Business Article - Roger Ginder, professor, Department of Economics, Iowa State University
Advisory Council Profile - Duane Acker
Updates to www.AgMRC.org
How do I use this site?
State Profile - Tennessee
Business Profile - Liberty Hill Farm
New Research - Ag Innovation Center Update
AgMRC Highlight - Wind
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
Converting animal and vegetable fats and oils to motor fuel has gained increasing interest over the past five years. There are now about 20 producers of biodiesel in the United States and 17 additional companies in some stage of development. While not all of the emerging companies may fully develop, it can be expected that many of these will move into production in the next 18 months. Aggregate production capacity is now estimated at approximately 50 million gallons annually.
Market Considerations
Several market segments for biodiesel are currently developing. Farmers have been among the first to embrace biodiesel. Producer commodity organizations and cooperatives have promoted the use of biodiesel blends in farm trucks and power equipment. A large number of rural fuel retailers now offer lower blends (B2 and B5) and many offer blends 20 percent or more.
Marine engines are also a developing market segment. Biodiesel is biodegradable in a relatively short time period and has been shown to be much less harmful to fish than petroleum diesel. The danger to marine life arising from accidental fuel spills from watercraft is significantly reduced as a result. Even the midrange biodiesel blends appear to increase the rate of which spilled petroleum degrades in marine applications.
Metropolitan Public Transit buses and school buses are both significant users of diesel fuel and represent a growing market segment for biodiesel blends. The desire to meet clean air standards and reduce carbon monoxide, hydrocarbon and particulate emissions from buses had led metro areas in many parts of the country to consider and experiment with biodiesel blends. Some school districts are also experimenting with blends as a strategy to provide healthier air and environment for students. U.S. school buses currently log approximately four billion miles per year and represent a significant potential market.
Large fleet operators (including the fleets operated by some U.S. government agencies) are also a significant potential market segment. A recent (non random) sample of 75 large fleet operators conducted for the National Biodiesel Board indicated that about 45 percent of the operations surveyed were currently using biodiesel blends or B100. Most (86 percent) of the users were using blends of B20 or more. Approximately 46 percent of the respondents were not currently using biodiesel, but were favorable toward the concept of a bio-based fuel. Only about 9 percent of survey respondents registered unfavorable responses toward the use of biodiesel.
Off road diesel engines of various kinds are also a potentially significant market segment. Bulldozers, cranes and other heavy construction equipment are heavy users of diesel fuel. The segment also includes stationary engines used for pumping, emergency power generators and other varied applications. Cleaner fuels can greatly reduce the particulates and other aspects of air quality in the immediate area where these engines are located.
Although it is now only in the early experimental stage, biodiesel blends for home heating oil show promise as a significant market segment in the future. Based on initial experience, it appears that environmental benefits could be gained in the mid-Atlantic and NE regions where heating oil is used extensively. Reduced burner problems have been observed in initial tests where blends containing biodiesel were used.
In summary, the market for biodiesel is by no means fully developed yet, but it has shown excellent growth over the past several years. The market consists of a number of segments and demand growth appears to be occurring in most of them. Those considering biodiesel production need to monitor these segments and the regulatory framework surrounding them as they conduct feasibility analysis and establish their business plans.
Manufacturing Processes and Technology Considerations
Biodiesel can be made using two different chemical processes. The most common is a methyl ester process that uses methanol along with an oil feedstock and sodium hydroxide as reactants. Most, if not all, existing commercial biodiesel plants use the methyl ester process. It has been tested and proven to be practical on a commercial scale.
Biodiesel can also be made using ethanol, an oil feedstock, and an inert catalyst to create what has been called “ethyl biodiesel.” Advantages sometimes cited for ethyl biodiesel include: (1) the process does not require an alkali reagent such as sodium hydroxide (lye) and (2) it is a one step reaction that takes place at room temperature without additional heat. Its disadvantages include sensitivity to water, which can cause quality problems in handling and the relatively high production cost per unit. Currently the ethanol process for producing biodiesel must be viewed as a higher risk alternative to the more established methyl ester process. At its present stage of development, the higher operating costs and potential quality problems are likely to be a serious drawback to the ethanol process. The final product must compete with methyl ester in the market. Significantly higher production costs could make it difficult to compete effectively.
