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FOCUSED ON THE FINISH LINE
Sowing seed in the ground seems a long way from the gas pumps that fuel your car, but all races begin in the starting block and there are a lot of companies moving beyond the field to a finish line at consumers' hands. A new wave of seed varieties developed for specific end uses is proving that good plant breeding makes a difference in outcome, and seed corn varieties for ethanol production are just one example.

Ethanol plants are achieving conversion efficiencies of 4 to7 percent when they use varieties suited to their needs.
For many years, there has been interest in preserving the identity of high value grains and oilseeds developed for specific end uses. From creating oils that have a high smoke point and can be used for frying for extended periods to oils that are very stable with a long shelf-life to spray on crackers and raisins, from corn that is designed for the snack food market to grains better suited to making ethanol, there is a world of unique needs. Serving them improves efficiency for processors and builds new markets. Every part of the agri-food chain aspires to greater returns.

Delivering specific products can occur in several ways, and the industry is now developing a whole new language around value-enhanced products and identity-preserved grains. Rapidly, identity preserved is coming to mean the logistics practice around contracting production with specific farmers; cleaning out each piece of machinery meticulously to ensure the seed is sown, harvested, and stored separately; and then careful handling practices to make sure it gets to market with extremely high levels of purity. These extra efforts involve time and costs that must be rewarded with strong returns, and there are excellent examples of booming markets in these areas.

The development of special crops that produce cooking oil with no trans fat are among the many opportunities to get specialty products into the hands of food makers.
As well, the industry is further segmenting the market by creating more accessible value-enhanced markets. In these instances, crops are grown to have specific character traits that provide value to end users but do not require such high levels of effort to achieve uniformity. As Russ Sanders, account management director for Pioneer Hi-Bred International, explains, "In some cases, simple grain segregation is needed, rather than a detailed and costly physical management system. Efforts to develop the value-enhanced grain business today are focusing on characterizing the value of existing performance seed products that offer strong yield and agronomic performance along with added grain value." Pioneer's IndustrySelect Program and Monsanto's Processor Preferred Program are good examples of this approach, which provide varieties that offer benefits to processors. Delivery of those varieties gets premiums for farmers and drives sales for seed companies.

Pioneer launched its IndustrySelect Program this fall by identifying nearly 200 corn varieties that are suited to specific markets. These varieties are serving needs for:

wet milling corn - high extractable starch varieties provide 2 percent more starch over industry averages;

  • dry-grind ethanol - high total fermentables create up to 4 percent greater ethanol yield;

  • pork and poultry feed - high available energy delivers better digestibility for animals; and

  • food corn - white corn with desirable color and cooking properties for the snack food market.

    Pioneer has identified varieties that meet such specific needs and is helping growers identify marketing opportunities within their local commerce area. "Sometimes the difference in hybrid selection may come down to which product is in demand at the closest grain outlet and offers the greatest overall return based on total value per acre," says Sanders.

    Monsanto has also launched a program working with major processors including Cargill, CHS and the South Dakota Soy Processors to offer products that meet their specific needs. Avoiding the extra costs of full identity preservation, these varieties are marketed to growers generally within a 75-mile radius of processing facilities in order to ease transportation and handling requirements. The soybean varieties are generally differentiated based on the amount of oil in the seed or the amount of protein. Some food characteristics are also promoted, although Dion McBay, Monsanto's U.S. soybean marketing manager, believes there will be more food-use specific traits developed and introduced in the future. In addition, the company offers corn varieties targeted for the ethanol business.

    Cargill's participation in the trait-specific business includes an oat variety provided to Quaker Oats Company, barleys geared to specific maltsters' needs, and Snowbird wheat targeted at the Asian noodle market. It also owns Cargill Specialty Oils, which develops designer oils for food processing clients. Working from seed varieties, the company uses full identity-preservation techniques to deliver canola seed to a crushing plant and to separately prepare oils with unique traits for clients. The company has worked hard to develop a strong rapport with end users, explains Gary Galbraith of Cargill's Canadian operation. "It's a big decision for a food company to change their product," he says. "It may mean changes to labeling, taste consequences, and/or production performance." As a result, it takes a great deal of work and a long-term relationship with processors to successfully get into these specialty markets. But there are rewards for both groups. "Food companies want to differentiate themselves, and specialty ingredients are a way to do it," Galbraith says.

