Urbana, Illinois
May 04, 2004
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." |