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New Farm Futures

Business opportunities grow for Michigan agriculture

October 8, 2002 | By Patty Cantrell
Great Lakes Bulletin News Service

  Earl Peterson, a fruit and vegetable processor in Shelby, says tax abatements have been key to his company's recent successes winning new accounts and expanding others.

True entrepreneurial spirit made Ron Steiner a successful custom computer marketer in an industry that PC giants like Dell and Hewlett Packard were coming to dominate. Boundless, free-market energy still sparkles like a brand new coin in his blue eyes as Mr. Steiner, 61, talks about his latest enterprise: selling agriculture to communities that have stopped tending their farming roots and to a state that hasn’t paid much economic development attention to its orchards, croplands, food processors, or small farms.

"In economic development, everybody’s trying to be another Silicon Valley," says Mr. Steiner, who left early retirement behind in 1998 to take the "part-time" job of directing economic development in Oceana County, north of Muskegon. "But there aren’t many home runs like that in economic development," he says, amusement spreading across his ruddy face. "Communities need to figure out what they are first and then build on that."

Mr. Steiner is a businessman on a mission to show local and state leaders in Michigan that farming is basic not only to the state’s economy and culture but also a great business opportunity. It makes no sense to this go-getter, for example, that ethnic restaurants in Grand Rapids import all of their hot peppers from Chicago farm markets, or that fresh asparagus sold in grocery stores from the Midwest to the East Coast arrives in planes that fly over Michigan’s own abundant crop.

He is not alone. A growing group of agriculture promoters now is working to put farming and food processing back on the state’s economic growth map. They want to capitalize on the fact that Michigan produces the second-widest variety of agricultural products in the nation next to California and sits in the middle of one of the most populous areas of North America. Half of the populations of the United States and Canada, for example — more than 150 million people — are within 500 miles of Michigan.

Their biggest obstacle, however, is a mindset among farmers and many local and state leaders. Too many think that the only way to make money in agriculture is to grow more grain and fruit for bulk markets even though large-scale buyers pay less and less, forcing more and more farms to sprout subdivisions instead. "That’s what’s eating up our smaller farms," Mr. Steiner says. "It’s not good business doing it the same old way."

New Initiative
Agriculture interests agree. Michigan can do more to increase the profitability of family farmers by supporting entrepreneurship and product development. That’s why most all of them are now sitting around the table at meetings of the Michigan Partnership for Product Agriculture, an initiative that will assist farmers and food processors — of all sizes — to turn new ideas into profitable products.

The partnership aims to create a streamlined support system for farms and food entrepreneurs. Services will range from a network of regional business counselors to an agriculture innovation center for product research and development. The partnership also will match ventures with the technical, legal, and marketing expertise they need to grow profitable businesses.

The partnership emerged last summer out of a research project conducted by Michigan Integrated Food and Farming Systems, a sustainable agriculture group, and Rural Partners of Michigan. The two set out in 2000 to learn what other states, like Missouri and Minnesota, were doing to put profitability back into farming. They came back with a clear and urgent focus on clearing out a long line of information barriers to farm and food businesses and on putting some basic business building blocks in place for them.

"In the past in Michigan there’s just been a real maze for producers and entrepreneurs trying to figure out where they could go to get the information and services they need to develop and market products," says David Skjaerlund, a farmer and economist with Rural Partners who helped launch the partnership. "We now have a strong partnership of various providers and players to really deliver a more coordinated approach to those services."

In addition to MIFFS and Rural Partners, those key players include Michigan State University and the Michigan Department of Agriculture, Michigan Farm Bureau, and Michigan Economic Development Corporation.

"Michigan agriculture needs this," Farm Bureau president Wayne Wood said at a recent meeting.

And Michigan may soon get the partnership’s services if the United States Department of Agriculture selects Michigan as one of the first five of 15 states that will each receive $1 million in the next two years to create product innovation centers. The partnership has applied for the money, and MSU and MDA have pitched in matching monies of $500,000 and $100,000 respectively.

Action Plan Needed from Candidates
Both major party candidates for governor -— Democrat Jennifer Granholm and Republican Dick Posthumous — have addressed in their campaigns the need to boost the state’s agriculture economy by increasing the value of bulk commodities, like tanker loads of corn or apples, with processing and new product development. Neither candidate, however, has made public a strategic plan for making that happen.

Adding value to raw products is the desired end result. The real challenge is helping farmers identify particular consumer demands, tailor production and processing to them, and bring new products to market, say experts like Mr. Skjaerlund of Rural Partners of Michigan.

"The true growth in agriculture is going to be through taking farmers from producing a raw commodity and selling it at the farm gate to producing something the consumer wants on the food plate," Mr. Skjaerlund says. "The more we can change agriculture to meet consumer demands, the more we’re going to open market opportunities."
Michigan’s gubernatorial candidates did not respond to requests for interviews. But their Web sites and public statements shed some light on their agriculture policy beyond conventional value-added goals.

Mr. Posthumous said he would raise money for farmland conservation, as well as push for environmental guidelines that make it easier for large, concentrated livestock operations to grow. He also startled the farm community last week when he unveiled his economic agenda and asserted that efforts to increase the number and success of smaller farm operations are naïve. Smaller farms, he says, "won’t exist in the future, and they don’t exist today."

