Wilson, Annie

Digital Repository @ Iowa State University (ISU)

A Business Newsletter for AgricultureAg Decision Maker is compiled by:Don Hofstrand, ISU Extension farmmanagement specialist, 641-423-0844,dhof@iastate.eduVol. 6, No. 6 April 2002continued on page 2Handbook UpdatesFor those of you subscribing tothe Ag Decision Maker Hand-book, the following updates areincluded.Corn and Soybean CountyYields—File A1-14 (4 pages)Livestock PlanningPrices—File B1-10 (1 page)Revenue Insurance for HogProducers—File B1-50 (2pages)Please add these files to yourhandbook and remove the out-of-date material.Inside . . .Changing CCC loanreporting .......................... Page 5Ag Decision Maker GoesElectronic ......................... Page 6Editor’s Note: Tallgrass Prairie Producers Co-op operated from 1995 to2000, raising and marketing grassfed beef from ten Kansas ranches. Itceased active operation in 2000. Part 1 outlined the story of the coopera-tive. While the cluster continues to explore ways to work together, formerbusiness manager Annie Wilson offers the following as their lessonslearned in the hopes that others will benefit from what they’ve learned.The purpose of this article is not to discourage other producersfrom niche marketing, but to share our experiences in our fiveyears of marketing grass fed beef. We will provide some observa-tions, including the contradictions and ironies we discovered in ourstrange adventures in the foodmarketing wonderland, where allis not as it seemsLessons learned1) The emperor may have no clothesDon’t automatically believeeverything you read and hearabout marketing projects. Anynew business makes understand-able attempts to project confi-dence in its enterprise, but sayingit doesn’t make it so. In addition,the ag media and some foodreformers have a desperate needfor attention-getting successstories and role models.Romance vs. reality: Hard lessons learned in a grassfedbeef marketing cooperative—Part Twoby Annie Wilson, member and former business manager, Tallgrass Prairie Producers Co-op, RuralPapers Newsletter, Kansas Rural Center, October 2001The result of these two tendencieswas that our little strugglingcooperative was touted as aninspiration and example to others.We know of many other similaroperations that are not yet profit-able, but are nonetheless pre-sented as successful models inmarketing. This misrepresenta-tion is unrealistic and possiblyharmful, as it adds to deceptiveand misleading myths contribut-ing to the “local niche marketingas salvation for all farmers”movement. This may influenceother producers to enter intosimilar projects at great personalrisk. Producers who hear aboutthese projects need to be ex-tremely skeptical and find out thedetails before accepting the stories2                   April 2002Romance vs. reality: Hard lessons learned in a grassfed beef marketing cooperative—Part Two, continued from page 1continued on page 3at face value. Also, especially in direct marketingenterprises, ask if the project is honestly accountingfor all administrative time, delivery costs, etc.?2) It may actually take a “rocket scientist.”Having farmers manage their own food processingand marketing cooperative is risky. Just as weranchers wouldn’t want a heart surgeon to run ourranch, we should not presume to perform heartsurgery. Nor should we pretend we know how tosurvive in the technical food industry. Getting foodto the consumer today safely, legally, and at acompetitive price is an overwhelmingly difficult andhigh risk task, challenging even for experts. The ideaof exorbitant profits earned easily by lazy middlemenis an out-dated myth.In reality, most companies’ profits are generatedonly at high risk in tiny margins per unit on hugevolume, capital-intensive, highly technical opera-tions. Survival as a niche company in such climatetakes a specialized expert. So, our advice is to raisethe capital to hire a trained, experienced profes-sional. Don’t do-it-yourself on this one. By the timeyou learn your lesson, you may have run out ofcapital and energy and missed critical early opportu-nities a professional would have seen.3) Honest accounting or is your time really worth less?Do-it-yourself farmer-run businesses often fail tohonestly account for the farmer’s own time contribu-tion to the business. A sustainable business mustaccount for time in planning meetings, in productand label development, record-keeping, advertising,taking orders, packaging and delivering orders, andcollecting monies and bookkeeping. In addition, timespent in talking to customers must be accounted for.Getting close to the customer is a nice goal for directmarketers, but this can be time-consuming.Working free or failing to account for every bit of thistime leads to unrealistic, unsustainable businesspractices that are too labor-intensive and inefficient.A realistic opportunity cost of your time in produc-tion, delivery, etc., must be honestly accounted for,not only to determine accurate costs of doing busi-ness, but also to be sure you adequately value yourown quality of life. An advantage of hiring profes-sional managers is they will insist on being paid fortheir time, which results in honest accounting foradministrative and other labor costs.4) Are grants the answer?We had the sincere and valuable support of somewonderful organizations when we started, and wewill always appreciate what they did for us. But wemust point out that most public