Producer-Owned Cooperative to Process and Market Sustainably Produced Pork

Final Report for LNC98-132

Project Type: Research and Education
Funds awarded in 1998: $23,590.00
Projected End Date: 12/31/2001
Matching Non-Federal Funds: $24,190.00
Region: North Central
State: Iowa
Project Coordinator:
Dennis Smith
Iowa Farmers Union
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Project Information

Summary:

The project seeks to help farmers establish a cooperative to process and market pork to consumers seeking foods produced under environmentally sound standards. A comprehensive survey instrument was developed and mailed to approximately 1000 Iowa producers, with a return rate of about 24%. The survey measured current production capacity and standards among respondents, as well as gauging their willingness to adopt alternative production methods. Also, the project commissioned a study of individual and group marketing efforts currently engaged in producing and marketing natural pork. The project identified a lack of local processing and distribution capacity as major obstacles to overcome.

Introduction:

The overall objective of the project was to explore alternative methods of hog production and pork marketing within a cooperative business structure for producers seeking alternatives to the general commodity markets. The particular niche studied was the market for pork products from hogs raised in an environmentally sustainable manner.

The project was directed by a steering committee of seven producers who are currently raising hogs, along with an advisor from an allied organization, Practical Farmers of Iowa (PFI). Administration of the project was coordinated by a staff member of the Iowa Farmers Union Education Foundation (IFUEF).

After a preliminary review of processing, distribution and marketing opportunities, a survey instrument was devised by the coordinator and the PFI advisor. The survey, which measured production and marketing practices currently employed by respondents, was mailed to approximately 800 members of the Iowa Farmers Union and Practical Farmers of Iowa. In addition, a short-term study of Iowa producers currently in the “natural” pork market was commissioned. Finally, more than 2,100 consumers were surveyed at the 2000 Iowa State Fair regarding environmental standards and personal shopping preferences in relation to the project’s objectives.

Approximately 25% of producers surveyed responded, with just over a quarter of these (55) expressing interest in participating in the project. A significant majority of surveyed consumers supported stricter environmental protections against industrial livestock operations, with even more expressing a willingness to pay premiums for sustainably produced meats. The study of current producers revealed obvious advantages for independent entrepreneurs in exploiting emerging markets in natural pork, but also identified a number of opportunities and challenges for cooperative structures in entering this market.

Given the responses of both producers and consumers to the principles and objectives of the pork co-op project, the steering committee decided to continue the project into the next phase, which will involve raising funds for the commission of an in-depth study of the market for natural pork products as part of a general business plan for the co-op. Depending upon the results of this more detailed study, the business plan and prospectus will be offered to interested producers in the course of an equity drive to start full business operations.

The project coordinator and steering committee believe that the overall design of the project, including phases subsequent to these initial steps, will be of significant potential benefit to other producer groups interested in producing and marketing environmentally friendly meat products, whether from hogs or other livestock. Whether or not this cooperative is eventually incorporated, we feel the information developed thus far gives a solid indication of the opportunity available to producers outside of the conventional commodity markets for their animals.

Project Objectives:

The objectives are to:

Increase opportunities for small- and moderate-scale owner-operated farms, especially beginning farmers.

Enhance the economic viability of small- and moderate-scale owner-operated farms.

Improve profitability of environmentally sound livestock production systems as a means to reward resource stewardship.

Increase consumers’ access to pork produced with environmental responsibility.

Help prevent further livestock industry concentration.

This project will support a group of farmers to establish the organizational structure and lay the groundwork for a cooperative to market pork from small- and moderate-sized producers using environmentally sound production practices. It will enable farmers to meet local, regional and national consumer demand for lean, natural or other specialized pork. The cooperative will tap specialty markets that appeal to consumers’ concerns about the environment, rural communities, and personal health. These markets would provide farmers with premium prices to reward environmental stewardship and create economic opportunities in rural areas.

Cooperators

Click linked name(s) to expand
  • Gary Huber

Research

Materials and methods:

A steering committee of seven producers, one outside advisor, and an administrative coordinator was reconstituted and convened on April 7, 2000. At that meeting the committee reviewed the original proposal, and discussed modifications in light of developments in the market for slaughter hogs and pork products the past two years. The committee instructed the coordinator to conduct a preliminary canvass of the processing capacity of local meat lockers, Internet marketing approaches, and the creation of a label or other brand identity scheme for the co-op’s products. Also, the coordinator was charged with devising a survey instrument to gauge current production practices and producer interest in the co-op. The coordinator advised the committee to establish production standards and criteria for co-op membership in advance of the next meeting.