A second major technology question is whether to build a batch or a continuous flow biodiesel plant. Most plants currently in operation are batch plants and produce discrete “runs” of product. These plants typically vent unused methanol into the air and do not recapture unused catalysts. This increases operating cost. Processing in discrete runs can at times create quality and uniformity differences in the final biodiesel product. However, batch plants have the advantages of being feasible on a smaller scale, the design has been proven to work and there are manufacturers with components readily available.
Continuous flow plants are not nearly as common -- only one or two are in operation at this time. Some claim the continuous flow plants have several important operating cost advantages over batch plants. It is possible to reuse excess methanol that has not become part of the biodiesel and it is possible to reuse the catalysts. Both are typically lost in the batch plants.
Claims are also made that continuous flow plants are able to deliver larger quantities of higher quality and more
consistent methyl ester product.
The major drawback to the continuous flow process appears to be the higher initial investment required. The continuous flow process generally requires a larger-scale plant (10 million gallon per year or more), thus the initial capital outlay to build a continuous flow plant is generally higher. It can be a problem for smaller start-up groups to raise the capital required for the large-scale continuous flow plants.
It is not unusual for start-up, value-added firms to encounter this kind of problem. When evaluating technology and process alternatives, such groups are often constrained by the amount of initial capital that can be raised. But it is important to consider not only the capital costs of building the plant, but the operating costs the plant will face once it is up and running. Steering committees and their consultants typically focus more attention on evaluating the initial capital outlays required to build the plant. The focus on initial capital outlay is understandable since this is the first hurdle that must be cleared in developing the enterprise.
However, the longer run success of the venture is frequently more dependent on the day-in-day-out operating performance than on the size of the initial capital outlay. Low quality, variability in output quality, poor input-output yield, or high operating costs can cause the venture to under-perform or fail going forward. These factors need to be carefully considered before making a final decision on the kinds of technologies and processes that will be used.
Duane Acker has served as a professor, dean, university president, administrator of the Foreign Agricultural Service and Assistant Secretary of Agriculture. He now farms. In 1996, Acker bought a line of used equipment and began operation of his 1,500-acre Iowa farm. Since then, he chaired a group that organized the Southwest Iowa Egg Cooperative and is serving as board chair of the Iowa Agricultural Finance Corporation, which invests, along with producers, in value-added agricultural businesses and also in biotechnology.
During the Ronald Reagan and George Bush presidential administrations, Acker was in charge of food and agriculture programs for the U. S. Agency for International Development then headed the USDA's Foreign Agricultural Service and served as Assistant Secretary for Science and Education.
He studied and taught animal science at Iowa State and Oklahoma State Universities, was adviser to hundreds of students and wrote an animal science textbook. He headed agricultural and natural resources programs at South Dakota State University and the University of Nebraska, and was president of Kansas State University prior to his government service.
Current members include:
Duane Acker, Talycoed II, Atlantic, Iowa;
Mark Hanson, Lindquist & Vennum, P.L.L.P., Minneapolis, Minn.;
Elizabeth Hund, Rabobank, San Francisco, Calif.;
Steve Hunt, U.S. Premium Beef, Kansas City, Mo.;
Stanley R. Johnson, Iowa State University, Ames, Iowa;
Jeff Kistner, CoBank, Omaha, Neb.;
Barry Kriebel, Sun-Maid Growers, Kingsburg, Calif.;
Richard E. Rominger, Rominger Farms, Winters, Calif.;
Kenneth Rutledge, Dakota Turkey Growers, Aberdeen, S.D., and
Chris Williams, 21st Century Producers Inc., Manhattan, Kan.
Business Development
A section on process verified was added to business development. Articles and research papers on the economics of process verified and how to go through the process verification process were added from Kansas State University.
