The key to survival: Diversification

Ag official says value-added agriculture is the only way to go.

By Gord Gilmour
Manitoba Co-operator

Editor’s Note: This article is reprinted with permission from the Manitoba Co-operator, based in Winnipeg, Manitoba.

Brandon, Manitoba – Producers in the U.S. Northern Plains states and the Canadian prairie provinces either can roll up their shirtsleeves and get to it or dry up and blow away, according to the head of a new generation processing cooperative.

Dennis Sexhus, chief executive officer of the North American Bison Cooperative in New Rockford, N.D., and a bison producer himself, told producers at a symposium on value-added processing in Brandon, Manitoba, recently they could ignore the emerging trend to processing at their own peril.

“Value-added agriculture is the only way we’ll survive out here on the Great Plains,” Sexhus says. “Without it, I don’t know if we’ll disappear next year or the year after, but we will disappear.”

Sexhus heads one of the more successful new generation co-ops. The closed co-op has 400 members from across the northern United States and Canadian prairie provinces. It controls more than 60 percent of the annual pack of bison meat worldwide.

In 1999, the co-op processed 9,000 bison in its North Dakota plant, which has a capacity of 12,500 animals annually. A second plant is in the works for North Battleford, Saskatchewan. It will be developed within the next two years as the market for bison meat develops.

‘Gate to plate’

The development of value-added processing offers producers a chance to profit from some of the same trends in the agri-food industry that they’ve long claimed victimized them, Sexhus says. For example, market concentration can be made to work in favor of farmers if they pick the sector they get involved in carefully.

The ideal sector is a small market niche for producers who have something to offer that large food companies either can’t or won’t provide, Sexhus says.

That doesn’t mean value-added enterprises can’t participate in traditional sectors such as beef or grain. But it does mean they have to offer something different in that existing market.

“I would never advise you to participate in a non-niche market,” Sexhus says. “You’ll be taken to the cleaners by the big boys. If you’re betting you’ll be smarter or lower cost than the big boys, I don’t think you’ll be able to do that.”

Producers also can take advantage of the trend toward vertical integration in the food industry, he says. This is the “gate-to-plate” philosophy, which has seen many food companies get involved in virtually every stage of the food supply chain.

It’s clearly profitable, if the actions of major food processing companies are taken as evidence, Sexhus says. He points to Tyson Foods, which virtually controls the entire chicken market in the United States, and Smithfield Foods, the dominant player in the U.S. hog business and now owner of J.M Schneider in Canada.

“They’re vertically integrating downwards,” Sexhus says. “We producers have to vertically integrate upwards.”

Trend toward convenience

Another potential opportunity for producer processing groups is the trend to more processed and convenience foods. Sexhus says surveys show that the time spent preparing meals has been declining steadily since about 1900, when homemakers spent an average of 10 hours a day preparing food at home. By the 1950s, it had dropped to four hours.

Ten years ago, the time spent making meals was just 1.5 hours a day. Today, it’s a paltry 20 minutes.

The trend has left a huge niche for convenience food products that are convenient, quick and easy to prepare and nutritious, Sexhus says.

“This is the area with real potential today and you don’t have to have bison or anything exotic,” he says. “You can take beef or pork and do something with it.”

One value-added processor taking that philosophy to hear heart is another North Dakota group – Drayton Grain Processors, based in the northeastern North Dakota community of Drayton with a processing plant in Fargo, N.D.

Roger Weinlaeder, a farmer from Drayton and chairman of the group, says that when his members formed the company, their vision was to find a product that would allow them to sell their wheat to consumers for a higher value.

He says they’ve found that product in a frozen dough that can become fresh, hot bread after just 20 minutes in a convection oven.

“We had sales of $12 million last year,” Weinlaeder says. “We also used about 12 million pounds of flour. You could argue that what we’re doing is selling flour at $1 a pound.”

Weinlaeder says diversification is vital for producers in his area who want to survive in the long run. While he agrees that producer groups probably don’t want to go toe to toe against any of the agri-food giants, Weinlaeder says opportunities may present themselves if farmers study the major players closely.

“Don’t be afraid to look past what the big guys are doing,” Weinlaeder says. “There is the technology out there to beat up the big guys.”

Drayton Grain is a perfect example, he says. Many major baking and dough production companies have tried to develop a product that does exactly what Drayton’s does. They invested a lot of time and money but weren’t successful.

“They wound up cutting up their equipment and scrapping the project,” Weinlaeder says.