Community Council study - Value-Added Agriculture Report

8/8/2019 Community Council study - Value-Added Agriculture Report

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Value-addedagriculture

A report to the citizens of the region between Burbank and Dayton from the Snake River to Milton-FreewaterSummer 2010


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Study

management team

Julie Reese, executive director

Jon Campbell*

Tim Gibson

Clive Kaiser*

John Mathwich*Lanny Ptacek

Steven Woolley*

20092010Community Council

study committeeNancy Ball

Jim Barrow

Jenna Bicknell

Pat Camp

Mary Campbell*

Sandra Cannon*

Curtis Coombs

Jennie Dickinson*

Mike Frederickson

Jean-Paul Grimaud

Karen Grimaud

Elizabeth Humphrey

Mark James*

Randy James*

Mike Jeers

Bill Jordan*

Cathy Lee-Haight

R. L. McFarland*

Cecelia McKean

Janie Millgard

Judy Mulkerin

Larry Mulkerin

Nick Plucker

Donald Priest*

Barbara Rutzer*

Peggy Sanderson

William Sanderson

Anna Savelesky*

Dale Smelcer

Tom Stokes

Alaina Tucker

Je Tucker

Steven VanAusdleAbby VanderPlaat

Neil Walther

Karen Wolf

Diana Woolley

Pat Yenney*

*People who developed fndings, conclusions and recommendations.

The 20092010 study committee met for 27 weeks (from

Dec. 8, 2009, to June 15, 2010). The management team

developed the curriculum in October and November.

During the course of the study, 49 people participated.

Mari Sanders*, chair

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EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . 4FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Blue Mountain Station: Attracting value-addedbusinesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Voices of experience . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Tims Cascade Chips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Midlands Meander, South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Blue Mountain Cider Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Washington wine industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Don Carlo Vineyards and Winery . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Key Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Shepherds Grain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Thundering Hooves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Ali`i Kula Lavender Farm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

What is value-added? . . . . . . . . . . . . . . . . . . . . . . . . 6Planning for a value-added agricultural business 6RESOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

w Soil and climate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

w vailable raw product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Table of contentsSummeR 2010

INFRASTRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

w Labor capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

w Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

w Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

w Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

w Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

w Public health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

w Land use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

w Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

MARKETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

AGRITOURISM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

COUNTY GOVERNMENT AND ECONOMIC DEVELOPMENT . . . 27

CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 29SUPPLEMENTAL RESOURCES . . . . . . . . . . . . . . . . . 30RESOURCE SPEAKERS . . . . . . . . . . . . . . . . . . . . . . . . 30COMMUNITY COUNCIL BOARD OF DIRECTORS 31

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Agriculture has been, and continuesto be, a major economic engine forthe region between Burbank andDayton from the Snake River toMilton-Freewater. Like other sectorsof the economy, agriculture is facinga number of challenges, including:wProt margins for production agri-culture are oen very narrow.wTe government is moving awayfrom oering direct support to farm-ers. Without government support,some facets of agriculture couldfounder.wMost farmers are not young and are

looking for ways to increase protabil-ity so that their childrenwho havele the farm to nd employmentmight return to the farm or so thatthey can sell the operation.wSome nonfarmers are seeking waysto enter agriculture or related eldsfor the rst time.

Te purpose of this study was toexplore how the regions economicviability might be enhanced throughthe creation of value-added busi-

nesses using agricultural resources.Value-added agriculture is theprocess of increasing the economicvalue and consumer appeal of anagricultural commodity.

During 27 weekly meetings, thestudy committee heard from 26 re-source speakers representing govern-ment, businesses and institutions ofhigher education. Tey outlined the

The purpose of this study wasto explore how the regions

economic viability might be

enhanced through the creation

of value-added businessesusing

agricultural resources.

challenges to and opportunities forcreating value-added businesses, andthey oered suggestions for makingthese businesses viable. Te speakersalso oered their thoughts on attract-ing already-established value-addedbusinesses to the region.

Te presentations provided in-formation about the regions naturalresources; infrastructure; land use,water and food-handling regulations;workforce; education; technicalsupport; and marketing and nanc-ing options. Some of the speakerswere themselves entrepreneurs, and

they related important lessons aboutvalue adding that they have learnedthrough their experience.