At the May steering committee meeting the coordinator gave his report on the subjects mentioned above, and offered to the committee the draft of a producer survey. The committee recommended certain revisions to the survey, based upon a set of production and marketing standards established by the committee. The survey (Appendix A), which also included a section on natural beef production, queried producers about herd size, marketing practices, and their willingness to adopt specific production measures in order to participate in the co-op. The survey was put into final draft and mailed to about 800 members of the Iowa Farmers Union and Practical Farmers of Iowa.

In order to gauge potential consumer interest in the products of the co-op, a less formal survey was drafted and distributed to consumers at the Iowa State Fair in August, 2000. The survey measured consumer response to product identity (country of origin), environmental priorities, and willingness to pay a premium for meat products raised and processed in an environmentally friendly manner. This survey was administered over a 10 day period to more than 2100 consumers.

Next, a survey of current regional natural pork producers was sub-contracted to Emery & McKeever Associates of Grinnell, IA (Appendix B). The interview format was developed in consultation with the steering committee via the project coordinator and outside advisor. Lead researcher Lynn McKeever interviewed seven subjects, including individual entrepreneurs, small independent producer networks, and one of the nation’s leading corporate marketers of natural pork products.

The final meeting of the steering committee was convened November 15, 2000, at which all components of the project to date were evaluated and considered. Based upon the research findings to date, the committee voted to continue the project into the next phase, which will include the commissioning of a more comprehensive market study, the development of a formal business plan, and the enrollment of producer-members through a general equity drive.

Research results and discussion:

In the opinion of the project coordinator, the project objectives as originally stated were too ambitious for the scope of available funding and resources, and more reasonably represent the project's rationale than the necessarily more limited goals of the immediate study period. In turn, these more limited, concrete goals were simply to measure the potential for such a co-op, both from the producer and consumer ends, before launching a full-scale market study and business plan. Thus, for the initial study period (Phase 1), the goals were to measure, in more or less detail, both producer and consumer receptivity to the development of the co-op and its product(s), then to compare these results to a general survey of the experiences of current players in the market for sustainably produced or "natural" pork. Based upon these findings, the co-op steering committee would then determine whether or not to proceed to Phase 2 of the project, which would involve an advanced market survey, drafting of a business plan, and an equity drive.

a. Producer Survey

The first element was the drafting and distribution of, and tabulation of results from, a survey of current pork producers (Appendix A). The survey instrument first screened for those currently in swine production, as well as those who planned on being in production within the next twelve months. Next, responding producers were categorized as to the type and size of their current operation, as well as their management and marketing practices.

Next, the survey asked the producers to break down in detail their husbandry practices (e.g. pasture, hoop, confinement, etc.) by swine development phase (i.e. breeding/gestation, farrowing, finishing, etc.) Finally, the producers were queried on their willingness to meet specific production criteria, as well as their interest in participating in new, sustainable ventures.

Of the 60 current producers culled from the survey sample, more than 88% identified themselves as wholly independent (i.e. no contracts). Annual total production for the sample was nearly 100,000 hogs, with an adjusted average of 1,600 head per producer. Most of these animals were sold to the general commodity market.

Most of the survey respondents farrowed and finished hogs in a manner that could be characterized more or less as "sustainable," with about 20% finishing hogs in confinement (question 8). Most agreed upon the need to develop new marketing initiatives for sustainable livestock, but less than one-third were currently involved in any such initiative. With the exception of two practices, significant majorities of producers were willing to adopt various sustainable husbandry methods. Finally, high percentages of respondents were interested in further information about the co-op.

b. Consumer Survey

The producer survey was a much simpler instrument than the producer survey, and was intended only to offer a rough, preliminary picture of consumer attitudes toward the project's objectives. No attempt was made to measure current consumer purchasing habits, nor were respondents polled on their preferences for specific cuts of meat or other pork products. The survey was administered to 2,100 consumers from August 10 to August 20 at the 2000 Iowa State Fair in Des Moines.

The consumer survey asked respondents three questions:
Do you believe that food should be labeled according to the country of origin?
Do you believe that Iowa's waters are sufficiently protected from pollution from industrial livestock operations?
Would you be willing to pay a premium for meat from livestock raised by farmers using sustainable, environmentally friendly methods rather than raised by factory farms?