Ms. Granholm, in contrast, plans to create more economic choices for Michigan’s family farms by leveraging new consumer demand for food produced closer to home. She says she will support buy-local campaigns, encourage local and state agencies to buy Michigan food products, and work to "brand" the state’s food products for greater recognition internationally. She also intends to promote policies for curbing the sprawl that drives up farmland prices and for helping farmers cut land costs by voluntarily selling their development rights.

Farm Progress
Preserving farmland is a priority for the candidates, as it is for communities across Michigan, not only for the beauty of rural landscapes but also for the habitat, water quality, and tax revenues that family farms can protect. A recent study in Marshall Township, south of Battle Creek, for example, shows that farmland demands only 27 cents worth of public services for every dollar it generates in property tax revenue. New residential development, on the other hand, costs $1.47 in services for every dollar of tax revenue it generates, according to the study.

Another way to save farmland, along with purchases of development rights, is to invest economic development resources in helping farmers go after new business opportunities. That’s Ron Steiner’s message about the missing piece of the farmland preservation puzzle.

"Getting economic developers to work with farms like they do other small businesses is the key to rural economic development and preservation of land, not just as open space, but as productive real estate that supports families."

So far on his mission, Mr. Steiner has succeeded in convincing the state’s top business agency, the Michigan Economic Development Corporation, to "dip its toe in agriculture" by extending, in 2000, its tax-free renaissance zones to food processors. The idea came out of Mr. Steiner’s shock that, although Oceana County’s economy is all about fruit, vegetables, and food processing, little targeted assistance was available locally or at the state level to help companies take risks on the kind of innovation the industry now needs to keep farmers and food processors in business.

The first two of the ten new agricultural renaissance zones went to Oceana County companies: One to fruit and vegetable processor Peterson Farms in Shelby and another to sweet cherry processor Gray and Company in Hart. State officials are evaluating another round of applications for such zones, which now require companies to invest an average of $200,000 each year and create 30 jobs over 15 years in exchange for a waiver of all state and local taxes during that time frame.

Renaissance zones have plenty of supporters who claim the tax exemption tools are essential for spurring needed private investment. They also have serious critics who argue the tax advantage may only draw normal investments to select areas while robbing state and local coffers of important revenue and putting similar businesses at a disadvantage.

Mr. Steiner, however, believes the zones are essential for spurring risk-taking and innovation in food processing. "We have to get food processors to try different things so they can create more markets for growers."

Earl Peterson, president of Peterson Farms, a fruit and vegetable processor in Shelby, says the renaissance zone tax abatements have been key to his company’s recent successes winning new accounts and expanding others. "There’s not a lot of profit margin in agriculture, so there’s not a lot of economic incentive to try new things, such as investing in more equipment, which forces you to pay more in taxes."

Big on Small Farms
It’s taken time but the idea of economic development agency assistance for farmers is gradually entering the mainstream. John Czarnecki, Vice President for Community Services at the Michigan Economic Development Corporation, agrees it’s time for agriculture to think in new, more marketable ways and for the state to open wider its toolbox of economic development resources to food and farm entrepreneurs. "We have funded a number of food processing projects over the years," he says. "But we’re trying to look now at a little different emphasis."

Mr. Czarnecki says this new twist includes support for the state’s Small Business Development Centers to provide business training for farmers and for MEDC to try funding kitchen business incubators for food product developers in addition to its more general business incubators.

It would not be accurate to say MEDC will now put "a lot" of its resources into agriculture, he says. "But it’s important to us. We really try to react to what’s presented before us and try to stimulate entrepreneurship."

He says the greater challenge for moving Michigan agriculture toward entrepreneurship may be getting farmers to park their tractors for a bit and start thinking about consumer demand and marketing channels. "I think the difficulty is this: How do you stimulate the grower to take another step into product development?"

Like Mr. Steiner, he believes this step is vital for both the short- and long-term survival of the state’s small and medium farms. Those grossing less than $100,000 per year, for example, account for 85 percent of Michigan’s 52,000 farms.

These farms are smaller in size, too. The average acreage for small farms with less than $10,000 in sales is 63 acres, while the average size for medium farms with sales between $10,000 and $100,000 is 174 acres. But it is the profitable small farm’s economic activity, perhaps more than its land base, that can make a rural community tick, say authorities, such as Dr. John Ikerd, professor emeritus of agricultural economics at the University of Missouri.

Entrepreneurial farms show net returns often in the 40- and 50-percent range versus the conventional commodity producers’ 15 to 20 percent, he says. "Even a farm with only $50,000 in annual sales may net $20,000 to $25,000 to support the small farm family."

Ron Steiner, naturally, is in the middle of this endeavor, driving back and forth to Lansing to make his pitch for agriculture as a key economic development strategy in Michigan.

"I believe it’s a growth industry in Michigan, especially the ‘buy local’ aspect," he says. "Specialty-type products, value-added type products — sold locally and within a limited radius — I think this is the key to the viability of small and medium size farms."

Patty Cantrell, an economist and journalist who was raised on a farm in Missouri, directs the Institute’s New Entrepreneurial Agriculture project. Reach her at patty@mlui.org.

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