural economists and business professionals from across the United States to provide applicable research and analysis on market and economic issues facing value-added business ventures.
“The Center provides value-added business and economic analysis tools and information on business principles, legal, financial, logistical and other issues needed to build successful value-added businesses,” said Holz-Clause.
According to Don Hofstrand, AgMRC Co-director, “Many farmers are looking to value-added agriculture to improve their business profitability.”
The AgMRC is funded through a grant to Iowa State University, Kansas State University and the University of California from U.S. Department of Agriculture, Rural Development, Rural Business Cooperative Service. AgMRC is designed to provide the information producers and other agribusiness professions need to enhance their bottom line through value-added agriculture activities.
For more information, please contact the Center at www.AgMRC.org, toll free at 866-277-5567 or email at agmrc@iastate.edu.
State Profile - Kentucky
Value-Added agriculture in Kentucky is very diverse. Agriculture in Kentucky is in a major transition from a tobacco production economy to many small and emerging value-added entities -- mostly niche type products new to Kentucky’s agricultural landscape. There is some value-added agriculture occurring in parts of Kentucky around soy diesel, soy food products and ethanol projects.
The Kentucky Center for Cooperative Development provides technical assistance and educational resources and opportunities for groups seeking help in forming value-added businesses.
The Kentucky Agricultural Development Board, which administers the portion of Phase I Tobacco Settlement Funds dedicated toward agricultural diversification effort, has various grant and loan programs to assist groups of farmers seeking to enhance their opportunities.
The Kentucky Department of Agriculture also has various programs and staff to help facilitate farmers in value-added opportunities.
Other support agencies include the University of Kentucky College of Agriculture, Kentucky Farm Bureau, Small Business Development Centers, traditional commodity groups for grains, beef etc., and several community development organizations that support agricultural diversification and development.
Over the last five years, Kentucky has seen an increased interest in the development of vegetable production. During this time, four new vegetable marketing cooperatives have been established.
The agri-tourism industry in Kentucky has also become of interest to producers. There have been a number of farmers become involved in various aquaculture initiatives and a focused effort to establish more farmers markets.
“The biggest stumbling block people seem to hit is the ‘Field of Dreams’ mentality,” said Laura Powers with the Kentucky Cooperative Development Center. “They want to build a business on the premise that ‘If you build it, they will come.’ Many groups have not seen the importance in completing a business plan and feasibility study as one of the first stages of creating a business. Another trouble spot, that often derives as a result of not completing a feasibility study, is the lack of true understanding of what the market is and what it desires. How many times have we seen the following sign in stores: ‘Rule #1: The customer is always right. Rule #2: If the customer is wrong, refer to Rule #1.’ In order to be able to sell, we have to understand what the customer wants. If we do not have a product the customer wants, we cannot say that the customer is wrong.”
On a positive note, Powers reports that with the development of the vegetable marketing cooperatives and farmers markets, farmers now have access to markets that they did not have before. Additionally, Kentucky agriculture has been very fortunate that the legislature decided to devote 50 percent of the state’s Phase I Tobacco Settlement money to agriculture diversification. The Kentucky Agricultural Development Board has provided a financial opportunity to many farmer groups to start value-added businesses that they may not have otherwise had.
Our Daily Bread Family Bake Shoppe and Bistro was started in a two car garage in the small northeastern Kansas town called Barnes. The business outgrew the converted garage in less than one year. “It’s pretty rare for such a unique business to open in a small town in Kansas. It’s even more rare for such a business to do well. …Take a look at the license plates in the street outside the bakery and you’ll realize that there are still opportunities to be had in rural Kansas,” says Dan Thalman of the Washington County News. “It’s been a lot of work for the family but they have unwavering determination.”
“We’ve been farming a long time so we know how to do something with nothing,” says Cindy Hiesterman, one of the founders of Our Daily Bread. The founders come from a variety of backgrounds which makes a diverse and complementary team. Cindy says that each finished product has been touched by each of them in some way. They all have their little niche, yet all do a little bit of everything. They say everybody “finds what is natural for them and plugs in.”
Norma Drebes-Megenity donated her converted two - car garage for the start of the business and is the mom of the operation. Her broad work experience gives her the background to assist with the many business decisions that affect Our Daily Bread. She and her husband Sweeney came out of retirement to help with the family business. Sweeney is in charge of making the homemade ice cream amongst his other duties. Connie Wilkens is the culinary artist. She is in charge of all the cooking and baking, purchasing and ingredients. Hiesterman is the Business Administrator for the business. Hiesterman takes care of the bookkeeping, payroll, financial reporting, and even does the graphic design work. Marilyn Link is what the ladies call their “missing link.” She lives in Seneca, Kansas and therefore plays a key roll by providing an objective, outside
opinion on things. She also assists with the marketing and Web design for Our Daily Bread. Lynette Steele is the newest addition to the family business. She is known as the “adopted daughter” and is the full time marketing consultant and special events planner.
Our Daily Bread is a community-focused business which is evident in the attitudes of the Owners. Ninety percent of their food is purchased from Jack, the local grocer, and they do seasonal buying from local producers. Our Daily Bread jokes about having the keys to most of Barnes. They are passionate in their love for their small town, family, and way of life. “Rural America doesn’t need to roll up the sidewalks and die. People want to come out with their families and revisit roots of where they came from,” Drebes-Megenity says firmly.