Te study committee made everyeort to ensure that this study is rep-resentative of the entire region.

Te committee found that manyopportunities exist for entrepreneurswith a passion for their value-addedproducts, a willingness to adapt theproducts to meet the needs of theconsumer, a sound business plan, a

well-organized marketing plan andmarketing tools, and a willingness toinvest in necessary resources. Natu-ral resourcesas well as educational,nancing, facility and marketing re-sourcesare available in the region.Te committee also identied someways to maximize the eective useof those resources by value-addedagricultural entrepreneurs.

Executive summaryis summary provides an overview o the study. e reader is encouraged toread the report in its entirety to understand the breadth o the topic and theconnections between the stages o the study processfndings, conclusions andrecommendations.

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ConCluSionS

There exists a base of knowledge about crops that are no longer

processed in the area; entrepreneurial market research shouldinclude a review of past and present agriculture products.

Careful market research, a well-organized marketing plan, a

sound business plan and marketing tools are necessary for a

value-added business to be successful.

Because value-added businesses and their products are regu-

lated by multiple agencies and dierent departments within

those agencies, it can be challenging and time-consuming to

ensure that all requirements have been met.

Marketing has a signicant eect on the success of value-addedbusinesses. Products that are third-party certied, eco-labeled,

branded or locally produced appeal to some buyers and can

result in a premium paid to the producer.

Value-added agriculture products could benet from establish-

ing a regional brand. The marketing of local products should

capitalize on name recognition, and the community should

enthusiastically support branding eorts.

It is easier to retain existing businesses than it is to attract new

businesses to the region.

Rail, truck and barge transportation are readily available for

transporting products to major markets. Railex expands the

geographic area in which this regions products can be com-

petitive, and empty westbound Railex cars oer opportunities

for importing resources. Regional transportation, particularly

access by passenger airlines, is a perceived problem.

The governments in the study area deal with economic de-

velopment challenges and opportunities dierently. Umatilla

County has a dedicated economic development department.

Regions may benet from forming a federal Economic Develop-

ment Administration district.

Communities that have innovative and entrepreneurial environ-

ments attract other successful businesses.

ReCommendationS

Promote awareness of the regions historical crops and pro-

cessing industry, using sources such as Joe J. Locatis TheHorticultural Heritage of Walla Walla County, 18181997.

Oer workshops to teach grant writing, business plan de-

velopment and market research skills. Explore opportuni-

ties to oer an ongoing business advisory service.

Work with agencies to develop a generic checklist of

steps for entrepreneurs to use in planning value-added

businesses.

Educate businesses about third-party certication andthe potential for an associated price premium.

Evaluate the interest in and need for a Walla Walla re-

gional marketing brand.

Identify or create the organization(s) that will take the

lead in facilitating the development of local value-added

agricultural businesses.

Investigate the potential for importing by Railex prod-

ucts that could benet value-added businesses. Through

printed materials or an awareness campaign, correct the

perception that this region is handicapped by transporta-

tion challenges.

Evaluate the benets of a unied economic development

entity for Walla Walla County.

Encourage Walla Walla, Columbia and Umatilla counties

to evaluate the benets of becoming a federal Economic

Development Administration district.

Encourage and recruit people and businesses to the area

that will contribute to an environment of creativity and

innovation.

Highlights

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Findingsese fndings represent the inorma-tion gathered by the study commit-tee. ey are derived rom publishedmaterials, rom inormation reportedby resource speakers and rom a con-sensus o the committees understand-ing o the opinions o the resourcespeakers.

Agriculture has been, and contin-ues to be, a major economic enginefor the region between Burbankand Dayton from the Snake Riverto Milton-Freewater. Like othersectors of the economy, agricultureis facing a number of challenges,including:w

Prot margins for production agri-culture are oen very narrow.wTe government is moving awayfrom oering direct support to farm-ers. Without government support,some facets of agriculture couldfounder.wMost farmers are not young. Manyof these farmers are looking for waysto increase protability so that theirchildrenwho have le the farm tond employmentmight return to

the farm or so that they can sell theoperation.wSome nonfarmers are seeking waysto enter agriculture or related eldsfor the rst time.

