We’ve all seen them, even in this magazine. They’re all the headlines about the wonderful world of value-add. How many headlines have you read? A dozen? More? They seem to be everywhere, offering glowing accounts of outside-the-box thinking and entrepreneurial success.
Often, though, the concept leaves a big question in the air. Is value-add only for small-scale producers, the kind who sell their wares at farmers markets? Or does it make operational and economic sense for farmers at the commodity-scale level?
Country Guide sat down with one forward-thinking farmer and value-add consultant to explore what works and what doesn’t in value-add. His advice is a whole lot different than most… and just might change your perspective on value-add.
“Is there opportunity in value-add? Absolutely. Who does value-add suit? Anyone. Anyone can do it. I really think whether you’re a 25-acre or a 25,000-acre farm, opportunity is there for both,” says Steve Larocque, who farms and consults at Three Hills, an hour and a half northeast of Calgary.
Before getting into what he recommends for value-add, though, he’s very clear to define what he doesn’t.
First, get rid of the misconceptions. For most farms, value-add doesn’t mean setting up a folding table at your town’s outdoor market. Nor does it have to mean farm-gate sales. Larocque rarely recommends them for commodity producers.
Instead, if you seek out the right opportunity, there are ways to value-add that are a much better fit for larger scale production.
Larocque also does not suggest switching away from what you’re good at to some niche product. In fact, he thinks those who jump into specialty crops often end up throwing good money (and time) after bad.
“Forget it. No one wants to go there. We’ve all seen or experienced it: We think we’re going to capture a premium on a specialty niche crop and the yield is really poor, or the field is full of weeds or you’re sitting on inventory for 16 months. It’s a hard lesson to learn. No thanks.”
In fact, specialty crops can carry all kinds of downside risk in addition to a steep learning curve. The better question to ask, he says, is: “What can we do with the crops we already grow and we already know how to grow well?”
Rather than finding a market opportunity and trying to grow a crop to suit, he suggests doing what you’re great at — growing the crops you’re already an expert in — and then searching out a market to suit them.
There are diverse options. If you have deep pockets and a strong stomach for risk, all kinds of opportunities exist for fractionating grains, pulses and oilseeds to produce products for food, nutraceutical, pharmaceutical and pet-food end uses.
“I have a 150-page doc that outlines a huge lit review on how you turn grains into new products: everything from gel capsules — which have huge potential because they’re easier for your body to recognize than synthetic capsules — to bioplastics. That’s a big one because why plastic bags aren’t already made from biodegradable grains is beyond me,” he says.
But — and here’s the key — the high-science road isn’t the only possibility.
“A lot of opportunities fizzle out. Things have a habit of quickly becoming complex without a lot of return. I don’t think value-add has to be overly complex. Go with what you know.”
For example, if you’re a skilled and experienced durum grower, keep growing that top-quality durum, then put time into figuring out what differentiates your durum from everyone else’s.
Farmers tend to see what they produce from a commodity level. That’s not good enough. To capture value-add opportunity, you need the eyes of a consumer.
“Get an understanding of the quality of your grain outside of it being a number one of this quality and this protein. You need to understand what makes it unique. In most cases, that means looking at specific nutrient density because that’s what you’re going to sell,” Larocque says.
Maybe your soil is very high in zinc. Though that might be neither here nor there if you’re selling at a commodity level, specific buyers — maybe it’s a breakfast cereal company that fortifies with zinc, for example — might value and be willing to pay for higher zinc durum. (Note: Determining the nutritional traits of your grain can be as simple as sending a sample away for an inexpensive feed test.)
Once you know how you might differentiate your crop, it’s time to find a buyer.
“Buy yourself a trip to Italy. Go visit someone who’s making pasta over there — or here in Canada — and help them understand why they want to buy your durum instead of anyone else’s. Write your trip off; drink some wine.”
While a trip to Italy might sound like fun, make no mistake about what Larocque is really saying: Being an expert farmer is not, by itself, enough of a skillset. Being successful in value-add is all about relationships. You have to go beyond Google. You need to actively seek out your potential buyer, truly understand their needs, connect on an individual level, and get them enthused about why they need your specific product.
