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.
Welcome to the first issue of the expanded AgMRC action! 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 Mary Holz-Clause, co-director, AgMRC, Iowa State University
Grocery retailers like new products because they generate excitement that keeps consumers coming into the grocery stores rather than spending their money on away-from-home food purchases.
With more than 35,000 different products on the shelves of a typical supermarket, how can a value-added agriculture company create a new product that will get and keep shelf space and generate sales? In order to get the retailer’s business, a value-added agriculture company simply has to meet the retailer’s needs for margin, store identity and market differentiation. That’s easy, right? Well, not exactly, but here’s some ways to think about it.
The Product Has to Make Money for the Retailer
Products have to generate sufficient movement and profit. We recently worked with a firm that we will call Great Beef. Great Beef had a $1 per pound incremental margin on the product they were selling to ABC Mercado. The supermarket agreed to buy the product and give the company some shelf space. And, lo and behold, Great Beef achieved the expected turnover and the margin. Did Great Beef keep that business? No.
Here is what happened: Great Beef product was turning one time per week. That means one turn times the $1 margin per week came from that allotted space. The accountants compared the Great Beef product to another product that had only a $.35 margin but turned four times per week. Great Beef lost the shelf space in favor of the low margin, high turnover product. Great Beef had the premier product and almost three times the unit margin, but didn’t make the supermarket as much money.
Think how the retailer makes money and you can understand what your product must do for that retailer. Their business is based on turnover and the margin. A low turnover, premium product may need to give that retailer a much bigger cut to keep them selling your product.
New Products Have to Fit the Retailer
Retailers try to carve a market segment and present product that fits their segment. They generally know their market and this defines their marketing/merchandising philosophy.
They’ll try new products based on that philosophy and use all of this to define their difference from the competition.
Although there are a few product innovations that are welcome across the entire country, the demographic profiles of consumers that shop particular retailers will affect the mix of products kept in specific stores. Many retailers have a specific and narrow consumer audience that limits the types of new products that will succeed on their shelves. Your product must fit that retailer’s market.
Number of grocery stores in U.S. . . . . . . . . . . . . . 166,135
Total grocery sales . . . . $535.4 billion
Total supermarket* sales . . . . . . . . . . . . . . . $411.8 billion
Number of supermarkets . . . . $32,981
Weekly sales per square foot of selling area . . . . . . . . . $11.13
Sales per customer transaction . . . . . . . . . . . . . . . $24.63
Typical supermarket size . . . . 44,000 square feet
Companies are looking to create successful new products that will make money and retailers are looking to create supermarket traffic with new products that generate excitement.
Specialization and Innovation
There has been a higher degree of specialization of new products in recent years. For example there has been a wave of product introductions and product developments that result in foods that are gender specific, particularly foods for women. And there are also foods emerging that serve the needs of consumers who have particular dietary needs, such as gluten-free, or lactose intolerant.
Retailers want successful products that are innovative. Innovation may be in the product itself or in the product packaging, or in a convenient format that hasn’t been seen before.
For instance, meat is “suddenly” convenient. Beef Magazine reported that last year more than 500 new "beef convenience" products were launched, and sales of frozen and heat- and-serve beef have hit $1.5 billion, up from virtually nothing a decade ago.
An innovative product may also offer a better taste and texture, or it could create its own category that the market had never seen before like “Lunchables.”
Retailers are tuned into the trends that are driving the food market and look for new products to reflect those trends. Convenience is a must in new products, and products that offer solutions; either meal solutions, packaging solutions or nutrition solutions are the main categories.
Value-added agricultural companies and retailers are on the same page when it comes to new products.
Companies are looking to create successful new products that will make money and retailers are looking to create supermarket traffic with new products that generate excitement. Successful introduction of new products is the key to most companies’ successes.
Resources: Beef Magazine and Stagnitos - Food Packing Inc.
Jeff Kistner grew up in value-added agriculture, feeding livestock on the family farm grain they had produced.
Kistner, a business development officer at CoBank, a financial institution, has spent the last 18 years in the banking industry and became more involved in value-added agriculture through his work at CoBank. He has spent the past five years looking at further processing businesses with ag commodity groups trying to recapture some value at the processing level.
