TALKING SHOP: Iowa
Practical Farmers of Iowa Promotes Vision for Sustainable Ag
PFI annual conference focuses on new market opportunities, new products, increased profits

By Darcy Maulsby

February 20, 2003: Risk management, improved marketing opportunities and increasing profitability became key topics at this year’s Practical Farmers of Iowa (PFI) annual meeting.

On Jan. 24 and 25, more than 380 people attended the two-day event in Ames, Iowa, that continues to draw more participants every year. This year’s event featured 15 workshops. During the breaks between the workshops, the conference center’s hallways and gathering areas were filled to capacity with farmers, journalists, students, and others who were eager to discuss issues ranging from nitrogen management to swine nutrition to renewable energy.

Hundreds gathered for the PFI keynote address, “Growing Markets, Maintaining Values.” Two speakers presented this year’s keynote. Rick Schnieders, CEO of SYSCO Corp., the nation’s number-one foodservice marketer and distributor was joined by Michael Rozyne, managing director of New England-based Red Tomato, a not-for-profit marketing organization dedicated to strengthening small family farms. Read more about their philosophies in a separate article here at NewFarm.org, coming next week.

As a prelude to the keynote address, PFI Executive Director Robert Karp introduced members to the group’s new vision statement. What direction will Iowa agriculture head in the next five to 10 years? Karp said PFI will focus on diverse farms, vibrant rural communities and healthy food.

“This is just one indication of the kind of vision and hope PFI is bringing not just in Iowa, but for the rest of the countryside,” added Fred Kirschenmann, director of the Iowa-based Leopold Center (http://www.ag.iastate.edu/centers/leopold/), which promotes profitable farming systems that conserve natural resources.

PFI’s vision statement reads:

Developing a new marketing program

To promote this vision, PFI is creating ways to help farmers market their products to institutional markets like universities, restaurants and hospitals.

PFI discussed this new project during the workshop “Institutional Markets: Supply Chain Development and Risk Management,” which was held before the PFI annual meeting. The project is funded by a $52,650 grant from USDA’s Risk Management Agency.

“This will help farmers diversify their crops and income sources. Farmers have been hesitant to meet the increasing demand for local, fresh farm products because of risks associated with the expansion necessary to do this. This project will give them practical tools to directly address those concerns,” said Rick Hartmann of PFI’s Food System Program.

Workshop participants studied various risk management strategies, including do-it-yourself market research; forward production and price agreements; cooperative marketing, distribution or business formation strategies; and liability/legal issues.

PFI is encouraging fruit, vegetable and fish farmers to participate in the new program. “This project is especially exciting, because we’ll be testing and using the risk management strategies in an actual commercial situation,” he said.

The group will work to supply institutions that buy larger quantities of food on an ongoing basis. “For example, I estimate during the school year that over 10,000 institutional meals per day are served in Story County, Iowa, alone, but virtually none of that food comes from local or Iowa farmers. This project will seek to begin opening a very large marketing potential to Iowa farmers,” Hartmann said.

Managing for profit

When it comes to any ag business venture, it pays to know your numbers.

How often do you look at your financial records? Are they an important part of your operation? Farm financials are something more producers need to understand, says an ag lender who participated in the “Analyzing Your Farming Operation” workshop.

“Too many people shy away from the financials of their business and rely on us to handle them. But unless you manage your financial records yourself, you won’t really understand them. Many farmers think that if the bank renews their loans each year, their financials must be okay. Your records shouldn’t be something you think about once a year, though,” said Roger Schlitter, a financial officer in Mason City, Iowa, at Farm Credit Services of America.

When bankers look at your financials, what key numbers do they watch for? Schlitter said there are four items—your credit bureau score, your repayment ratio, your current ratio, and owner’s equity.

“On your credit bureau report, we want to see a score of 650 or higher. One of the most important elements we consider is your character, but it’s also the least quantifiable. That’s where the credit report comes in--it’s a statement about the kind of life you’ve led,” Schlitter noted.

