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"This becomes a challenge to
researchers, producers and soybean organizations to develop dual
strategies that simultaneously address new opportunities in the food
and industrial uses, while trying to stay focused and create more
value from their dominant business of supplying feed," Goldsmith
said.
He notes that only about 5 percent of
the soybeans produced in Illinois are specialty beans grown under
contract. Of the estimated $2.4 billion Illinois crop, only about
$132 million is channeled into specialty markets.
"Producers find that premiums are
consistently below 10 percent and generally erode over time,"
Goldsmith said. "Many life science firms likewise are struggling to
create value from their innovations in this area of the market."
Goldsmith points out, however, that the
needs of end-users continue to fragment as consumers and retailers
increasingly dominate the direction of the agri-food supply chain.
"This would imply significant
opportunities for identity-preserved food products," Goldsmith said.
"Customers around the globe want new features such as low trans
fatty acids and low carbohydrates, combined with taste, convenience,
low prices, nongenetic modification and longer shelf life. The
organic and food-grade soybean markets are some of the fastest
growing segments of the market."
Soy meat analogs are estimated to be a
$95 million category, growing at 6 percent per year. Soy milk and
other dairy analogs had sales of about $700 million in 2002, about 1
percent of dairy sold.
"Globally, soybean demand has been
increasing more than 8 percent annually since 1996," Goldsmith said.
"The soybean's tremendous functionality is clear as buyers from
around the globe are demanding soybean meal as their livestock feed
of choice. That leads to the question of why specialty soybeans and
their associated value-added markets have continued to lag."
Goldsmith says that one answer is that
Illinois producers and handlers have many opportunities to market
commodity soybeans.
"They have ready access to rivers,
lakes, rail and roads, putting them in a very enviable position for
moving large volumes of high-quality commodity soybeans," he said.
"Technological advances such as Roundup Ready soybeans have also
made Illinois growers some of the lowest variable-cost producers in
the world."
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He notes that a second explanation is
that specialty soybeans are produced and marketed under a different
business model than commodity beans.
"When producing commodity soybeans, the
rules for success are to respond to markets, attain lower costs,
build scale and innovate for greater efficiency," Goldsmith said.
"Producers in Illinois have become very skilled at executing this
business model over the years."
According to Goldsmith, the growing and
marketing of specialty soybeans requires some very different
business skills.
"Specialty markets suppliers must
respond to the needs of customers," he said. "They must also work
with those making changes in the market, operate within a system and
continually strive to improve. So applying commodity rules to
specialty businesses may be part of why specialty opportunities are
hard to capture. Switching and adopting the new rules to operate the
farm business is another major difficulty."
Goldsmith adds that, because of its
customer and system orientation, the specialty soybean business
require less relative investment in production and much more in
relationships and marketing.
"Historically agriculture's expertise
has been in production," he said. "Relationship marketing,
communication and service were not necessary. Specialty soybeans and
niche marketing is different."
He emphasizes that farmers,
policy-makers and agribusiness managers who want to partake in these
markets must act differently.
"Most significant are the types of
investment and underlying research and development necessary to
compete," Goldsmith said. "Investment may not necessarily be greater
in terms of dollar value but certainly must be different."
He adds that the focus for investing
should be on information technologies and traceability, processing
and food manufacturing, and customer needs.
"For a
specialty business to be successful, it is important to focus on
customers and service, in addition to producing a high-quality
soybean," Goldsmith said. "So whether the entity is a university, an
agribusiness, farm organization or farmer, it means that change is
required. The bottom line is that the business of specialty soybeans
is different, so investment has to be different."
[University
of Illinois news release]
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