The group is developing a larger-scale facility capable of processing up to 20,000 birds per year. “Since we are limited to selling 1,000 birds per year, our goal is to use this larger-scale facility as a teaching center.
“The publishing operation — Back Forty Books — grew out of the fact that we wanted to do a book and a newsletter on free-range poultry production.” The community also offers quarterly workshops about on-farm processing of poultry. “Our workshop is for people who want to process poultry on-farm for resale.”
PART III
MARKETING
CHAPTER 9
Finding a Niche
Successful direct marketers think like consumers and adapt production and products to consumers’ wants. These marketers judiciously invest time, money, and creativity in pricing, advertising, displaying, and packaging their products in the best possible light.
— John Cottingham et al., Direct Marketing of Farm Produce and Home Goods
THE QUESTION OFTEN ARISES, especially among new and aspiring farmers: “Can I make money at farming?” The answer is maybe. Keep costs as low as possible, maximize income, learn to live very cheaply — and you just may make it.
Income can be increased in the conventional marketing system by providing a product that perfectly meets the demands of the conventional marketplace, by dealing in large quantities or by retaining ownership through the finishing phase of the animals’ lives. But to really maximize income, the small-scale farmer or rancher needs to develop some alternative marketing strategies.
Most farmers and ranchers, if asked to list the reasons they chose to pursue their occupations, would come up with a long and varied list — working with nature, being their own boss, raising their children in the country, and carrying on a family tradition are a few of the common reasons given. But it’s a rare farmer who would consider the opportunity to be a salesman as the driving motivation behind his or her choice. Farmers don’t want to spend their time with a phone glued to their ear, or making presentations in stores. Catering to customers and maintaining more records than they already have to doesn’t sound appealing: After all, it’s not what farming is about!
Ken and I are with the majority on this. Neither one of us ever had a burning desire to be a salesman, but we quickly figured out that we needed to market at least part of our crop as a consumer-ready product. On average, conventional marketing strategies leave the farmer with far less than half the money that the consumer spends on meat and dairy products. Through direct-marketing, however, we were able to recapture part of that revenue, and put the extra money into our bank account.
Barb and Kerry Buchmayer (see the story on page 140) have summed up the situation well in their farm philosophy statement, which they developed as part of their planning:
We believe the key to thriving in agriculture is to take a high-value product, add more value to the product, and deliver it as close to the consumer as possible. In our case, we plan on starting with organic milk, bottling it to add more value, and selling it to retail stores or food co-ops. We believe the days of producing a commodity, taking it to market, asking what the buyers will give for it, and securing a profit are over. Profit may be possible if enough units are produced, but the small, family farmer usually does not have the capacity to run enough animals or acres to obtain these vast scales of economy.
Conventional Markets
Before I get into alternative marketing strategies, let me take a quick look at the conventional marketplace. Food is big business, and the meat segment of the food economy is no exception. About 95 percent of the meat in the United States is slaughtered and processed by less than 10 percent of the packers and processors. For example, ConAgra, Inc., of Omaha, Nebraska, is the largest meat packer and processor in the United States. This one company had more than $14 billion worth of meat-related sales in 1996, and handled beef, pork, lamb, chicken, and turkey! Two pork processors, IBP (Dakota Dunes, South Dakota) and Smithfield Foods (Portsmouth, Virginia), account for well over half the hogs butchered every day. Each handles about 75,000 animals per day every day of the year.
There are two conventional marketing concepts that you should become familiar with. First is the concept of industry concentration. Concentration simply means that a small number of companies controls a large share of the market. As concentration increases in a particular segment of the economy, the top companies serving that segment can exert greater control over the prices of both raw materials coming in and final products going out. The second concept is that of vertical integration. Vertical integration means that a company controls its product up and down the line, from cradle to grave, so to speak. The poultry industry is a good example of a concentrated and vertically integrated market segment. Almost 100 percent of commercial broiler growers in the United States are contract operators to the top processors. These processors, such as Tyson Foods (Springdale, Arkansas), own the birds and supply the feed to growers. They slaughter the birds and process the meat into all kinds of products, from frozen chicken parts (legs and thighs) to fried chicken dinners. In this segment, the growers are controlled by such tight contracts that they end up selling their labor instead of an agricultural product. However, unlike an employee selling his labor, the farmer has invested a huge amount of capital just to get the job and bears an unreasonable risk for the payback.
For big corporations, profits increase the more they are able to process the product. When an animal is slaughtered, some of its meat is simply cut, frozen, and shipped to the grocery store; other meat is made into “value-added” products such as hot dogs, lunch meat, canned stew or soup, sausage, and jerky. Dairy processors also receive a higher return on value-added items like yogurt, cheese, and butter. Process the product some more — say, into boxed macaroni-and-cheese dinners or canned franks and beans — and the processor’s profits jump another notch.
