Editor’s note: This is the second installment in a series exploring AURI and the services it provides Minnesota. The first segment surveyed AURI’s mission and projects; this section looks at who AURI helps and how to gain AURI assistance. Next time, we’ll focus on AURI’s technical services, including its scientists, technologists, pilot plants and laboratories.
When St. Paul grocer Toua Xiong decided his cilantro-flavored sausages could be a hit outside his local Hmong customer base, a consultant advised him to call AURI.
Limited by his custom-processing license, Xiong can only sell sausages made in the rear plant of his FoodSmart grocery and deli. But he envisions a larger plant and a wider market for his coarsely-textured, fresh-herb sausages and red-hot dipping sauce.
A call to AURI was followed by a visit from AURI program director Dennis Timmerman and former meat scientist Ted Gillett, who helped Xiong through AURI’s application process. A staff team led by Timmerman is now investigating the financial and technical feasibility of Xiong’s plans as well as regulatory issues.
“Our goal is to get more resources and figure out how to put this together,” Timmerman says. If the plans prove feasible, AURI meat scientist Darrell Bartholomew and lab technologists will assist in product development, testing and food safety issues.
Mission fits all sizes
Xiong’s value-added pork fits AURI’s mission of capturing more processing and marketing dollars from Minnesota farm products in-state rather than shipping out raw commodity. The size and scope of projects that fit that mission vary widely, as does the amount of AURI investment.
On one end are small, innovative businesses like Xiong’s. They may not use vast quantities of Minnesota commodities, but they are making products with higher value, so processing, packaging and marketing dollars stay in Minnesota. Rather than funding, such clients typically receive in-house help in product development, testing and pilot production from AURI’s business staff, scientists and lab technicians.
At the other end are projects that can impact an entire industry, such as biofuels, fiber markets or food safety methods. Often sponsored by commodity groups, they receive higher levels of AURI investment because they could open opportunities to many producers’ advantage.
Application is simple
So if you have an innovative use for a Minnesota farm good, how do you gain AURI’s help?
First, call an AURI field office and talk with a program development director — Timmerman in Marshall, Lisa Gjersvik in Waseca, or Michael Sparby who operates from Morris and Crookston — although any staff person can help.
“Usually we can get a feel for where (the caller) is sitting from a phone conversation and make a determination whether a) it fits our mission, and b) whether we might be able to provide some technical assistance,” Sparby says.
A potential client fills out a simple application form, including a brief overview of their company’s history, financial position, and products or services. An assessment checklist helps AURI determine client strengths and weaknesses in five different areas, which Sparby describes as:
Business: “Is their business plan in place? Do they have a clear mission, vision and goals? We look at the management team and current financial position.”
Product and manufacturing: “Where are they located and what facilities do they have? Is the product developed? How are they sourcing ingredients? What are their equipment and facility needs? Work force comes into play here also.”
Technical and quality control: “We look at licensing and regulatory issues — is this something patentable or better dealt with as a trade secret? As for product formulation and technical personnel, do they have people on the team to deal with technical needs?”
Marketing: “Do they have a marketing plan, strategies? Do they know their target market and competition? Do they have sales and marketing personnel? Do they have an invoicing system, a UPC or tracking-code system? What is their current distribution system? What kind of volumes and sales growth can they handle?”
Financial: “Do they know their exact cost of production? What profit margins are or should be? We look at basic financials, cash flows, pricing. Do they have financial personnel on board? Is an accounting system set up?”
Weakness in any area doesn’t necessarily mean the applicant will be denied, Sparby says. “It’s very rare that all the elements are in place, and if they are, they shouldn’t need our assistance.”
Reality is hard
Sometimes it is all too much. “There have been people where you go through the initial meetings and bring up the questions that will get brought up by us or a lender, and they realize what an undertaking it is. They decide ‘it’s not for me’ and you don’t hear from them again,” Gjersvik says. “You’ve probably done them a favor — it’s better to realize early on.”
