Niche Farmers, Mega-Farmers and Transition Farmers: Implications for the North American Agri-Food Value Chain

Transcription

1 A MULTI-CLIENT STUDY PROPOSAL Niche Farmers, Mega-Farmers and Transition Farmers: Implications for the North American Agri-Food Value Chain May 12, 2004 Rural North America is changing and changing rapidly. This study will examine in detail the dynamics taking place on the farm and will then provide specific outlooks and strategies for various stakeholder groups in both the private and public sectors. The rise of mega-farming operations is well documented and this study will describe where this trend is headed and what it means to industry participants. But are there other opportunities other than the mega-farmer segment? This study will identify other potential segments of opportunity, specifically the small producer enterprises that might represent a large, increasingly significant growing segment and an opportunity for suppliers and others down the marketing chain to develop a new potential customer or supplier base. The kick-off of this study will coincide with the availability of a new set of Census of Agriculture data available from USDA. This study will provide participants with the first in-depth analytic look at what this information set means for the future. These secondary data will be coupled with data gathered from mega-farmers, transition farmers and niche farmers via personal surveys and interviews by the Sparks study team. INTRODUCTION For decades, North American production agriculture has evolved into distinctly sized segments, especially the larger mega-farmers and other commercial producers as well as smaller niche farmers. This evolving economic structure begs several important questions about the restructuring itself, as well as, about implications for the full agri-food value chain today and into the future. As the sector trends toward both the larger and the smaller, more specialized players, there is a push and pull on the mid-sized player to either "get big or get out of the business, which of course exacerbates the consolidation process. So the first question is whether there is a viable economic role for the more traditional mid-sized farmer in North American agriculture in the next 5-to-10 years? Moreover, if there is or is not a viable economic role for this group, what are the implications for all of the other segments of the value chain (i.e., from input suppliers to the consumer contact points)? And maybe there is another choice for the mid-sized player other than "get out"; that is, perhaps this producer can "go small" and develop an economically viable business supplemented by greater non-farm income.

2 Since World War II, and before, the role of the larger commercial producers has been growing. Today, 73% of the value of product is generated by 8% of the farmers (about 157,000) on an average acreage base of 2000 acres. At the other end of the spectrum, one might consider 1.6 million small or niche farmers with average farm receipts of $16,000 or less per year. In between these two evolving anchor groups are roughly 189,000 farmers with an average farm size of 900 acres and average annual sales of $159,000. This relatively considerable yet steadily diminishing group of mid-sized operators do and will determine the evolving success or failure for the segments that sell to them, and certainly the way the mid-sized players evolve will impact the performance of the entire value chain into the future. This study will address the rates and magnitudes of change taking place in the evolution of US production agriculture. Moreover, the study will project the alternative structures to be established over the next decade. These analyses will serve as a foundation for policymakers (both state and local and federal) as well as rural planners and farm-related businesses. In addition, the study will describe and quantify (for each major segment) the impact of the evolving structures on each segment of the agri-food value chain. In the final analysis, the study will prescribe strategies for aggressive business development or protections as the changing structures dictate new economic opportunities and/or problems for the various sectoral participants. Economic performance is predicated first and foremost on basic demographics, whether they be population features or the geographic distribution of the sector s participants. This study will blend economic analysis with rural geographic/location analyses to describe the production agriculture of the future that will be served by input suppliers, financiers and policymakers as well as the upstream segments ending with the consumer that are pulling raw product forward to consumers. All farm output value stems from the top of the value chain (i.e., the consumer) and given the structural adjustments underway for production agriculture this leads one to envision a tug-o-war between farm structure push versus consumer pull and the relative performance of all segments between the farm gate and the consumer. STUDY METHODOLOGY The study will be primarily generated via extensive desk research by the study team. Data use and analysis will be driven by Census of Agriculture data from the USDA for 2002 as well as other sources. It is anticipated that the census data will become available in June 2004 and as such, will give participants in this study a first look at in-depth analysis based on this new data set. Supplementing this desk research, the study team will survey various thought-leaders and industry performers to gain grassroots insights about the topic and to give the study s recommendations a real footing. This approach, that is to blend desk research with personal surveys and discussions was employed very successfully by Sparks in 1998 when we completed our Farms of the Future study. This unique approach to bringing a fact-based foundation to the study s participants will help to provide objective advice couched in reality. The study team expects to survey/interview roughly 20 mega-farmers, representative of roughly 157,000 US commercial farmers. On the other hand, these big players are working side-by-side with roughly 1.6 million non-farmers, who depend on other occupations, but live on farms and sell something. Many of these individuals are retired both from agriculture and other occupations. 2

