Handling of speciality crops studied by Iowa State University economists

By Susan Thompson
Communications Specialist
Iowa State University College of Agriculture

Most Iowa farmers grow corn and soybeans that are sold as general commodities. One farmer's crop becomes comingled with others as the grain and oilseeds make their way from the farm to the processor or exporter. 

Increasingly, traits that add value to corn and beans are being introduced into several feed and food markets. These products must be kept segregated from the commodity corn and soybeans that are typically handled in the same marketing channels.

John Miranowski and Helen Jensen, both Iowa State University economics professors, have been studying issues that arise in the handling of specialty crops. The research is funded by the U.S. Department of Agriculture and the Agricultural Marketing Resource Center at Iowa State. To help with the research, a survey was conducted in April 2003. Responses were received from 380 of the 460 firms that handle grain in Iowa.
 
Officials at 68 firms said they handled one or more corn and soybean specialty crops in 2002 or planned to do so in 2003. The highest number of specialty crops reported by a single firm was seven, but the average was about two. The most frequently reported specialty crops were high-oil corn, non-genetically modified corn and non-genetically modified soybeans.

One important issue for grain-handling firms is the added costs of differentiating products. On average, firms reported it cost about 32 cents per bushel more to handle specialty crops than to handle commodity crops. Interestingly, half of the 68 firms said they did not have to make any additional capital investments before handling specialty crops.

The survey also looked at the organizational structure of the firms handling specialty crops. About 30 percent of the firms surveyed were cooperatives. Yet cooperatives accounted for 44 percent of those handling specialty crops in 2002 and 47 percent of those planning to do so in 2003. Private firms and corporations made up 70 percent of the sample. Fifty-six percent of those handled specialty crops in 2002 and 53 percent planned to do so in 2003.

Another issue the survey addressed is how grain-handling firms contract with the farmers they buy from and with the processors or other end users they sell to. For instance, the survey showed more than 90 percent of the high-oil corn they handle is produced under contract with farmers. At the same time, the firms have about 70 percent of that corn forward contracted with buyers.
 

More analysis of the survey data is underway to help sort out the industry effects of providing new systems for segregating specialty crops. A paper describing the preliminary study, "Product Differentiation and Segregation in Agricultural Systems," is available online at http://www.card.iastate.edu/publications/synopsis.aspx?id=512.

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Product Differentiation and Segregation in Agricultural Systems: Non-Genetically Modified and Specialty Corn and Soybean Crops in Iowa
John Miranowski, Helen H. Jensen, S. Patricia Batres-Marquez, Ariun Ishdorj
February 2004  [04-WP 354]

ABSTRACT

An important dimension of product differentiation and segregation for specialty crops is the added handling and transaction costs incurred. Some forms of business organization may realize lower costs of providing such services, and if specialty crop production is growing relative to commodity production, these two factors may have implications for industry structure. We use data from an Iowa grain handling survey to test hypotheses developed in the non-empirical transaction-costs literature with respect to organizational and financial governance of cooperatives and private and corporate firms. Preliminary results are discussed with respect to business organizations, added costs, investments, crops, and contracting.

Full text in PDF format: http://www.card.iastate.edu/publications/DBS/PDFFiles/04wp354.pdf