Application of the Farmer Brand Application of the Farmer Brand Concept to U.S. Agriculture: Concept to U.S. Agriculture:

Opportunities and Constraints.Opportunities and Constraints.

Dermot HayesDermot HayesIowa State UniversityIowa State University

Presented at ALL FOOD IS NOT CREATED EQUAL:Presented at ALL FOOD IS NOT CREATED EQUAL:

Policy for Agricultural Product Differentiation Policy for Agricultural Product Differentiation ConferenceConference

Sunday, November 14 – Tuesday, November 16 2004Sunday, November 14 – Tuesday, November 16 2004

Berkeley, CaliforniaBerkeley, California

OverviewOverview

The concept in economic termsThe concept in economic terms Lessons learned from the EU experienceLessons learned from the EU experience Recent developments in CanadaRecent developments in Canada Opportunities in the U.S.Opportunities in the U.S. Constraints in the U.S.Constraints in the U.S.

The ConceptThe Concept

Farmers (or their agents) develop a niche product and Farmers (or their agents) develop a niche product and market this product as a collective brandmarket this product as a collective brand

If the product succeeds, output must be restricted to If the product succeeds, output must be restricted to preserve economic profitspreserve economic profits

Regulators can protect the product from competition from Regulators can protect the product from competition from outside the group via property right protections such as a outside the group via property right protections such as a trademark or copyrighttrademark or copyright

Some mechanism must also be found to protect against Some mechanism must also be found to protect against output expansion from within the groupoutput expansion from within the group

Producers lose their anonymity and have a vested interest Producers lose their anonymity and have a vested interest in brand quality and safetyin brand quality and safety

This isThis is not not like organic or local markets or a geographic like organic or local markets or a geographic indicationindication

Lessons from the EULessons from the EU

Never ever say that the purpose of the brand is to Never ever say that the purpose of the brand is to fix pricesfix prices

Use a very small geographic indication or trade Use a very small geographic indication or trade secret to restrict supply secret to restrict supply

Announce that you are doing so in the interests of Announce that you are doing so in the interests of the environment, society and the consumerthe environment, society and the consumer

DOLPHINS Development of Origin Labeled DOLPHINS Development of Origin Labeled Products: Humanity, Innovation and SustainabilityProducts: Humanity, Innovation and Sustainability

Lessons from the EULessons from the EU

There are at least a hundred successful EU There are at least a hundred successful EU applications of the concept and many more in the applications of the concept and many more in the legal pipelinelegal pipeline

Price premiums range as high as 400% for lentils Price premiums range as high as 400% for lentils and land values are as much as 1000% higher for and land values are as much as 1000% higher for vineyard eligible for the Brunello di Moltalcino vineyard eligible for the Brunello di Moltalcino BrandBrand

Much of the value added really is done locally and Much of the value added really is done locally and this activity can have a very positive impact on the this activity can have a very positive impact on the rural economyrural economy

Consumers gain Consumers gain ex-anteex-ante but lose but lose ex-posex-postt

Lessons from the EULessons from the EU

When a brand works, it can create turmoil among When a brand works, it can create turmoil among the have nots and a this energy needs to be the have nots and a this energy needs to be diverted into a second brand such as Rosso di diverted into a second brand such as Rosso di MoltalchinoMoltalchino

These brands can run afoul of antitrust legislation These brands can run afoul of antitrust legislation if the price fixing aspects are obvious, therefore no if the price fixing aspects are obvious, therefore no explicit production of price triggers should be usedexplicit production of price triggers should be used

It really helps if you can connect the brand to the It really helps if you can connect the brand to the local environment in the minds of consumers, but local environment in the minds of consumers, but a continuous production history is not essentiala continuous production history is not essential

A 14A 14thth Century Fresco Century Fresco

The Super Premium Cinta CeneseThe Super Premium Cinta Cenese

Developments in CanadaDevelopments in Canada

1.1. Canada has just approved its first FOB for Canada has just approved its first FOB for lamb and it appears to be a successlamb and it appears to be a success

2.2. Initial price premiums are 25% greater Initial price premiums are 25% greater than the commodity productthan the commodity product

3.3. So far the consortium accepts all breeds So far the consortium accepts all breeds produced in the region!produced in the region!