Food processing in general intrigues Kistner, but he also watches the rapid growth in the natural/organic niches. “I believe value-added agriculture will change from value-added to looking for ways to recapture value,” Kistner said. “I am seeing too many added value projects that are going from one commodity, processing, into another.”
As a member of the AgMRC Advisory Council, Kistner hopes to assist in guiding the center’s direction. “AgMRC should continue with the directive and goals set forth – supplying information on technology, macro and micro economics, industry contacts and ways to bring business discipline to added-value projects,” Kistner said.
Particularly, Kistner would like to see AgMRC have more information on the importance of using balance sheets, income statements and cash flow statements this next year.
The AgMRC Advisory Council oversees the center. The 12-member Advisory Council, with membership including farmers, CEOs of farmer-owned businesses, agricultural lenders, and legal experts, provides guidance to the AgMRC.
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.;
Eugene Quast, Swiss Valley Farms, Dubuque, Iowa;
Richard E. Rominger, Rominger Farms, Winters, Calif.;
Kenneth Rutledge, West Liberty Foods, West Liberty, Iowa and
Chris Williams, 21st Century Producers Inc., Manhattan, Kan.
Business Development
New sections on establishing a home-based business, source verification of specialty grain markets, financing, international marketing, governance, business plan development and business creation were all developed. A new page was created on the USDA value-added agricultural product market development grant program to assist producers in accessing information on the grant, grant-writing tips and a grant template.
This can be found at http://www.agmrc.org/business/valueaddedgrant.html.
Commodities & Products
Specific commodities and the niche pages under each commodity are being re-organized into three levels, based on gross sales and the current value-added focus/interest. The commodities page is located at http://www.agmrc.org/ag/ag.html.
New Commodities Added
Commodity apples, sugar beets, canola, sorghum, barley, spelt, hard red wheat, sunflowers, rye, pistachios, eggs, carrots, alligator, crawfish, oysters, tilapia and turtles.
Updated Commodities
Watermelon, edible dry beans, organic soy, white corn, ostrich and emu, squash, pumpkins, pecans, cherries, black walnut, English walnut, blackberries, blueberries, cranberries, raspberries, raisins, elk, bison, cut flowers, crambe, bees, alpaca, worms, goats, popcorn, sweet corn and prairie grasses.
Analysis Tools
Two new tools were added to pages in the commodity section. The slaughter cow and bull processing feasibility template was developed at Oklahoma State University. The template is designed to give an initial overview of the costs, returns and feasibility of a 400 head/hour cow and bull slaughter plant and can be found in the commodity beef section.
An ethanol plant analyzer can be found in the ethanol section of the site. This tool was developed at Montana State University with the Farm Foundation. This mapping application allows you to see what would happen to corn prices in a local area throughout the United States if you opened an ethanol plant of a given size.
Markets & Industries
New information was added to the food section of markets & industries. Food consumption trends, food safety, irradiation, food labeling, branding issues, selecting a co-packer, food facility design, international issues, organic trends, natural trends and direct marketing issues all have new information added to them.
State Directories
Each state was given its own page within the directory and expanded to include laws specific to that state for value-added agriculture and additional contacts and resources for producers to locate within their individual state. The state directories page is 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.
Producers seeking assistance in value-added agriculture enterprises in South Dakota find a wealth of support available to them. Programs including the South Dakota Value-added Agriculture Development Center, South Dakota Ag Producer Ventures, Rural Community Innovations, South Dakota Department of Agriculture, USDA Rural Development, the South Dakota Value-added Sub Fund which provides money from the state of South Dakota for feasibility studies. Private companies such as Val Ad Co Services do organizational work such as stock sale services.
“Although there is no clear value-added ag structure in South Dakota, the industry is primarily driven by the ethanol industry at this time,” said Dallas Tonsager, executive director of the Value-added Center. Ten plants are either in production or under construction. The value-added center is attempting to lead producers in to some new directions.
South Dakota has a need for additional dairy production, so a lot of focus is being given to the development of dairies. A new cheese processing plant is being built which will require additional dairy production.
The Value-added Center is working on the development of a biodiesel plant and expansion of the cattle feeding industry.
According to Tonsager, identifying and accessing the market is the single greatest obstacle to any project facing groups. However, those groups with a vision — people who have the willingness to step out of the mainstream because they see the future and go after it make ventures successful.
