University Daily Kansan / Thursday, May 3, 1990
3C
Kansas product value suffers Many farmers lack adequate capital and broker representation
By Gary Patton Kansan staff writer
Linda McCiffett of Alta Vista became an agricultural entrepreneur because she got tired of helping her husband pick corn on their 3,000-acre
She said she also got tired of watching farm resources in the area.
"Somebody had to do something," she said. "We had all these raw materials to work with. I didn't want
with. I thank you very much for farm aid. I just wanted a chance."
MORE
FROM FARMING
farm aid. I just wanted a chance." She took that chance in 1986. With a crooked 73-year-old barn as her store and an eight-room rural farm house as her factory, she began an value to her farm's real materials by making hog sausage, pot pie pies, fruit preserves and popcorn mixes. Today she calls herself a successful manufacturer but says she produces below capacity because she doesn't have bigger buyers for her products.
"I've never really been pushed," said McDiffett, who boasts of being able to make 125 gourmet pot pies a day in her kitchen. "No one has really tested me for production."
McDifett's predicament is a microcosm of Kansas' effort to develop the concept of value-added, which means that the total value of a product is enhanced by a manufacturing process.
McDiffett and the state launched value-added programs in 1986. Both are thought to have tremendous potential for growth.
But both have watched their potential on largely untapped.
In a 1987 report to the governor, the Commission on the Future of Kansas Agriculture recommended value-added as a key strategy to help rural communities survive and thrive in the future. It was expected that value-added businesses would supplement farm incomes and keep more jobs and local dollars in alluring rural communities at a time when Kansas farm employment during the decade fell by 14 percent, and farm land values dropped by 34 percent.
Expectations for the strategy remain high, but it may take five years before results are very visible, state farm officials say.
Kansas has had to dig its way out of a deep hole. In 1986, Kansas ranked
last among the 50 states in value added to food products as a percent of total value of food shipments, according to figures published in the most recent census of manufacturers of the U.S. Bureau of the Census.
In other words, Kansas, the nation's leader since 1985 in wheat and sorghum grain production, was the worst at adding value to its food products before selling them.
"We as a state have not done a good job of capitalizing on the strengths of our agricultural products," said Richard Hahn, director of the Kansas Agricultural Value-Added Center.
On the frontlines of value-added food production, Kansas farmers face their own challenges and obstacles.
Capital:
Capital:
Mak McGaughey of Concordia became an agricultural entrepreneur by accident in 1862, the year he watched his hog house burn. Since then, he said, he has gone from grinding wheat on his kitchen table to processing and marketing statewide an assortment of whole wheat breakfast foods.
But he said he continually had been challenged by a lack of money to make major investments.
"We've sheoostringed it all the way," said McGaughie, who still uses a 55-pound-capacity cement mixer he bought for $14.50 to blend his biscuit and pancake mixes. "As a result, I don't have the expensive equipment to make the instant stuff like Betty Crocker makes. We're relying on customers who will crack an egg, add ingredients and mix up the batter to make their pancakes."
Linda McDiffett mixed her first products by hand and began her business with $3,000, which she used to cement her barn's dirt floor. It wasn't until her second year in business that she could afford to buy a used 10-quart electric Hobart mixer for $800, which she still uses.
for $400, which laid lack of capital was the single biggest problem facing small-scale food processors. But providing that capital is not the center's function.
The center, which is financed this fiscal year by $693,033 of state money, became operational at Kansas State University in May 1989. His charter is to provide technical assistance to agricultural processing endeavors.
Marketing:
"You've got to get an agent to play with the big boys," he said, referring to large food distributors and grocery store chains. "You can't get in the big game without one.
Marketing:
McGaughe said he was frustrated by a "catch-22" situation involving brokers.
"But the brokers won't talk to us; they don't want to talk to us nickle and dime operators. I've worn out my knuckles banging on a lot of doors, just trying to get in and talk to store managers."
He suggested that the state help solve the problem.
"If the state really wants to help us," McGaughey said, "they could get us broker representation. I can have the best product in the world, but if I can't get it in front of Jane Doe pushing a shopping cart down the aisle, then it won't get bought."
"The buyers at the big stores," he said, "are looking for three things: quality, consistent supply and competitive pricing. Our function is to help the people determine and meet these standards."
