GET ON THE PATH. Value Chain Puzzle Finding the Missing Pieces. Jason Boyce Sustainability Manager

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1 Value Chain Puzzle Finding the Missing Pieces Dag Falck Organic Program Manager Nature s s Path Foods Inc. dfalck@naturespath.com Jason Boyce Sustainability Manager Nature s s Path Foods Inc. jboyce@naturespath.com

2 A value chain is a mechanism that coordinates operations to maximize efficiency and effectiveness in relation to an identified marketopportunity, identifies and removes bottlenecks, and drives out unnecessary cost. Value Chain = Supply Chain Value Chain Coordinator ensures information flow Producer Distribution/ Warehousing Processing Buyer Restaurant Retail

3 Organic Growers are part of a Values based value chain Value chain Components Producers Distributors Processors Marketing and sales Technology / Labour R&D Brokers Sustainability Values Location (local, unique products) Organic Non-GMO Food safety Free Trade Hormone free Free Range / Grass Fed Relationships based on trust, transparency, and relationship building

4 Consumer demand PULLS through the value chain Don t PUSH through the supply chain

5 What does this mean for Producers? 1. A demand driven supply management system 2. Profits come from removing unnecessary costs 3. Cooperation within the value chain, competition in the marketplace

6 Example: Organic Valley Largest Organic Milk Co-op in North America. 1,300 farm partners, over $500 million in sales Trust: Co-op model means all farm partners are owners. New farmers invest 5.5% of annual sales as equity as new partners. Governance is the responsibility of all members, and consumer values on animal husbandry, organic and quality are part of contracts Transparency: Supply management is a pull not push system, and is transparent. New members are added ONLY when demand increases. Everyone shares success, and challenges Relationship Building: Review what portion of the value chain it needed to own. Most if it s processing and raw milk transportation is handled by independent, local, small businesses in the same communities as their farm owners

7 Forces that influence value chains Drivers Forces that create pressure on the sector to move towards a higher degree of alignment, e.g. the customer demands a product that can only be produced through coordination of efforts across the value chain. Enablers Forces that provide the opportunity to move towards a higher degree of alignment, e.g. advances in technology that allow the productionof attribute specific grains. Barriers Forces that slow or reverse the movement towards a higher degree of alignment, e.g. lack of trust and willingness to enter into contracts. Regulators Forces that provide temporary impediments to a higher degree of alignment, e.g. a relatively new production facility that would need to be replaced to realize the value of increased alignment. AEC Consulting, LLC Forces Influencing the Evolution of Agricultural Value Chains, September 2, 1999 pp 2-3

8 Questions to answer for values chain: What are the Drivers? What are the Enablers? What are the Barriers? What are the Regulators?

9 Key component of Marketing: Having something that fills someone else s: Perceived or Actual Need

10 Nature s s Path s customers are very ECO-aware and want to live healthy lives. They want to make a difference. ORGANIC IS THE WAY TO GO!

11 Are you the kind of farmer they trust?

12 Boring or valuable message?

13 Enhance your product. Make it fit your customer. Match your commitment, philosophy, and integrity with the end customers.

14 David Orchard

15 David Orchard Supplied Nature s Path since 1985 Whole grains for sprouted Manna Bread How did he get the deal? Integrity Business savvy Recognition

16 Bob Quinn (Mr Kamut )

17 Bob Quinn (Mr Kamut ) What does he sell? Ancient Grains? History Connection Wholesomeness Grain farming

18 What do we know about consumers? 1. Consumers are more willing to pay for tangible attributes (taste, quality, health, ingredients) then intangible (local, fair trade, sustainable). (Parker and McCluskey, 2007) 2. Consumers feel a loss of trust in the food system. Growth of local products and farmer s markets is, in some ways, a response to this 3. Organic certification straddles the line between tangible and intangible, and was once a symbol for trust. It is losing some strength to natural with consumers 1. Painter, Kathleen and Jill J. McCluskey. January 13, An Analysis of Consumer Demand for Differentiated Farm Commodities: Implications for the Farm Sector. Ag of the Middle Draft Report, Washington State University, 43 p.

19 How to make this practical? Focus on the Demand! 1.IDENTIFY THE OPPORTUNITY: Map out major companies who are your suppliers and customers, how product moves 2.EVALUATE YOUR MARKET: What are the trends? What values to consumers want? Ask retailers, processors, food service and institutional markets 3.ASSESS RESOURCES, RISKS AND CAPABILITIES: What can you do? What risk can you afford? 4.BUILD RELATIONSHIPS: Relationships are the most important element of a successful value chain. 5.GET SUPPORT OF ONE TO TWO CHAIN MEMBERS: Find the right partners, who are key for success. 6.ENSURE GROUP COMMITMENT & RESOURCES: Set goals, objectives, measures and action plans with partners. 7.DEFINE A CLEAR PROJECT FOCUS: Start small, with a small, trial-size version

20 How to make this practical? Cooperate and communicate Leaders work vertically along values chain and/or between competitors Emilia Romagna Region of Italy use cooperative model to share services, but compete on products Chicago Centre for Labourand Community collaboration amongst industry stakeholders across an industry

21 How to apply this to Nature s Path Foods in BC: From a product perspective What could work? Organic Carrots What hasn t worked? Blueberries From a relationship perspective Why? Price, volume, quality, consistency. We are missing partners in BC in the value chain the ingredient processor that understands the farmer needs and the manufacturer needs