3 This leaves a transition group in the US of about 160,000 farmers that will get bigger or smaller over the next 5-to-10 years. They sell about $100,000 worth of product each year and are described as financially hard pressed by USDA. The project team will undertake a series of non-scientific interviews/discussions with the transition and niche players as well, to gain a factbased feel for trends in these segments relative to the mega players. WHO SHOULD PARTICIPATE IN THIS STUDY? This study is designed to bring value to every segment and participant in the agri-food value chain. The evolution of production agriculture s future structure will impact farm suppliers, processors and food providers as well as ancillary/support industries (i.e., insurance, finance, farm management, transportation, manufacturing, engineering and so forth). If your firm or your agency develops strategy or policy about the agri-food value chain, this study will be an important, no absolutely required, input to your intelligence and analysis system. If one believes that the agri-food value chain stands on a production agriculture foundation, then this study focuses on the very footings of every related industry segment. PRELIMINARY STUDY OUTLINE Niche Farmers, Mega-Farmers and Transition Farmers: Implications for the Agri Food Value Chain I. Background of the Consolidation of the Agri-Food Value Chain 1. Production Agriculture Economic and Policy Forces Demographic Features 2. New Forces Affecting Production Agriculture Precision Agriculture Contract Farming Biotechnology Organics, Natural Foods and other Consumer "Pulls" Walmarting the Value Chain 3. Today s Top Down Competition and Value Creation Value Chain Controllers Today and in the Future Who Will Determine Products? Who Will Control Margins? 4. Business Practices of Mega-Farmers vs. Niche Farmers vs. Transition Farmers Accounting Practices Risk Management Issues Marketing Practices Farm Management Issues 3

4 5. Sparks Survey Results of North American Farmers Grassroots Reality Check Farmer Motivations Farmer Attitudes Foundations for Future Business and Policy Strategies Based on Farm Facts II. III. IV. Tomorrow s Production Agriculture Structure 1. Is There a Viable Economic Role for Each Segment? 2. How is Today s Agriculture Production Divided-up Between the Larger Transition and Smaller Players? Year Outlook for Farm Structure What Economic, Policy and Social Drivers Will Dictate the Future Roles of the Niche Farmers, the Mega-Farmers and Transition Farmers? 1. Economics 2. Policy/Regulations 3. Social and Demographic Is Consolidation of the Agri-Food Value Chain Good or Bad? 1. Answers by Value Chain Segment Based on: Competitive Positions/Advantages Profitability Sustainability 2. Who Wins and Who Loses 3. Land Ownership Dynamics Who Will Own Land, Who Will Farm? What Drives Land Prices? 4. Debt Structure Impacts 5. Technology Adaptation Issues. V. Impacts on Rural America and the National Economy 1. Community Impacts 2. Supplier Impacts (Including Finance) 3. Processor and Manufacturer Impacts 4. Consumer Impact 5. Distribution Impacts 6. Importer/Exporter Impacts 4

5 VI. VII. VIII. IX. Alternative Strategic Approaches for Select Value Chain Participants to Capitalize on the Current and Evolving Structure 1. Inputs/Finance 2. Bulk Processors 3. Food Manufacturers 4. Distribution Firms 5. Consumer Contact Points: Food Service and Retail 6. Exporters/Importers Price Discovery and Margin Implications: For Major Crops, Livestock, Meats, Poultry and Dairy 1. Value Adders 2. Meeting Consumer Needs 3. Diet Legislation 4. Export Market Exploitation Summary: Highlighting Key Findings Recommendations for Strategic Positioning by Value Chain Segment 1. Inputs/Finance 2. Bulk Processing 3. Cooperatives 4. Food Manufacturing 5. Distribution 6. Consumer Contact Points 7. Exporters/Importers STUDY DELIVERABLES AND SCHEDULE Deliverables The project will involve several specific products and services for the participating clients, including: Pre-Study ( kick-off ) Conference. A meeting of participating clients and Sparks study staff will be held in Memphis, Tennessee to review the detailed plans for the study and to identify particular issues to receive special attention. This seminar provided by Sparks will include invited speakers who will address the major study topics to update clients on current developments, and enable specific client comments and interests relating to each to be noted. 5

