Historic, Archive Document Do not assume content reflects current scientific knowledge, policies, or practices. 1 United States Niche Marketing 4| Department of Agriculture Agricultural Opportunities Cooperative Service Lamb Through ACS Research Report 11 Cooperatives Niche Marketing Opportunities Through Lamb Cooperatives Tamra Kirkpatrick Kazmierczak and James B. Bell Department of Agricultural Economics Virginia Polytechnic Institute and State University, Blacksburg, Virginia Sheep producers are increasingly considering organizing producer cooper- atives to market lamb to niche markets such as retail food stores, restaurants, mail order sales, and specialty wholesalers. The organizational, physical, and operational attributes of several established and newly organized lamb market- ing cooperatives as well as several emerging producer groups are briefly described. The types of market outlets, quality niches, and value-added prod- ucts targeted by these groups are described in more detail. Specific cooperative marketing strategies addressing issues such as supply consistency, quality con- sistency, buyer satisfaction, and member satisfaction are also included. Member equity, sources of non-equity capital, recordkeeping, financial state- ments, and financial planning are briefly described for producer groups organiz- ing a niche marketing cooperative for lamb. Key Words Cooperatives, lamb, niche marketing. : ACS Research Report Number 111 September 1992 Preface Between 1989 and early 1992, 11 producer groups in Alabama, Iowa, Minnesota, New Mexico, New York, Ohio, Oregon, Pennsylvania, Utah, Virginia, and Wisconsin examined or are currently examining the possibility of forming cooperatives to market their lambs to niche markets. These niche markets are attractive to many producers and producer groups because they provide an alternative to the lack of consistent profitable sales opportunities through auction buyers, order buyers, packer buyers, and commission salesmen. Niche market- ing cooperatives represent a significant change in the role of marketing coopera- tives in the sheep industry. Agricultural Cooperative Service (ACS) initiated this study to provide information on these rapidly developing cooperatives. The size and scope, organizational structure, facilities and equipment, pro- cessing arrangements, inspection and grading activities, and operational proce- dures of four lamb marketing cooperatives and three producer groups are briefly described. The niche markets targeted by these groups include retail food stores, restaurants, mail order businesses, and specialty wholesalers. Niche markets are further identified through product quality characteristics such as lean meat, organically produced lamb, gourmet quality meats, religious certifica- tion, and regional identity of the production area. Examples of value-added prod- ucts being developed and tested by several producer groups are also dis- cussed. Specific cooperative marketing strategies addressing issues such as supply consistency, quality consistency, buyer satisfaction, and member satis- faction are included. Limited information on member equity, sources of non-equi- ty capital, recordkeeping, financial statements, and financial planning is included for producer groups considering organizing a lamb marketing cooperative. i Acknowledgments The authors wish to acknowledge the contributions of several people and organizations to this publication. Financial support was provided by ACS. Julie Hogeland of ACS, Joe McNamara of American Sheep Industry Association (ASI), Harold Ricker of Agricultural Marketing Service, Paul Rodgers of ASI, and Steve Umberger of Virginia Polytechnic Institute and State University (VPI and SU) all served as an informal advisory committee providing assistance dur- ing all stages of the project. David Kennedy, Yankee Shepherd Cooperative, provided invaluable assis- tance to the authors by sharing his experiences and insights gained from man- aging the oldest lamb marketing cooperative targeting niche markets. In addi- tion, Anita Richards of Livestock and Meat Brokering Cooperative, New York; Bill Blaha of the Minnesota producer’s group; Bonnie Young and Junior Goring of Mountain Lamb Cooperative, Utah; Don and Virginia Wilkinson of the Oregon producer's group; Patricia Quintana and Antonio Manzanares of Pastores Lamb, New Mexico; and Leo Tammi and Tom Olivier of Virginia Lamb Cooperative, Virginia also helped the authors gain a better understanding of their groups’ marketing activities and goals. Last but not least, professor Norman Marriott, Department of Food Science and Technology at VPI and SU, helped the authors understand the Federal meat inspection and grading pro- cesses. n Contents Highlights v Established and Emerging Cooperatives 1 Size and Scope 2 Organizational Structure 3 Facilities and Equipment 3 Processing Arrangements 4 Inspection and Grading 4 Federal Inspection 4 Federal Grading 5 Other Certification Programs 5 Operational Procedures 5 Niche Markets 6 Market Outlets 6 Retail Food Stores 6 Restaurants 7 Mail Order Sales 7 Specialty Wholesalers 8 Quality Niches 9 Lean Meat 9 Organic Niche 9 Gourmet Niche 9 Halal and Kosher Certification 10 Regional Identity 10 Value-Added Products 10 Cooperative Marketing Strategies 11 Supply Consistency 11 Quality Consistency 12 Buyer Satisfaction 13 Member Satisfaction 13 Product Promotion 14 Market Concentration of Buyers 14 Organizing a Niche Marketing Cooperative for Lamb 15 Member Equity 16 Other Sources of Capital 16 Recordkeeping and Financial Statements 17 Financial Planning 17 Appendix 18 References 18 iii IV Highlights Farmer cooperatives have opportunities to market lamb and lamb products to niche markets. Information on some of these opportunities was obtained by interviewing two established lamb marketing cooperatives and five emerging producer groups during the summer of 1991 . Followup interviews were con- ducted in January 1992, at which time two of the five producer groups had for- mally organized as cooperatives and were scheduled to begin marketing activi- ties within the next few months. The characteristics of established and emerging lamb marketing coopera- tives have a bearing on the type of niche markets each group is able to target. The groups interviewed are diverse and located all over the country. They have between nine and 100 producers with flock sizes ranging from eight to 6,000 ewes. The established and newly organized cooperatives have all hired man- agers to run their marketing operations but few have any other employees. Most have avoided office costs by having their managers work out of their own homes. These cooperatives have their lambs slaughtered through custom agreements with established slaughter facilities and have their product Federally graded. Most organize a schedule for their members to deliver lambs to the slaughter facility and all the cooperatives arrange for delivery of the car- casses or cuts to buyers. The niche markets targeted by established and newly organized coopera- tives include retail food stores, restaurants, mail order businesses, and special- ty wholesalers. Niche markets can be further identified through product quality characteristics such as lean meat, organically produced lamb, gourmet quality meats, religious certification, and regional identity of the production area. The cooperative must work closely with its producers and its custom slaughterer to produce the quality characteristics required by various buyers. Value-added products can increase sales of slow-moving cuts, provide an outlet for cull ewes, and make quality meat more attractive to the consumer. Despite these potential benefits, the cost of developing, packaging, and marketing value- added products is prohibitive to most lamb marketing cooperatives at this time. Lamb marketing cooperatives must develop marketing strategies that will enable them to compete successfully with other lamb marketing businesses. These strategies include developing programs for supply consistency, quality consistency, buyer satisfaction, member satisfaction, and product promotion. In addition, lamb marketing cooperatives must take precautions to decrease their vulnerability to the increasing concentration of buying power in the food industry. To organize a cooperative, producer groups should conduct a feasibility study, set planning horizons, determine sources of capital, and, if the venture is deemed feasible, develop a charter and bylaws. Once organized, members should expect to invest in the equity base of the cooperative. The board of directors will be elected from the membership and they will hire a manager. The manager will be responsible for the day-to-day operations of the cooperative, including purchasing lambs from members, overseeing the processing opera- tions, and locating market outlets. V