“The ideal is to create a demand pull from customers. You need to be able to go to someone like Cobbs Bread, for example, and say: ‘Your customers want nutrient-dense food. I tested my flour and your flour and here’s how mine is better.’”
Yes, Larocque admits, cold-calling buyers does leave you exposed and vulnerable.
“You need to know the answers to the questions they care about. What herbicides do you use? Do you spray glyphosate? What makes you better than the next guy? What’s your farm’s story? Get prepped up. Be open.”
Luckily, Larocque doesn’t expect or even counsel wannabe value-adders to have all the skills all on their own. Though most farmers operate individually and independently, you’re likely to have more success in value-add if you team up with others.
“To make it less daunting, partner with two or three farm peers. A lot of times, if you’re independent and by yourself, you’re too much of a supply risk to a buyer anyway. So, who in your peer group has potential? Reach out to your peers to look at forming a group to sell together. Even if you remain as individual farm businesses, a group or co-operative of three or four other farmers will give you enough scale.”
Larocque, for example, is part of a group of innovative, go-getter farmers who farm independently but are seeking value-add opportunities together.
“We’ve got a group specifically devoted to value-add. We’ve all put money into it and we’re taking a hard look at opportunities. Together, we have more to offer than if we’re each on our own.”
Value-add opportunities abound for farmers who know where to look.
“Think of store shelves these days: The shelves are full of all different kinds of granola bars, bread, crackers, name your product, all looking to differentiate themselves. They’ve spent a lot of time and effort advertising what’s not in their products: gluten free, trans fat free, this free, that free. Now there’s a trend towards advertising what is in the product: what’s special about the ingredients, what’s unique about the farm they were grown on.”
Buyers are investing in differentiation. They see it as their future, so the door is already open.
“There was recently a big announcement on the market that a major pet food company is going to be removing meat from their recipes and going with plant proteins instead. Those proteins have to come from somewhere and it’s going to be grain ... someone needs to be on the phone with that company. Actually, I’m going to be on the phone with them within the next week. If they want 20,000 tonnes, 50,000 tonnes of lentils or fababeans, I want to be the provider.”
Larocque makes the step-by-step to value-add sound straightforward. He admits that it isn’t. It’s hard, it’s risky, there will likely be all kinds of roadblocks before a viable opportunity emerges. Given the effort and pain associated with making a go in the value-add market, farmers need to be very sure of the returns they expect to capture.
“What kind of return is there? That’s negotiable. You need to start by setting a target. We usually talk in dollars an acre, because that’s the metric we know. Say you produce 100 tonnes per acre and you want $100 per acre: That’s $1 per tonne. On my farm, that would be a $150,000 premium. That’s worth looking at.”
That said, not everyone is going to be able to capture those returns.
“There’s good margins, but they aren’t for everyone. If you want to create a side business, any side business, you need to be able to manage negotiations and manage relationships. That’s what will stop this from being mainstream: Not everyone wants to invest in the people side. But if you’re cool with that, there are good margins.”
The biggest change farmers need to make is not to their production; it’s to their mindset.
“When you’re dealing with companies, they’re going to ask you for your story, ask you for what makes your product different, and then ask you what you want for it. You need to have answers: This is our story, this is why our product is unique, these are our beliefs, this is my price. It’s not like going to a line company where you have to take the price they offer.”
Larocque points to a group of farmers who grow malt barley specifically for Saporo. Though the barley still goes through Canada Malt, the growers get a per-bushel premium for growing to specific standards. A grower who could figure out how to cut out the middleman would see even better returns.
“Lots of people already value-add to some extent. If you’re growing certified grain for seed, that’s value-add. I value-add by selling agronomy on the side. I generate more revenue from the knowledge I gain and sell than I do from my farm byproduct, which is grain.”
If you’re seriously interested in value-add, Larocque suggests you start by gathering your farm story and your product information. Then, create a list of who might be the right type of customer for your product’s specific attributes. Think millers, bakers, granola bar makers, as well as those a little further from obvious: pet food makers, neutraceuticals, etc. Match the scale you can provide to the scale they would need and then, start having conversations.
“Reach out,” he says. “You’re looking to have a conversation about what’s possible, you’re not making a hard sell. You’re trying to learn. It takes time to build a business.”