4.4. We were told that there is a “line of other We were told that there is a “line of other producer groups” waiting in Canada.producer groups” waiting in Canada.

Charlevoix lamb is the first product to be place-Charlevoix lamb is the first product to be place-protected in Canada. Used to protect the name from protected in Canada. Used to protect the name from counterfeit lamb. counterfeit lamb.

Charlevoix

Opportunities in the U.S.Opportunities in the U.S.

Most U.S. States are far too large to act as a Most U.S. States are far too large to act as a geographic limit on production and state geographic limit on production and state brands often become a commodity brands often become a commodity standard.standard.

Additional criteria are needed, these criteria Additional criteria are needed, these criteria should increase quality without the use of should increase quality without the use of variable standardsvariable standards

The concept should also make intuitive The concept should also make intuitive sense to an uninformed consumersense to an uninformed consumer

Many U.S. regions have lost population since 1970Many U.S. regions have lost population since 1970

Vidalia OnionsVidalia Onions

The Vidalia GIThe Vidalia GI

The name “Vidalia” owned by the Georgia Department of The name “Vidalia” owned by the Georgia Department of AgricultureAgriculture

U.S. Department of Agriculture federal marketing defines U.S. Department of Agriculture federal marketing defines geographic limits of production regions and authorizes geographic limits of production regions and authorizes growers to set quality standards. growers to set quality standards.

Registered certification mark gives Georgia the right to fine Registered certification mark gives Georgia the right to fine growers who do to abide by geographic boundariesgrowers who do to abide by geographic boundaries

The concept was an initial success but there is a potential The concept was an initial success but there is a potential problem for oversupplyproblem for oversupply

The sort term response is to increas quality standards but The sort term response is to increas quality standards but this is wastefulthis is wasteful

Napa Valley Wine AppellationsNapa Valley Wine Appellations

$44 per bottle

Why doesn’t Iowa create a Why doesn’t Iowa create a producer-owned brand for beef?producer-owned brand for beef?

Least expensive grain is found in IowaLeast expensive grain is found in Iowa Iowa producers have a long history of Iowa producers have a long history of

focusing on using quality breeds in beef focusing on using quality breeds in beef production.production.

Iowa can build on “I-80” quality signal.Iowa can build on “I-80” quality signal. USDA is in the process of setting up an USDA is in the process of setting up an

animal id system that will certify animals that animal id system that will certify animals that meet high quality export expectations.meet high quality export expectations.

Current (pre-BSE) Japanese Current (pre-BSE) Japanese ProcurementProcurement

Japanese buyers obtain their beef by Japanese buyers obtain their beef by 1.1. Buying from particular packing plants that Buying from particular packing plants that

receive the greatest proportion of their cattle receive the greatest proportion of their cattle with desirable traits and then with desirable traits and then

2.2. A buyer is in the plant trying to identify which A buyer is in the plant trying to identify which carcasses are most likely to have the traits.carcasses are most likely to have the traits.

Where did Japanese want to Where did Japanese want to purchase their beef? purchase their beef?

At packing plants that process cattle from At packing plants that process cattle from regions with inexpensive feed and improved regions with inexpensive feed and improved breeds.breeds.

Japanese have often asked for more beef from Japanese have often asked for more beef from I-80 processors.I-80 processors.

These animals are often fed on grain after These animals are often fed on grain after weaning and they are often beef breeds but weaning and they are often beef breeds but there is no guarantee, someone has to eat the there is no guarantee, someone has to eat the HolsteinsHolsteins

Our Proposed RequirementsOur Proposed Requirements Minimum Certification RequirementsMinimum Certification Requirements The cattle must be The cattle must be sired by sired by Black Angus, Red Angus, Hereford Black Angus, Red Angus, Hereford

(horned or polled)(horned or polled) bulls bulls. Their mothers must be visually of the same . Their mothers must be visually of the same breedbreed

Individual animals must be source verified Individual animals must be source verified to the farm of birth to the farm of birth using an using an acceptable animal identification system.acceptable animal identification system.

