ST. PAUL, Minn. – Farmers need to be creative if they want to be
successful, suggests an American with a financial co-operative.
Paul DeBriyn, president of AgStar Financial Services in Mankato,
Minnesota, said the most successful farmers are often “the ones you
don’t hear about.” He added they are often responsive to change.
He said these farmers are trying to buck the trends or position
themselves beyond a commodity-based business and reduce their
dependence on government programs to assist with their income.
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He gave examples of successes achieved by farmers involved with hogs,
dairies and ethanol who have approached his bank with a business plan.
Business plans are critical. DeBriyn said farmers who want to get the
attention and support of banks must have a marketing plan, a contract
or both.
AgStar is a co-operative with 16,000 clients, about 12,000 of them
voting shareholders. Most of its business deals with traditional-sized
farms.
DeBriyn said AgStar staff last year made more than 35,000 farm visits,
providing service “over the kitchen table.”
Among the key challenges for farmers are production volume,
value-adding and market access.
In one area, farmers wanted to improve their position in the market,
the quality of their meat and the profitability of their operations.
In the early 1990s, hundreds of hog farmers in southern Minnesota, Iowa
and South Dakota made a substantial investment into their industry.
They wanted a new hog system and built new facilities.
Nineteen Isowean sow units were built with groups of farmers
financially tied to each. Many of the units were leased, with options
for the farmers to buy them later. Each unit holds 3,000 sows, so a
total of 57,000 sows are now available.
The farmers bought shares in the operation. The barns are
professionally managed and use quality genetics.
The shareholders are provided with 10-pound Isowean pigs, priced at $33
to $40 US.
They finish the animals in their own barns and sell them. Ninety
percent of the production is under a price procurement contract with a
packer.
Individual farmers own the pigs, and DeBriyn said the venture has been
successful.
“This has kept more family farms than any other programs in 21 years,”
he said.
Between 60 and 70 percent of the hogs went to farmers in Minnesota, 20
to 30 percent to Iowa and the rest to South Dakota.
He noted this arrangement helped the hog producers survive and grow
despite the drastic price drop to $8 per hundredweight in the early
1990s. Of the top 30 hog producers in the U.S., six or seven are in
Minnesota, he said, adding that Minnesota has more independent hog
producers than any other state. Few hog farmers involved in the network
were lost during the price crash, while Iowa lost almost 30 percent of
its hog producers.
Having the contract with the packers was important to AgStar.
“We wouldn’t finance a new hog barn if it is not part of a system,” he
said.
Before agreeing to loans, his company wanted to know more about the
unit, the flow of pigs, whether it had proper management, and
especially the market plan.
In this case, AgStar and veterinarians got together and talked to
packers, farmers and others with a stake in the hog barns.
“We were in pretty early. When the farmers banded together, we helped
them put together a financial plan.”
The co-operative served as a consultant, and then helped with financial
services and loans.
“We developed a model and stuck with it.”
A 150-cow dairy herd in southwestern Minnesota decided to target
upper-end grocery stores in the Minneapolis-St. Paul area.
The family-run operation opened in March, and sales have doubled every
month.
The farm promotes that its cows are grass fed on rotational grazing,
and that no hormones are used. Instead of saying organic, the family
plays up the natural image. Between 5,000-7,000 pounds of milk are
processed daily at its on-farm facility.
The family decided to try different products, such as ice cream, soft
cheese and yogurt. Products are marketed through 30 food co-operatives,
and upper-end grocery stores.
Milk is bottled in returnable glass bottles, which the public loved.
One hundred customers are on a delivery route and many more are on a
waiting list.
“They can’t expand fast enough,” DeBriyn said. “There’s a love affair
with glass bottles.”
It’s like turning back history, he added.
The family has been a long-time client and was discouraged about milk
prices.
“They wanted to be closer to retail, but didn’t want a larger herd.
They did primarily all the work” with the business plan, DeBriyn said.
A smaller dairy operation also wanted to be closer to the consumer. A
family with 38 Jersey cows decided to rely on image to market
whole-milk yogurt.
“They created an image in the brand of content Jersey cows in green
pastures with a red barn,” DeBriyn said.
They played up Jersey milk’s quality and sweetness, which DeBriyn said
was attractive and effective.
The family just started the yogurt business this year, with a portion
of its milk production processed in a special yogurt processing
facility on the farm. DeBriyn said there has been good response so far.
“People like the taste of whole milk.”
The family offers eight flavours of yogurt in 18 stores in Wisconsin
and is expected to sell soon in the Minneapolis-St. Paul area.
The husband takes care of production, while the wife is the business
manager.
DeBriyn said the family is optimistic that in the future it may need to
contract other cows to keep up with market needs.
AgStar played a role in helping develop the business plan.
DeBriyn said the United States has 79 ethanol plants with a three
billion gallon capacity, which is expected to reach 4.4 billion gallons
in the next year.
He is optimistic about ethanol and explained why farmers and his
lending co-operative have come on board with ethanol projects.
Ethanol is seen as an additive that enhances gasoline, but more
importantly it adds value to corn grown by farmers.
Farmers buy into an ethanol plant at $2 per bushel of corn. They
receive market prices and added value at the end of the year. While it
depends on public policy and the U.S. energy bill, DeBriyn said ethanol
adds an average of 50 to 75 cents per bushel of corn, or about 25
percent on investment.
Most of Minnesota’s 14 ethanol plants are farmer-owned.
“In Minnesota, 17-20 percent of corn production is going into ethanol.”
The technology has changed dramatically and there are some “very
effective plants out there.”
DeBriyn’s company is financing a number of smaller plants rather than
sinking a lot of money into just one.