Te purpose of this study was toexplore how the regions economicviability might be enhanced throughthe creation of value-added busi-nesses using agricultural resources.

Te study committee gatheredinformation about the regionsnatural resources; infrastructure;land use, water and food-handlingregulations; workforce; education;technical support; and marketingand nancing options.

Resource speakers outlinedchallenges to and opportunities forcreating value-added businessesand suggestions for attracting themto the region. Te study commit-tee heard about rst-hand experi-ences from a group of entrepreneursalready operating value-addedbusinesses.

Planning foR a

value-added

agRiCultuRal buSineSS

Te current economic environmentprovides both challenges to and op-portunities for creating value-addedbusinesses.

Te challenges include:wCompetition is intense.

wechnology will continue to re-place workers in many segments ofthe economy.wEnergy and water resources arelimited and expensive.wBaby boomers (who make up25 percent of the population) areretiring, and their spending willbecome more conservative.wFuture generations may have less

What is value-added?

Value-added agriculture is a process of increasing the economic

value and consumer appeal of an agricultural commodity.

Michigan State University Extension

discretionary time and money.wWith the migration to and thenfrom rural places, attracting andretaining a workforce will bechallenging.

Some of these challenges are alsoopportunities:wConsumers are developing prefer-ences for seasonal variations in cropsand are redening the term localmore opportunistically. Concernabout the quality of imported foods,such as foods from China, has beengood for local products.wAging baby boomers are drivingthe locavore and organic markets,

and that trend will likely continue.wWorldwide food consumption pat-terns will likely create an increase inexport markets.wTe declining value of the U.S. dol-lar may increase export opportunities.wInternet marketing is increasing.

Use ideas and market research as

the basis for realistic business plan-ning. Te initial step in planning fora value-added business is to conductrst-hand research about potentialcompetition for customers and re-sources. It is important to determinethe target marketknow who willbuy value-added agricultural prod-ucts and how much money they haveto spend.

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Blue Mountain Station: Attractingvalue-added businesses

Columbia County is known for its cutting-edge farming practices, its food pro-

duction and processing, and its restaurants. Those touchstones are guiding local

economic development eorts after the closure of the Seneca vegetable process-

ing plant, which was once the largest asparagus processor in the world.

Blue Mountain Station, a business development idea being implemented by

the Port of Columbia, will embody those elements. It will be a new, ecologically

friendly food-processing park that houses small- to medium-size artisan, organic

and sustainable food-processing businesses. The projects goals are to create a

cluster of like-minded businesses and jobs, to create a market for local crops to

spark business startups, and to encourage tourism.

The Port of Columbia used surveys, research, one-on-one interviews and other

methods to determine a viable market niche for Blue Mountain Station and to de-

velop a 10-year business plan. Blue Mountain Stations business cluster concept

has been featured in several newspapers and trade publications.

The Port of Columbia has already purchased the 28-acre site, which lies along

Highway 12 west of Dayton. Funding for phase one of the development is avail-

able, and it likely will be completed within a year. Buildings will be constructed to

LEED (Leadership in Energy and Environmental Design) certication standards

which is important for businesses interested in supporting green construction.

City water is available, and resource-ecient storm and waste water systems are

being explored.

Blue Mountain Station is using other unique tools to attract its tenants. The

Port of Columbia is building relationships for marketing, distribution and access

to cutting-edge technology through a very active advisory team and colleges

and universities. It is working with Washington State University and Walla Walla

Community College to oer up-to-date processing technologies.

Value-added agricultural businesses often need assistance with market

research, developing marketing networks and nding cost-eective distribution

channels. An umbrella marketing program, such as Blue Mountain Certied or

Blue Mountain Fresh, will be implemented, and eco-labelssuch as Salmon Safe,

Food Alliance and organicwill be used.

Culinary tourism is very popularpeople want to tour and taste at food busi-

nesses. The products of Blue Mountain Station businesses will be produced with

the wholesale market in mind, but culinary tourism, product tasting and tour-

ing will also be accommodated. A retail building with a product development

kitchen for testing, demonstrations, on-site sales and a public meeting space will

be constructed. A fulllment center where products can be assembled in boxes or

baskets is being considered.The Port of Columbias biggest challenge will be attracting the rst business to

locate at Blue Mountain Station. Selling points are the general lack of this type of

business cluster development and Blue Mountain Stations proximity to organi-

cally grown products and to the wine region. Blue Mountain Station has repre-

sentatives attending natural and organic food trade shows to make initial contact

with entrepreneurs who may be interested in locating at the park. The intention

is to identify successful businesses that would expand into the northwest. Blue

Mountain Station will also nurture local startup businesses.