    Dow AgroSciences is another company engaged in character traits, focusing on high stability oilseeds whose oil does not need hydrogenation so there are no trans fats in the processed oil. Its popular Nexera canola is selling well among producers, who must sign production contracts, but the oil is kept in a tight identity-preserved chain. Working with several grain handling companies and oilseed crushers, the company is helping processors create Natreon oil, which commands 7 to 8 percent of the Japanese market. However, as labeling of trans fat content becomes mandatory, many North American food makers are also showing interest in the product.

    Fueling The Race

    North American farmers are interested too. Some contract varieties, such as waxy corn, have premiums that are roughly 20 to 30 cents per bushel. For markets like feed and ethanol, the premiums are much lower, in the range of 5 to 10 cents. In the soy market, the premiums tend to be in the 3 to 5 cent region. The benefits get more heady in the identity-preserved markets, where products like Nexera canola are offering 75 cents per bushel premiums in 2004. This is certainly enough to drive farmers into these markets.

    Purdue University recently completed a research study with 2,300 growers asking how many were involved in value-enhanced production. To date, 24 percent of farmers are already engaged in this kind of business, and 54 percent expect to be by 2008. With this level of farmer interest and the benefits of real savings to processors, many projections suggest about one-third, or more, of all grain sales will move to trait-based or fully identity-preserved products in the next five to 10 years.

    For seed companies, this offers plenty of incentive. Monsanto's McBay explains the key value of these end- use specific varieties is market differentiation.

    For 2004, Dow AgroSciences has sold out of seed for its Nexera 800 brand canola, and that success comes at a time when seed companies find it hard to have sell-out winners among an ever-expanding number of varieties. It is possible a value-enhanced or niche opportunity may need to be part of most seed companies' marketing tool kits in the future - and with good reason.

    Global Competition

    In fact, some would even argue it is a matter of survival for the entire North American crop sector. The increase in grain production, particularly in South America, has the potential to shift the role for North American producers. For example, global soybean consumption has grown by 96 percent in 13 years, according to John Baize, a marketing expert.

    At the same time, U.S. soy production has grown, but not at the same rate as South American production. In 2001, U.S. and South American production levels were approximately the same, at nearly 80 million metric tonnes. But by 2003, South America's production had exceeded 100 million metric tonnes, while U.S. production dropped. It is estimated in three years, Brazil alone could produce more soybeans than the United States. Plus, this production is occurring on land valued at less than a tenth of the cost of most American farmland. South American producers could give North American farmers a run for their money.

    That's where value-enhanced products come in. "I believe that in a global competitive marketplace, North American soybeans will be differentiated by quality. They will likely not be differentiated based on the lowest cost of production," predicts McBay sagely. Recognizing that there are new competitors in the race will be essential to North American farmers and their input suppliers.

    Finish Line

    So the next hope is even more innovation and higher value crops. The seed being used in these value-enhanced chains are generally varieties that were already in the marketplace. "Much of what we're doing is characterization of existing hybrids. We can now, in essence, look into a kernel of corn and say it will be better for one end use rather than that," explains Sanders. In the next five years, he anticipates Pioneer will be "working toward significantly improved (specially bred) varieties and trying to increase the values even more." Cargill's Galbraith believes market segments will develop in three key areas: food and feed traits, biopharmaceuticals, and industrial proteins.

    At Monsanto, McBay is particularly enthusiastic about the company's research efforts to reduce trans fat and saturate fat content in soybeans. "If the technologies we are excited about in our pipeline come to fruition, as we expect, then we believe they will have a very significant impact on the soy market," he says. More than that, he notes, "It's sometimes hard to get excited about the commodity business, but I believe these technologies can keep us (North America) competitive in the global marketplace."

    So when at the gas station, remember that a 4 to 7 percent increase in grain processing efficiency for ethanol could be part of what keeps those cornfields standing in North America.

    Robynne M. Anderson is president of Issues Ink, Winnipeg, Manitoba, which publishes Germination, Pulse and CAAR Communicator.


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