The cattle must be fed in Iowa for a minimum of 200 days on a high-The cattle must be fed in Iowa for a minimum of 200 days on a high-concentrate ration of at least 75 percent corn or corn byproductsconcentrate ration of at least 75 percent corn or corn byproductsco-co-productsproducts..

Individual animals must be age verified and processed by 18 months of Individual animals must be age verified and processed by 18 months of age.age.

Each carcass must grade Choice Plus or better according to official Each carcass must grade Choice Plus or better according to official USDA Grades.USDA Grades.

Product Product willwill be aged at least 14 days prior to being sold. be aged at least 14 days prior to being sold.

Example 2: Non-Industrial PorkExample 2: Non-Industrial Pork

U.S. pork producers have adopted U.S. pork producers have adopted industrialized methods of pork industrialized methods of pork production.production.

85% of U.S. pigs live on farms that have 85% of U.S. pigs live on farms that have more than 1,000 other pigs in residence.more than 1,000 other pigs in residence.

Uniform genetics used to emphasize feed Uniform genetics used to emphasize feed efficiency and low fat contentefficiency and low fat content

Makes pork taste like chickenMakes pork taste like chicken

Niman Ranch PorkNiman Ranch Pork TraceableTraceable “ “We know where and how each piece of meat is We know where and how each piece of meat is

produced and provide direct feedback to our Midwest produced and provide direct feedback to our Midwest family farmers about quality.”family farmers about quality.”

Humanely TreatmentHumanely Treatment ““Our hogs are allowed to run, roam and root. They Our hogs are allowed to run, roam and root. They

are weaned at seven weeks, never given antibiotics, are weaned at seven weeks, never given antibiotics, and are fed only the finest grains and natural and are fed only the finest grains and natural ingredients.”ingredients.”

Good TasteGood Taste “ “Because our hogs live most of their lives outdoors, Because our hogs live most of their lives outdoors,

they need an extra thick layer of back fat for they need an extra thick layer of back fat for insulation in the hot Midwest summers and the cold insulation in the hot Midwest summers and the cold winters. The fat also brings with it superior marbling, winters. The fat also brings with it superior marbling, flavor, tenderness and palatability.”flavor, tenderness and palatability.”

Niman’s ProblemNiman’s Problem

Currently process 2,000 pigs per week but demand exists Currently process 2,000 pigs per week but demand exists for 10,000 pigs per week, or about 0.5% of total US for 10,000 pigs per week, or about 0.5% of total US production.production.

Niman has trouble sourcing 2,000 hogs per week. Niman has trouble sourcing 2,000 hogs per week.

Opportunity: Some farmers are interested in creating “Iowa Opportunity: Some farmers are interested in creating “Iowa Pasture-Raised Pork” to facilitate production contracts and Pasture-Raised Pork” to facilitate production contracts and marketing of alternative pork.marketing of alternative pork.

Niman is not producer owned and the value is created Niman is not producer owned and the value is created elsewhereelsewhere

Constraints in the U.S.Constraints in the U.S.

The commodity system is far more advanced in The commodity system is far more advanced in the U.S, this means that the brands will have to the U.S, this means that the brands will have to sell at a substantial premiumsell at a substantial premium

It is not clear that consumers will buy into this It is not clear that consumers will buy into this concept in the U.S. and it is not clear that farmers concept in the U.S. and it is not clear that farmers have the skills to convince them to do sohave the skills to convince them to do so

From a political economy perspective the new From a political economy perspective the new producer groups are not yet at the tableproducer groups are not yet at the table

It is not clear how the U.S. antitrust authorities if It is not clear how the U.S. antitrust authorities if the product is successful and if producers within the product is successful and if producers within the group complainthe group complain

Why is U.S. Opposed to EU Why is U.S. Opposed to EU Proposals for GIs in WTO?Proposals for GIs in WTO?

EU proposals to strengthen international EU proposals to strengthen international protection for GIs have gone nowhere due in part protection for GIs have gone nowhere due in part to US opposition to US opposition

US has filed a complaint against current EU policy US has filed a complaint against current EU policy on GIson GIs

US position seems to be in conflict with official US position seems to be in conflict with official USDA policy to encourage greater cooperative USDA policy to encourage greater cooperative marketing by producersmarketing by producers

Why the conflict?Why the conflict?