6 Comprehensive Study Report and Presentation Materials. Clients will receive the fully documented study report, Niche Farmers, Mega-Farmers and Transition Farmers: Implications for the North American Agri-Food Value Chain. The report will include all relevant background statistics, analyses and evaluations, empirical projections and supporting detail developed during the study. Clients also will receive copies of all PowerPoint presentation materials used in reporting study results. (All materials will be available both electronically and in hard copy.) Post-Study Seminar. Sparks staff will present the results of the study at a concluding daylong client seminar, with ample time for the group to participate in discussing the implications of the findings. Final Report Presentation at Clients' Offices. Sparks staff will travel to client offices to present the final report and conduct in-house seminars, as requested. These seminars are tailored to each client s individual needs and interests, and provide a unique opportunity to stimulate discussion and bring an outside viewpoint to within an organization. Sparks staff will present these findings at the clients offices for only out-of-pocket expenses. Preliminary Project Schedule (Dates to be finalized once signup is complete) June 2004 October 2004 October 2004 October-December 2004 Pre-study conference and study begins Study completed final report sent to clients Client seminar to review report Individual presentations at client offices STUDY FEES The fees for participating in the study are $18,500 for Sparks clients and $22,000 for nonclients. The fees include attendance at the pre-study conference, the client group review seminar, and a presentation at client's offices by Sparks staff (as requested). Cost of company representatives' travel to the conference and seminar, and expenses for Sparks staff travel to companies' offices for the presentation are not included. STUDY TEAM Dr. Bruce A. Scherr, President and CEO, will coordinate the project along with Mr. Thomas P. Scott, Senior Vice President. Other staff with directly relevant experience will actively participate, including Dr. William Motes, Dr. Don Frahm, Mr. Scott Richman, and others. In addition, consultants with extensive experience evaluating various aspects of the industry will serve as special advisors to the study team. Brief notes on the lead analysts follow. Bruce A. Scherr, President and Chief Executive Officer. Dr. Scherr has been with Sparks since 1987 and has worked extensively with companies to develop improved price risk management procedures, to organize and manage purchasing and merchandising programs, and to assist agribusinesses and public sector institutions in strategic and tactical planning. Formerly he was president of Sparks, Jacobs, Scherr, Inc. (SJS), a sister company to Sparks, and president of Agri-Commodities, Inc., an agriculture consulting firm based in Andover, 6

7 Massachusetts, which was acquired by SJS. Prior to forming Agri-Commodities, Dr. Scherr was a divisional vice president at Data Resources, Inc., where he developed and utilized for the public and private sectors the first commercially available econometric model for US agriculture. Dr. Scherr received his bachelor's degree from Rutgers University and his master's and doctorate degrees from Purdue University, all in agricultural economics. Currently, he is a member of the Board of Trustees of North American Electric Reliability Council (NERC). He served as a member of the Board of Directors for Desert STAR Inc., an electrical transmission Independent System Operator for the Desert Southwest from January 2000 through February In addition, Dr. Scherr has served as a member of the University of Tennessee s (UT) Institute of Agriculture Agricultural Development Board and UT s Committee for the Future. He is a member of several honorary research and agricultural societies, a member of the National FFA Foundation Sponsors Board 2000 through 2001 and a former advisor to the President's Council of Economic Advisers and National Aeronautics and Space Administration. Thomas P. Scott, Senior Vice President. Mr. Scott is head of the Sparks Memphis-based Project Consulting Group. Specialized work has included business strategy, agribusiness economic development, feasibility and site selection work, and various market analyses. In addition to work in North America, Mr. Scott has extensive experience in the agribusiness sectors of Central Europe, Southeast Asia and South America. He has been involved in many training programs developed and delivered by Sparks and currently works with Kansas State University on the joint Sparks-KSU Agribusiness Education Program. Prior to joining Sparks, he had various assignments in management, trading, logistics and merchandising with Continental Grain Company. He received his bachelor's degree in agricultural economics and business from Cornell University and a master's degree in business administration from the Amos Tuck School of Business Administration at Dartmouth College where he was an Amos Tuck Scholar. William C. Motes, Senior Vice President. Dr. Motes, located in the Sparks Washington, D.C., office, has primary responsibilities that include client consulting for international commercial clients and development projects. Formerly, he was a principal member of Economic Perspectives, Inc. and served as director of policy analysis for the Secretary of Agriculture ( ). Dr. Motes was associate director of USDA's Budget and Program Evaluation Office and also was legislative assistant for agriculture for US Senator Dick Clark. He holds degrees in agricultural economics from Kansas State University and received his doctorate in agricultural economics from Iowa State University. Scott A. Richman, Vice President. Mr. Richman heads Sparks renewable fuels and biotechnology consulting practice areas, and he provides feasibility studies and other management consulting services to a range of agribusinesses, food companies and related associations. Mr. Richman also has extensive experience in business/marketing plan preparation, economic impact studies, advising companies on the positioning of products within specialized markets, and constructing market forecasts. Mr. Richman has worked extensively with the agricultural biotechnology, grain processing, and meat packing industries on such projects as an analysis of the economic impact of herbicide resistant crops, long-term forecasts of the ethanol market, and the formation of cooperatives for a range of 7

