The I.P. Future: Identity Preservation in North American Agriculture

Transcription

1 April 25, 2000 Sparks Companies, Inc. Dear Colleague: The highly efficient practices which the grain handling, processing and food distribution sectors have developed over time are being confronted with new realities posed by recent revolutions in agriculture, such as biotechnology and electronic commerce. In particular, the effects which biotechnology has had on farming practices and on the structure of the inputs sector can truly be called revolutionary, and the aftershocks are now moving downstream in the supply chain. Identity preservation (IP) systems will be required for the delivery of value-enhanced biotech products to the consumer or alternatively the delivery of certified non-biotech foods to consumers who demand them. In order to assist agribusinesses and other organizations in preparing for the structural changes that IP will bring, SCI is pleased to offer the multi-client study The I.P. Future: Identity Preservation in North American Agriculture. IP offers the potential for forward-thinking organizations to expand their markets and earn premiums, but those who are unprepared may have to make sudden operational shifts, with accompanying costs. Take a moment to consider what a shift to IP would mean for your company: Is your storage space configured to handle smaller volumes of a larger number of products? Will your current transportation arrangements (e.g., 100-car unit trains) be applicable in the IP future? Would you conduct separate processing runs for grains or ingredients which have substantially different traits and end-markets? Under what conditions would you dedicate an entire facility to value-enhanced products? The attached prospectus explains in detail the purpose and approach for this special multi-client study. I hope that you will join with SCI and other agricultural organizations in getting ahead of the curve on this important development. Sincerely, Bruce A. Scherr President and Chief Executive Officer

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3 THE I.P. FUTURE: IDENTITY PRESERVATION IN NORTH AMERICAN AGRICULTURE Background The acceptance of biotechnology by North American farmers has been spectacular. Although it has been only four years since the first biotech crops (Roundup Ready soybeans and Bt corn) were commercialized, transgenic seed last year accounted for half of soybean acreage, nearly 40 percent of corn acreage and 60 percent of cotton acreage in the United States. Moreover, transgenic varieties were planted on threequarters of Canada s canola acreage. Yet, the acceptance of agricultural biotechnology by consumers has not been as resolute. A full-blown consumer backlash has taken place in the European Union (EU). Governments in the EU, Japan and a handful of other countries have adopted labeling requirements, and some processors have shifted away from transgenic crops. In North America, consumers en masse have not opposed agricultural biotechnology, but it is feared that their support may not be deep-rooted. Given these scientific and societal developments, the marketplace is evolving to provide both positive and negative incentives to preserve the identity of individual lots of grain. On the positive side, biotech firms are in the process of creating novel crops which will directly benefit consumers, processors and livestock/poultry operations. The identity of these crops will need to be preserved as they move along the supply chain, in order to deliver the beneficial components to consumers. On the negative side, identity preservation may be used as a deterrent, to avoid a particular outcome. For example, an exporter may want to identity-preserve nontransgenic grain to ensure that it is not contaminated by being commingled with transgenic grain. Objective of the Study Now is the time to design protocols for the identity preservation (IP) of grains and oilseeds, given the uncertainty over consumer demands and the impending commercialization of value-enhanced crops. The objective of this study is to provide a detailed road map for establishing and operating an IP system for grains and oilseeds in North America (the U.S. and Canada), and to provide context for this road map by assessing the role of IP systems in North American agriculture. Sparks Companies, Inc. Page 1

