Application of the Farmer Brand
Concept to U.S. Agriculture:
Opportunities and Constraints.
Dermot Hayes
Iowa State University
Presented at ALL FOOD IS NOT CREATED EQUAL:
Policy for Agricultural Product Differentiation
Conference
Sunday, November 14 – Tuesday, November 16 2004
Berkeley, California
Overview
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The concept in economic terms
Lessons learned from the EU experience
Recent developments in Canada
Opportunities in the U.S.
Constraints in the U.S.
The Concept
 Farmers (or their agents) develop a niche product and
market this product as a collective brand
 If the product succeeds, output must be restricted to
preserve economic profits
 Regulators can protect the product from competition from
outside the group via property right protections such as a
trademark or copyright
 Some mechanism must also be found to protect against
output expansion from within the group
 Producers lose their anonymity and have a vested interest
in brand quality and safety
 This is not like organic or local markets or a geographic
indication
Lessons from the EU
 Never ever say that the purpose of the brand is to
fix prices
 Use a very small geographic indication or trade
secret to restrict supply
 Announce that you are doing so in the interests of
the environment, society and the consumer
 DOLPHINS Development of Origin Labeled
Products: Humanity, Innovation and Sustainability
Lessons from the EU
 There are at least a hundred successful EU
applications of the concept and many more in the
legal pipeline
 Price premiums range as high as 400% for lentils
and land values are as much as 1000% higher for
vineyard eligible for the Brunello di Moltalcino
Brand
 Much of the value added really is done locally and
this activity can have a very positive impact on the
rural economy
 Consumers gain ex-ante but lose ex-post
Lessons from the EU
 When a brand works, it can create turmoil among
the have nots and a this energy needs to be
diverted into a second brand such as Rosso di
Moltalchino
 These brands can run afoul of antitrust legislation
if the price fixing aspects are obvious, therefore no
explicit production of price triggers should be used
 It really helps if you can connect the brand to the
local environment in the minds of consumers, but
a continuous production history is not essential
A 14th Century Fresco
The Super Premium Cinta Cenese
Developments in Canada
1. Canada has just approved its first FOB for
lamb and it appears to be a success
2. Initial price premiums are 25% greater
than the commodity product
3. So far the consortium accepts all breeds
produced in the region!
4. We were told that there is a “line of other
producer groups” waiting in Canada.
Charlevoix lamb is the first product to be placeprotected in Canada. Used to protect the name from
counterfeit lamb.
Charlevoix
Opportunities in the U.S.
 Most U.S. States are far too large to act as a
geographic limit on production and state
brands often become a commodity
standard.
 Additional criteria are needed, these criteria
should increase quality without the use of
variable standards
 The concept should also make intuitive
sense to an uninformed consumer
Many U.S. regions have lost population since 1970
Vidalia Onions
The Vidalia GI
 The name “Vidalia” owned by the Georgia Department of
Agriculture
 U.S. Department of Agriculture federal marketing defines
geographic limits of production regions and authorizes
growers to set quality standards.
 Registered certification mark gives Georgia the right to fine
growers who do to abide by geographic boundaries
 The concept was an initial success but there is a potential
problem for oversupply
 The sort term response is to increas quality standards but
this is wasteful
Napa Valley Wine Appellations
$44 per bottle
Why doesn’t Iowa create a
producer-owned brand for beef?
 Least expensive grain is found in Iowa
 Iowa producers have a long history of
focusing on using quality breeds in beef
production.
 Iowa can build on “I-80” quality signal.
 USDA is in the process of setting up an
animal id system that will certify animals that
meet high quality export expectations.
Current (pre-BSE) Japanese
Procurement
Japanese buyers obtain their beef by
1. Buying from particular packing plants that
receive the greatest proportion of their cattle
with desirable traits and then
2. A buyer is in the plant trying to identify which
carcasses are most likely to have the traits.
Where did Japanese want to
purchase their beef?
 At packing plants that process cattle from
regions with inexpensive feed and improved
breeds.
 Japanese have often asked for more beef from
I-80 processors.
 These animals are often fed on grain after
weaning and they are often beef breeds but
there is no guarantee, someone has to eat the
Holsteins
Our Proposed Requirements
 Minimum Certification Requirements
 The cattle must be sired by Black Angus, Red Angus, Hereford (horned
or polled) bulls. Their mothers must be visually of the same breed
 Individual animals must be source verified to the farm of birth using an
acceptable animal identification system.
 The cattle must be fed in Iowa for a minimum of 200 days on a highconcentrate ration of at least 75 percent corn or corn byproductscoproducts.
 Individual animals must be age verified and processed by 18 months of
age.
 Each carcass must grade Choice Plus or better according to official
USDA Grades.
 Product will be aged at least 14 days prior to being sold.
Example 2: Non-Industrial Pork
 U.S. pork producers have adopted
industrialized methods of pork
production.
 85% of U.S. pigs live on farms that have
more than 1,000 other pigs in residence.
 Uniform genetics used to emphasize
feed efficiency and low fat content
 Makes pork taste like chicken
Niman Ranch Pork
 Traceable
“We know where and how each piece of meat is
produced and provide direct feedback to our Midwest
family farmers about quality.”
 Humanely Treatment
“Our hogs are allowed to run, roam and root. They
are weaned at seven weeks, never given antibiotics,
and are fed only the finest grains and natural
ingredients.”
 Good Taste
“Because our hogs live most of their lives outdoors,
they need an extra thick layer of back fat for
insulation in the hot Midwest summers and the cold
winters. The fat also brings with it superior marbling,
flavor, tenderness and palatability.”
Niman’s Problem
 Currently process 2,000 pigs per week but demand exists
for 10,000 pigs per week, or about 0.5% of total US
production.
 Niman has trouble sourcing 2,000 hogs per week.
 Opportunity: Some farmers are interested in creating “Iowa
Pasture-Raised Pork” to facilitate production contracts and
marketing of alternative pork.
 Niman is not producer owned and the value is created
elsewhere
Constraints in the U.S.
 The commodity system is far more advanced in
the U.S, this means that the brands will have to
sell at a substantial premium
 It is not clear that consumers will buy into this
concept in the U.S. and it is not clear that farmers
have the skills to convince them to do so
 From a political economy perspective the new
producer groups are not yet at the table
 It is not clear how the U.S. antitrust authorities if
the product is successful and if producers within
the group complain
Why is U.S. Opposed to EU
Proposals for GIs in WTO?
 EU proposals to strengthen international
protection for GIs have gone nowhere due in part
to US opposition
 US has filed a complaint against current EU policy
on GIs
 US position seems to be in conflict with official
USDA policy to encourage greater cooperative
marketing by producers
 Why the conflict?