Profits also come from the by-product stream. Byproducts are sold for processing into edible fats, leather, pet food, fertilizer, paints, inks, and even pharmaceutical products. In 1996, slaughter facilities were paid about $8 for each raw beef hide: not an insignificant amount when you consider that the top packers butchered almost 23 million head. Again, more processing means more profits. Next time you toss a ball to your kids, think about the 100,000 hides per year that are required to produce the leather that is used to make sporting goods!
The Farmer’s Disadvantage
Farmers and ranchers are at a disadvantage when markets become highly concentrated and vertically integrated. As concentration occurs, many small packers and sale barns simply shut down, further limiting options for farmers in an area. Also, the relationship between supply and demand no longer works quite the way it should; low supplies don’t necessarily trigger high prices, and the spread between consumer price and farm price grows wider and wider.
Another disadvantage to a concentrated market is that as concentration increases, the market looks for standardization; if you’re marketing something that doesn’t fit the norm, you’re highly penalized. These standards are, for the most part, set for ease of handling in an industrial setting, not for quality of final product. In other words, if you try to market a hog that isn’t between 235 and 245 pounds (107 to 111 kg), you’ll be penalized, because packers want completely uniform animals. It doesn’t matter if your hogs taste better than those raised in a factory farm setting, or that they had a good life; all that matters is that they weigh 240 pounds (109 kg) and don’t have excessive back-fat.
Futures Markets and Other Options
Large-scale livestock farmers try to gain back some control over the price they receive by playing the futures markets. These markets are operated by exchanges similar to the ones that stocks are bought and sold on. The Chicago Mercantile Exchange is the largest exchange for meat, dairy, and livestock futures. What’s actually being bought and sold on the exchanges are contracts for future delivery of a specified amount of product. One live-cattle contract, for example, requir
es that 40,000 pounds (18,144 kg) of live cattle be delivered at a predetermined future date, for a set amount of money. Futures contracts can be bought and sold for all kinds of commodities, including agricultural commodities, metals, and currencies (Table 9.1).
Most of us can’t operate in the quantities that are required to actively participate in the futures market. As smaller operators, our conventional marketing options include selling at sale barns; directly to packers; or to individual buyers who act as middlemen, putting together truckloads of animals for the packers. Even these options become difficult if you aren’t located in a major livestock region of the country.
Table 9.1
LIVESTOCK FUTURES
Alternative Marketing
There are plenty of ways to market outside the conventional system. First off, really look around your farm, and make an inventory of all the possible products or services you might be able to direct-market. As food for thought, consider marketing the following:
Breeding stock
“Pet” animals
Compost
Fiber, tanned hides, bleached skulls, and other by-products
Services, such as grooming, training, and stabling
Agritourism (on-farm bed-and-breakfasts, hunting, fishing, camping, and so on)
Live animals for butcher (halves and wholes)
Cut and wrapped frozen meat
Eggs
More highly processed products, such as cheese, yogurt, jerky, stew
Other secondary products, such as wood and flowers
Remember, the first key to alternative marketing is to carefully evaluate all the possible products that can come from your operation. The section on developing a marketing plan (see page 110) will help you evaluate and plan.
As small-scale farmers, we have one significant marketing advantage over the major corporations: We can capitalize on niches within the marketplace, such as natural, organic, grass finished, and humanely raised. Consumers are looking for fresh, wholesome food that has been raised in an environmentally sound manner, and we small farmers are in a position to supply them with that product.
Alternative marketing requires a strong commitment on your part. Your customers aren’t faceless masses who live a thousand miles away. They are people who count on you to provide them with a high-quality, and unique, product. Alternative marketing also requires following additional laws (see chapter 10), extra planning and record keeping, and, most of all, time. Advertising, or getting the word out to your potential customers, becomes a major concern for farmers pursuing alternative markets. Educating your customers about your product, why it is special, and why they should buy from you becomes an important part of your job. But the payoff can make the extra effort worthwhile.
Group Marketing
Some alternative marketing approaches are easily done on an individual basis, but many work well on a group basis. Group marketing provides a mechanism for individuals to reap the benefits of alternative marketing, while spreading out the risk and reducing the workload of the individual members of the group. Groups often have an easier time meeting the needs of institutional and commercial markets, such as restaurants, which generally seek a regular supply of product throughout the year.
Some groups can be informal — say, a few neighbors joining together to market a semi-load of animals. Others are quite formal, like the new “value-added cooperatives” that are forming around the country. These co-ops are legal corporations that are democratically controlled by their members. Oregon Country Beef (Brothers, Oregon; see page 114), a good example of a small cooperative marketing organization, today represents twenty-nine family ranches. The group markets natural beef to food co-ops, natural and specialty grocery stores, and a Japanese firm.
