"From dirt to dinner," "plow to plate" - these phrases have been used to describe the new joint ventures or collaborations between seed biotechnology companies and food/feed processors that will allow the companies to control the entire food production process, from seed to packaged product. The phrases are catchy, but what do they and the collaborations really mean to growers?
When chemical and seed powerhouses DuPont and Pioneer joined forces to form Optimum Quality Grains in August 1997, they reported that the joint venture's goal was to speed the development of "new crops that benefit farmers, livestock producers and consumers worldwide." Supporting that statement, DuPont soon after announced a plan to buy Protein Technologies International, the soy products division of Ralston Purina, to give DuPont and the joint venture a direct link to food company customers.
Similarly, Monsanto and Cargill announced last May that they would work together to create and market new biotechnology products for farmers, the grain processing industry and consumers around the world.
Dick Reasons, president, Optimum Quality Grains, Des Moines, IA, says the increase in collaborations is due in part to new genetic technologies that allow the ag industry to efficiently produce differentiated raw materials, which will increasingly be produced to users' specifications. In return, it is expected that suppliers (including technology suppliers, growers and processors) will be compensated accordingly for contributing to the added value of custom products. The reward for differentiated products is expected to exceed the compensation traditionally received for commodity crops. "To day's commodity grain system doesn't reward growers for their best efforts," says Reasons. Ryland Utlaut, president of the National Corn Growers Association (NCGA) and a grower from Grand Pass, MO, thinks there will be more collaborations because companies can capitalize on each other's research, production and distribution strengths. Together, they can make production more efficient and increase distribution and sales, which, in turn, will pay for the increased costs of research and development.
Utlaut says, however, that companies could become so involved in internal restructuring that they could provide less or poorer service to farmers. More time spent on management could also slow product development, he says.
Fewer choices. Utlaut adds that industry consolidation could limit growers' choices in the future. "We won't be able to go to as many suppliers," he says, adding that because there will be fewer seed or chemical companies, growers may not be able to alternate products. "We're concerned about who we're going to do business with in the future," he says.
Mike Yost, president of the American Soybean Association (ASA) and a grower from Murdock, MN, also is concerned about the continued consolidation of suppliers. He says competition encourages companies to develop new and better products. With less competition, new developments may slow and prices for inputs, such as seed and herbicides, could rise.
Utlaut worries that weeds or insects may develop resistance to new technologies. If resistance does become a problem, many farmers may suffer as they did when they planted a popular hybrid that was decimated by the southern corn leaf blight in the 1970s.
AlthoughYost questions just how much growers will benefit from company collaborations, he does believe that society will benefit from them. "The world as a whole will eat better and have more nutritious food," he says, noting that biotechnology could create foods that incorporate inoculum against certain diseases. Biotechnology developments also could help lessen the environmental impact of crop inputs. "Bt corn has already helped growers reduce insecticide usage," says Yost. "To what extent these developments will help farmers is subject to great debate, but society will demand them."
Fitting into the value-added chain. Chuck Merja, a wheat grower from Sun River, MT, says the collaborations between genetic technology suppliers and food and feed processors are bringing new technology to agriculture, integrating it into the food chain and reaping the rewards. "The trick for farmers is to find out how they fit into the process. There are also new business relationships we haven't even anticipated," says Merja.
"Growers need to be proactively leveraging what they bring to the table," says Mark Berg, chairman of the board of the ASA and a grower from Tripp, SD. He believes growers should get more involved in commodity associations and marketing groups and get to know representatives from companies looking for partners in the value-added chain. "It doesn't matter how big the company is, this is still a people business," Berg adds.
Utlaut says growers also may need to connect with companies that are contracting. Providing information on contracting opportunities may be a growing role for associations, such as the NCGA. Utlaut says his association already has a Web site that enables growers to use their own data to assess whether it would be economical for them to raise high-oil corn. "As an association, we're concerned about how we present information. We're not necessarily endorsing high-oil corn, but rather trying to make information on it available to our members," Utlaut explains.
