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Dow AgroSciences Canada Inc.
Experiences in developing and managing a large value chain.
Today, someone somewhere is buying canola oil. The world’s vegetable oil market reflects industry-wide changes based on changes in food nutrition requirements, food labeling, demographic changes and evolving needs of a convenience-driven consumer.
Understanding the trends and consumer issues is key to understanding the vast opportunity for a healthier vegetable oil.
Little Potato Company
The following story explains how a value chain has been used to develop a brand within the potato industry. The approach has allowed its partners to’ think outside the box’ and has added value to the product bought by customers. The company wants their customers to think of Little Potato Company as the “Kraft Dinner of Little Potatoes”.
Highland Premium Alberta Beef Alliance
This story demonstrates one example of how value chains are developing in Alberta’s beef industry. One innovative feedlot near Vegreville, Alberta is pursuing new market opportunities while perfecting a traceback and information sharing system.
Warburtons - A Wheat Value Chain that continues to develop their systems
Warburtons Wheat Value Chain spans Canada and the United Kingdom. The bakery identified that the best way to manufacture their desired premier products was to consistently use high-quality wheat while sourcing through implementation of an identity preserved system.
Value Chains Story -Dow AgroSciences Canada Inc.
Experiences in developing and managing a large value chain.
To capitalize on these opportunities, Dow AgroSciences Canada Inc. developed a value chain to create new technology, develop markets and become a reliable supplier in today’s canola market.
Overview
Dow AgroSciences’ Nexera canola brought a value-added trait to market through an identity preserved (IP) value chain. Nexera canola was specifically designed to consistently deliver Natreon oil. This oil offers the stability and health profile desired by consumers. Greater stability removes the need for the oil to be hydrogenated, thereby improving frying performance and shelf life while eliminating trans-fats in foods. New legislation for trans-fat labeling in the United States and Canada has contributed to exponential growth in end-use demand for Natreon oil.
Challenges
The challenges of meeting Dow’s consumer demand were:
- Providing a consistent supply of quality Nexera canola to meet the demand for Natreon oil.
- Acting alone, no one party could be a reliable supplier of the product or take advantage of this vast market opportunity.
Dow was able to meet these challenges by creating a value chain.
Coming to a common understanding among a variety of partners is never easy. Two factors having a direct impact on the success of this value chain are:
| 1. | An agreed upon vision for serving the consumer |
| 2. | Having similar motivations: profit is always a motivator, but sustainable growth must be ensured. If one party is motivated to capture all the value, the value chain fails. Likewise, if any particular party loses interest or no longer sees a significant enough return, the supply chain will not grow. |
Value chain secures reliable supply
To secure a reliable supply of a guaranteed product specification, Dow developed strategic partnerships with retailers, producers, grain consolidators, exporters, primary processors, and secondary processors.
To reach the consumer base, Dow and its value chain partners place particular emphasis on demand creation initiatives with global canola crushers, secondary processors, and retail food companies.
The vast majority of producers today deliver in a spot price market. Growers involved in Dow AgroSciences’ value chain are encouraged to consider forward contracting. IP grain contracting has evolved considerably with multiple contract options that can be tailored to suit most growers’ needs: leaving as much pricing flexibility as desired.
The product that Nexera supplies is not just seed in a bag, but is a specific end-use product attribute that cannot be produced without the unique capabilities of each participant in the value chain. The typical "zone of attention" from most seed manufacturers today ends at the farm-gate. To succeed in the value chain, parties faced a paradigm shift: from a buy-sell mentality towards a partnership philosophy.
By working together, all parties are able to capitalize on the market opportunity and to maximize profits.
Benefits of the value chain
Key benefits to Dow’s value chain include unique marketing opportunities, guaranteed markets, opportunity to extract greater value from a generic, commodity market, defense against competing global crops (soybean), and ability to manage risk.
The value chain has generated an opportunity to diversify and brings new value into an otherwise generic commodity. Growers, grain companies, exporters, processors, and food companies, bring new value into categories of oil-based products that currently lack differentiation and are under increased price scrutiny. Engaging in these opportunities provides a competitive advantage for all players.
From 2000 - 2004 Nexera canola has generated $36 million incremental value for Nexera growers (i.e. value of crop production above generic canola, delivered to producers). This has been created by consumers’ recognizing value in the technology benefits of the Natreon oil.
While the greatest portion of the value generation is directed to the grower level, other value is also generated with other players of the value chain to continue investment in the technology and infrastructure required to create demand and build further supply capability.
New value chain opportunities
As companies such as Dow AgroSciences recognize the benefits of value chains, business case development and R&D resource investment will continue. Particularly within agriculture, there is tremendous future opportunity in novel food solutions, utilizing plant-based products as feed-stocks for the industrial sector, and developing plant produced animal health products.
For more information call the Dow AgroSciences, Solutions Center at 1-800-667-3852 or check the web page at
www.dowagro.com
Value Chains Story - Little Potato Company
Overview
Jacob Van der Schaaf had a dream to taste the baby potatoes he enjoyed as a boy. This dream led him and his daughter Angela Santiago to establish the Little Potato Company (LPC). The LPC is a creative produce company, which offers produce of exceptional quality and superb flavour.