Hann agreed that brokering was a problem for beginning value-added businesses but insisted that the state should not get involved in selling products.
"The buyers at the big stores," he said, "are looking for three things: quality, consistent supply and competitive pricing. Our function is to help the people determine and meet these standards."
The state does get actively involved in promoting Kansas food products, and Kansas farmers appreciate the state's efforts.
the "From the Land of Kansas" registered trademark program run by the state board of agriculture's domestic marketing staff began in 1864 with 14 businesses and has grown to 272 businesses, staff member Hayley Matson said. Its purpose is to enhance the visibility of small, medium and large state food processing companies through a wide range of promotional events.
A 1989 survey of 1,200 grocery store patrons conducted by the state board revealed that 92 percent of shoppers recognized the "From the Land of Kansas" trademark and that 88 percent preferred to buy Kansas products.
Many farmers lack the business backgrounds necessary to success.
Business skills:
fully package and market processed products.
"The regular farmer is limited in his off-farm knowledge," McGauley said. "He knows how to take his grain to a grain elevator, but he doesn't know how to get products on shelves in grocery stores."
Lisa Brumbaugh, assistant director of the small business development center at Emporia State University, said she routinely helped small-business people starting out by giving them crash courses in figuring costs and pricing.
"There is a lot of risk involved," she said of entrepreneurial efforts on farms. "It takes a lot of guts to do what those folks are doing."
The Value-Added Center was established by the Legislature in 1988 to facilitate value-added activities. But the center has had a problem of regular contact with rural communities. Of the center's first 76 contacts, only 47, or 62 percent, came from rural counties, according to Hahn's 1990 report to the Legislature.
The five counties with the most frequent contacts were metropolitan counties, with Shawnee County at the top of the list with seven.
Hahn projected that the state's slow start in value-added might take some time to change significantly.
"For a long time, Kansas has had a commodity mentality," Hahn said. "We have really just been concerned with growing and selling commodities. It takes awhile to overcome this mentality."
This factor remains a general problem for the state in attracting
It is cheaper to ship raw materials than to ship manufactured food products. The $13.99-a-ton cost to ship raw wheat by railroad is nearly half the cost to ship a ton of manufactured food and kindred products, according to the most recent freight commodity rates of the American Association of Railroads.
This cost favors manufacturers shipping raw farm materials from rural areas to populated areas where they can process and market value-added food products, said Michael Babcock, a principal investigator for the 1988 Blueprint Study on the Future Direction of Kansas Agriculture and Agribusiness.
The state also must overcome a critical economic factor that dissuades many national food processors from moving to Kansas.
Linda McDiffett, founder of Prairie Popcorn and Best of the Sweet Country bakery products, says she gets many of her kitchen ideas from a 75-year-old recipe book she purchased at an auction.
value-added food industries, such as cereal manufacturers. According to the study, Kansas has no cereal breakfast food plants, which is paradoxical given the state's production of some of the raw materials required by the industry.
Those food-processing firms that do operate in Kansas tend to be in non-rural areas, according to 1987 county business patterns, the most recent Department of Commerce statistics available. Only 15 companies that employ more than 100 workers are situated in any of the state's 96 rural counties.
Despite the paradoxes, risks and challenges, farm officials are optimistic that the value-added strategy will work.
Sam Brownback, secretary of agriculture since 1966, said he graded the state's value-added efforts during his term of office as a "B plus."
"We've had a good running start," he said. "The real proof if the
strategy works will be in 1995—eight or nine years after we started. It takes some time for the entrepreneurial activity to show up."
nuclear energy. Karen and John Pendleton of Douglas County, recognized in 1989 as two of the state's successful farm innovators, grow blue Indian corn on part of their 450-acre farm and then have it processed into chips at a Hiawatha plant. Karen Pendleton, a member of the value-added center's leadership council, expressed some doubt about the widespread application of the value-added strategy.
"We are the exceptions," she said.
"Not everyone can do this. Not everyone has the capital, the products or even the entrepreneurial personality. So let's help the ones who are trying."
Recognizing, these challenges, Brownback said, "We (the state) are doing a good job, but we will have substantial failures along the way. We try to advise people that it's a tough ballgame."
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