Growers might also consider forming groups with their neighbors to attract contractors that are looking for a steady supply of a particular value-added grain.
Companies also will do more contracting to ensure uniformity and quality of product and greater production efficiencies, suggests Reasons. For example, meat processors and consumers expect good- tasting, nutritious, safe and economical products. As genetics companies, growers and feeders learn more about animal nutrition, they can work together to produce the desired features. By genetically modifying amino acids and energy in grain, they can help impact meat color, firmness, taste and shelf life, says Reasons.
Reasons expects growers to play a crucial role in this process but adds that when products are manufactured to specification (as they increasingly will be in the meat industry), suppliers must be attuned to quality principles. "Growers cannot be paid more and not expect to take on some responsibilities for their part of a different process," he says, suggesting that producing value-added or identity-preserved crops requires a greater level of management.
Pros and cons of contracting. Because joint ventures or mergers across the ag industry probably will increase the level of contracting, growers should be aware of the advantages and disadvantages of this business agreement.
Roger Pine, president elect of the NCGA and a grower from Lawrence, KS, points out that some contracts could restrict growers to planting only designated varieties and applying chemicals in a specific way and time frame. ASA's Yost says other contracts may give growers a choice of a handful of varieties and the flexibility to use whatever crop protection products they wish. "It will depend on the value of the crop," says Yost. Crops for nutraceutical production, for example, may require stricter guidelines.
Pine believes that growers increasingly will be asked to preserve crop identity, which will require more management of storage facilities, trucks and so on. Contracts also could require growers to deliver grain on a particular schedule, not necessarily when the grower wants.
And then there is the question of transportation. Instead of taking grain to a local elevator, the grower may have to deliver it to a customer at a greater distance. When markets are not readily available, the grower will need to assess whether the premiums for contracted grain are worth the extra production or transportation costs.
Growers also assume greater liability when contracting, says Pine. A contract may require delivery of a certain level of oil in high-oil corn, for example. If the grower does not meet that level or a problem occurs in production, the crop may be rejected, says Pine. This could leave the grower selling grain in which he has invested more (in terms of inputs and management) on the commodity market at a lower price.
Although contracting may cause some problems, it will also produce benefits. Growers should make greater returns per acre when growing value-added crops. They also can be assured a market at a predetermined price if they work with a company that respects its contracts. By knowing what that price is, they can budget for inputs and still earn a profit.
ASA's Berg says it will become increasingly important for growers to familiarize themselves with contract law. He adds that contracting will require growers to make decisions further in advance. "They'll be signing contracts before seed is even in the ground," he says.
Berg adds that growers interested in contracting should hone their marketing skills and possibly form a marketing group with neighbors or develop relationships with overseas buyers. They should be alert to new contracts or developments.
Utlaut says that growers may want to designate someone within a marketing group to keep apprised of what competitive contracts are paying. He explains that with commodity markets, everyone knows the price that grain is bringing. But contracts are less visible. "Growers might not really know if they are getting good premiums or being fairly compensated," he says.
New products. What kind of new products or genetic traits could be involved in these alliances? Berg is excited about the possibilities, such as insulin-producing crops or food crops that help make people immune to certain diseases. Pine is interested in disease- and insect-resistant varieties that require fewer pesticides. "They're good for the environment, the grower and the end user," he says. And, he's interested in more productive crops. "As the world population continues to increase, it's important to produce more on the same or less acreage."
In some respects, growers have already tasted the first fruits of joint ventures and mergers. Some business deals have funded the creation of hybrids and varieties that have saved growers money on crop inputs and reduced wear and tear on the environment. How much growers partake of the next course on the value-added table, however, will largely depend on economics, business dynamics, and growers' ability to change. Time will tell if growers will enjoy an equitable piece of the pie.