Bankers also consider a farmer’s repayment ratio, Schlitter said. “These are the dollars available to service your debt. We like to see a 1.2 to 1 ratio. You should have a 20 percent cushion on your debts.”

When it comes to the current ratio, 1.5 to 1 is good. “We’d like it to be even better than this. The current ratio is current assets divided by current liabilities, and this tells us what kind of reserve you have to pay your current liabilities in the next year,” Schlitter said.

Lenders also like to see 50 percent owner’s equity in a farming operation. “However, we deal with people all the time who have more than this, and people who have less than this. We look at what the farmer is proposing to do, his track record for getting things done and his plan for getting things done. Will he do what he says he’ll do? If so, that’s who we want to do business with,” Schlitter said.

So how do you put all this together and keep the kind of financials that bankers need to see? Ask co-presenter Dave Lubben, a PFI member who farms near Monticello, Iowa.

Lubben started writing a business plan in 1984. He updates the plan regularly and uses it on a daily basis. Maintained in a three-ring binder, the plan’s first document includes the purpose and mission statement. “What is the focus of my business? Where do I want to go? Answering these questions keeps me on track, and it’s helpful to share this with employees,” he said.

Next, Lubben includes balance sheets, accrual income statements, and cash flow statements. He also includes pages on the actual cost of production, based on an enterprise analysis.

“In my operation, I list corn, soybeans, hay, beef cows and feedlot cattle. I take expenses and allocate them across these five areas, based on what percentage of my business each area includes. You can figure the cost of labor per hour, and all this should get you as close to an actual cost of production as possible.”

Next come marketing plans for crops and livestock. “Once you develop this plan, you just keep tweaking it until it works,” Lubben noted.

Also include financial ratios and analysis. “I like to use ratios as a guideline, not as an ultimatum. I use Excel, so I can draw charts and look at trends. If I’m improving in my trends, I don’t have to compare myself to others. Everyone’s operation is different, so you need to compare yourself to yourself.”

Finally, include a performance evaluation and your lender’s comments and evaluation. “In the performance evaluation, list your strengths and weaknesses in production, marketing and the financial aspects of your business. Keep working to improve your strengths. Make your lender part of your team, too, because he’s not the bad guy,” Lubben said.

Selling your products to chefs

Along with good financial management, smart marketing is one of the keys to success for many specialty crop and organic producers. What makes customers, including chefs, purchase from these farmers? Larry Cleverley, who raises specialty crops, including garlic, on six acres near Mingo, Iowa, participated in the workshop “Putting Your Farm on the Menu,” and described some of his strategies.

“You need to supply quality products and become a supplier that chefs can count on. Deliver what you promise. Remember that chefs talk to each other, so use good word-of-mouth to your advantage. Let your customers join your sales force,” Cleverly said.

Get to know your customers and potential customers, Cleverley added. “I work with a chef in Des Moines who won’t buy anything from anyone who doesn’t eat at his restaurant first. It makes sense—how can you sell your products to someone when you don’t know their needs? Eat at their restaurant, study their menu and see what you can sell them. Then take them a small sample they can try.”

Want to really boost your marketing? Try using seed catalogs. “When we show restaurateurs seed catalogs, they become like kids in a candy store. This lets them see all the things they can get from you that they can’t buy from other suppliers,” Cleverly said.

Celebrating the culture of food

The Slow Food movement has become a trend that complements these direct marketing techniques for locally-grown foods.

What’s Slow Food all about? It’s a consumer reaction against the fast food and supermarket industries’ industrialization of food, learned PFI members who gathered for the workshop “Celebrating the Culture of Food.”

“The Slow Food movement creates a counterpoint to the fast-food culture. It brings people together around food, especially foods that define local cultures and families. It also makes people focus on how locally-grown foods are unique,” said Neil Hamilton, a Slow Food member who directs the Agricultural Law Center at Drake University in Des Moines, Iowa.