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Planners should also identifywhat customers want. Te more avalue-added product can be dif-ferentiated from others in meet-ing consumers desired criteria,the more successful it is likely tobe. In some cases, only the pack-aging, distribution or marketingmay change. In other cases, thecommodity is simply recong-uredfor example, pelletizedor compressed. Value adding atthe farm and then shipping therened products may lessen ship-ping costs, and selling directly tothe consumer may increase prot.

Customers perception of awsor concerns about systems, such as

product safety, are opportunitiesfor value adding and may lead tonew products and delivery meth-ods. Some consumers prefer tobuy locally, and some are willing topay a premium for items produced

with operational transparency andperceived environmental, social oreconomic benets.

Certication by third-party orga-nizations may promote good prac-tices and can be a marketing tool. Itis used in the current marketplaceto infer or guarantee that certainpractices associated with the produc-tion of crops and livestock are used.Labels resonate with consumers.Approximately 300 labels are in use,and eco-labeling is a growing trend.

Some labels, such as fresh andlocal, are not standardized at thistime. Fresh foods sold in grocerystores oen come from a thousandmiles away. Organic commodities

eventually lose their margin, butvalue-added products made withorganic foods hold their value atretail. Some consumers are willing topay a premium for organic prod-ucts. Experts predict that production

of industrial organics may decreasethe organic premium.

Determine the potential for pro-duction to ensure consistency ofproduct quality and supply levels.Consistency is the key to protabil-ity. Having a consistent supply ofresources needed for production, aconsistent quality of product, a con-sistent availability to the consumerand consistent service are crucial tomaintaining market share. Whenpioneering products with no estab-lished markets, start small and build.

Value adding can be expensive andinvolves risk, but prot is the rewardfor taking that risk. Te more stages

of value adding that one businesscan do, the greater the percentage ofthe nal retail price the business willretain and the more likely that it willbe able to control the selling price.

Larger businesses may benet

Value-added experiencesshared by entrepreneursand other presenters

Several resource speakers shared insights

with the study committee about the

supportive environment that encour-

ages entrepreneurs to remain or locate

in a community. In deciding where to

do business, entrepreneurs evaluate the

community on criteria that will aect their

operations and their employees, such as:

wThe availability of low-cost nancing.

wA thriving agricultural community.

wAn excellent school system.wProximity to higher education.

wNo state income tax.

wA labor force available at attractive

rates.

wSuccessful existing manufacturing

businesses.

The resource speakers said this re-

gions quality of life is a recruiting asset.

They also expressed some challenges to

attracting businesses or employees and

made specic suggestions to address

those challenges:

wEncourage local entrepreneurialspirit.

wDevelop a clear recruitment strategy

and provide incentives for locating

here. Many states oer incentives;

Washington communities are not

competitive. Dis-incentives include in-

creases in business and operating taxes

paid on gross sales, whether or not the

FINDINGS

Voices ofexperience

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company makes a prot.

wWork with Walla Walla Community

College, Blue Mountain Community

College and Washington State Univer-

sity to provide curriculum that develops

graduates with the technical expertiseneeded by businesses.

wMake recruitment a community

aair. Involve all sectors, including

government, banking, industry and

agriculture.

wEstablish primary and secondary

education as the main attribute of the

area. School quality is very important to

businesses looking to locate in a commu-

nity and to businesses recruiting poten-

tial employees in a global market. They

expect the school system to be not just

good, but great.

wSolve transportation challenges.Customer access to the business is

crucial. Obstacles, real or perceived, are

detrimental to business. Air travel to and

from this area is dicult for employees,

customers and potential employees that

a company may be trying to recruit. The

rural setting adds to the perception of

diculty.

wAddress complicated and confusing

permitting processes, such as waste

handling and land use.

wCreate critical mass. Technical

businesses like to locate near other

businesses they know are successful.Successful manufacturing businesses,

such as Key Technology and Nelson Ir-

rigation, are already located here.

