A project funded by the W.K. Kellogg Foundation and

the USDA’s Sustainable Agriculture Research and Education Program

Task Force LeadersTask Force Leaders

Convening Chair:Convening Chair:Fred Kirschenmann, leopold1@iastate.eduFred Kirschenmann, leopold1@iastate.edu

philosopher, Leopold Center for Sustainablephilosopher, Leopold Center for Sustainable

Agriculture, Iowa State UniversityAgriculture, Iowa State University

Administrative Chair:Administrative Chair:Steve Stevenson, gwsteven@wisc.eduSteve Stevenson, gwsteven@wisc.edu

sociologist, Center for Integrated Agricultural Systems, sociologist, Center for Integrated Agricultural Systems, University of Wisconsin-MadisonUniversity of Wisconsin-Madison

Agriculture of the Middle (AOTM) web site:Agriculture of the Middle (AOTM) web site: http://www.agofthemiddle.org/index.htmlhttp://www.agofthemiddle.org/index.html

The bifurcation of the The bifurcation of the American food systemAmerican food system

Small-scale enterprises selling to Small-scale enterprises selling to direct markets ordirect markets or

Mega-farms selling commodities to Mega-farms selling commodities to huge, consolidated food and fiber huge, consolidated food and fiber firmsfirms

Resulting in the disappearance of the Resulting in the disappearance of the “ag of the middle”—usually family-“ag of the middle”—usually family-operated farmsoperated farms

The declining middleThe declining middle

Percent Change in Iowa Farms Based on Sales Category, 1997 to 2002

24%

-15% -15%

-18% -19%

17%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

< $5,000 $5,000 to $25,000 $25 to $49,999 $50 to $99,999 $100 to $499,999 > $500,000

What do we lose if the midsize What do we lose if the midsize farms disappear?farms disappear?

The ability to produce sufficient volumes The ability to produce sufficient volumes of foods with highly specialized attributesof foods with highly specialized attributes

Many conservation and environmental Many conservation and environmental advantages (air, water, soil, wildlife advantages (air, water, soil, wildlife habitat)habitat)

Taxes will increase because residential Taxes will increase because residential areas require more public services than areas require more public services than farmlandfarmland

Face of rural America altered to contain Face of rural America altered to contain very small farms surrounding urban areas very small farms surrounding urban areas and mega-farms occupying rural areasand mega-farms occupying rural areas

““Ag of the middle” farms Ag of the middle” farms can thrive!can thrive!

Niches for highly differentiated products

Michael Porter -- Two ways to be competitive: 1. being the lowest cost supplier of an

undifferentiated commodity or 2. providing the market with a unique and superior

value in terms of product quality, special features or after-sales service

“Ag of the middle” farmers can be competitive using a functional value chain structure to connect these farmers to the markets.

What is a value chain?What is a value chain?

A value chain is a long-term network of A value chain is a long-term network of partnering businesses working together to partnering businesses working together to maximize value for the partners and for the maximize value for the partners and for the end customers of a particular product.end customers of a particular product.

FarmersPacker (Primal cuts)

Fabrication(Portion

Cuts)

Vet Services

Input Suppliers

DELIVERY

Food Service

Distributor

Market

DELIVERY DELIVERY

Market

Market

Value chain – farmer as partnerSupply chain – farmer as input supplier

Value chains Value chains How do farmers participate?How do farmers participate?

Farmer does the marketing (direct)Farmer does the marketing (direct) Farmer relies on other entity to do the Farmer relies on other entity to do the

marketing (co-ops, networks)marketing (co-ops, networks) Farmer influences or has ownership in Farmer influences or has ownership in

other parts of the chain (processing)other parts of the chain (processing)

Midsize farmers more likely to participate Midsize farmers more likely to participate in co-op or networks so they do not have in co-op or networks so they do not have to market their productto market their product

Key characteristics of value chainsKey characteristics of value chains

Link economies of scale with Link economies of scale with differentiated productsdifferentiated products

Combine cooperation with Combine cooperation with competitioncompetition

Promote high levels of performance Promote high levels of performance and trustand trust

Require shared vision, information, Require shared vision, information, and decision-makingand decision-making

Value chain economics based onValue chain economics based on three components three components

Partner rewards based on agreed upon Partner rewards based on agreed upon formulasformulas

Target or cost-based pricingTarget or cost-based pricing Contracts for long-term partnershipsContracts for long-term partnerships

Three-fold value built into product marketed Three-fold value built into product marketed through the chain—quality of the product, through the chain—quality of the product, food story, trusting relationshipfood story, trusting relationship

Challenges for mid-tier value chainsChallenges for mid-tier value chains

Strategies for product differentiation Strategies for product differentiation and pricingand pricing

Achieving sufficient volume and Achieving sufficient volume and qualityquality

Adequate capitalization and Adequate capitalization and competent managementcompetent management

Consistent standards and Consistent standards and certification mechanismscertification mechanisms

What are we learning from existing What are we learning from existing regional value chain efforts?regional value chain efforts?