Commodities & Products
Updated Commodities
New links were added for agritourism, anaerobic digesters, apples, azuki, biodiesel, biomass, bioreactors, commodity beef, all dairy sections of the web site, edaname, ethanol, nature-based agritourism, all pork sections, rural weddings, solar, soyfoods, wind, wine tours and worms. A new dairy section on dairy products was added.
Two templates were added from Oklahoma State University. The Alfalfa Dehydration Feasibility Template assists in assessing the feasibility of a typical alfalfa dehydration operation. The Flour Milling Feasibility Template assists in assessing the feasibility of a flour mill.
An USDA Process Verification Certification Generic Manual for Natural Beef Production was added from Kansas State University, along with additional process verified explanation papers and economic impact reports.
Markets & Industries
Updated sections in markets and industries include attribute marketing, direct marketing, food safety, international issues, natural food trends, labeling issues, organic food trends, packing, retailing, traceability, trans fat issues, transportation
“Can Quality Revitalize the Alaskan Salmon Industry?” (pdf), was added from the Center for Agricultural and Rural Development, Iowa State University.
The entire energy section was updated, including the energy industry overview and the federal 9006 announcement on renewable energy grant program.
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.
Since the Center for Profitable Agriculture’s inception in 1998, projects in Tennessee that have resulted in business start-ups have ranged from agritourism and aquaculture to farm waste and wood products, according to Megan Bruch, marketing specialist for the Center. “Center projects have been divided almost in half between food and non-food products,” Bruch said. “Projects which add value to vegetables have led the non-food category. The most common non-food project is agritourism-related.”
The state of Tennessee supports these value-added efforts through many state programs.
The Center for Profitable Agriculture is a department in the University of Tennessee Extension Service and a partnership between the University and the Tennessee Farm Bureau Federation. The Center is committed to the mission of increasing the value of Tennessee's economy through new, expanded and improved processing and marketing of agricultural, aquacultural and forestry products in Tennessee. The Center provides individual assistance to value-added producers in feasibility assessment, business planning, market assessment and planning and technical production. The Center also develops and publishes educational materials for producers interested in value-added ventures. In addition, the Center conducts teaching and outreach activities to educate producers on value-added agriculture and entrepreneurial skills.
The Tennessee Department of Agriculture (TDA) provides market development assistance for domestic and international markets. TDA operates the Pick Tennessee Products (PTP) marketing program to help consumers identify and choose Tennessee produced and processed agricultural products.
TDA leads the Tennessee Agritourism Initiative in partnership with the Departments of Tourist Development and Economic and Community Development, the Farm Bureau, USDA Rural Development and the University of Tennessee Extension Service, including the Center for Profitable Agriculture.
The Tennessee Farm Bureau Federation supports efforts in the state to benefit value-added agriculture through their partnerships in the Center for Profitable Agriculture and with the Tennessee Agritourism Initiative as well as with efforts to influence legislation.
“Our experience has shown that value-added success requires some combination of resources and characteristics such as a good location, adequate capital or financing and strong entrepreneurial and people skills,” Bruch said. “There is not a single factor that indicates guaranteed success.”
Bruch indicated the majority of their clients come for marketing assistance, feasibility studies or technical questions. In 2003, the Center provided teaching, training and instruction to more than 1,500 individuals through 51 sessions and 22 farm/business visits. Assistance was provided to 11 farmers through in-depth, project-specific service.
The Center for Profitable Agriculture’s web site is located at http://cpa.utk.edu/.
Liberty Hill Farm, located in the heart of the Green Mountains in Vermont, is a working dairy, agri-tourism and farm vacation facility. Owned by Beth and Bob Kennett, the home is a 150-year-old 18-room farmhouse with a big kitchen where everyone congregates for a 6:00 p.m. evening meal and an 8:00 a.m. breakfast. Guests are encouraged to participate in the day-to-day operation of the 80-cow dairy farm. The agri-tourism farm has been in operation for 20 years and is located three hours from Boston and six hours from New York City. In 2002 more than 1,200 guests learned about farm life.
