by Rob Wynstra

One key reality of current soybean marketing is that most soybeans are destined for livestock feed, while most marketing and new product introductions have occurred in the soy food and industrial use areas, according to Peter Goldsmith, National Soybean Research Laboratory Fellow in Agricultural Strategy and assistant professor in the Department of Agricultural and Consumer Economics at the University of Illinois.

"This becomes a challenge to researchers, producers, and soybean organizations to develop dual strategies that simultaneously address new opportunities in the food and industrial uses, while trying to stay focused and create more value from their dominant business of supplying feed," Goldsmith said. He notes that that only about 5 percent of the soybeans produced in Illinois are specialty beans grown under contract. Of the estimated $2.4 billion Illinois crop, only about $132 million is channeled into specialty markets.

"Producers find that premiums are consistently below 10 percent and generally erode over time," Goldsmith said. "Many life science firms likewise are struggling to create value from their innovations in this area of the market."

Goldsmith points out, however, that the needs of end-users continue to fragment as consumers and retailers increasingly dominate the direction of the agri-food supply chain.

"This would imply significant opportunities for identity-preserved food products," Goldsmith said. "Customers around the globe want new features such as low trans fatty acids and low carbohydrates, combined with taste, convenience, low prices, non-genetic modification, and longer shelf life. The organic and food grade soybean markets are some of the fastest growing segments of the market."

Soy meat analogs are estimated to be a $95 million category, growing at 6 percent per year. Soy milk and other dairy analogs had sales of about $700 million in 2002, about one percent of dairy sold. "Globally soybean demand has been increasing more than 8 percent annually since 1996," Goldsmith said. "The soybean?s tremendous functionality is clear as buyers from around the globe are demanding soybean meal as their livestock feed of choice. That leads to the question of why specialty soybeans and their associated value-added markets have continued to lag."

Goldsmith says that one answer is that Illinois producers and handlers have many opportunities to market commodity soybeans.

"They have ready access to rivers, lakes, rail and roads, putting them in a very enviable position for moving large volumes of high quality commodity soybeans," he said. "Technological advances such as Roundup Ready soybeans have also made Illinois growers some of the lowest variable-cost producers in the world."

He notes that a second explanation is that specialty soybeans are produced and marketed under a different business model than commodity beans.

"When producing commodity soybeans, the rules for success are to respond to markets, attain lower costs, build scale, and innovate for greater efficiency," Goldsmith said. "Producers in Illinois have become very skilled at executing this business model over the years."

According to Goldsmith, the growing and marketing of specialty soybeans requires some very different business skills.

"Specialty markets suppliers must respond to the needs of customers," he said. "They must also work with those making changes in the market, operate within a system, and continually strive to improve. So applying commodity rules to specialty businesses may be part of why specialty opportunities are hard to capture. Switching and adopting the new rules to operate the farm business is another major difficulty."

Goldsmith adds that, because of its customer and system orientation, the specialty soybean business require less relative investment in production and much more in relationships and marketing.

"Historically agriculture?s expertise has been in production," he said. "Relationship marketing, communication, and service were not necessary. Specialty soybeans and niche marketing is different."

He emphasizes that farmers, policy makers, and agribusiness managers who want to partake in these markets must act differently.

"Most significant are the types of investment and underlying research and development necessary to compete," Goldsmith said. "Investment may not necessarily be greater in terms of dollar value but certainly must be different."

He adds that the focus for investing should be on information technologies and traceability, processing and food manufacturing, and customer needs.

"For a specialty business to be successful, it is important to focus on customers and service, in addition to producing a high-quality soybean," Goldsmith said. "So whether the entity is a university, an agribusiness, farm organization, or farmer, it means that change is required. The bottom line is that the business of specialty soybeans is different, so investment has to be different."