“One woman came to me with a bread mix; she wanted the product formulated and on grocery shelves nationally by the end of the month,” Sparby says. “She was very serious. I started walking through what it would take up front, the slotting fees, the time commitment — and she didn’t want that; she only wanted a part-time job.”
Gjersvik estimates about one out of five project ideas she sees is “something that can be developed; the others will get some direction on where else they can go for assistance.”
Making the team
The staff person who receives the client application completes a team application form, which evaluates how well the project fits AURI’s mission and suggests staff members to work on the project.
“On the team form, we rate the (agricultural) impact as high, medium or low,” Sparby says. “We look at how many producers are impacted and the total dollars versus units of value-added. For example, an identity-preserved product tracked from farm to manufacturer may gain the producer an additional 15 cents per bushel. Value-added wise, that’s pretty low compared to manufacturing soy-oil lotion. But then we look at the quantity.”
“The more commodity used, the greater the strength of the project,” Gjersvik says. “It’s best when producers come to us with an idea — they’re the ones who need to benefit the most.” Examples she cites as ideal projects include SoyMor, “a cooperative that’s looking to extract the greatest value possible out of soybeans” and Helios Nutrition in Sauk Centre, which pays premium prices to local dairy farmers for their rBGH-free milk.
“Just using a commodity isn’t enough,” Gjersvik adds, listing such qualifiers as producer cost-savings, how many growers are impacted, whether the commodity is sourced in-state, impacts to the state’s processing capacity and benefits to Minnesota’s economy.
“If there’s a product that ranks low all across the board, we may still want to provide technical assistance, but not money,” Sparby says.
The client and team application forms are reviewed by AURI deputy directors Max Norris and Keith Sannes, who each have 10-plus years of AURI experience. If the project merits assistance, the directors appoint a lead staff person and up to four others to a project team according to their expertise. For example, Gjersvik works with small business and entrepreneurs, Sparby with cooperatives and commodity-based projects, Timmerman with meat products.
In addition, AURI’s 12 technical staff members are knowledgeable in such areas as oils, meats, cereal foods, alternative fuels and byproduct utilization. Other staff may be assigned for their perspectives, such as Dan Lemke, communications director, who is knowledgeable in media and public relations.
Up to them
Once the team is in place, it decides if and in what capacity AURI could help the applicant. “Most we’ll provide technical assistance to — either referrals and networking, or we’ll put them in contact with one of our technical people to walk them through a concept,” Sparby says.
The client may also receive a small grant to hire outside help for feasibility studies or other specialized technical help. “We want to strengthen a project to the point where it can get financing through a conventional bank loan or investors. We are not in a position to be the financiers,” Sparby says. “If it just needs financing because the product is already developed, that’s something we would refer on.
“If it’s technical assistance, a non-funded project, we will have other team meetings, usually by phone conference, just to bring everybody up to speed,” Sparby says. “But if you’re looking at outside contractual funding, then there’s a higher level of team diligence. We need team consensus on any dollar expenditures.”
All funding must be matched dollar for dollar by the client and cannot be used for legal fees, employee or director salaries, vehicles, equipment, buildings or real estate. Money is disbursed when receipts of approved expenditures are submitted with progress reports. A final narrative report is also required.
A distinct service
What sets AURI apart from other rural development organizations? Sparby says it’s AURI’s “hands-on” approach and “the expertise of the technical staff and the industry background they have. The way the meats lab and scientists like Charan (Wadhawan) and Todd (Sisson) work is directly with the client. They teach them what they need to know. It’s not running a food formulation and handing it to them — because if they need to change a formulation, they won’t understand how to do it.”
Gjersvik agrees, but adds that up-front business assistance is also important. “Most things can be developed — it’s a question of whether they should be. We point out the other things to look at.”
For more on AURI programs and field office contact information, see the “Guide to AURI services” on page two or visit www.auri.org