Producer groups involved in highly differentiated markets Producer groups involved in highly differentiated markets benefit from engagement in working groups that facilitate benefit from engagement in working groups that facilitate comprehensive assistance to address their challenges; comprehensive assistance to address their challenges;

Land grant universities can cooperate with NGO, agency, Land grant universities can cooperate with NGO, agency, and business partners to establish and operate value chain and business partners to establish and operate value chain working groups that address technical, production, policy, working groups that address technical, production, policy, and market challenges;and market challenges;

Value chain relationships can be designed to reward Value chain relationships can be designed to reward partners fairly based on contribution and risk; partners fairly based on contribution and risk;

Economic, ecological, and social benefits can be Economic, ecological, and social benefits can be successfully incorporated into the planning process for successfully incorporated into the planning process for value chains; value chains;

What are we learning from existing What are we learning from existing regional value chain efforts?regional value chain efforts?

Farmers will not increase production, to supply the growing Farmers will not increase production, to supply the growing demand for highly differentiated and sustainably produced demand for highly differentiated and sustainably produced foods, unless there are appropriate incentives that provide foods, unless there are appropriate incentives that provide adequate premiums and structure so the risks of increasing adequate premiums and structure so the risks of increasing supply are shared;supply are shared;

Mutual interest in the success of other partners within a Mutual interest in the success of other partners within a value chain creates greater opportunity for success among value chain creates greater opportunity for success among all partners;all partners;

Value of the product can be increased with a food story—Value of the product can be increased with a food story—farmers and farm workers fairly compensated, animals farmers and farm workers fairly compensated, animals treated well, good environmental stewardship, etc.treated well, good environmental stewardship, etc.

So

urc

e:

Te

ch

no

mi c

35

40

45

50

55

60

65

72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

49.6%50.4%

Historical Foodservice vs. Retail Spending

% of each food dollar to Retail

% of each food dollar to Foodservice

Food Industry Breakdown(In Billions)

Foodservice $438 Retail $446 Total Food Industry Market $884

Renewing an Agriculture-of-the-Middle (AOTM):A Three-Phase National Initiative

1. An initial task force phase (completed summer 2003) in which strategic frameworks and principles were formulated;

2. A developmental phase (fall 2004-2006) in which capacity is developed for a three-fold approach involving new business and marketing strategies, public policy changes, and research and education support; and

3. An operational phase, in which major marketing, policy, and research/education activities are institutionalized within existing agri-food system industries and organizations.

Strategic framework for AOTM

1. New business & marketing strategies

2. Public policy changes

3. Research and education support

Activities - AOTM developmental phaseActivities - AOTM developmental phase

Organizational StructureOrganizational Structure Develop a clear statement of Develop a clear statement of

vision, rationale, and goalsvision, rationale, and goals

Create an organizational and Create an organizational and administrative framework to administrative framework to support the Phase II worksupport the Phase II work

Activities - AOTM developmental phaseActivities - AOTM developmental phase

Policy and ResearchPolicy and Research Collaborate with other Collaborate with other

organizations and agencies to organizations and agencies to enact meaningful public policy enact meaningful public policy changeschanges

Develop and engage the Develop and engage the initiative’s research and initiative’s research and education capacityeducation capacity

Activities --AOTM developmental phaseActivities --AOTM developmental phase

Business and Marketing Business and Marketing InfrastructureInfrastructure

Develop standards and a Develop standards and a certification system certification system

Develop value chain partnershipsDevelop value chain partnerships Develop a tool kit of resourcesDevelop a tool kit of resources Develop corporate sponsorship Develop corporate sponsorship

of the AOTM food systemof the AOTM food system

For more information on AOM contact:For more information on AOM contact:

Steve Stevenson – CIASSteve Stevenson – CIASgwsteven@wisc.edugwsteven@wisc.edu

ororFred Kirschenmann – Leopold Fred Kirschenmann – Leopold

CenterCenterleopold1@iastate.eduleopold1@iastate.edu

Or visit the web site:Or visit the web site:

http://www.agofthemiddle.org/http://www.agofthemiddle.org/