Our Daily Bread has ever-changing, exemplary lunch and dinner menus and has recently added confectionaries to their list of homemade products sold in the Shoppe. They focus on homemade, made-from-scratch products, and quality service to their customers.
Our Daily Bread credits their success to the support they have seen, a lot of hard work, and the Value-Added Business Development Program at Kansas State University, including the use of many of their value-added agriculture tools, especially The Cascade. The Cascade is a tool developed by the program to help entrepreneurs ask all the relevant questions. (It is available at www.AgMRC.org)
“The success of Our Daily Bread has benefited our community and our families. We hope to inspire other communities in rural America so that they may have the courage to do it too.”
More information on Our Daily Bread’s products and events as well as the monthly newsletter can be found on their Web site at: http://www.our-dailybread.com/.
Written by Alena Bosse, Kansas State University.
Introduction
There is a clear link between the amount and variety of fruits and vegetables consumed daily and a reduction in chronic diseases, especially cancer. Despite the benefits, many people do not eat recommended levels. In addition to public health benefits, increased consumption of fruits and vegetables would benefit fruit and vegetable growers through increased demand for production.
A recent Agricultural Issues Center Issues Brief from the University of California explores the effects of increased fruit and vegetable consumption and estimates the benefits to growers should California consumers adopt one of three alternative recommended diets: the minimum 5-a-day recommendation for fruits and vegetables, the 7-a-day minimum recommendation for most men and active women, and the 7-a-day specific commodity subgroup recommendations for a cancer prevention diet.
Fruit and vegetable consumption and cancer prevention Increased consumption of fruits and vegetables has been linked to a decrease in the risk of cancer. According to the evidence, about 35 percent of all cancers can be prevented through increased fruit and vegetable consumption (World Cancer Research Fund International 1997). Cancers of the mouth, esophagus, lung, cervix, and bladder can be reduced by about 20 percent. The incidence of pancreatic, gallbladder, breast and endometrial cancers may be cut in half by consuming recommended amounts of fruits and vegetables.
Further, there is convincing evidence linking the consumption of specific fruit and vegetable groups to a reduction in certain types of cancers (WCRF 1997).
For example, diets high in dark green vegetables protect against lung and stomach cancers. Consuming cruciferous vegetables (cabbage, broccoli, cauliflower, etc.) reduces the risk of colorectal and thyroid cancers. Therefore, the cancer risk reduction diet provides recommendations for the composition of fruit and vegetable consumption, as well as the total amount.
Daily recommended levels of fruit and vegetable consumption The USDA's minimum general recommendation for fruit and vegetable consumption for everyone is 5 servings of fruits and vegetables a day, with 2 servings as fruit and 3 as vegetables (USDA and U.S. Department of Health and Human Services 2000). While the minimum target for the general population is 5 servings of fruits and vegetables a day, the USDA's minimum recommendation for most men and active women is 3 fruit servings and 4 vegetable servings a day (McNamara et al. 1999; USDA and USDHHS 2000).
The full AIC brief can be found on the AgMRC Web site at http://www.agmrc.org/research/governmentpolicyandlinkages.htm.
Karen M. Jetter is a research economist with the Agricultural Issues Center, University of
California, James A. Chalfant is professor and chair, Department of Agricultural and
Resource Economics, University of California, Davis, and Daniel A. Sumner is Frank H.
Buck Jr. Chair, Department of Agricultural and Resource Economics, University of
California, Davis, and director, University of California Agricultural Issues Center.
Traceability, in which the product is tracked from its origin through processing and marketing, is becoming a competitive advantage to today’s meat suppliers. Product quality attributes and/or the actual manufacturing process is verified or certified by a third party.
Such programs may become increasingly important as the food industry makes further attempts to appeal to the social consciousness of consumers. According to USDA, the top three U.S. restaurant franchises place restrictions on how animals used in the companies’ foods are produced, accounting for approximately 35 percent of franchised restaurant sales.
The USDA Process Verified program allows livestock producers an opportunity to assure customers of their ability to provide consistent quality products by having written manufacturing processes confirmed through independent, third-party audits. Being USDA Process Verified allows a producer to market a product claiming to be a specific breed, or to have fed, raised or processed a product in a certain manner that was verified by USDA. This program used many of the same features as the International Organization for Standardization’s ISO 9000 series standards for documented quality management systems.
To qualify for the verification, one must submit documented quality management systems to the Audit Review and Compliance (ARC) Branch of USDA’s Livestock and Seed Program, and successfully pass an onsite audit.
According to information on the Safe Pork Web site by the University of Illinois’ College of Veterinary Medicine, costs are affected in two ways. Pork raised for certification is likely more costly because of the adaptation of quality and safety management procedures. Plus, there are additional costs associated with verifying procedures in the marketplace.
Direct Marketing
Traceability is another reason why producers are considering direct marketing products to consumers. Several producers have turned to direct marketing their pork enterprises by developing and expanding upon the niche to market pork directly to consumers, by-passing traditional marketing channels.
In addition to traceability, an advantage to direct marketing includes the opportunity to capture a greater share of the food dollar. The value farmers currently contribute to food expenditures accounts for just 19 percent of the total value.
For more information on certified/verified pork and other pork industry opportunities, visit http://www.agmrc.org/commodities/livestock/pork.htm.