The first question was asked to determine roughly the extent of consumer awareness of and potential receptivity to the importance of local food systems in consumer purchasing decisions. Over 95% of survey respondents replied in the affirmative. Question number two was asked in order to gauge consumer awareness of current environmental issues affecting the state of Iowa. Over three-quarters of respondents expressed dissatisfaction with current environmental protections. Together questions one and two determine, respectively, consumer attitudes toward the economic and environmental rationales for the co-op's formation. The third question synthesizes the responses of the first two, and asks consumers to express concrete support for a marketing program based upon the concerns raised in the first two questions. Interestingly, the positive response of nearly 85% falls approximately midway between the responses of the first two questions. Overall, then, the survey denotes a general receptivity on the part of Iowa consumers to the socio-economic and environmental aspects of the cooperative project. Actual market behavior, however, would of course need to be measured by a more advanced market study.

c. Survey of Current Producers

In order to contextualize and offer balance to the producer and consumer surveys, the project coordinator and PFI advisor determined that a survey of currently active producers in the "natural" pork market would be helpful. Although admittedly more anecdotal than statistical, such a survey would put into relief the perhaps overly optimistic conclusions of the producer and consumer surveys by profiling a number of producers who have worked--with mixed results--to realize the potential of the natural pork market. Therefore the project commissioned Lynn McKeever of Emery & McKeever Associates of Grinnell, IA, to conduct a survey of current producer-marketers of natural and/or sustainably produced pork products (Appendix B).

McKeever's findings acknowledge the generally held assumption that natural pork is clearly a growth market in the United States, with potential for even greater gains in the future. However, while cooperative entities may realize some efficiencies in economies of scale, they are potentially at a disadvantage with respect to the entrepreneurial models investigated by McKeever. To quote from McKeever's summary, "Producer cooperatives seldom have the capital, management structure or consumer perspective to compete with corporate strategies over the long term" (McKeever, p. 1).

The McKeever report emphasizes potential pitfalls facing any producer or group of producers entering the natural pork market. Foremost among these are the ever-present problem of an oversupply of product, with the resulting possibility that animals produced by more expensive husbandry methods may have to be sold at a loss on the general commodity market, should a premium market be unavailable at any given moment in the production cycle. Besides stressing the greater tolerance of risk among entrepreneurs, such a conclusion argues for careful marketing studies coupled with the development of primary and secondary distribution networks to minimize risk to acceptable levels.

Three other key areas of concern identified by McKeever include the problems of processing animals, marketing strategies for non-premium cuts (i.e. cuts other than loins, chops and hams), and the necessity of brand development and identification in order to secure consumer loyalty. The lack of processing capacity, especially for larger volume operations such as cooperatives, was identified in the preliminary survey conducted by the project coordinator in spring 2000. There is insufficient slaughter and processing capacity through state-inspected meat lockers for most operations beyond the smaller individual producer, and the limited capacity of available custom USDA-inspected plants in Iowa requires a consistent supply of animals that may not be readily available in a start-up operation.

Product branding and the marketing of non-premium cuts are in certain respects overlapping problems. It is unwise to assume that premiums for more desirable cuts will necessarily offset losses incurred in marketing non-premium portions of the animal. Therefore non-premium portions of sustainably produced hogs arguably need to be processed and marketed further up the value chain than the premium cuts, i.e. into sausage, bacon, deli meats and other processed products. In order to market these efficiently it therefore becomes imperative to develop brand identification in order to develop and secure consumer loyalty for these products at the retail level in a way different from premium cuts marketed to institutional buyers (e.g. "white tablecloth" restaurants).

d. Conclusion

Taken together, the three elements of the first phase of the co-op development project offer a useful overview of the general feasibility f such a project. Clearly there is considerable interest among producers who wish to stay in business in exploring "niche" alternatives to the general commodity market, especially in anticipation next year of depressed prices and an ensuing shakeout similar to that experienced in 1998. And the consumer response to the State Fair survey offers a tantalizing (if somewhat broad and vague) overview of potential consumer receptivity to a well developed marketing strategy for natural pork products beyond the specialized markets currently existing. Finally, McKeever's report offers a bridge between these first two elements, as well as an important corrective to unfounded optimism, by emphasizing challenges facing any entry into the premium natural market, especially by a producer cooperative.