Information about the presenters

to the study committee are located

throughout the Findings section of

this report.

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from economy of scalefor ex-ample, being able to reduce expensesby purchasing supplies in largerquantities. Forming purchasingcooperatives may improve smallerbusinesses ability to compete.

Know the competition.Do notcompete. Differentiate. Developa niche. Because value-addedbusiness is market-driven, suc-

cessful entrepreneurs need todetermine what consumerswant and adapt to meet thatdemand. Consumer demandschange constantly and rapidly,requiring businesses to regu-larly re-evaluate what will beneeded. Smaller businesses maybe able to adapt more quicklyand in ways that larger busi-nesses cannot.

Value-added products areunique, so few producers areinvolved at rst and demand iselastic. Te producer can aectthe amount sold by price setting.Being a price setter, as opposed

to a price taker, enables the develop-ment of a fair-value chain.

Prot draws competitors, and ascompetition grows, prot levels fall.As the market changes, entrepre-neurs must adapt to retain marketshare.

Serving a special niche mayprotect businesses from competing,

predatory companies. ims Cas-cade Chips chose to develop a nichemarket and thereby avoided beingtargeted by a large national com-pany that systematically removed allof its competition in the traditionalchip market. Te large national

company purchased its competi-tors, dominated available retailspace by paying extra and undercutproduct price until no competitionremained.

Every business needs a market-ing plan and must continually cre-ate new marketing tools. Brandingtakes time and may or maynot be beneficial in the rapidlychanging value-added businessenvironment.

Direct marketing is one way to

interact with the customer and pro-vides an opportunity to educate theconsumer about value adding.

Develop relationships. Con-sider the feasibility of partner-ships, clusters and geographic

differentiation. Entrepreneurscan use relationships to developbusiness ideas, to increase access tonecessary resources and training,and to overcome the challenges ofcomplex regulations. he posi-tive effect a value-added business

has on the community is directlyproportional to the level at whichthe resources of other communitybusinesses are utilized.

Economists, economic devel-opment proponents and businessowners emphasize that it is easierto retain current businesses than torecruit new businesses to the regionand that current businesses shouldbe encouraged and supported con-currently with seeking new develop-ment opportunities.

People can help change a corpo-rate culture. Te owners of Shep-herds Grain were able to self-nancewhen starting the company, thanksin part to a benecial relationshipwith ADM in Spokane, which millstheir grain. ADM purchases thegrain upon delivery to the elevator.ADM also sells Shepherds Grainproducts under their umbrella. Tis

relationship was unusual for ADMscorporate culture, but the local millwas willing to work with ShepherdsGrain, the partnership and productshave proven successful, and Shep-herds Grain is now viewed by ADMas an asset.

FINDINGS

Voice of experience:Tims Cascade ChipsIn 1986, the trend in the ver y com-

petitive chip market was toward thin,tasteless, minimally spiced chips. Tim

Kennedy developed a niche market,

supplying home-style chipscalled

Tims Cascade Chips. He sold the com-

pany in 1990 to a farmer cooperative

that later bought Birds Eye Foods.

This co-ops goal is to own companies

that allow member farmers to

produce value-added products.

During his career in the snack indus-try, Kennedy helped start snack plants

in Russia, Estonia and China. Some of his

foreign experiences uniquely demon-

strate his messages to other value-added

entrepreneurs:

wMarket research and marketing are

crucial. One of the biggest challenges in

Russia was to develop a market in a popu-

lation that did not eat snack food.

wBusiness costs are often higher anddierent than anticipated. A plant in

Estonia failed because the required

tips (bribes) eliminated protability.

wProximity to the source of commodi-

ties is essential for sustainability. A

plant in China failed because it was

located too far from the source of

potatoes.

Profit draws competitors,

and as competition

grows, profit levels fall.

As the market changes,

entrepreneurs must adaptto retain market share.

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ReSouRCeS

Soil and climate.Terroiris a Frenchterm used to associate specialcharacteristics embodied in prod-ucts with the region in which theyare produced. Similar soil, weatherconditions and farming techniques

contribute to those unique qualities.raditionally associated with grow-ing grapes and the characteristics ofthe wine those grapes produce, ter-

roir is used as a marketing tool topromote the uniqueness of prod-ucts from a particular region.