8 processing activities. In addition to work in North America, he has participated in business planning efforts in Poland. He received his bachelor's degree in economics from Vanderbilt University and his master's degree in international affairs at Columbia University, where he specialized in international business." Mark D. Jekanowski, Vice President. Dr. Jekanowski is responsible for economic analyses and agricultural policy research at the Sparks Washington, D.C., office. Prior to joining Sparks, Dr. Jekanowski was an agricultural economist in the Food Markets Branch of USDA s Economic Research Service where his research focused on the changing structure of the food manufacturing and retailing industries as well as trends in consumer demand. Dr. Jekanowski was raised on a family owned tobacco and vegetable farm in Massachusetts. He received his bachelor s degree in resource economics from the University of Massachusetts at Amherst and his master s and doctorate degrees in agricultural economics from Purdue University. Juan E. Sacoto, Vice President. With Sparks since 1997, Mr. Sacoto's primary responsibilities include research and analyses for international and domestic consulting clients. His work often involves market assessment, financial and competitive analyses, economic modeling, strategy, and economic impact and risk management studies. Mr. Sacoto works in several commodity areas analyzing agricultural markets in the US and abroad. He also has extensive practical experience evaluating agribusiness industries and agricultural markets in Mexico and South America. He is fluent in Spanish and has broad cross-cultural training. Prior to joining Sparks, he worked as a financial and equity analyst. He received his bachelor's degree in finance from Jacksonville State University and his master's in international business administration from The University of Memphis. Rob M. Westmoreland, Executive Vice President. Mr. Westmoreland's responsibilities include overseeing the Sparks grains, oilseeds, and other crop and food ingredient research and analyses functions and client services. His many food and agribusiness consulting assignments include commodity planning, price risk management and business strategic planning for a wide spectrum of US and international food and agribusiness companies. Previously, Mr. Westmoreland was group vice president and general manager of Pillsbury Industrial Foods. His management experience includes economic analyses and commodity risk management, business strategic planning, marketing, and general management in food processing. He is an economics graduate of Rice University and of the Stanford University Graduate School of Business. Richard S. Andersen, Senior Vice President. Dr. Andersen's responsibilities include research, client service and consulting with the Sparks livestock, meat, poultry and dairy based clients. Prior to joining Sparks, Dr. Andersen was a regional extension economist for the Alberta Agriculture Department, a livestock market analyst and policy advisor to the Alberta Minister of Agriculture, and a research economist for Cook Industries, Inc. He received his bachelor's and master's degrees in agriculture from the University of Alberta and his doctorate degree in agricultural economics from The Ohio State University. 8

