NORTHERN "AG" EXPOSURE

by Mark Miller
Rolette County Extension Agent

Demand for Identity-Preserved Crops Increasing

Demand for identity-preserved (IP) crops produced by Northern Plains farmers is increasing, with buyers willing to pay a premium for grains that can be guaranteed to possess unique characteristics, says Cole Gustafson, professor of agribusiness at North Dakota State university.

There are several reasons why premiums for IP crops are increasing, Gustafson says. "First, grain processors have found that farm commodities, once thought to be homogenous, are much more heterogeneous than previously thought with respect to quality, traits and other characteristics."

Factors like protein, oil, starch and organic matter vary greatly by  variety, region and production method. "And more important," he says, "processors have learned that producers can control many trait and quality levels with management and are willing to pay management premiums to farmers for this expertise."

Grain processors then use these special grains in their products, which allows them to reduce manufacturing losses or to secure a market premium for a unique product. Processors have developed methods and equipment to maximize efficiency in producing a consistent quality product. The uniformity available in an IP crop provides stability, and fewer processing adjustment, such as blending or recipe changes, are needed.

"Processors want their product to look and taste the same today, tomorrow and next year in order to build market acceptance," Gustafson says. Developing an IP market opportunity provides farmers several risk management enefits, he says. First, market premiums increase farm revenues and lower financial risks. Second, IP markets provide diversification opportunity, as these markets are less influenced by the supply and demand forces of traditional commodity markets. Third, adoption of IP crop production methods reduces food safety and market risks as purchasers are able to trace and verify sources. And, as farmers embrace IP market opportunities, human risks decline.

Gustafson surveyed IP crop producers to determine processes and costs of developing an IP market, methods used to isolate production and preserve identity, additional financing needed, added investment required and the unique harvesting, storage and handling procedures implemented to produce an IP crop. Results were compiled as a representative enterprise budget for IP crop production to serve as a guideline for market development and a risk assessment device. Total marginal economic costs of IP crop production were determined to be $4.68 per bushel of wheat produced in the Northern Great Plains. Additional investment costs were modest, while costs of seed conditioning at 80 cents per bushel, management at 75 cents and packaging at 75 cents ranked highest.

For a copy of the report, "Economics of Producing for and Identity-Preserved (IP) Grain Market," contact Carol Jensen, Department of  Agribusiness and Applied Economics, P.O. Box 5636, Fargo, ND 58105-5636, phone (701) 231-7441.

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Updated February 20, 2002 Shelley Armstrong ,Webmaster