Swapping SMARTS

North Dakota's Centers of Excellence initiative is growing an integrated branded-beef business and a new model for Extension education.

The notion of private industry and public education trying to work together, leverage assets and seek solutions is about as novel as flies at a branding. What's extraordinary is finding a successful example.

“This is one of those rare, win-win opportunities for everyone involved,” says Dieter Pape, CEO of North Dakota Natural Beef (NDNB).

“I want students to get a sense of the urgency and change that happens in a business environment,” says Ken Odde, a professor in North Dakota State University (NDSU) Animal and Range Sciences Department.

“The most exciting part of the entire project is the education model they're developing because I believe it could be an entirely new model for beef Extension education in this country,” says James Henderson, a founder and co-manager of Synergy Beef, LLC, at Childress, TX, a consultant in the value-added-beef arena.

They're all talking about North Dakota's nascent Beef Systems Center of Excellence (BSCE), which has already grown a new branded beef company — NDNB — and added three new faculty members to NDSU's meat science program.

This and more is exactly what North Dakota state government envisioned when it launched the Centers for Excellence initiative in 2003. According to the office of North Dakota Governor, John Hoeven:

“If we nurture a place where some of our best and brightest minds can find ways to commercialize their ideas into products, skills and services, we will create and attract new businesses. Those businesses will generate higher-paying, skilled jobs for our citizens, especially our graduates. A Center of Excellence then becomes a hub of research and development around which dynamic new businesses cluster because they offer access to new technologies and an educated workforce.”

Begun in 2003, the initiative targeted a handful of industries for which the state already has expertise, resources and infrastructure. These included aerospace, energy, advanced manufacturing, tourism, and value-added agriculture, including beef.

Odde says BSCE aims to establish integrated meat systems in the state, while providing NDSU students and state beef producers cutting edge, practical education and solutions.

Build it and they will come

In an imperfect nutshell, state government ponied up $800,000 for the BSCE, if at least $1 million in federal funds and $1 million from private industry could match the funds. A $1-million, rural-development grant from USDA last year took care of the federal requirement. And all told, 43 investors — about half from the cattle business — came up with $3.6 million to capitalize NDNB, the private portion of the state's requirement.

Keep in mind this effort has been about as unanimous as it ever gets in agriculture. Besides NDSU's Animal and Range Sciences Department, the North Dakota Stockman's Association, North Dakota Association of Rural Cooperatives and other state ag groups have lobbied together for the BSCE.

NDNP contracts management services from the North American Bison Cooperative (NABC). Dakota Farms Natural Beef (see side bar, below) will be harvested at a New Rockford, ND, facility NABC formerly dedicated to bison harvest and fabrication.

Dakota Farms Natural Beef product will then be fabricated and further processed at a new facility being renovated near the NDSU campus in Fargo. NDSU leases a portion of this facility for meat-science research and classroom instruction. At full capacity — about 50,000 head/year — the Fargo facility will employ about 120 people within five years. Both NDNB and NDSU expect much of the workforce to be students, with product to begin shipping early next year.

“Almost any job in the company will be available to students,” Pape says.

“We really want to take advantage of the business itself, not just the technical aspects of it, but the business and financial components of it,” Odde explains. “We'll be constructing a curriculum that fits the needs of students and takes advantage of the business.”

That means the curriculum will be developed in tandem with other disciplines, utilizing expertise from the business school, for example.

As Pape says, helping run and operate a beef business, and processing and marketing hundreds of head of cattle each day, provides a completely different meat-science education than at other land-grant universities where a few head may be harvested each day or each week.

“As they graduate, students will understand what is and isn't practical in beef processing and marketing from a business standpoint,” Pape says.

Touching the state's producers

Already, Greg Lardy, NDSU Extension beef cattle specialist, says knowledge gained from the project has helped in outreach efforts to state beef producers. He explains, “Our intent is to utilize the new meat science faculty and this new business partnership to elevate Extension education and programming for beef producers in this state.”

This is the potential for a new Extension model alluded to by Henderson. When university Extension first began, he says it made sense for it to serve as a conduit for transferring science to producers largely uneducated in the scientific aspects of ag. Today, however, he says many producers have more scientific training and knowledge than the Extension personnel trying to transfer science to them.

Besides, Henderson believes the traditional Extension model has led to intellectual segregation — people specializing in finer details rather than seeing how that information integrates into other disciplines. Since the BSCE is based on learning and developing an integrated-systems approach to business, he believes it can also serve as a systems model for Extension education.