Liberty Hill is open for business year-round and have guests every day of the year, on all holidays except Christmas day. Customers in the winter downhill ski on the nearby mountains, or participate in cross country skiing and maple sugaring. Spring and summer guests visit the numerous nearby-attractions or enjoy golfing, swimming or river activities. The fall foliage season provides visitors spectacular views outside the windows as well as the opportunity to hike. Guests can feed the baby calves, help the hay crew, play with kittens in the hayloft or try their hand at cleaning the barn stalls.
Motivation
In the early 80s, Beth had a neighbor who had taken in skiing guests during the winter months. The demand for homes and places for skiers to stay was growing and skiers coming to the area were looking for places to stay. “My neighbor came to me in early 1984 and told me, you need to do this to help out the finances for the dairy farm,” Beth said.
At that time, dairy prices were severely depressed and high interest rates on the farm Beth and Bob had purchased in 1979 was putting a severe strain on the farming operation. As Beth recalls, “I had two small children and no options for employment in town that would net any money after the babysitter was paid. I decided to give it a try. The local inn in the area gave us their overflow for the first few years, which helped us. We also made the decision to try to be a year-round
facility. At that time, people said it will never work. All the facilities at that time only had winter guests.”
The first guests to the farm were in the spring of 1984. It was a blended family of five kids from New Jersey. For many years, the family returned to the farm every summer and the couple, now near retirement, recently purchased a weekend house close to the Kennetts.
Business Development
From these first guests the business has grown steadily. The first few years of business the business was lucky to cover expenses, and by 1993 the business had grossed more than $25,000. Last year Liberty Hill Farm had more than $100,000 in gross sales and more than 1,200 guests. Most home-stays only include breakfast in the fee, but guests to Liberty Hill Farm are provided two meals, dinner and breakfast.
Beth indicated she was at a bed and breakfast meeting and was listening to the speaker advise owners that they needed to find their niche in the bed and breakfast business. “He looked right at me and said, and some of you have a built in niche like Beth. She has a farm.” It was at that time Beth said she realized she had found her niche—a farm experience for children, families and individuals who connect with agriculture.”
“I’ve had parents tell me they give their children a choice of vacation options, Disneyworld or Liberty Hill and the kids want to come here and feed the animals,” Beth said. More than 80 percent of the guests are families with children.
Beth indicated one family from the Bronx told her after their 4th of July visit that their children had a very unique experience. “My kids had a chance to participate instead of being spectators.” Over their 4th of July visit, the family had helped to decorate the Liberty Hill Farm float for the Rochester Celebration and had ridden in the parade instead of being on the sidelines. At the end of the day the guests and Kennett family watched as the city children created and performed a play before the families all enjoyed a 4th of July bonfire. The father had indicated in the city his children only get to watch.
For more information, visit www.libertyhillfarm.com.
The Agricultural Innovation & Commercialization Center at Purdue University (AICC) is creating a process and a set of resources to guide entrepreneurs through the pre-feasibility part of a business planning process. The analytic tool kit is also being utilized in the context of four prototype innovations including:
- A new soy protein based detergent additive to produce superior detergent;
- A new system of production protocols and auditing mechanisms for certified pork products;
- A producer group considering the development of a corn masa-flour plant; and
- A soy derived product for enhancing the viscosity and nutrient value of traditional foods.
Analysis is underway on each of the innovations. The analysis will be captured through case studies that outline the challenges and successes of these entrepreneurial efforts.
Several workshops are also being planned to introduce the AICC’s online assessment tools and business planning process.
The Rutgers Food Innovation Research and Extension Center has found successes in the following:
- Provided business and technical assistance to over 150 clients, almost all new business startups, including 15 located within a federal empowerment zone.
- Over $400,000 in grants secured for clients from USDA and DOL, including 7 value-added grants from USDA Rural Development (of 7 submitted)
- $1,000,000 USDA grant awarded to the Food Innovation Center for operating funding
- Over 10 education and training seminars held, and access to low cost legal services offered
- Extensive networks developed throughout industry and state and local agencies
- New value-added product opportunities assessed for peach, clam, tomato, dairy and other industry segments, and new marketing and distribution opportunities identified for local produce growers.
