Adding value to Montana's agri-food industry.

Author:McLeay, Fraser
Position:Cover Story

For years, Montana farmers have shipped wheat to other states and foreign nations for value adding, refining, and processing. Now, they may have a new market right in Montana - Pasta Montana, located in Great Falls. The pasta plant, which opened in the summer of 1997, processes durum wheat grown in the "golden triangle" area around Great Falls. From the specialty wheat, workers produce 30 varieties of Italian-style pasta including macaroni, spaghetti, vermicelli, fettuccine, lasagna, and much more. Pasta Montana contributes 70 jobs to the state's economy, provides an important local market to Montana wheat growers, and keeps millions of dollars in-state by adding value to a raw commodity.

Businesses like Pasta Montana, which add value to agricultural commodities, are slowly springing up throughout the state. But for the most part, the majority of Montana's agri-food products remain in the form of unprocessed commodities [ILLUSTRATION FOR FIGURES 1 AND 2 OMITTED].

As a result, Montana experiences minimal economic gains from the state's natural resources, labor, and investment. In this respect, Montana could be compared to developing nations that extract materials from their mountains, water, and soil, and ship them elsewhere for enhancement.

While adding value to commodities can certainly give Montana's economy a boost in the short run, it cannot solve all the woes of the state's agricultural industry. Montana's agricultural sector reigns as the state's primary economic engine, contributing almost $2 billion toward the gross value of goods and services produced in the state. Yet, Montana's largest industry is troubled.

As in other states, Montana farmers struggle to make a living as farming costs rise and worldwide agricultural prices continue to drop.

Montana's heavy emphasis on raw, unprocessed commodities subjects farmers to the volatile and unpredictable prices of the world market. Increases in worldwide supply and changes due to disease, drought, exchange-rate fluctuations, and economic recessions occurring in areas such as Asia and Russia, all influence prices, ultimately affecting Montana farmers.

Fluctuating international commodity prices have hit Montana hard in the past several years. Between 1995 and 1996, Montana wheat exports increased from $396 million to $746 million, but decreased substantially when world wheat prices dropped in 1997.

One way to become less dependent on the world marketplace is to add value to unprocessed commodities. By selling, say, teriyaki beef jerky and parmesan basil bread - instead of unprocessed beef or wheat - Montana farmers and businesses are able to promote their product to specialty markets, making them less susceptible to changing commodity prices. Comparisons between beef and sirloin steak prices, and wheat and bread prices, illustrate how much more volatile commodity prices are than processed food prices [ILLUSTRATION FOR FIGURES 3 AND 4 OMITTED].

The advantage of producing specialty products is that they stand out as being different and unique and are, therefore, easier to market. Raw commodities, on the other hand, are difficult to differentiate. Montana wheat or beef is not all that different than Wyoming's - or Russia's, for that matter. Why pay more for Montana wheat than for Wyoming wheat if it's basically the same product? Adding value to goods and creating a unique product, though, opens new markets for Montanans and leads the state's agricultural sector in a positive direction.

To date, Montana's agri-food industry is lagging behind most of its competitors. Producers and processors in other parts of the United States and around the world are attempting to sell value-added processed foods rather than agricultural commodities. World trade in processed food has increased from 58 percent of the total trade in agricultural commodities and processed food in 1972 to 67 percent in 1993 [ILLUSTRATION FOR FIGURE 5 OMITTED]. But in Montana, the value of exported processed food products remains at less than 1 percent of agricultural commodities.

This article discusses how Montana's agricultural industry stands to benefit from value-adding activities.

Market Trends and Opportunities

The idea of differentiating and adding value to agricultural produce is not new. Publications such as the Montana Department of Agriculture's Montana Value Added Newsletter have been useful in highlighting opportunities for value adding activities. However, as illustrated in Figures 1 and 2, Montana's move from agricultural commodities to value-added products has not been overly successful.

To take advantage of these opportunities, Montanans need to understand market trends; identify state-of-the-art agriculture-related needs, products, and technologies from around the world; and develop new or improved strategies that provide tangible results. Paying attention to a number of key areas may increase Montanans' opportunities to differentiate and add value. These include:

* collecting and distributing international trade leads furnished by the U.S. government;

* identifying market trends and opportunities;

* taking a marketing rather than a production approach;

* differentiating through branding;

* learning from successful companies;

* working with government agencies and local support organizations to gain the greatest possible synergies;

* establishing a pilot project within the state, to identify the...

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