Monday, July 29 2019
By Mark R. Smith, Contributing Writer, Expansion Solutions Magazine
Site selection professionals and their clients who are working to locate a growing agriculture-based business know making that major move dictates understanding a few facts before key decisions are made.
Since an agriculture businesses might need land, and lots of it − or at least be in a market with a multitude of farms − they’ll see that land is cheaper in less-densely populated areas, for a reason: perhaps the lack a strong workforce and relatively few educational opportunities, or connectivity problems and a lack of amenities in a given locales. Or a combination thereof.
Then comes the more recent but growing issue of climate change, which can work for or against a company.
However, finding that reasonable medium that points to success is what site selectors do, albeit from differing perspectives. Expansion Solutions has asked five professionals about what to know when working with clients in the vast realm of agriculture.
‘A Day’s Drive’
First, Carter Williams and Harwood Schaffer provided an overview of some of what site consultants need to contemplate before they decide on the best location for a given company. Williams is CEO and managing director of iSelect, a St. Louis-based venture capital fund that facilitates investment in early-stage companies. He preached the importance of being located close to the customer base.
“Proximity matters,” said Williams. “If you want to innovate, Silicon Valley is far from where the real customer is. Places like St. Louis are tremendous hubs, with companies like Monsanto, Nestle and Purina, among many other food companies.”
Know that in the Midwest, it’s easy to drive to anywhere, “which you need to do when you have a cool new product. That leads to the getting the feedback that takes a product from being good to being great,” he said, adding, “upstream and downstream companies are all within a day’s drive.”
Of course, location depends on just what commodity or product a given company sells.
“If you sell strawberries or specialty crops, then Simi Valley and Salinas, Calif., are great places to be. When you have new technology, it’s the same thing,” he said. “You have to be there to see how the plants grow and get feedback from the farmers.”
One key for companies in the commodity crop business, said Williams, is keeping costs down.
“There are now more opportunities to do that,” he said. “There are more consumer product companies and groups to compete with. So, Nestle and Purina are trying to come out with more novel products, such as non-GMO offerings, and are working more closely with the farmers to get the products to consumers.”
One of the challenges in today’s agriculture and food supply chain, Williams said, is the fact that farmers have to go the extra distance − literally − to find new customers. “If they do, it’ll pay off. Some sell directly to consumer packaged goods companies in Brazil, for instance. One company was flying all over the world to sell its cranberry beans, but it’s getting good prices. The problem with selling corn in 2008 was a flat global market; however, the U.S. became an early adopter of the Food Security Program and the rest of the world has to follow.”
Part of the pressure the industry faces now, he said, is the rise of new competition. “Farmers are looking at new crops and circumventing normal distribution chains going directly to companies, like Nestle, and going around [distributors such as] Archer Daniels Midland and Cargill. But that’s hard to do on a large scale.
“We’re seeing farmers go directly to Costco, for instance, with new products for Millennials and GenZers,” Williams said, “and as they get closer to their markets, [they] find out what they want, like non-GMO products, etc. They’re also more keened in on good nutrition, which can hold down health care costs. [The younger generations] want that for their parents, too.”
Such disruption, he said, is creating new opportunities. “I think we’ll see more diversity in our food system, moving away from corn, for instance, and see more crops coming from new places, due to environmental shifts. The best place to grow blueberries in 20 years may be Memphis, not Salinas.”
What’s next? “We’re seeing thoughtful producers aggressively market products with hemp, for instance,” Williams said, “but they have a big challenge figuring out what they can grow.”
Harwood Schaffer, a retired University of Tennessee professor who now serves as the director of the Agricultural Policy Analysis Center, in Knoxville, Tenn., discussed restraining factors concerning locating in rural agricultural areas, including the lack of high-speed Internet service.
“[That] means companies have to look to locate in places that have fiber optic networks. How that generally works,” Schaffer said, “is that fiber optics are installed along the main artery in rural areas that can stretch 30 miles and might be dotted by towns with populations of 500 to 2,000 people. Those towns are normally where copper wire was installed years ago by the local phone company, but new companies that want to locate in rural areas want to be nimble and choose to locate in areas that are also served by fiber optics before they make a commitment.”
Another issue concerns access to the workforce. “Young people who are tech savvy often live in bigger cities, since that’s generally where they find good opportunities with benefits,” he said, “though they might like to move to a rural area, perhaps back to their hometown.”
Schaffer said with agriculture companies, site selection firms need to survey what is available in a given community, then create a specific plan.
“If I were a site consultant and working with a company, I’d tell my client to talk to people in the local school district,” he said, “and ask them if they know of graduates from the last 10-15 years who have technological skills and might be interested in returning to their home area, to be near family and friends.”
With the workers who moved back home, “The company would have loyal employee base, provided it treated them right,” Schaffer said.
It’s important to note that what’s considered rural in Maryland, which is in the middle of one of the nation’s most heavily populated corridors, is not the same as what’s considered rural in Minnesota, where there is much more open space, which can mean way longer treks between cities.
“Companies have to know how rural areas work. If a site selector has not lived in a rural area, he needs to get help to really understand it and integrate into the area. Remember,” Schaffer said, “the locals knowing more about it than any developer.”
Workers, in Force?
One observer who sees blue skies from the farms and the fields is Dennis Donovan, principal with Wadley Donovan Gutshaw Consulting, Bridgewater, N.J.
“I know that trade is booming and family farms are declining − we’re seeing fewer family-owned dairy farms, for instance − but automation is up and that is part of what’s boosting the robust activity in the agriculture industry,” Donovan said.
He pointed to a key trend. “Demand has been boosted in the U.S. and globally by the farm-to-table movement. It’s become a staple in the industry and I see it feeding the supply chain for everything,” Donovan said, “from value-added processing for vegetables, to frozen and packaged meals, to health food and even snack food.”