4 Organizations at all stages of the supply chain would be impacted by a shift to IP, especially if this occurs over a short time period. Some companies will find profitable market opportunities in IP, while others will struggle. To prepare for the market structure of the future, this study will focus on both the how and the why of IP. It will determine the mechanics of how an IP system will need to work. Furthermore, it will examine the negative scenario of consumers shunning transgenic products and the positive scenario of value-enhanced crops developing into a premium market for agribusiness. The Study Process The study methodology will involve intensive analysis of supply-chain mechanisms and economics, as well as interviews with: Biotech/seed companies Grain handling companies Bulk-commodity processors Food manufacturers Food-service distributors Grocery and restaurant chains Feed manufacturers Livestock and poultry operations Transportation companies Producers and production consultants The interviews will generate critically important information which is not available through publicly available data sets and which is far more comprehensive than the fragmentary information contained in press reports. The purpose of these interviews is to itemize the mechanisms and economics of IP at each stage of the supply chain, and to determine what companies need from IP systems and what constraints they may experience. The bulk of the interviews will be conducted with elevator managers, processors, food-service distributors and transportation companies, as these are the entities that are critical to the IP delivery of food products demanded by the consumer. Producers also are crucial to IP, but as a group they are much more dispersed than grain companies and processors. Therefore, SCI will rely on its links to Market Maximizer Inc. and SCI Producer Services, both of which are SCI service areas that advise farmers on crop marketing, risk management and general financial management. Other relevant companies, associations and government agencies will be interviewed as necessary. In addition to the desk research and interviews, case studies will be developed to examine IP systems that currently exist or have existed in the recent past, and lessons will be drawn from those experiences. Indeed, the concept and practice of IP are not entirely new, but the advent of biotech crops brings the potential for volume expansion far beyond current niche markets. Sparks Companies, Inc. Page 2

5 To provide context for the analysis of how IP systems will work, SCI will assess the role of value-enhanced (VE) crops and certified nontransgenic grain in North American agriculture over the next five years. SCI will identify VE crops that have already been commercialized or are currently in field trials, as well as crops that are reported to be on the drawing board and could potentially be commercialized over the next five years. SCI also will examine the factors that will determine the adoption of VE crops, and will indicate which categories of VE crops can be expected to encounter substantial demand during the next five years. Finally, the implications to IP systems will be assessed for two scenarios regarding the possibility that some consumers will shun agricultural biotechnology and demand nontransgenic foods. These scenarios do not represent SCI s expectations or forecasts of future market developments, but they do serve as useful exercises in planning for potential IP demand increases. The first scenario will examine the possibility that a sizable minority of North American exports to the EU will shift toward nontransgenic product. The second scenario will incorporate the additional assumption that a significant niche market (i.e., involving nontrivial volumes) will develop among North American consumers for nontransgenic foods. Preliminary Study Outline I. Introduction: Background and Study Objectives II. Value-Enhanced Crops A. Current Status and Pipeline B. Role in North American Agriculture Over the Next Five Years 1. Demand Drivers 2. Market Size Versus Standard Crops III. Case Studies: Existing Identity-Preservation Systems A. Description of Systems B. Critical Factors for Success C. Future Applicability IV. Mechanics and Economics of Identity Preservation Systems A. Producer Level B. Grain Elevator Level C. Processor/Food Manufacturer Levels D. Other Levels of the Supply Chain E. Transportation Among Supply Chain Levels V. Scenarios Regarding Demand for Nontransgenic Foods A. Exports to the European Union B. Markets in North America and the European Union VI. Implications for Study Participants VII. Summary and Conclusions Sparks Companies, Inc. Page 3

6 Who Should Participate in the Study? In short, anyone whose business would be impacted by fundamental changes to the agricultural supply chain should participate in this study. Specifically, the study is targeted to benefit several types of organizations: Biotech/seed companies Grain merchandisers Commodity processors Food manufacturers Livestock and poultry operations Transportation companies Producers Cooperatives Trade associations Financial institutions Policymakers Study Deliverables The project will involve several specific deliverable products for participating clients, including: Study Kickoff Meeting. A day-long meeting of all participating clients and the SCI study team will be held in Memphis, Tennessee, to review the plans for the study and to identify particular subjects and issues that clients want to receive special attention. Comprehensive Study Report. All participating clients will receive The IP Future: Identity Preservation in North American Agriculture, the fully documented report containing the text, tables, charts and other pertinent information developed during the course of the study. All materials will be available both electronically and in hard copy. Post-Study Presentation. At the conclusion of the study, a day-long seminar will be held to present the findings and conclusions to all clients as a group. Individual Client Presentations. SCI staff will make themselves available to present the findings and conclusions at individual clients offices, permitting an open dialog about implications for the client. Sparks Companies, Inc. Page 4

