WANTED: ambitious, self-sacrificing entrepreneurs to set up value-added enterprise. Must have financial track record. Marketing, production and strong communication skills definite assets. Must be willing to work 12-18 hours per day. No vacations.
CALGARY – If that sounds like a farmer you know, it may be that he or she is a candidate to jump on the diversification, value-adding bandwagon.
But it’s not a venture for the faint-hearted, or the under-funded. And farmers who have found success say the value-adding game is not for the lazy.
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Still, with family support, start-up cash and the stamina to nurture a business from the embryo stage to profitability, the rewards can make it worthwhile.
“You always have to be on top of it,” says bison rancher Bob Plumb. “You’ve always got somebody biting at your ass.”
He and his family raise buffalo and process the meat through a family-owned plant. Last year, their processing plant had sales of $750,000.
For those about to take that giant leap into the world of value adding, probably the greatest assets next to stamina are a burning passion and unrelenting belief in the product, says Rod Bradshaw, a partner in Beck Farms at Innisfail.
Beck Farms grows carrots, then cleans and bags them on the farm for retail markets.
Now that the Crow Benefit under the Western Grain Transportation Act has disappeared, which subsidized the cost of shipping grain to port, the notion of adding value to raw products on the Prairies is gaining strength.
Pat Palaschuk, of the Farm Credit Corporation, calculates about seven percent of its loan portfolio is for non-traditional farm lending. By starting a small business, investors add value to their raw products and create local jobs.
“With the change in the WGTA, we’re going to see just a whole flood of these projects, probably more so in Manitoba,” she said.
Palaschuk predicts the most dramatic value-adding activity will take place in southern Manitoba because it will feel the loss of the transportation subsidy most and individual farmers already have developed a diversified array of farm products.
Setting up small businesses to capitalize on those advantages is a natural step.
But like many expanding economic areas, the big guys have an advantage.
“Successful value-added ventures are not exclusive to large firms but of course, large firms certainly have a greater chance of success,” said Don Ross of Saskatchewan Wheat Pool, executive assistant to chief executive officer Don Loewen, a strong proponent of value adding.
Companies like Cargill and Old Dutch Foods are leaders in this area, contributing millions of dollars each year to the prairie economy.
Nevertheless, there is room for the niche marketer who is willing to devote the extra time required to produce specialized products.
“There’s always a niche the big boys don’t want to fill,” said Lou Normand of the marketing division of Alberta Agriculture.
Many farmers do well as food processors because they already know how to run a business and can transfer that knowledge to a value-added operation, said Normand.
In Alberta, people with a new food product can hire the services of the government’s food processing development centre at Leduc. There, food scientists test recipes, teach people how to expand a recipe into large volumes, experiment with packaging and offer taste testing.
Once the product is developed, many start selling at farmers’ markets and later move into local food stores, developing expertise as they go.
The hardest part of product development for many is learning how to sell, a quality many farmers admit they lack.
Donna and Alex Hamilton say they’ve learned to overcome shyness when they enter grocery stores with Hamilton’s Barley Flour, a specialty flour milled from hulless barley grown on their Olds farm in central Alberta.
“As farmers, I don’t think we’re very practised in that sort of thing,” she said.
Secondly, happy customers are a must for repeat orders.
“Retailers are fine to work with as long as they know your product will sell,” said Hamilton.
Once someone breaks into the retail chains, guaranteeing supply is the next challenge.
“It’s tough to walk in and sometimes you have to be careful not to get the order,” said Normand, about the importance of supply.
“You only get one shot at it. If you get it and you’re not ready with everything … and it doesn’t work, it’ll be tougher the second time round.”
The retail sector usually is willing to buy local products because it demonstrates good corporate citizenship and local supplies often are cheaper, said Normand.
However, solid evidence is not available to indicate how much money small value-adding projects inject into the economy, he said. It is known that 80 percent of jobs are created by small business. Small businesses are categorized as those which generate between $500,000 and $10 million in sales per year.
“To do very well at it, you have to aim eventually at sales of a minimum of $5 million to $10 million to make substantial profits,” said Normand.
While many individual company sales figures are confidential, Palaschuk and Normand claim there are farmer-run ventures that have reached that level of sales.
“Specialized products tend to have small markets (and) do generate a comfortable income for the people involved,” said Normand.
Alberta’s ambition is to increase its food processing industry from 1995’s record sales of $5.6 billion to $20 billion by the year 2005.
To reach that target, money will have to come from large outside investors, said Arnold DeLeeow of the Alberta Food Processors Association.
Organizations like the prairie wheat pools, Saskatchewan Wheat Pool being the most aggressive of the three, are an example of large investors joining the game.
Along with other diversified ventures, pool-controlled companies like Prairie Malt, CanAmera Foods which handles oilseeds and CSP Foods, supplier of Canada’s largest full line of bakery goods, contributed $25 million to Sask Pool’s net earning of $33 million last year.
Along with financial strength, large companies can explore niche markets, offer sales expertise and product research, said Ross of Sask Pool.
Significant size required
“If you’re going to have the staying power that’s required to make an investment and see it through over the long pull, if you’re going to have an investment of significant magnitude to generate employment and create some wealth of a meaningful size, and if you’re going to have a new venture and gain access to a market, you need to have significant size to carry through the market development.”
For small entrepreneurs, finding money can be like jumping through a fiery hoop.
Some money is available through special programs under the federal government’s Western Economic Diversification scheme. Borrowers can get up to $500,000 for commercial research, product and market development, as well as processing.
These days, instead of grants, governments prefer to offer advice through business courses or sessions with food industry development specialists.
“We don’t do it for them. We usually point people in the right direction,” said Alberta Agriculture’s Normand.