Tere are two types of terroir.Cultural terroir is what people doto produce and aect the prod-uct as it goes to market. Physicalterroir involves the geography,geology, pedology (soil) and clima-tology of the place it is produced.

Geographic and weatherconditions vary signicantlywithin the study region, creat-ing at least four terroirs in theWalla Walla Valley. opographyand wind patterns create micro-climates. Te Walla Walla Valley

has seven soil types: Palouse Loess(wind-deposited silt); Missoula

Flood sediment (sandier, coarser-grained sediment and gravel);cobbles (stream gravel); bedrock(basalt); caliche calcium carbonate;volcanic ash from Mount Mazama inOregons Crater Lake; and ice-raedrock carried here by icebergs.

emperatures and rainfall in the

Voice of

experience:MidlandsMeander,South Africa

The Midlands Meander in KwaZulu Natal,

South Africa, is an example of on-farm di-

versication. In 1982, when dairy farmerswere barely surviving, farm wives in one

region banded together and transformed

their hobbies into businesses. Visitors are

invited into the farm setting for personal

experiences and to purchase value-added

farm products, such as chocolates and

specialty cheeses. Bed-and-breakfast

establishments, spas and wellness

centers are also popular. Their non-farm

productssuch as pottery, wooden

toys, weavings, leather goods andglassworkare not perishable and are

exportable. This has created jobs and

has motivated artists and others who

like the cultural environment to move

there.

The endeavor has ballooned to a

$1 billion industry, and Midlands Mean-

der has become a brand name.

Walla Walla Valley vary with eleva-tion, which ranges from 400 feet to2,000 feet. Average growing seasontemperatures in the Walla WallaValley are 60 to 68 degrees Fahren-heit. Diurnal temperature variations,long summer days and not-too-hot

fall seasons are also local character-istics. Te Columbia Basin is in the0- to 10-inch minimum rainfall area.Walla Walla receives 10 to 20 inches;the Blue Mountains receive 20 to30 inches.

Because dierent crops thrive indierent conditions, there is littlecompetition between them. Forexample, grapevines need gooddrainage, onions do best in oodplains that are low and cold andpotentially subirrigated, and berriesneed subirrigation.

Available raw product. Many rawproducts are available locally or areeasily accessed within the PacicNorthwest. For years milling com-panies and processing plants forvegetables such as asparagus, greenpeas and sugar beets operated inthis region, but most have closed or

moved.Examples of local value addingcurrently under way are wine andcider production, packaging andmarketing of fruit, continental mar-keting via Railex, hay processing andexport, distilling spirits from wheat,and production of renewable fuels.

Bio-fuels production is currentlypopular because the governmentoers incentives.

Tere are opportunities for on-farm marketing and ecotourism. Su-perior packaging and semiprocessedor processed products are other

options. Examples include confec-tions, such as chocolate-coverednuts, cookies, nougats and brittles;cosmetic and culinary oils, whichcan be extracted from less-than-perfect fruit; nut butters; dried fruitproducts; nonalcoholic and alcoholicbeverages; green pea products; andpotted Christmas trees.

infRaStRuCtuRe

Labor capacity. Walla Walla Countyis recession-resistant: slow to gointo and to come out of recession.At the time of the study, the localunemployment level was lower thanthe state average, but the recenteconomic downturn was dicult onbusinesses with fewer than 10 em-ployees. Some layos are not cyclical(related to inventory reduction). Ac-cording to a regional economist, thelayos will likely become permanent,

because the nature of the jobs willchangethe jobs may be automatedso that the employer does not haveto repeat a layo process or the jobsmay be moved to another location toreduce labor costs.

A small county may experiencemore pressure during a recession

FINDINGS



13/32

than do larger counties. ColumbiaCountys current unemploymentissues are structuralwhen the Sen-eca asparagus-processing plant inDayton closed, the jobs were perma-nently eliminated.

Available labor is a prime consid-eration for larger businesses locating

to Walla Walla County. Te work-force pool in the eastern portion ofthe county is smaller than in westWalla Walla County, which can pulllabor from adjacent counties.

