Official: Consumer-Driven Farming the Wave of the Future

11/10/2012 8:08 AM
By Ann Wilmer Delaware Correspondent

The high cost of farmland or generational land transfers and the capital needed for start-ups are perennial problems for beginning farmers, and they can be severe.
However, they aren’t the only trends that farmers can expect to continue into the future. Some trends offer profitable opportunities.
Gary Matteson, vice president and head of the Young, Beginning, Small Farmer Programs and Outreach of the Farm Credit Council, the trade association for the nationwide Farm Credit system, is a veteran small farmer himself.
At a recent small farm conference at University of Maryland Eastern Shore, Matteson talked about another trend that is evident to agriculture policy makers and that presents both challenges and opportunities to small farmers.
Increasingly, consumer demand is a major market force in agriculture, if you know how to tap in.
“Consumers accustomed to buying niche products 24/7 on the Internet expect similar choice and convenience when making food purchases,” he said. “I’m going to make the case that consumer demand-driven farming will continue to shape the future of farming.”
Matteson said that he spends a lot of time with young and beginning farmers and ranchers, as well as the Farm Credit loan officers who lend to them.
“Beginning farmers are farming differently than their parents, and loan officers have to modify how they lend to meet those changing needs.”
Matteson combined Ag Census statistics with anecdotal information he’s collected by spending time with emerging farm and ranch entrepreneurs who are “getting their hands dirty” as they build their businesses to draw his audience a picture of the new economic realities and opportunities that will influence the future of farming.
New loans made in 2010 included $7.3 billion in loans to young farmers, $10.3 billion to beginning farmers and $13.1 billion to small farmers. The categories of “young,” “beginning” and “small” farmers, collectively referred to as YBS, overlap.
This realignment to “retail agriculture” was evident in the 2007 USDA Agricultural Resource Management Survey that documented that almost one-third of farm households generate additional farm household income by engaging in business ventures independent of farm production.
This profit-generating activity includes on-farm diversification, such as custom work, value-added processing, agritourism, community supported agriculture (CSA) or other direct-to-retail marketing channels. Other farm families generate additional income off the farm that is not related to farming.
This on-farm/off-farm economic activity added $29.3 billion in additional farm household income in 2007, the first time that direct-to-retail sales by all farms surpassed custom work to become the leading on-farm entrepreneurial activity in terms of farm household participation.
Cattlemen are the most frequent users of the direct-to-retail marketing channel. Three out of five farms with cattle sell direct-to-retail. Matteson said that this statistic confirms what young farmers have told him.
“They are using their computer, social networking and communications skills to find multiple marketing channels in order to capture higher margins and mitigate risk,” he said.
He said he was not surprised to learn that young cattlemen attending a national conference were adding value to their herd by choosing a grass-fed production model to sell through alternative marketing channels in order to capture a higher margin for this niche product.
“Unfortunately, it was no surprise that those young cattlemen were speaking quietly among themselves so the old cattlemen wouldn’t deride them for catering to those ‘sissified, mini-van driving’ suburbanites,” he said.
Matteson said a “market-oriented narrative” is a meaningful way to interpret the seemingly disparate trends of consumer-based marketing, the growth of local food systems, direct-to-retail sales, organic production and value-added agriculture.
“If we combine all these activities using the term ‘retail agriculture,’ we have a descriptive model that we can talk about in policy terms,” he said.
He compared it to the term “small business” that is used to describe an economic sector made up of businesses that vary tremendously in type, size and output.
These trends in market-oriented agriculture can be defined based on shared characteristics as 1. Pervasive and popular; 2. Economically significant; and 3.Unconfined as to product or region
For example, if we consider distinct marketing channels separately, we find that direct-to-retail sales are the fifth most “pervasive and popular” on-farm profit-generating activity based on the number of farms involved.
By 2007, the organic, direct-to-retail and local foods sales rivaled the income produced by the sale of cotton and rice — $8 billion compared to $7 billion — illustrating how “economically significant” retail agriculture had become.
“Direct-to-retail farm business models are economically viable and sustainable,” Matteson said.
USDA Secretary Tom Vilsack said at a recent Ag Outlook Forum that the number of farmers markets doubled in the last three years. That suggests that the numbers for CSAs have likely increased significantly, also making the case that retail agriculture continues to be “unconfined as to product or region.”
Further evidence of this characteristic of retail agriculture is that 40 percent of beginning farmers start in metropolitan counties. The inference is clearly that many of these operations are responding to consumer demand by selling into higher-margin local food markets, Matteson said.
Retail agricultural operations share the following characteristics:
• Consumer-oriented marketing rather than processor/integrator oriented.
•     Diversified in agricultural production instead of specialized.
• Highly diversified marketing arrangements.
• Different business models, but profitable.
• Work around a less well developed distribution system (and infrastructure).
• Gaining efficiency by intensive layering of multiple related businesses into farms.
• Addition of new farms in direct-to-consumer markets to meet demand.
• Use of new production techniques and information technology to boost profitability.
• Promoting community among non-farmers.
What this means to YBS farmers is that retail agriculture emphasizes entrepreneurial skills that are transferable between on-farm and off-farm business settings; retail agriculture offers greater occupational mobility; and holding multiple jobs or operating multiple enterprises will be seen as stable income, Matteson said.
And finally, he said, the core relationship of farm business to the community will change as farmers are viewed as rooted entrepreneurs/employers.
Matteson said right now lenders are working with limited and inadequate information.
“We will know a lot more in two years about beginning farmers, but the problem remains that USDA data collection for ‘retail agriculture’ is inadequate to the task of allowing Farm Credit and others interested in young, beginning and small farmer policy to assess where we have been, adequately describe the present, then prepare policy and programs for a predicted future,” he said.
The goal, he said, should be to track how market channel diversification is changing producer marketing options. Using higher sales class level for direct sales and cross tabulations of direct sales with other marketing activities can make more data available to the public. Census follow-up on surveys is a good idea but it’s often difficult to integrate the new information this yields, he said.
Until we have better data, Matteson cautioned that “we run the risk of creating and implementing ag policies and programs that reflect the generational prejudices for the farm business models of our own youthful past.
“We all appreciate the energy and creativity of young and beginning farmers in the abstract,” he said. “We need to make sure we understand that our role is not to meet their needs, but to provide for their opportunities.”

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