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Application of the Farmer Brand Concept to U.S. Agriculture: Opportunities and Constraints. Dermot Hayes Iowa State University Presented at ALL FOOD IS.

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Presentation on theme: "Application of the Farmer Brand Concept to U.S. Agriculture: Opportunities and Constraints. Dermot Hayes Iowa State University Presented at ALL FOOD IS."— Presentation transcript:

1 Application of the Farmer Brand Concept to U.S. Agriculture: Opportunities and Constraints. Dermot Hayes Iowa State University Presented at ALL FOOD IS NOT CREATED EQUAL: Policy for Agricultural Product Differentiation Conference Sunday, November 14 – Tuesday, November Berkeley, California

2 Overview  The concept in economic terms  Lessons learned from the EU experience  Recent developments in Canada  Opportunities in the U.S.  Constraints in the U.S.

3 The Concept  Farmers (or their agents) develop a niche product and market this product as a collective brand  If the product succeeds, output must be restricted to preserve economic profits  Regulators can protect the product from competition from outside the group via property right protections such as a trademark or copyright  Some mechanism must also be found to protect against output expansion from within the group  Producers lose their anonymity and have a vested interest in brand quality and safety  This is not like organic or local markets or a geographic indication

4 Lessons from the EU  Never ever say that the purpose of the brand is to fix prices  Use a very small geographic indication or trade secret to restrict supply  Announce that you are doing so in the interests of the environment, society and the consumer  DOLPHINS Development of Origin Labeled Products: Humanity, Innovation and Sustainability

5 Lessons from the EU  There are at least a hundred successful EU applications of the concept and many more in the legal pipeline  Price premiums range as high as 400% for lentils and land values are as much as 1000% higher for vineyard eligible for the Brunello di Moltalcino Brand  Much of the value added really is done locally and this activity can have a very positive impact on the rural economy  Consumers gain ex-ante but lose ex-post

6 Lessons from the EU  When a brand works, it can create turmoil among the have nots and a this energy needs to be diverted into a second brand such as Rosso di Moltalchino  These brands can run afoul of antitrust legislation if the price fixing aspects are obvious, therefore no explicit production of price triggers should be used  It really helps if you can connect the brand to the local environment in the minds of consumers, but a continuous production history is not essential

7 A 14 th Century Fresco

8 The Super Premium Cinta Cenese

9 Developments in Canada 1.Canada has just approved its first FOB for lamb and it appears to be a success 2.Initial price premiums are 25% greater than the commodity product 3.So far the consortium accepts all breeds produced in the region! 4.We were told that there is a “line of other producer groups” waiting in Canada.

10 Charlevoix lamb is the first product to be place- protected in Canada. Used to protect the name from counterfeit lamb. Charlevoix

11 Opportunities in the U.S.  Most U.S. States are far too large to act as a geographic limit on production and state brands often become a commodity standard.  Additional criteria are needed, these criteria should increase quality without the use of variable standards  The concept should also make intuitive sense to an uninformed consumer

12 Many U.S. regions have lost population since 1970

13 Vidalia Onions

14 The Vidalia GI  The name “Vidalia” owned by the Georgia Department of Agriculture  U.S. Department of Agriculture federal marketing defines geographic limits of production regions and authorizes growers to set quality standards.  Registered certification mark gives Georgia the right to fine growers who do to abide by geographic boundaries  The concept was an initial success but there is a potential problem for oversupply  The sort term response is to increas quality standards but this is wasteful

15 Napa Valley Wine Appellations $44 per bottle

16 Why doesn’t Iowa create a producer-owned brand for beef?  Least expensive grain is found in Iowa  Iowa producers have a long history of focusing on using quality breeds in beef production.  Iowa can build on “I-80” quality signal.  USDA is in the process of setting up an animal id system that will certify animals that meet high quality export expectations.

17 Current (pre-BSE) Japanese Procurement Japanese buyers obtain their beef by 1.Buying from particular packing plants that receive the greatest proportion of their cattle with desirable traits and then 2.A buyer is in the plant trying to identify which carcasses are most likely to have the traits.

18 Where did Japanese want to purchase their beef?  At packing plants that process cattle from regions with inexpensive feed and improved breeds.  Japanese have often asked for more beef from I-80 processors.  These animals are often fed on grain after weaning and they are often beef breeds but there is no guarantee, someone has to eat the Holsteins

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22 Our Proposed Requirements  Minimum Certification Requirements  The cattle must be sired by Black Angus, Red Angus, Hereford (horned or polled) bulls. Their mothers must be visually of the same breed  Individual animals must be source verified to the farm of birth using an acceptable animal identification system.  The cattle must be fed in Iowa for a minimum of 200 days on a high- concentrate ration of at least 75 percent corn or corn byproductsco- products.  Individual animals must be age verified and processed by 18 months of age.  Each carcass must grade Choice Plus or better according to official USDA Grades.  Product will be aged at least 14 days prior to being sold.

23 Example 2: Non-Industrial Pork  U.S. pork producers have adopted industrialized methods of pork production.  85% of U.S. pigs live on farms that have more than 1,000 other pigs in residence.  Uniform genetics used to emphasize feed efficiency and low fat content  Makes pork taste like chicken

24 Niman Ranch Pork  Traceable “ We know where and how each piece of meat is produced and provide direct feedback to our Midwest family farmers about quality.” “ We know where and how each piece of meat is produced and provide direct feedback to our Midwest family farmers about quality.”  Humanely Treatment “Our hogs are allowed to run, roam and root. They are weaned at seven weeks, never given antibiotics, and are fed only the finest grains and natural ingredients.” “Our hogs are allowed to run, roam and root. They are weaned at seven weeks, never given antibiotics, and are fed only the finest grains and natural ingredients.”  Good Taste “Because our hogs live most of their lives outdoors, they need an extra thick layer of back fat for insulation in the hot Midwest summers and the cold winters. The fat also brings with it superior marbling, flavor, tenderness and palatability.” “Because our hogs live most of their lives outdoors, they need an extra thick layer of back fat for insulation in the hot Midwest summers and the cold winters. The fat also brings with it superior marbling, flavor, tenderness and palatability.”

25 Niman’s Problem  Currently process 2,000 pigs per week but demand exists for 10,000 pigs per week, or about 0.5% of total US production.  Niman has trouble sourcing 2,000 hogs per week.  Opportunity: Some farmers are interested in creating “Iowa Pasture-Raised Pork” to facilitate production contracts and marketing of alternative pork.  Niman is not producer owned and the value is created elsewhere

26 Constraints in the U.S.  The commodity system is far more advanced in the U.S, this means that the brands will have to sell at a substantial premium  It is not clear that consumers will buy into this concept in the U.S. and it is not clear that farmers have the skills to convince them to do so  From a political economy perspective the new producer groups are not yet at the table  It is not clear how the U.S. antitrust authorities if the product is successful and if producers within the group complain

27 Why is U.S. Opposed to EU Proposals for GIs in WTO?  EU proposals to strengthen international protection for GIs have gone nowhere due in part to US opposition  US has filed a complaint against current EU policy on GIs  US position seems to be in conflict with official USDA policy to encourage greater cooperative marketing by producers  Why the conflict?


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