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Niche Crop homework

By Lorne McClinton

It’s tough to make money with $3.00 wheat and $5.00 canola has not made life on the farm any easier. Farmers are scrambling, trying to find a crop that can generate enough revenue to keep operations afloat. Spices, organics and other niche crops offer potential for a large return to some growers but can have hidden pitfalls to the unwary producers who have not done their homework.

"The first thing growers looking for new crops should do is to identify the alternatives," says Dr. Stan Blade, Director of Alberta Agriculture’s Crop Diversification Centre North in Edmonton, Ab. "Take a broad view when you look into what is out there. Ask yourself - What labor do I have available and What kind of financial resources do I have available? What kinds of things do I want to do? Do I want to grow a seed crop or do I want to grow something more along the line of vegetables? Identifying which alternatives will work for you lays the foundation which moves nicely into the next step, marketing. Will this product sell?"

"Make sure that you know where you are going to sell your crop before you grow it." says Gary Schweitzer, a farmer and specialty crop marketer from Eston, Sask. "Growers are by definition growers. They go out and grow a crop and worry about marketing it afterwards, they want to take it one step at a time. Sometimes that works, but sometimes it is a disaster.

"What if you grow something and are unable to market it? Find out if the product is commercially utilized? If so, find out in what quantity it is utilized. Some of these markets are so small that if 10 growers are going to fill the market you had better find out if there are already 20 out there. If you are the 21^st grower in the market where only ten are needed, it is not going to be good."

"Making sure that you are going to get paid is always the tricky thing when doing your own marketing," says Steve Snider, a long time organic farmer near New Norway, AB. "I think our biggest downfall as farmers is that we don’t think of ourselves as businessmen too. We go into a bank and we hand them all this paper work to get a loan and we fully accept that that is the way business works. But, when we go to sell our product we think that we might offend someone by asking them for credit references. We are too passive in the way that we market because we are too used to the mindset where you just take your grain to the elevator and then you wait for your check. Farmers today have to be a little more aggressive.

"In my mind if a company is not willing to share their credit information then probably they are not going to pay anyway. The other thing is to talk to other guys. Once there is a bad trader it doesn’t take long for word to get around. It is an opportunist market out there and there are lots of guys willing to jump on the band wagon because they can make a quick buck. It is just a matter of sticking together and making sure that guys like that don’t stay in business for too long. If they burn one guy maybe they will burn three or four more but word should get around. It is embarrassing to say, I got soaked by this guy for X amount of dollars."

Marketing your own crop can be difficult. Most farmers would prefer to sell their product to a middle man instead of doing the leg work and investing the time needed to market to end users.

"You really only need one marketer for every five hundred growers," Schweitzer says. "The risk is that if every grower starts to sell their own product they will start bidding against one another and drive down the prices. Generally the companies won’t deal with an individual grower, but they will accept their prices. They then go back to the other sellers and say I can get this product from the grower for less. Even though the grower does not sell his product it still forces the price lower. The end result is that everyone gets lower prices. It is frustrating because it is unnecessary. You only need one or two of these guys coming in once a year to ruin the price for everyone."

How do you go about selecting what niche crops to grow. Snider and Schweitzer agree that researching the market should be the first step. Schweitzer and Snider both caution against relying solely on coffeeshop wisdom. "Just because you hear that someone over in Swift Current is making a fortune growing Chick peas don’t assume it will work for you," Schweitzer says.

"You have to do the research to know if it will work for you. Keep in mind that the guys that did well with these crops are very vocal and those that didn’t aren’t saying very much. Out of 40 chickpea growers in our area last year we only had three that made good money. There was a lot more talk from the three that made money than there was from the other 37 who didn’t."

"My biggest beef with a lot of farmers is that they jump in when they see an opportunity without guaranteeing their return," Snider says. "I call it the sheep syndrome, once one heads in a direction the whole damn flock heads there. Typically by the time a farmer finds out that someone is making money at something, it is too late and the market has passed its peak. You need to look for something that is new and looks like it might have a sound future and not necessarily do something that has already been slogged. If you do find a buyer who is willing to step in and buy your product for a good price get yourself a written contract."

"The contract should stipulate things like when the product is going to move, what the agreed upon price is and when you are going to get paid," Schweitzer says. "A written contract is a legal document that gives you a lot of protection. You are also looking for a track record. If the buyer has never done it before you are not getting anything.

"You need some agro-economic knowledge too. What are the quality factors? If it gets rained on do I still have number one or not? Quite often it isn’t. For most of these commodities 90% of the market is looking for number one only. So if you do something wrong from an agronomic aspect you may have missed out on profit. If you are not tied in with someone who has that knowledge you may be in trouble from the start."

Schweitzer warns people not to get all their information on a new crop from the person trying to sell them seed. "The very first guy that is selling you the seed is not necessarily the guy that you want to trust completely."

"His goal is to sell the seed, he may be someone who was a frustrated marketer himself, one of the guys that did not have a marketing plan, but just grew it to sell for seed. It becomes a bit of a pyramid plan with him at the front end of the pyramid. The seed is the easiest thing to get, usually. Lots of people are willing to sell it to you. It is better to buy the seed from someone who has a plan for you to be able to sell the seed, and even offer you a contract. If they don’t do that for you then you really have to question their motives," Schweitzer says.

Many spice growers have paid exorbitant prices for seed in the past with hopes of being able to make huge returns in the seed market. This market quickly fills up though and farmers have to sell into the commercial market. Most have little or no knowledge about what their crop is actually worth on the commercial market.

"It happened a few years ago in the dill market but the same thing has happened in just about every spice that has come along," Schweitzer says. "There have been three marketers and 15 seed salesmen and the seed salesmen flood the market. The three marketers only contracted out what they could sell and the farmer ends up holding their product for two or three years. The only guy that made money, is the guy who sold the seed at outrageous prices.

"It goes around to a different crop every year. The farmers get angry with us the next year when they still have the product and want us to buy it. We have to tell them that their commodity is only worth $0.25 a pound and we don’t care if he told you when he was selling you the seed that it was going to be worth $2.50 a pound. We have to be the ones to tell them that they got screwed by the seed grower and it is not fun."

"The final step to choosing a new crop is to look at production factors," Blade says. "Look at the environmental factors and what kind of production that you could get as far as yield goes. Look at the kinds of buildings and machinery you need. When people tell me they are interested in growing a niche crop I start by asking them about other kinds of crops they have grown. If they have not grown peas or another crop that is a little bit different then we have to have a serious discussion about the kinds of extra management that are required and the unique ways of marketing these crops.

"There is a different set of skills that have to be developed to grow these crops. I think that people have to be aware of that. There is a lot of interest in crop diversification but there are reasons why these crops are not grown on millions of acres. There is a reason why only a small number of people are interested in producing these crops, they are not as straight forward to grow as some of the others," says Blade.

"You have to be reasonable too when talking about a new crop," Snider says. "I have heard of guys farther north than we are talking about raising organic soy beans. You need heat units that they just don’t have to grow them. Research is what separates the farmers from the sheep. Some do all right so the rest want to give it a shot too. Be wise and don’t over extend your credit. Sometimes money and greed can blind you."