Like most folks who raise livestock, Glen and Tammy Haag and her parents Dave and Kathy Rupprecht aren't strangers to risk. But last year they took a different kind of risk with their 500-head cattle operation in Lewiston, MN.
They bought a truck, a trailer, a walk-in freezer and a sign that reads "Chosen Acres Premium Beef." Then, they started asking people in their community to buy beef directly from them.
"It's a different kind of risk when you get more involved with the consumer and the farm-to-table process. It also requires different skills," says Peter Reese, a sales and marketing consultant who teaches a four-part seminar series for producers as part of Branding Your Beliefs (BYB), a program that helps livestock producers aggressively market their products directly to consumers.
"It requires that (producers) get busy and get in touch with the market rather than just get angry about... the disparity between stockyard prices and consumer prices," Reese adds.
Kathy Horgan, a senior project officer for Land O' Lakes International Development Division, one of four sponsors of the BYB program, agrees.
"For a lot of farmers, (direct marketing) is the place where they need to come to... not just producing commodities, but adding value to their own product and starting to think about the consumer and how to bridge that gap," says Horgan.
After a year or two of looking for something to add value to their product, the Haags and Rupprechts came across the BYB program and decided to try it. Direct marketing training was one of many steps the two families took in starting Chosen Acres Premium Beef.
Pricing products, developing a logo, designing fliers and ordering boxes were a few details they had to address. They also worked with the Minnesota Department of Agriculture to get a food handling license, and with the small business development center in Rochester, MN, for help with other business aspects.
"It's added a lot of labor, but it's been positive in that we're getting more for our steers," says Tammy.
Besides boxed assortments of steaks, roasts, kabob meat, ground beef and hamburger patties, Chosen Acres sells quarters, halves and whole beef. They offer some hormone-free beef, too.
For quarters, halves and whole beef, the consumer pays for the processing and Chosen Acres charges from $1.20/lb. to $1.35/lb. hanging weight. That's approximately 20-35 cents more than what the packer pays them per pound of hanging weight.
Though most of Chosen Acres' cattle go to the packer, the two families direct market one steer per month and say consumers are really happy with the product. Right now, ground beef and steaks are the most popular, Tammy says.
The first year overhead costs kept the direct marketing from being profitable. But as word-of-mouth advertising grows, they hope to direct market as many as 100 steers a year five years from now, Tammy says.
Direct marketing is a challenge. Product differentiation isn't easy, Tammy says. Some people want to know where their meat comes from, but most think meat is meat. Plus, it's often more convenient to shop for meat at the grocery store than to place a meat order for later pickup.
Tammy credits their success so far to the quality product they sell. "All the training in the world won't help if you don't have a quality product to sell in the first place," she says.
Quality also is key for Mike Dean. He and wife Jeanne operate Moon Creek Farms, Cannon Falls, MN. They will direct market 20 head of cattle and more than 1,000 chickens this year.
The Deans started raising livestock to process for themselves because they wanted an implant-free product. Requests from friends, co-workers and relatives also interested in a natural product soon grew the venture into a part-time business.
While product quality is essential, Dean says getting it to the customer is where training and outside help become necessary. He credits the BYB program for this help.
The BYB curriculum promotes a team approach and identifies seven roles for family members, friends and paid advisers to carry out:
* Vision and planning,
* Organization and administration,
* Production and management,
* Sales management and customer relations,
* Advertising and public relations,
* Financial management and
* Regulatory compliance.
"They don't have to go it alone. Ranchers are notoriously independent people. Part of the challenge here is to work with others, get their support, but not feel that you've let go of control of your operation," Reese says.
For both Moon Creek Farms and Chosen Acres, some of that strategic help comes from BYB initiators Lorentz Meats and Deli in Cannon Falls, MN. Brothers Mike and Rob Lorentz operate the small, family-owned meat processing business and were the idea people behind BYB. They brought the direct marketing model to Land O'Lakes, who helped them source funding for the program.
Although a processor in nearby Winona, MN, processes Chosen Acres' meat, Lorentz Meats helped them get started, says Tammy. "They were always there if we had a question," she adds.
Recruiting and advising producer participants for the program has been beneficial for Lorentz Meats, a 30-year processor. They realize their success depends on the success of local producers.
Mike credits BYB for a 40% increase in business. In fact, this summer they're moving into a new 10,000-sq.-foot facility compliant with Hazard Analysis and Critical Control Point (HACCP) regulations.
Mike encourages small processors and livestock producers to realize the potential in their community.
Per capita U.S. spending on beef was $180.37 in 1999, and per capita beef consumption was 69.2 lbs., according to Cattle-Fax estimates. Pairing those numbers with available population information, Mike concludes that consumers within a 90-mile radius of Lorentz Meats spend more than $500 million a year on beef products. That's a lot of opportunity for beef producers and meat processors, Mike says.
The Deans of Moon Creek Farms concur with that potential. "At times, I get the feeling I couldn't raise enough out here. I don't have a big enough place," Mike says. "If every community had a few people doing what I'm doing, the big outfits couldn't dominate our food choices," he adds.
It's the farm to retail disparity that largely drives the direct marketing movement. But, the growth of the segment also has made it tougher to compete. Tammy advises beginners take it slow.
"These people are farmers first. You can get buried if you jump in with both feet. Take it slow and as your time and finances allow. Be patient," she adds.
Reese agrees. He doesn't think direct marketing is for every producer, but he does preach diversification. Such diversification allows producers to better ride out the cycle valleys.
Besides Lorentz Meats and Land O'Lakes, the Sustainable Farming Association (SFA) and the University of Minnesota and Wisconsin are also BYB sponsors.
For more information about direct marketing resources available by state, log on to the Agricultural Marketing Service's Web site at www.ams.usda. gov/directmarketing.
For more information about BYB, contact Mike Lorentz at 800/535-6382 or e-mail [email protected]
Before you take on any value-added endeavor, Erlin Weness, University of Minnesota Extension farm management educator, recommends you ask yourself:
* Does the product already exist? If so, will your product be competitive?
* Does your company have only one product, or is it diversified to lessen risk?
* Are profit and return projections realistic and positive?
* What added financial or liability risk will this add to your business?
* Does the company have contracts signed with buyers?
* Did an independent consultant with an excellent track record study the feasibility?
* Do you completely understand the business organizational structure and its tax and legal implications?
* If you want out of the venture, is it clearly stated how this may be done? * Are legal contracts and agreements you sign clear and comprehensively written so all parties understand their commitments?
* What's the worst-case scenario? Can you afford it?