Walla Walla County statisticsshow that the rate of unemploymentfor teenagers is high, that people 25to 40 years old are not staying in theregion, and that the 65 and older agegroup is growing rapidly.

Columbia County has 200 to

350 agriculture workers season-ally. otal agriculture employmentin Walla Walla County is 2,000 to4,000 seasonally, because apples andgrapes require signicant manpowerto produce. Apple production is themajor source of agricultural employ-ment in Walla Walla County.

Training. Walla Walla Community

College (WWCC) and Blue Moun-tain Community College (BMCC)are resources for owners and manag-ers who want to expand or pursuenew business ideas and for work-ers who want to increase their jobskills. Tey collaborate with eachother and with Oregon State Uni-

versity, Washington State University(WSU), Eastern Oregon Universityand Columbia Basin CommunityCollege. BMCC also works withgrower groups and oers applicatorcertication. Boundaries are usuallyadministrative or determined by aschools specialties. Online coursessupplement on-site training.

Community colleges are com-mitted to cost-eective trainingthat moves students into employ-

ment as soon as possible. Tecommunity is not always aware ofavailable training opportunities. InWashington, the Agriculture Cen-ter for Excellence, located on theWWCC campus, is trying to bridgethe gap between the workforce andeducation.

WWCC oers a variety of optionsto support workforce development,

including degree and certicateprograms. Customized contracttraining, on-site training and dis-tance-learning programs are avail-able through the WWCC Center forBusiness and Professional Develop-ment. WWCC emphasizes severaltraining programs directly associ-

ated with the realm of agriculture,including training in agriculturalbusiness, agricultural sales, farmand ranch management, agriculturaltechnology, horticulture, vineyardmanagement, wine production, winesales and promotion, and environ-mental technology.

BMCC weaves a business compo-nent into all of its agriculture certi-cate and degree programs. Oeringsinclude programs in agricultural

production, agricultural productionof crops, agricultural productionof livestock, agricultural business,diesel technology and a two-year,web-based agribusiness and manage-ment program. Value-added agri-cultural training is also oered forgreenhouse management, fruit andvegetable processing, coee roasting,and oil seed crushing.

Summer 2010 13


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Voice of experience: BlueMountain Cider CompanyEvery product must meet consumer

demands. Value adding is expensiveand changes constantly and rapidly,

says Ron Brown, Blue Mountain Cider

Company CEO. The producer either

changes to meet the demands and

absorbs the added expense or loses

the market.

This cider-making enterprise began

as a hobby shared by friends. They

took classes to learn more about

cider production, conductedresearch and determined their

target market.

As the business developed,

additional investors have been in-

volved, and the equipment necessary

to deliver consumer-preferred product

has been purchased and installed in

facilities in Milton-Freewater.

Te length of time needed toput a new program into placedepends on how closely alignedit is with the colleges current of-ferings and whether certicationis needed. Colleges can usuallyrespond to requests for work-shops in a few weeks and can addcerticate or degree programswithin a matter of months.

WSUs wine science pro-gram works closely with boththe grape and wine industriesand partners in research withother universities in the U.S. andabroad. WSU oers two-yearcerticate programs, a bachelor

of science degree, and advanceddegrees in viticulture and enol-

ogy, as well as a bachelor of sciencedegree in wine business manage-ment, which is a major developedin collaboration with winery own-ers and operators, the United StatesDepartment of Agriculture (USDA),

distributors, and wine marketers.Community colleges may help

students access a variety of fundingoptions, including small businessloans, student nancial assistance,opportunity grants (state funded),WorkFirst (federal or state funded),worker retraining (state funded),contract training, and job skillsgrants (a Washington supportfor startup training for new busi-nesses). Race to the op educationalgrants fund specic, high-growth,high-demand career preparationcourses. Veterans receive educationalbenets.

BMCCs Small Business Centerprovides on-demand business coun-seling. Te Walla Walla Business

Center was recently closed.

Facilities. Te focus region forthis study is served by three portdistricts: Port of Columbia, Port ofUmatilla and Port of Walla Walla.

While the activities of the Port ofWalla Walla are discussed here, theother two districts oer similar ser-vices and each has unique resourcesto assist businesses.