Areas of Focus in Coming Months
- Hire staff comprised of industry experts to enable broader and more comprehensive services to clients
- Expand Food Innovation Center Seminar Program
- Expand the Food Entrepreneurs Network
The North Dakota Agricultural Innovation Center (NDAIC) assisted in the establishment of a value-added feed manufacturing facility. The NDAIC assisted in the feasibility analysis, business planning and assisted in securing startup financing. The manufacturing plant is located in a rural North Dakota community and currently has six employees.
The NDAIC recently completed a feasibility analysis and business plan for an identity preserved grain processing facility, in a rural North Dakota community. The startup company has secured financing and began construction of the three million dollar plant. The company plans on being operational by this year's harvest.
Due to a snafu with the state budget, the Keystone Ag Innovation Center in Pennsylvania didn’t formally start operating until April 1st, at which point they started hiring staff. Five technical assistance/educators have been hired (in the process of hiring two additional), as well as two associates to help provide program leadership and to develop educational materials.
The Kansas Ag Innovation Center has emerged as a collaboration among a number of organizations with the financial support of the USDA. These are: Agricultural Marketing Division of the Kansas Department of Commerce; Kansas State University; Advanced Manufacturing Institute; 21st Century Producers, and the Kansas Polymer Research Center.
They facilitate entrepreneurial activities in agricultural value-added businesses by providing producer entrepreneurs with focused management support, business development services, and technical and engineering services.
The Center also seeks to enhance the management skills and capabilities of producer-entrepreneurs through education and outreach programs.
Wind energy has been used since the earliest recorded history to move ships, grind grain and pump water. During the late 19th century, windmills were commonly erected in the United States to pump water on farms and ranches. By 1900, small electric wind systems were developed to generate direct current. These systems were abandoned by the 1950s when the extension of the central power grid system, through the Rural Electrification Administration, provided an economic form of electricity. Interest in alternative energy sources reemerged during the oil shortages of the 1970s. Wind energy received more attention by the mid 1980s.
Geographic location in the United States is a critical factor when considering wind energy. The top 10 states in wind resources are: North Dakota, Texas, Kansas, South Dakota, Montana, Nebraska, Wyoming, Oklahoma, Minnesota and Iowa. There is also growing interest in locating wind farms on offshore locations along coastal states.
Ten years ago, the United States led the world in wind energy, producing 90 percent of the world's wind-blown electricity. By 1996, that number had dropped to 30 percent.
Wind-powered energy grew slowly in the United States during the 1990s due to electricity deregulation. Utility companies did not know how deregulation would affect new technologies or if the U.S. government would encourage investment into renewable energy projects.
Worldwide wind capacity has more than doubled in the last three years. Experts expect the production from wind machines to triple in the next few years. India and many European countries are planning major new wind facilities. World wind capacity totaled 39,294 MW in 2003. That would be enough power for 9 million average U.S. homes.
The expansion of wind energy is changing in the United States. New wind plants are now operating or under construction in Washington, Oregon, Nevada, Montana, Wyoming, Texas, Iowa, Kansas and other states.
Recent wind projects are being developed by private producers and by electric utility companies. One reason for the increased interest in wind power is because of the availability of federal tax credits and incentive payments.
In many states, electric utilities are required to produce a percentage of power from renewable energy resources, such as wind. Another benefit to utilities is being able to sell wind-generated electricity to customers at a premium because it is classified as clean or green power.
Wind turbines can be owned as stand-alone units or connected to a utility power grid. Stand-alone units are typically used for water pumping, communications or to generate electricity for self use.
Utility companies are installing multiple wind turbines in groups to form wind plants or wind farms. The utilities use the wind-generated electricity to supply their customers. A growing number of utility companies are buying wind power or owning wind turbines such as Xcel Energy and Florida Power & Light (owner of FPL Energy).
For more wind energy information, visit http://www.agmrc.org/windenergy/windenergy.html.
For more information, visit http://www.agmrc.org/poultry/gamebirds.html.