The company’s vision is to promote the taste and convenience of little potatoes as an excellent side dish: twenty minutes from preparation to plate – little potatoes are the new, natural convenience food of the 21st century. To accomplish the vision, LPC believes in establishing relationships and listening to customers.
Customers expect a convenience food to be supplied all year. This presented a challenge for a traditionally seasonal product. To meet the expectations and to ‘take care of things’, the Little Potato Company applied a value chain approach.
Establishing the value chain
The business approach chosen by Little Potato Company proved to the market that they were committed to their customers for the long term. By working with their partners, LPC was able to coordinate supply of the baby potatoes year round and exceed their customers’ expectations by converting a commodity into a value added product.
LPC’s commitment to customers was evident as they asked questions to determine what standards were desired for the products themselves. To become unique in their customers’ minds, they created relationships based on communication, from customers to producers.
LPC started off to establish relationships, in person with the Buyers, Directors of Procurement and Field Representatives to learn the quality and standards desired by the customer. By working back to production with growers open to new ideas, LPC could show the growers the market needs and together try and implement change in systems to meet the standards, including sizing, seed and planting specifications.
This knowledge provided an education opportunity where the partners could compare the difference in quality derived from current production and processing practices to the desired product quality standards. Soon they were able to eliminate culls, out of the product flow and ultimately improve efficiency and “pocket books”. They also worked on consistent pricing formulas that last for twelve-month periods and blend pricing between the colors to make it easier for the retail market.
In its seven years of operation, the LPC has grown from one acre to a value chain encompassing 25 dedicated staff in the processing plant and nine growers from Alberta, Saskatchewan, California and Washington State.
Results
The relationships and open communication lines throughout the chain enables:
- The partners to respond to rapid change in technology or market needs.
- Customers to let LPC know of problems and for solutions to be worked out together.
- Customer loyalty through trusted relationships.
- Improvements in potato growing because feedback is shared among partners.
- Both LPC and growers can quickly adjust technical and production systems.
- Achieving sales, while customers receive the desired product.
- Improvements in quality and production of baby potatoes that match established standards.
- Financial stability for LPC and their partners.
“The value chain approach forced us away from the commodity side, which is very supply and demand driven and causes unpredictable pricing levels. Every week buyers would request a price list to be faxed in and they would purchase from whomever was the cheapest for that week. Buyers would just play one supplier against another driving down prices.
This in turn could not bring stability or profit to any business. By going to the buyers with a blended price that only changes, if at all, once a year and with a program managed by your broker for ad activities, you get consistent business that remains profitable for LPC and the Growers. For the Vendor, they have a consistent price from a consistent supplier and can increase business in that category by supporting the ad program brought to the table. By applying this business approach we are very happy with the results.” D. Peters
Further initiatives
The early success achieved by the LPC means that they must stay one step ahead of the competition and further differentiate their products. This is where the Little Potato Company and its’ partners continue to adapt and manage their value chain approach.
LPC is moving to “foodview” a trace-ability program to present to the retailer. Once implemented, a year or two will be required before the system runs most effectively. Customers will be able to enter a unique number off their package of little potatoes into a computer to see the process involved in producing the baby potatoes.
The Foodview system is expected to produce benefits for all levels of the chain. For example:
- Retailer concerns for safety. If the retailer has a product problem, it can pull the lot number and find out more information on the specific packages.
- Processor will be able to track product movement and respond to questions and increase the chain’s ability to improve production systems.
- Producers can use the information for benchmarking information and make decisions on systems or management changes.
- Customer will have the convenience offered by a unique product available all year and access to information on the use of the product.
As LPC continues to manage and develop their value chain maintaining relationships is critical, though this actually increases the work involved. The interest and expansion into Eastern Canadian markets, means more potatoes are grown and new relationships are built with these buyers. As a result LPC has introduced brokers into the existing chain to help maintain the image and the brand. Brand maintenance will help grow and maintain relationships with customers.
To find out more about the Little Potato Company visit www.littlepotatoes.com
or contact Darcy Peters, Sales and Marketing Manager or Tim Darragh, Field Production Manager at 780-414-6075.
Value Chains Story - Highland Premium Alberta Beef Alliance
Overview
The cattle industry is facing the same trends we’ve seen worldwide: fierce global competition; consolidation of the feedlot and packing industry; and stagnant levels of consumption.
Consumer demand is changing. Increased competition has resulted in demands for lower prices and higher quality. Fortunately, this has resulted in the emergence of new market opportunities for higher value premium and convenience beef products.
Process
Highland Feeders Ltd. saw an opportunity in the higher-value market with Highland Premium (is it not “Silver Creek”?) Alberta Beef. Their product offers food service buyers a marketing alternative through a focus on a natural product (i.e., antibiotic-free and hormone-free beef) and a source verification system. Source verification involves tracking cattle from the pasture to the processor.