While it’s not hard to find industry insiders who are concerned about the trend toward lower prices for commodities overseas boosting international trade and hurting the domestic market, Donovan doesn’t see that issue as a long-term threat. “That type of trend comes and goes,” he said. “Domestic farmers have to weather the storm, but long-term, demand for crops is high and the future is looking good.”
Donovan’s perspective on the site selection spectrum is about putting clients in a position to acquire raw product at reasonable prices, within a quick time frame. “Whatever product is being farmed, scale and efficiency to serve markets are what count the most,” he said. “If this means a customer has to buy from a corporate farm, so be it.”
Would he like to see more family farms? “Of course, but the big picture is looking good. The wild card in this scenario is climate change,” he said. “We’re seeing severe droughts and wildfires in California, record amounts of rain on the eastern seaboard, etc. That’s what’s posting the biggest risk to the health of the agriculture market.”
Also voicing observations and locations and time is Frank Spano, managing director with the Cleveland-based Austin Consulting. “In addition to our work in the food sector we are seeing a trend toward companies wanting to process the product closer to the raw material source,” he said.
Such arrangements “often lower transportation costs and reduce the company’s carbon footprint,” said Spano. “In addition, other economies of scale, such as packaging costs and potential perishability issues, can be significantly improved by producing [products] close to the source. Products such as fruits, berries or lettuce and vegetables can benefit from this type of location.”
One major issue in locating close to raw material sources, however, concerns labor. “Often, there are less production workers in more rural areas. Careful planning and research must be conducted by the company to assure there is an ample work force in the region,” he said. This would also include “a drive-time analysis to determine the number of workers that could be employed within a 30 to 45-minute commute” from a potential location.
In addition to labor, Spano noted other issues that should be considered for a rural location, include logistics in transporting finished product to final destinations, trucking availability, utility availability and support services. To that point, states, regional and agri-business organizations can get involved in a rural area by offering assistance programs to the company in question.
One of Austin’s recent site location projects in a rural area involved a large hydroponics operation for lettuce in Eastern Tennessee. “The location spans approximately 500,000 square feet, and products are harvested continuously,” he said. “The operation provides more than 200 positions. This is an excellent way to strengthen economies in rural areas − by allowing the workers to earn a living work near their homes.”
Since he had just returned at press time from Salt Lake City and the Site Selectors Guild Annual Conference, the agriculture market was fresh on the mind of Don Schjeldahl, principal with DSG Advisors in Kent, Ohio,” because he met “many attendees from smaller markets in rural areas,” and was part on the panel for “Winning Strategies for Rural Investment.”
He offered his takeaways. “Concerning agriculture, I see a couple of tiers: one, the harvesting of product (livestock, commodities, fruits and vegetables), with the second level being the processing of agricultural output into consumer food products. Both pieces are very important in rural economies and are subject to constant change.”
Schjeldahl works mostly on the later. He pointed to the national trend of moving toward healthier and fresher foods, the “ripple effect” of the farm-to-table market and the need to produce certain products closer to markets.
“Farm-to-table is the basis for this,” he said. “The natural progression will be to scale the manufacturing side and deliver to more distant markets. Entrepreneurs who began by raising fresh beets in western New York for a 50-mile market radius, for example, have developed delivery systems to serve more distant markets.”
Now, Schjeldahl said, the idea is to “scale it up and ship it to the entire northeast, and we’re seeing this trend nationwide.” One great example is the Shenandoah Valley, in the Harrisonburg, Va., area. “It’s a colonial-period market town that has a rich history of farmers selling locally. Today, however, they’re [doing business with] companies that serve Baltimore, Washington and other mid-Atlantic cities while maintaining freshness.”
There are other angles to the above trend, such as changing operating constraints on agriculture.
One is the hours of service rules truckers are allowed to work, “which have increased the cost of distribution. For instance, growing veggies in Arizona and selling them in Boston means high transportation costs,” Schjeldahl said. “Another point concerns the regulation on using diesel engines in regard to lower emissions; then came the Food Safety Modernization Act of 2010, which is intended to prevent foodborne illness.
“Those regulations are just coming into effect, adding constraints on the whole value chain,” he said, “how you grow, transport, process, package and deliver food to customers. It’s complex keeping the food chain safe.”
“The point is,” Schjeldahl said, “when farmers grow crops closer to where they’re consumed, that makes everything much simpler, as well as healthier, cleaner and easier to manage. And better tasting,” Schjeldahl said.
This trend has even reached the pet food market. “Go into a pet store and there are 200 different kinds of dog food, and they’re all tied to the protein source. The range of prices on a 25-pound bag of dog food is quite varied.”
As Donovan noted, another big wild card is the specter of continuing climate change. Schjeldahl agreed.
“In some parts of the country, climate change is dramatically altering the mix of agricultural products, which also changes the balance for seed, fertilizer and pesticides, as well as the lengthening of the growing season,” he said.
“For instance, in northwest Ohio, in the last decade the growing season for tomatoes and soy beans now spans two weeks longer; it’s the same thing in central Washington State with grapes, which I think will translate into that region becoming the next global-quality wine market,” Schjeldahl said, adding that the state “is throwing a great deal of investment into viticulture, in the Richland, Wash., area.”
He also pointed to two other key areas. “Generally, the unpredictability of water resources, which has been going on since day one; and changes in workforce regulations, like the coming of a $15 minimum wage in California, for instance, coupled with more stringent overtime pay rules.”
What will the agriculture industry’s response be? Perhaps a heightened role for technology in the field, figuratively and literally.
“That changes the economics of growing crops,” Schjeldahl said, “and will lead to greater automation.”