agencies and privatefoundations give grants only for research and educa-tion, not for operating capital to actually implementresearch. Grants can be helpful in limited areas. Forexample, we received wonderful assistance in doingnutritional research that we were able to use inproduct development and labeling. However, somegrants also are time-consuming and may uninten-tionally divert energy away from business develop-ment, subverting the business mission from profit toeducation. They also can mask the real need for hardcapital and a solid business plan.Be wary of outside sources of nonprofit income andfocus efforts on private investors who don’t just wantto learn about change but want to implementchange. Your mission must first be to make thebusiness profitable for your producers; then ifpossible later, educate others.5) Follow the rules - every timeWe always maintained the highest ethical levelregarding our production claims and following theUSDA rules on labeling. This was a real hassle, butwe always felt that our product’s credibility de-pended on following the letter of the law. This wasespecially frustrating when we knew other productson the shelf were ignoring the rules. We often felt wewere not competing on a level playing field. Never-theless, we refused to compromise our principles justbecause we knew we could probably get away with it.We often said that if “60 Minutes” ever interviewedus, we wanted to be able to look straight into thecamera and tell the whole truth with nothing to hide.6) Do price and convenience matter?Some claim that price and convenience are notimportant to the new ethical consumer; yet theeconomic and time pressures these consumers faceare just as real as for anyone. People are all strappedfor time, so convenience matters a lot. Be wary offield of dreams food distribution schemes whichdepend on people going out of their way to get yourproduct. This reduces your market potential to aninfinitesimal percentage and will eventually burnout both you and your customers. Also, our custom-3           April 2002ers tended to be well-educated but not necessarilyterribly affluent. They can pay some extra for specialfood, but must be fiscally responsible and definitelyhave a “choke level.” Marketing techniques whichignore price and convenience issues are doomed,reflecting a lack of understanding of economicrealities of food marketing and distribution.7) Are natural foods markets the answer?The main market we discovered for our beef was thenatural products market. However, we discoveredseveral contradictions in dealing with that marketsector. One of the largest sectors of the naturalproducts market is not foods, but pills consumed bypeople who seem to have abandoned the concept ofeating actual foods as the key to good health. Follow-ing the trend in conventional foods, the most profit-able food products in the natural foods industry arenot whole foods such as produce and grain, butheavily processed, packaged items. Again followingthe trend in conventional foods, the natural foodsindustry is becoming concentrated with little roomfor small suppliers. The beef that was most popularin natural foods markets was grain-finished, higherfat beef, and very few natural foods consumers wereknowledgeable enough to make any distinctionbetween grainfed and grassfed.8) Are conscientious chefs the answer?The food service industry including hotels, restau-rants and institutions is extremely competitive, andcost-conscious. There is a growing movement ofsustainable-minded chefs, but they are rare, may bedemanding, and may not order on a consistent basis.Participation in food service requires a sophisticatedlevel of operations that provides a high volume ofcertain specialty cuts, so you must complement thismarket with other substantial markets for low endcuts and hope they balance out. If you run out ofsupply for this market, you are dead.Dealing directly with restaurants, instead of goingthrough a food service distributor, also can lead tofreight/distribution problems when their order sizesvary. Chefs often have very little understanding ofthese obstacles for the supplier. Finally, food serviceis a tough business and most restaurants are short-lived. Getting stuck with a large accounts receivablefrom a failed restaurant customer can be fatal. Stayon a cash-only basis.Romance vs. reality: Hard lessons learned in a grassfed beef marketing cooperative—Part Two, continued from page 29) Seasonality is a terrible handicapWe did not encounter any markets willing to acceptonly a seasonal supply. In attempting to keep up oursupply for existing customers, our on-ranch costs forproducing off-season grassfed beef  were extremelyexpensive and unprofitable for producers—a produc-tion issue we never solved. Had our volume in-creased substantially, this would have been acrippling problem.10) How different can you afford to be?Your product must have attractive features thatdifferentiate it from others. This may be simply aclaim of quality. Or it can be a different way ofproducing the product that results in unique fea-tures. In any event, this differentiation must becarefully approached, answering two questions:• How does it affect your cost of production andlong-term profit potential? and• What marketing benefits do you gain by doingit?Our main differentiation was based on a verytechnical production model, grass finishing, which itturns out was expensive and significantly