Group members of Oregon Country Beef not only market their beef cooperatively, they also actively manage its day-to-day operations. Various ranch families take responsibility for certain aspects of the co-op’s operation, including marketing, accounting, coordinating sales, and finishing. (At this time all Oregon Country Beef cattle are finished in a member’s feedlot, though the group is looking into grass finishing for at least part of its production.) One of the things that make this co-op unique is that Oregon Country Beef doesn’t purchase animals from members, add value, and then pay the members based on profits; instead, members continue to own their individual animals until they are delivered to the final customer. This approach makes members quality conscious from start to finish.
Some group-marketing arrangements develop after one farmer or rancher begins working on a direct-marketing strategy and does so well with it that he or she has to begin contracting with other growers to meet the increasing demand for the product. Coleman Natural Beef (Saguache, Colorado) and Laura’s Lean Beef (Lexington, Kentucky) are two examples.
Coleman Natural Beef began selling meat in 1979, when fourth-generation Colorado rancher Mel Coleman decided to experiment with direct-marketing of the family’s naturally raised beef. Today, Coleman beef is raised by more than 400 ranchers in the West, and is certified organic by the Organic Crop Improvement Association (OCIA).
Laura Freeman began Laura’s Lean Beef in the early 1980s. After working as a journalist for several years, she returned to her family’s 200-year-old farm in the hills of Kentucky. Laura began experimenting with managed grazing, and researched lean-beef genetics. In 1984, she began marketing beef directly from her farm. Today, Laura’s company markets beef in 1,600 stores, located in 23 states; several hundred farmers — from the Southeast to the Northwest — provide the meat.
Each farmer or rancher growing for these two successful group-marketing efforts signs a contract with the company, which specifies the company’s feeding and management requirements.
To find out if there are groups operating in your area, or to find help for developing your own group, check appendix E, Resources.
Niches
The goal of niche marketing is to find a way to differentiate your product from the tons of other products that consumers look at every day. No matter what you’re selling from your farm, if you’re going to direct-market it you need to think about how it will best fit into a niche. As Allan Nation of The Stock-man Grassfarmer magazine says, “The first rule of niche marketing is to make your product as different from the dominant market as possible” (June 1998, “Allan’s Observations”). Some of the niches that grass farmers can capitalize on include natural, organic, pasture finished, green and humane, lean, and family farm.
“Natural”
The U.S. Department of Agriculture (USDA) allows the word natural to appear on the label of a food product that has been minimally processed and that contains no artificial colors, flavors, preservatives, and so on. In the case of animal products, “natural production” methods must be documented. The commonly accepted methods for obtaining approval of the word natural on a label include pasture raising of livestock, no routine use of antibiotics, and no use of growth hormones. The animal’s ration should contain minimally processed feedstuffs from natural sources, like cracked grains. Feedstuffs such as chemical urea aren’t acceptable. Feed doesn’t have to be organic.
“Organic”
The organic market is the fastest-growing segment of the U.S. food economy. For meat and livestock-related products to bear an organic label, the farmer must be able to prove that his or her operation has been”certified” to meet organic standards. Certification may be provided by a state agency or by a private, nonprofit certifying organization (see appendix E, Resources), depending on where you live.
Standards that are generally accepted by the national private certifying organizations for organic meat, eggs, dairy products, and so forth include:
One hundred percent of the animals’ feed must be certified organic.
Baby animals must either be born to certified adult animals or brought in and fed certified feed as soon as possible for the species in question (chicks within 48 hours, for example, and calves within 30
days).
Animals must be treated “humanely” at all stages of life.
Animals must be clearly identified and trackable from birth to slaughter.
Products used on, in, or around the animals have to come from an approved list of substances. For example, chemical pesticides are strictly prohibited, but diatomaceous earth is allowed as an insect control and wormer. Antibiotics are generally prohibited, and animals that have received them for therapeutic reasons are to be marketed through the conventional system.
Although we farmed our land in compliance with the requirements for organic certification, we never went through the process. Certifying can cost a considerable amount of money, and our customers knew us, or came to know us, so they felt comfortable with buying our meat without certification. If we began marketing in a broader area or through off-farm outlets, perhaps certifying would have made sense. The expenditure to certify, like all other expenditures, needs to be evaluated in terms of what purpose it will serve and whether or not it will pay for itself.
“Pasture Finished”
Pasture-finished animals are not fattened on grain. Interestingly, the United States is one of the few countries in the world where animals are routinely fattened on grain prior to slaughter. But pasture-finished animals can be equally as tender as fattened animals, they tend to have a more distinct taste, and they’re considerably leaner.
Small-Scale Livestock Farming Page 18