By Doug Rich
What does the customer or consumer want?
When there is an answer to that question, a market has been identified and it is up to everyone in the food chain to preserve that product, from the producer to the consumer.
Representatives from all segments of the food chain gathered in St. Louis, MO, to discuss identity preserved (IP) commodities and the markets for those commodities. The Food Chain of Tomorrow Conference was sponsored by the American Soybean Association (ASA), Dupont and the National Oilseed Producers Association (NOPA).
Identity preserved markets are not new to agriculture, but are in the spotlight because of low commodity prices and the furor over genetically modified organisms (GMO).
"Identity preserved markets are one more way to capture value during times of low commodity prices," said Steve Censky, chief executive officer of the American Soybean Association. Identity preserved systems can be used for traditional crops--like food grade soybeans, for biotech crops, for non-biotech crops or for closed-loop systems for unapproved crops. The need for IP systems continues to expand as second generation biotech crops are released.
First generation biotech crops provided farmers with input traits, like herbicide resistance and insect resistance, while second generation biotech crops will have direct consumer benefits. "These functional foods will be one of the drivers in the soy food industry," according to Marlyn Jorgensen, vice president of Iowa Soy Specialties. "This will demand a separate supply system." Functional foods will provide benefits beyond basic nutrients, such as pharmaceuticals.
"We have just seen the tip of the iceberg, as far as nutritionally and medically enhanced foods are concerned," said Michael Dunn, under secretary for marketing and regulatory programs, U.S. Department of Agriculture. These products will have benefits for a population that is growing older, sicker and costlier to maintain.
In a system designed to handle bulk commodities, is it possible to IP special grain products all the way from the producer to the consumer? "It is possible to ship large quantities of genetically pure products," according to Jim Stitzlein, manager of market development, licensing and storage for Consolidated Grain & Barge Co. "But the IP system adds cost all along the way, from producer to consumer, and the costs are greater as it gets closer to the consumer. The value of the product to the consumer has to be greater than these costs."
With additional cost comes additional risk. Who will pay if a load of IP grain is turned down, because it is contaminated or does not meet the standards requested by the end user? "There is a risk of failure and we will fail at some time," said Stitzlein.
"The added costs today could be the standard for doing business tomorrow," said Dunn.
Rejection coverage has been around for a long time, according to Gerald Sullivan, president of The Sullivan Group. This type of insurance coverage just needs to be adapted to cover shipments of things like non-GMO and GMO grains. To provide coverage, the insurer needs to know exactly what they are insuring. Sullivan said a system exists to do that and it has been around for many years. "Use the seed certification system in place and approved by the Association of Official Seed Certifying Agencies (AOSCA)." Certified seed growers are the original identity preserved marketers. The seed certification system provides record keeping, inspection protocols, lab analysis and official labeling.
"Good, realistic testing at the point of discharge is the biggest problem," said Sullivan.
High oil corn, food grade soybeans, white wheat, GMO or non-GMO, no matter what the product is, it all starts with the producer who probably signs a contract to grow that specific grain. "Contracts are going to be the future," said Kim Larson, an ASA board member and Minnesota soybean farmer. "Remember, we are going into business with someone when we sign a contract." Larson recommends that farmers have a second pair of eyes look at the contract and that farmers don't sign any contract they don't understand. "We need to avoid the 'chickenization' of grain production, as far as contacts are concerned."
"I like the contracts I signed four to five years ago better than the contacts I sign today," said Nancy Erickson, an Illinois farmer. She and her husband farm 2,900 acres of corn and soybean and have signed a variety production contracts over the years. "A lot of farmers don't even read the contract." Erickson said farmers should not only study the contact closely, but they should take it to an attorney. "Let someone else read it."
Items that can cause problems in a production contract are delivery time, delivery point and tolerance level. Erickson said she has had as little as two days notice to deliver high oil corn grown on contract. "Very little notice is a cost to me," she said. It required extra labor to get the grain loaded and cost extra to hire trucks on short notice. Delivery point can be a problem, when a contract states that the grain must go through a "specific" elevator before delivery to the buyer.
Unrealistic expectations towards tolerance levels should be a concern," says Erickson. "This represents a huge amount of risk."
Larson said 100% purity is not possible. There is no standard for purity, but a 1% tolerance level is common and achievable.
The Japanese, who have a long history of buying identity preserved grains, are not going to worry about tolerance levels. They want to buy non-GMO grain, but will allow up to 5% GMO grain in shipments at the end user. The Japanese will depend on their own grain handling system to make sure that products labeled non-GMO are, in fact, processed from non-GMO grain. In August, Japan released its own set of labeling regulations, which will go into effect in April.
The current confusion in Japan over IP marketing stems from several issues, according to Motoyasu Yoneno, who works for Marubeni America, in Portland, OR. There is confusion because there is no single unified method of IP handling; there is no GMO test method or procedure; there has been complicated news from European Union and the U.S. concerning GMO grain; the method for settlement in the case of GMO contamination is unclear; and there have been severe requests from end users about non-GMO purity.
If farmers are to go to the additional work and expense to segregate crops, according to traits requested by their customers, they will need to be rewarded. Will there be premiums for producing these IP crops?
Larson said the premium for certified organic soybeans can be as much as two times the price for conventional soybeans. The premium for variety specific soybeans can amount to 45 cents to $1.50 per bushels and 10 to 35 cents per bushels for non-GMO soybeans. Again, the devil is in the details. Check the contract to see if this premium is for all the soybean grown or only for those soybeans approved by the buyer. Many contracts for certified seed only pay a premium on the seed that remains after the load is cleaned and bagged.
IP markets are here, and it would appear they only will expand in the future. These new markets could change the way producers have been doing business for years.
Instead of taking a bulk commodity to the elevator and asking how much is it worth, producers will say this is what it will cost for me to produce what the consumer wants.