Armed with a value chain vision, Highlands approached others to work together, including: a processor, cow/calf breeders, ComputerAid (a computer-technology firm located in Okotoks), and Bouma & Toma Management Consultants (specializing in value chain development). to participate in a pilot project. Highland championed the project by adapting Canadian Cattlemen’s Association production protocols to meet niche consumer demands. Together with their partners, they explored market in Europe, New York and Canada.
Their value chain provided cow/calf producers, already following established protocols, with an opportunity to participate in a new approach to production and marketing their cattle. Their small-scale approach limited the risk of the chain approach because participation didn’t require any minimum number of cattle. They could choose from a number of ownership options: retained ownership, direct sale to Highland, shared ownership, and pre-arranged auction mart sale. Regardless of their ownership option, they were members of the value chain.
This alliance stands to benefit for cow-calf producers, feedlot, packer, retailer and consumer because:
- producers can leverage information to improve production (i.e., data on animal health, nutrition, daily weight gains, etc.) and herd genetics
- producers work towards securing a market along with Highlands
- The feedlot improves procurement techniques, maximizes inventory and may secure market share.
- Packers may realize greater security through greater consistency of shipments, higher valued products, and food safety through better handling and traceable carcasses.
- Retailers or food service companies secure a reliable consistent supply. They can validate food safety controls and market a branded product.
- The consumer receives a quality product with assurances of animal care and environmental protection (Highlands has won awards in environmental stewardship) as well as food safety.
Highland Premium Alberta Beef Alliance believe there are three components critical to their success in value chain development - communication, facilitation and trust. Through meetings and the sharing of information with producers, processors and marketers, Highlands has focused on long-term growth of their value chain in spite of the challenges and the time and effort it has taken.
The project’s steering committee has these words of wisdom to those embarking on a value chain project.
- Be flexible as the value chain strategy evolves.
- Time is your friend. This process requires a long-term commitment to succeed.
- It’s important not to burn bridges. Markets, partnerships and strategies may change but strive to maintain good business relationships as they evolve.
Results
Changes in exchange rates and even the September 11 tragedy in New York have both impacted the markets for Highland Premium Alberta Beef Alliance. Fortunately, a new market appears to be opening up in eastern Canada. Changing markets require them to always be on the look-out for new market options. At the same time, they are refining their approach to trace-back and information sharing with producers and processors. The fact that Highlands continues to develop its value chain is not only a tribute to their commitment to collaborative work but also a valuable lesson for others. Value chains take time, but in the process, an opportunity is at hand to find greater value for Alberta’s premium agricultural products.
Value Chains Story - Warburtons
Overview:
In 1993, Warburtons, a century-old family firm and Britian’s largest independent bakery, built a value chain to address a management challenge: "How to manage their premier bakery product’s quality and consistency through the use of specific varieties of wheat?"
Research revealed that particular varieties of Canadian Western Red Spring Wheat (CWRS) - specifically Teal, Pasqua and Columbus - worked best in their system of producing bread better suited to their customers’ tastes. To ensure these varieties Warburtons’ began discussions with the Canadian Wheat Board to use "identity-preserved contracts" to source specific varieties of wheat.
Building the value chain:
Working with two elevators - Agricore (formerly Manitoba Pool) and Paterson Elevator, Warburtons began to build their value chain in 1993 to address:
| 1. | Management of bread quality and consistency using specific varieties. |
| 2. | Sourcing through implementation of an identity preserved system where production contracts were awarded to farmers with a reputation for growing consistently good quality CWRS crops. |
The crops are grown from certified seed under good management practices for production and storage. Information from reports on weather conditions, inputs, crop yields and sampled wheat are shared. Trust and reputation are critical between the partners. The farmers receive a premium per tonne over regular CWB price for identical grain and Warburtons accept all contracted wheat that meets the agreed upon standards. They purchase direct from CWB and are charged to cover the additional administration and logistical costs.
The elevator ensures the identity- preserved conditions by maintaining the correct characteristics and keeping the product separate from other varieties throughout the entire grain handling system. A management fee is paid to the elevator companies for administering the contracts and preserving the identity of the wheat through shipment.
A research lab and pilot bakery, Warburtons Technical Centre in Brandon, Manitoba conducts quality tests, refines their bakery technology and experiments with new varieties and combinations.
Benefits:
Constant communication happens in this value chain, to continue the value they have created through coordination and to ensure the grain is identity preserved. For Warburtons the value chain has enabled them to continue to produce consistent, high-quality bakery products.
Warburtons’ continues to invest in the value chain:
To continue the value chains’ investment in the identity preserved wheat program, the value chain adopted "croplands software". Today, through the Warburtons Technical Centre in Brandon, Manitoba, Warburtons Ltd. contracts approximately 800 growers to manage some 160,000 acres of Identity Preserved Wheat annually.
Warburtons’ innovative approach illustrates how the agriculture and food industry has adopted the use of technology within an existing value chain. The attached ‘pdf’ file has the story on how Warburtons has used this software to manage risk in the chain and some background on this software application.
For more on Warburtons Ltd. visit http://www.warburtons.co.uk/index_flash.html
For more on Linnet - The Land Systems Company visit www.croplandsthesystem.com
IP Preview - Identity Preserved Management for Market Driven Demand...pdf file size...657Kb
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