9 John F. Whims, Senior Consultant. Dr. Whims has almost 20 years of experience in the area of strategic planning and business development in the public and private sectors. He has been the lead consultant for many federal, state and local government agencies and Fortune 500 food and agriculture business projects. His work has involved some of the following activities: evaluated the market potential and positioning of an emerging agricultural technology, conducted macro economic analyses of foreign and domestic economies, utilized input-output models for economic impact analysis, and developed risk management hedge programs. Prior to joining Sparks, Dr. Whims was in private consulting, conducting economic and financial analyses for the processed foods and agricultural commodity markets. He received a bachelor's degree in business administration from Greenville, Illinois, College, a master's of business administration from Central Michigan University, and his doctorate in agricultural economics from Michigan State University. About Sparks Companies, Inc. Sparks Companies, Inc. is a private food and agriculture consulting firm with a highly capable staff, a very comprehensive data/information system, and close association with major private agribusinesses worldwide. Sparks is an operating company of T&F Informa, a UK firm and part of T&F Informa s Agra Group, including such sister firms as Agra Europe, F.O. Licht among others. Sparks is a world leader in the collection, analysis, and dissemination of agriculture and food information. We are headquartered in Memphis, Tennessee, with offices in Washington, D.C.; St. Paul, Minnesota and Winnipeg, Canada. In operation since 1977, Sparks Companies, Inc. has hundreds of commercial clients, farmers and ranchers, government agencies, law firms, associations, and others with high quality analytic information and consulting services. The Sparks team has extensive experience in agribusiness and agricultural policy decision-making. Many employees formerly held senior policy, analysis or advisory positions in government; worked for major trade associations; held positions in land grant universities; or held senior management positions in leading agribusiness companies. (For more information on Sparks and its sister firms, its staff and the services it provides see and Selected Relevant Experience in Project and Market Evaluations Sparks routinely conducts industry structure, market and program evaluations for governments, private companies, and associations throughout agriculture. To support this activity, Sparks maintains ongoing evaluations and projections in markets worldwide with detailed coverage of macroeconomic, agricultural industry and commodity trends for more than 140 countries. Selected recent international market assessment experience includes:! A detailed study of a conceptual group in agriculture that is leading agriculture in terms of technology, management and process, entitled Farms of the Future. (April 1998)! Large numbers of proprietary market evaluation and feasibility studies routinely conducted for commercial clients in domestic and international markets. These include world and domestic market trends for each of the major agricultural products. 9

10 ! A highly detailed major multi-client study to provide strategic assessments of the North American livestock, meat and poultry sectors including their global competitiveness, entitled Global Livestock, Meat and Poultry Competition: Potential Impacts on North American Production and Trade. (December 2003)! A multi-client study addressing the world grains/oilseeds and products markets of the future, entitled World Grain and Oilseed Competition: Potential Impacts on US Agriculture Resource Values. A highly detailed study of the key factors driving current and expected trends in each of the world's major markets and each of the key producing areas for the coming decade. (2002)! A study describing the prospects for the North American agricultural inputs sector, entitled The Changing Structure of the North American Farm Supply/Service Industry. (March 2002)! A study of how North America Agriculture is financed, entitled Financing North America Agriculture and Food. (October 2002)! A study of agricultural trade prospects post-cancun, entitled US Agriculture in the Protectionist World of the Future: Where Will The New Markets Be? (May 2004)! A comprehensive evaluation of the US feed industry entitled North American Feed Complex. (May 2004)! Impacts of Trade Liberalization for Oilseeds and Products. Baseline analysis of world markets for oilseeds, vegetable meals and vegetable oils was prepared for the five years The study evaluated impacts of primary policies and evaluated potential impacts of trade liberalization on US soybean producers. Prepared for USB/ASA. (March, 1997)! Boom or Bust? An Evaluation of the World Grains/Oilseeds Markets of the Future. A highly detailed study of the key factors driving current and expected trends in each of the world's major markets and each of the key producing areas for the coming decade. The study was commissioned by two-dozen major commercial firms to evaluate basic commodity production, consumption, trade and price trends and their likely persistence for the future in the United States and worldwide. (1996)! Future Structure of the Global Oilseeds Industry, Two Volumes. An evaluation of key developments and trends in the worldwide oilseeds sector, with projections of production, consumption and trade for key products for the period (1992) 10

11 ENROLLMENT FORM Yes, I want to participate in the special multi-client study, entitled Niche Farmers, Mega-Farmers and Transition Farmers: Implications for the North American Agri-Food Value Chain. The cost of the study for current Sparks clients is $18,500 and $22,000 for non-clients. One half will be billed upon initiation of the study and the remaining one half upon my receipt of the final written report. FAX to (901) Please have someone contact me to provide further information. Name: Signature: Title: Company: Street Address: City, State, Zip: Telephone: Fax: Address: Return this form to: Dr. Bruce A. Scherr Mr. Thomas P. Scott President and CEO Senior Vice President Sparks Companies, Inc. Sparks Companies, Inc. 775 Ridge Lake Blvd., Suite Ridge Lake Blvd., Suite 400 Memphis, TN Memphis, TN Phone: Phone: Fax: Fax: bscherr@sparksco.com tscott@sparksco.com 11