increasedour on-ranch cost of production. Furthermore, mostconsumers did not begin to understand or appreciatethe concept of grass finishing. In fact, we learnedthat most customers understand very little aboutlivestock production in general, often not knowingenough to support sustainability even if they wantto.This all raises the issue: How much education of theconsumer can you afford to do? Consumers generallyrecognize and trust the term organic without under-standing all the complexities of production it re-quires. If your product feature is actually beyond ordifferent from the definition organic, you have toindependently translate your technical productionmodel into understandable consumer benefits, suchas improved nutritional value and supporting theenvironment.Differentiating our product by its reliance on grassfinishing meant consumers needed to first under-stand that most cattle are grain-finished, which theydo not. Further, they needed to understand thenutritional differences of marbled, grain-fed andgrassfed beef. This goes against the government-continued on page 44 April  2002sanctioned USDA beef quality grading system that isthe basis of conventional consumer wisdom on beefquality.Moreover, dwelling too closely on the environmentalproblems of grain feeding may cause a strong back-lash from the conventional beef industry. Further-more, even the word “grain” is a very attractiveword, especially to natural foods customers, who ofcourse associate it positively with human consump-tion and transfer this to cattle without realizing thedifferences in cattle nutritional requirements. Insummary, despite our strong commitment to theconcept of grassfed beef, we wonder if some lessonsmay just be too hard and expensive to teach, at leastat this point of consumer consciousness.11) Quality of life and sustainability on a personal levelWe wanted to start a marketing cooperative topreserve our way of life, but the time and pressure ofrunning our own beef operation, and our financiallosses, actually detracted dangerously from familylife and our farm operations. Ironically, while tryingto devise a way to produce beef in an environmen-tally sustainable way, we accidentally fell into apressured schedule that was destructive to thevalues of family we were trying to preserve, and thatwas unsustainable on a personal level. Thus ourbusiness risk also became a personal risk. Agricul-ture is already hard enough. We strongly believethat supplemental enterprises must be consistentlyoperated at a personal cost that will be compatiblewith farmers’ values and way of life.SummaryThe Tallgrass Prairie Producers Co-op recommendsthat projects to market added-value beef be devel-oped with a sound business plan, adequate capital,professional management, cost-effective operations,consistent supply, compliance with legal standardsand access to low-cost processing and volume mar-kets. All the costs of the business must be accountedfor in order to protect the core values and goals of thefarmers.Many have described our odyssey as a remarkablysuccessful effort that took us much farther than mostgroups of this type ever get. One expert character-ized our activities as a “successful test market” of aproduct that could some day be taken to the commer-cial level with adequate capital and professionalguidance.In recent months, our co-op has been exploring thepossibility of joining together to develop a coopera-tive tourism enterprise in which we would hostguests on our ranches and offer authentic experi-ences in ranch daily life and prairie ecology. We alsoare considering remaining as a ranching cluster thatshares production ideas and economic information inan effort to assist and advise each other on economi-cally and ecologically successful ranching strategies.We don’t know where all this will lead us. What wedo know is that we have been fortunate to know eachother and have developed tremendous loyalty,respect, and affection for one another. No matterwhat happens, we have been through an adventuretogether that we will never forget, and we willalways be friends.Romance vs. reality: Hard lessons learned in a grassfed beef marketing cooperative—Part Two, continued from page 3Changing CCC loan reporting *by Neil Harl, Charles F. Curtiss Professor in Agriculture, professor of economics, 515-294-6354, harl@iastate.eduThe choices in reporting Commodity CreditCorporation (CCC) loans have been clear formany years.  But in early 2002, the InternalRevenue Service ruled that a change in reportingmethods from treating CCC loans as income toreporting CCC loans as loans has been modified andrelaxed.  That is a significant change for affectedtaxpayers.The basic CCC loan patternAs is well known, an eligible taxpayer may useagricultural commodities as collateral for a loan fromthe Commodity Credit Corporation.  The loans are,basically, non-recourse so that, at maturity, if thecontinued on page 5* Reprinted with permission from the March 1, 2002issue of Agricultural Law Digest, Agricultural LawPress publication, Eugene, Oregon.  Footnotes notincluded.

English

Romance vs. reality: Hard lessons learned in a grassfed beef marketing cooperative—Part Two

https://dr.lib.iastate.edu/handle/20.500.12876/2675

Romance vs. reality: Hard lessons learned in a grassfed beef marketing cooperative—Part Two

Abstract

Similar works

Full text

Available Versions

Digital Repository @ Iowa State University (ISU)