Today, there are nearly 70,000 Slow Food members worldwide, with nearly 10,000 members in the United States. What’s driving the group’s expansion?

As the Slow Food Web site (http://www.slowfoodusa.org) explains, “Recognizing that the enjoyment of wholesome food is essential to the pursuit of happiness, Slow Food U.S.A. is an educational organization dedicated to stewardship of the land and ecologically sound food production.”

The Slow Food movement is attracting farmers, consumers and chefs, Hamilton added. “We promote sustainability and want to create an appreciate and demand for locally-grown foods. Slow Food U.S.A. also works with producers who are raising heirloom breeds of livestock like bronze turkeys, and Slow Food helps farmers sell their products.”
Improving animal health

For livestock producers who provide locally-grown meat, meeting consumers’ demands for high-quality, safe food ties in with proper antimicrobial usage.

About 30 PFI members filled a small conference room to hear animal health experts share some tips during the workshop “Using Antibiotics Wisely.”

Producers need to develop standard operating procedures to prevent problems. “The biggest problem with therapeutics is not knowing what you’re trying to treat,” said Dr. Mike Apley, an associate professor of veterinary diagnostics at Iowa State University.

“If you’re going to use antimicrobials, first identify the disease challenge. Why is the animal sick? This step requirements an investment in a diagnostic test,” Apley said. “Then determine which animals need therapy, design a treatment regiment, apply protocols consistently and evaluate outcomes.”

Wayne Fredericks, a pork producer from Mitchell County, Iowa, has conducted on-farm animal health research for PFI. Looking at his records, he found that he was spending $3.85 on antimicrobials at the grow/finish stage for each pig that was marketed. The treatments were used to combat diseases like mycoplasma, ileitis and the common flu. That’s when he changed his disease management program.

“We started vaccinating for these diseases, and pig performance drastically improved. Vaccinations also lowered our death loss by three-tenths of a percent. It helps animals build disease resistance. It also recognizes that we may not be able to always use antimicrobials,” Fredericks said.

Fredericks admits that he has spent more on vaccinations than he did on antimicrobials. “Whether it’s financially the right decision, I don’t know yet. We’ll continue to evaluate this.”

Triticale: Feed grain of the future?

Iowa livestock producers aren’t just focusing on animal health from an antibiotic standpoint—they are also exploring new feeds. Producers’ strong interest in the topic was evident at the workshop “Triticale and Other Small Grains on Your Farm,” which attracted more than 60 participants.

Iowa State University researchers say triticale makes an excellent swine feed because of its superior lysine content and high relative feed value compared to other cereal grains.

“Triticale is a cross between durum wheat and rye. This makes it more hardy compared to wheat, and if offers improved food and feed quality compared to rye,” explained Margaret Smith, an agronomy specialist with ISU Extension.

Iowa State researchers are conducting swine feeding trials at a research farm in western Iowa, comparing corn and soymeal rations to various mixes of triticale, corn and soybeans. Results will be available later this year.

“Triticale offers a lot of advantages. It has high yields relative to other small grains. It’s like hybrid corn, since it offers more tolerance to stress and diseases than its parent crops. It also offers high straw yields and is good for cover cropping. It provides erosion control and adapts well to organic systems,” Smith noted.

Triticale poses some challenges, though. “These include the availability of improved varieties, lodging problems, and disease problems like ergot,” Smith said.

In addition, there is no established cash market for triticale in Iowa. “However, research from Florida, Canada and Australia indicates that triticale makes excellent animal feed. We’ll continue to research this crop. For producers, it takes willingness, knowledge and patience to integrate small grains like triticale into a farming operation,” Smith said.

To learn more about Iowa State’s triticale research, go to http://www.agron.iastate.edu/faculty/lgibson/Triticale_research.htm.