On the basis of these findings, and keeping in mind the difficulty of any new business venture, the project steering committee has decided to proceed with development of the cooperative to the next phase. Accordingly, the committee has authorized the project coordinator to seek funds to finance a more advanced marketing study, as well as the drafting of a business plan in advance of a general equity drive.

Research conclusions:

For the past decade Iowa has been in the midst of an ongoing battle between large, factory-style hog confinements--often financed by out-of-state corporate interests--and advocates for protection of our natural resources, especially our water supplies. Producers have found themselves caught in the crossfire of this battle, on the one hand wishing to exercise responsible stewardship of land, air and water, but on the other needing to compete in a marketplace that seems to reward these large-scale polluters. Increasingly, many of these producers are putting themselves under contract to these larger corporate interests in order to remain in hog production at all. And while a small number of entrepreneurs are developing niche markets, there exists no real alternative for most producers either to striking out on their own, or to capitulating via contract to environmentally questionable factory-style operators.

The continuing development of the Iowa Farmers Union sustainable pork cooperative project has the potential to offer smaller producers a middle way between the high level of risk inherent in an entrepreneurial approach and the environmental degradation increasingly associated with general commodity production. By spreading risk among a network of producers and realizing economies of scale, a natural pork cooperative can be well positioned to exploit an emerging consumer market for sustainably produced agricultural products. And to the extent that the co-op can attract producers and develop a market for its products, Iowa's natural resources will enjoy far greater protection in the long run than simply to leave producers to market forces currently dominating pork production in the state. Furthermore, insofar as the cooperative is owned and managed by its producer-members, its profits will create residual social and economic benefits for the communities in which these producers live and work.

Economic Analysis

The sustainable pork co-op project is not yet at a stage at which economic analysis may be reasonably construed. Such analysis is more properly deferred to the writing of the formal business plan of the co-op, which is distinct from the costs and benefits of participation for its individual members. However, regarding the individual producer, it is generally acknowledged that pasture-based or hoop house swine production is less capital-intensive than the construction of confinements, although the alternative methods prescribed by the co-op would be more labor intensive. This is especially germane as more Iowa producers face the prospect of either leaving swine production altogether or going under contract to large integrators who often require substantial capital investment on the parts of their contractors.

Farmer Adoption

As noted under section 3, part "a" of this report, over 200 producers responded to the initial mailing of 800 surveys. Of these, 55 expressed interest in participating in the cooperative. Many of these, as well as those not interested in participating, offered comments on the concept of the cooperative (Appendix C).

Extrapolating from these numbers, it is the opinion of the project coordinator that there is a significant pool of potential co-op members in Iowa, perhaps as many as 1,000 or more, and certainly more than enough to constitute a viable cooperative.

Involvement of Other Audiences

As noted under section 3, part "b" of the report, more than 2000 consumers at the Iowa State Fair were polled regarding their attitudes toward economically and environmentally sustainable agriculture issues and practices. The results of this consumer survey clearly indicate that there is considerable latent consumer demand for the products of the co-op. Furthermore, the Iowa Farmers Union Education Foundation foregrounded the issue of sustainable agriculture in a series of forums presented in Ames in September and October. The work of the sustainable pork co-op project was discussed at length in at least two of these forums, and received a high level of interest among participating consumers seeking alternatives to commodity pork products. The IFUEF continues to promote the cooperative project to both producers and consumers in the context of its other program work regarding agriculture and the environment.

Participation Summary

Project Outcomes

Recommendations:

Areas needing additional study

Before initiating an equity drive, the IFUEF sustainable pork co-op must first conduct an in-depth study to determine if the results of its preliminary consumer polling translate into real market opportunities for the co-op's prospective members. Without such information, it is not likely that an adequate number of producers would be willing to risk their equity in any cooperative venture, or change their current husbandry practices to meet the co-op's more stringent standards. Therefore the IFUEF is currently seeking funds to underwrite such a study.

Besides an in-depth assessment of end-user markets, elements of such a study might include, but would not be limited to:
∙ a more detailed analysis of current slaughter and processing capacity within the geographical confines of the co-op;
∙ analysis and recommendations for the development of an adequate distribution system for the co-op's products;
∙ the creation of a brand label for certain products;
∙ actual and potential competition from other producers or producer groups over a wide geographic area, including foreign imports; and
∙ the potential of export markets for premium natural pork products.

When the advanced market study is completed, the project will be in a better position to draft a full business plan in anticipation of a general equity drive.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.