The majority of clients at the center are looking for the opportunity to make enough from their farm to survive, and most are just in the idea stage and need a lot of help. The center offers advice, support, sometimes resources, and contacts with service providers.
Producers in South Dakota can contact the center at 416 Production Street North, Aberdeen, S.D. 57401, phone at (605) 352-9177, e-mail at dptsd@hur.midco.net or by Web site at www.sdvalueadded.com.
Eden Farms of State Center, Iowa, was recently featured on Today’s Ag, a South Dakota State University program. Iowa State University Extension recently contributed an entire program for the show. As a portion of that program, AgMRC staff produced a segment on Eden Farms, a coalition of independent family pork producers linked by their use of Berkshire hogs, a breed widely known for its superior eating qualities.
Eden Farms, which started in 1998, markets Berkshire hogs raised on family-sized farms in Iowa, Wisconsin and Illinois. .
Kelly Biensen, led the effort which started by using local processors and selling pork directly to local restaurants as certified Berkshire. In the first two years, they marketed only in the Des Moines metro area. At first the focus was on selling loin products.
As the market for loin products grew, they branched into curing and marketing products such as ham and bacon.
Since those first years, Eden Farms has grown to the point where it now accesses markets beyond Iowa’s borders through Harker’s, a food service distributor based in LeMars, Iowa. The system currently works by having producers deliver hogs to an Iowa packing house. Eden Farms pays a custom slaughter fee, and then Eden Farms, serving as agent for the producers, sells the pork, with the value to each producer depending on the prices received for the products from the hogs. Over the years the prices have been high enough for Eden Farms producers to receive premiums over commodity pork prices.
Australia and New Zealand are major beef producing countries and major beef exporters. Unlike the case in the United States, where less than 10 percent of beef is exported, approximately 60 percent of Australia's and 85 percent of New Zealand's beef production is exported.
Because of their dependency on a diverse set of export customers, these two countries are developing quality assurance programs that differentiate their beef in the global market and assure individual customers that the product is safe and meets customer needs. The Australian government and beef industry have invested in innovative identification, grading, and quality assurance systems that can be used by processors, producers, and supply chains. New Zealand relies upon individual processors to develop and implement quality assurance programs with their producers and suppliers. Using these innovations, supply chains have been able to distance themselves from the commodity market.
Full paper found at http://www.agmrc.org/beef/info/qualityassurance.pdf.
John D. Lawrence is an associate professor in the Department of
Economics at Iowa State University and director of the
Iowa Beef Center.
White corn production experienced steady increases in the 1990s and is now settling back to a production level near one million acres. Domestic use is predicted to remain stable and remain near 50 million bushels annually which also is reflective of current processing capacity.
Exports
Demand has been much more volatile depending on annual world supplies, but has grown rapidly from 20 million to over 60 million bushels in less than 10 years. Mexico consistently has been the greatest importer of white corn and will often import 60 percent of the U.S. production.
Supply
U.S. production is distributed throughout the country although 40 percent of the white corn production is in the eastern corn belt of Illinois, Indiana, Ohio, Kentucky, and Tennessee. The majority of U. S. production, up to 70 percent, will be raised under contract while the remaining production is sold on the open market.
Product
White corn, generally considered as food grade corn, is primarily dry milled for chips and tortilla type products. White corn is also used by wet millers to naturally brighten the starch content of their products. When surpluses exist, the grain can easily be moved into the feed supply chain. White corn yields nearly equal and sometimes surpass yields of conventional yellow corn.
Competition Intensity
Fifteen major white corn processor and numerous small process facilities supply the food grade white corn market. Predominant white corn users and millers include Pepsi owned products labeled under Frito Lay and Quaker, and ADM product lines including Azteca and Martha White.
Additional processing facilities include Bartlett, Crete Honeyville Grain, Phoenix, ICM, JR Short, Mummies and Red Oak. Domestic demand is predicted to remain fairly stable with slight increases expected every year. Variability in world-wide production will continue to provide volatility in the market and will directly impact the premiums offered for producers. Premiums typically range from $.10 - $.25 cents per bushel.
Competition is limited to supply and demand influences of white corn. Occasionally food grade yellow corn can be substituted by processors of white corn but this change is visually noticeable in end products and is usually avoided.
Resources: Sparks Commodities The U.S. Corn Masa Industry:
Structure and Implications for the Great Plains Region. USDA,
Economic Research Service.