Along the way, the partnership creates an ascending spiral of progress: the business has the chance to grow and capitalize on new research conducted through NDSU, students learn the latest from the brightest, and state producers have access to more market and education opportunities based in the real world of progressive business. Plus, the state accomplishes its goals of more and better-paying jobs, especially in the rural parts of the state.

“Another unique aspect of this project is we've embraced people from the industry who have experience,” emphasizes Odde. “I believe people with 20 years of experience can do a better job creating a successful business than academic people can.” In other words, those involved in creating the BSCE have relied heavily on private industry to lead the way.

As might be imagined, North Dakota's ag industry and citizenry are supportive of the effort.

“The cattle industry in general wants to see cattle feeding and cattle processing grow in the state,” Lardy says. On one hand, an explosion of ethanol production is magnifying the state's competitive advantage in feed costs. On the other, the closest beef-processing plant is currently at least 250 miles from most beef producers and feedlots in the state.

“Most cow-calf producers see the primary value in having an additional market for finished cattle in the state, and a point of retrieval for carcass data,” agrees Odde. “Cattle feeders see the same value. Grain producers view expanding cattle feeding and processing as more market for their product, too.”

“This is an opportunity for industry, students, faculty and producers to be part of producing a high-quality, high-value product day in and day out,” Pape says.

Why Natural?

North Dakota Natural Beef (NDNB) could have aimed at any aspect of the beef business, but they chose the fast-growing natural segment.

“From a marketing standpoint, we don't have the resources to compete in the commodity-beef business,” explains Dieter Pape, NDNB CEO. “With natural, we already have established distribution, an established brand and an established natural presence with our bison products… We're going to be a niche player. It's difficult to be a commodity niche player.”

Pape is also CEO of the North American Bison Cooperative, which is supplying management and marketing services to the fledgling NDNB.

According to various industry estimates, natural beef sales are growing 25%/year. That demand is being driven by two primary forces — baby boomers and new parents (see “Serving The Underserved?”, p. 50, October BEEF).

Ken Odde, a professor in North Dakota State University's (NDSU) Animal and Range Sciences Department, says consumers of “natural” can also be part of what the National Marketing Institute (NMI) terms the “lifestyle of health and sustainability” (LOHAS) category. Folks in this group have a profound sense of social and environmental responsibility, and won't trade quality for price.

“They want to know such things as where and how the food was produced, and what the social mores are in the community where the food was produced. They're also called Green Shoppers. This group has money and they're affluent,” Odde explains.

These aren't just creatures of the coasts, either. When NDSU conducted consumer research at Hornbacher's Food Stores, a regional retail chain in the state, 38% said they probably or definitely would be more inclined to buy beef labeled “natural”; and 53% said they would pay 5-10% more for it. Nearly 76% said they probably or definitely would be more inclined to buy beef labeled as, “Raised in North Dakota.”

All told, NMI estimates 23% of all consumers are part of the LOHAS category. “The likelihood that percentage will remain and grow is huge,” Odde says. “As an industry, if we're not keenly aware of them it will hurt us.”

As for retailer interest, Pape says “natural” is a means of product differentiation in the competition against Wal-Mart. Unable to compete on price, retailers hope to differentiate themselves with products and customer service.

Even without Wal-Mart, Pape says, “The key is to develop a product with real value, both in terms of overall positioning and marketing, and also in terms of the customer's eating experience.”

That's where Dakota Farms Natural Beef comes in. It's the first product NDNB will begin marketing early next year, with beef coming from cattle that have never received antibiotics or growth hormones. But the differentiation goes beyond that.

Though the specifics are proprietary, James Henderson, founder and manager of Synergy Beef, LLC, at Childress, TX, explains, “Our (industry) model has evolved into what I call a socialistic model: We view profit opportunity as finite and fight over what share of the profit we get. A capitalistic model says, given the opportunities, we can increase demand, thereby increasing profit opportunities for all involved.”

More succinctly, Henderson says the industry is wide open for those who want to compete utilizing a systems approach to the business.

As part of North Dakota's Beef Systems Center of Excellence initiative (see main story, “Swapping Smarts”), NDNB and NDSU are focusing on the systems model and integrated production and marketing opportunities.

“In a country where consumers spend 7% of their disposable income for food, there's huge opportunity. There's 93% of consumers' disposable income we haven't tapped yet,” Henderson says.