7 Study Team The overall project will be coordinated by Scott Richman, Vice President in SCI s Consulting Group. Other SCI professionals who will be directly involved in the conduct of the study include Tom Scott, Senior Vice President in charge of the Consulting Group; Dr. J.B. Penn, Senior Vice President in charge of SCI s Washington office; Beth Bechdol, Vice President in the Washington office; Brad Clow, Vice President responsible for transportation services; and John DePape, Vice President heading SCI s Winnipeg, Canada, office. Dr. Bruce Scherr, President and Chief Executive Officer of SCI, will serve as project reviewer. Brief biographies of key study team leaders are provided here. Other staff with the necessary experience and expertise will be included in the study process on an as-needed basis. Further information regarding the qualifications of SCI to conduct this study can be provided upon request. Bruce A. Scherr, President and Chief Executive Officer. Dr. Scherr has been with SCI 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 SCI, and president of Agri-Commodities, Inc. 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. Thomas P. Scott, Senior Vice President. Mr. Scott is head of SCI's Project Consulting Group. His responsibilities include general consulting with a specialty emphasis on the grain industry and international markets. Specialized work has included analyses of the implications of the U.S./Canada Free Trade Agreement and long-term asset demand in the transportation industry. Prior to joining SCI, he had various assignments in management, trading logistics and merchandising for the Continental Grain Company. He received his bachelor's degree in agricultural economics from Cornell University and a master's in business administration from the Amos Tuck School of Business Administration at Dartmouth College. J. B. Penn, Senior Vice President. Dr. Penn's responsibilities include heading SCI's Washington, D.C., office as well as participating in international client consulting and economic policy analyses. Dr. Penn has extensive experience in international agriculture and food policy. He was formerly president of Economic Perspectives, Inc. (acquired by SCI in 1988); deputy administrator for economics of the U.S. Department of Agriculture's Economics and Statistics Service; and senior staff economist for the President's Council of Economic Advisers. Dr. Penn received an undergraduate Sparks Companies, Inc. Page 5

8 degree from Arkansas State University, his master's from Louisiana State University, and his doctorate in agricultural economics from Purdue University. Scott A. Richman, Vice President. Mr. Richman has been with SCI since 1991 and is responsible for providing management consulting services to agribusiness. Mr. Richman has worked extensively with the agricultural biotechnology and grainprocessing industries on products ranging from herbicide-tolerant crops to ethanol. Key areas of expertise include advising clients on positioning products in specialized markets, estimating the market size and economic benefits of new products and determining the financial attractiveness of business ventures. 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. Project Schedule May/June 2000 October 2000 October 2000 Starting October 2000 Kickoff Meeting Final Report Delivered to Clients Group Presentation Individual Presentations at Client Offices Study Fees The fees for participating in the study are US$14,500 for SCI clients and US$17,500 for non-clients. The fee provides access to the study kickoff meeting, the post-study presentation, and a presentation at your offices by SCI staff. The cost of clients' travel and the expenses for SCI staff to travel to companies' offices for individualized presentations are not included in the study fee. Sparks Companies, Inc. Page 6

9 Sparks Companies, Inc. ENROLLMENT FORM Yes, I want to participate in the study The IP Future: Identity Preservation in North American Agriculture. The cost of the study for current SCI clients will be US$14,500, and will be US$17,500 for non-clients. Onehalf of the study fee will be billed upon project initiation, and the remaining one-half upon delivery of the final report. Please have someone contact me to provide further information. Signature: Name (Printed): Title: Company: Address: City, State, Zip: Telephone: Fax: Please mail or fax this form to: Scott Richman Sparks Companies, Inc. 889 Ridge Lake Blvd., Suite 300 Memphis, TN Phone: (901) Fax: (901) srichman@sparksco.com