Te Port of Walla Walla works tomake it easy to do business in thecounty. Its site inventories includeproperties throughout the county,appropriately zoned and withinfrastructure (such as water rightsand buildings) available. Whetheran existing facility is appropriate forreuse will depend on the sites waterrights, how much water is availableand needed, and the sites ability tohandle waste. Te Port assists eachbusiness with the permitting processas needed.

Buildings at the Walla Wallaairport are suitable for light industryand small businesses. A warehousedistrict and urban renewal projectare being planned, and an industrialpark in the Wallula area oers ad-ditional possibilities. Te availabilityof water and power at the Wallulabusiness park is a major attractionfor heavy industry.

Te recruitment and retentionpolicy of the Port of Walla Walla

balances numerous factors, includ-ing wages, environmental impact,employee conditions and tax ben-ets. Business recruitment is highlycompetitive, and incentives oen de-termine where the company locates.o attempt to reduce the risk that abusiness will use incentives and thenmove on, the Port prequalies thebusiness before they locate.

FINDINGS



15/32Summer 2010 15


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Voice of experience: Washington wine industryWashington states grape and wine

industryproduction, marketing, retail

and suppliersis growing rapidly and

dynamically. Currently, Washington

ranks second to California and is recog-nized nationally and internationally for

its high-quality wines. Compared with

other U.S. wine-producing states, Wash-

ingtons medal-garnering ratio is the

highest. Most of the wines are priced

in the medium to high range, which al-

lows businesses to be protable.

American Viticulture Areas (AVA) are

legally dened by the Alcohol and Tobacco

Tax and Trade Bureau, an agency of the

U.S. Treasury. Eleven AVAs are designated

in the state of Washington. The Walla Walla

appellation is part of the Columbia BasinAVA, a subset of the Columbia Valley viti-

culture area, which lies at 46 degrees north

latitude. That latitude in France is between

Burgundy and the Rhone Valley and just

north of the Bordeaux region.

There is potential for small growers,

with fewer than 100 acres, to enter the

industry, because wines express regionality

and every parcel of land has poten-

tial. The marketing of premium wines

emphasizes the place where the grapes

were produced.

The goals of the Washington wineindustry are to be recognized as an

internationally known, premier wine

region; to increase Washingtons share

to 10 percent of the domestic premium

wine market by 2011; and to increase

Washingtons domestic wine produc-

tion by 5 percent in each of the next

ve years.



17/32

Te wine incubator project at theWalla Walla airport is a partnershipbetween the Port and the infantwineries that locate there. Te proj-ect operates with the philosophythat both partners will share therisks and exposure of a new busi-ness. Te Port provides the buildingshell, a concrete pad, climate con-trol and a tasting room space. Tewinery buys the equipment, barrelsand other supplies necessary to dobusiness.

Te wineries may build theirbusiness in the incubator for therst six years, aer which theymust graduate out. Te incubatorsystem helps keep talented peopleand young entrepreneurs in thecommunity.

Te Port of Walla Walla does notprovide direct project funding and

weighs the appropriateness of Portsupport for suggested projects, suchas commercial kitchens, which mayjust as easily be oered by the privatesector.

Te Port of Columbia oers com-mercial buildings and parcels of landfor sale or lease and is developingBlue Mountain Station as a support-ive setting for small business clusters(see the Blue Mountain Station sec-tion on page 7).

Te Port of Umatillas ColumbiaRiver site features three terminalsfor handling containerized and bulkcargo: a full-service container-on-barge operation, a grain-loadingfacility, and a petroleum distributioncomplex. Te Port owns parcels ofindustrial land in the communi-ties of Hermiston, Umatilla andPendleton.

Transportation. Distance frommarkets can be a challenge forthis rural region. Highway, rail,water and air provide traditionaltransportation options, and sev-eral innovative modes of shippingare helping producers reach theircustomers.

Washington State Route 12 con-nects Walla Walla and Columbiacounties to each other, to I-90, and tothe Columbia and Snake River navi-gation systems. A project to improveHighway 12 is being accomplished inphases. Oregon Highway 11 providesaccess to I-84.

Te Port of Columbia owns thePalouse River and Coulee CityRailroad, a short line that travelsfrom Dayton to Walla Walla, whereit connects to the Union Pacic-owned line to Wallula and to a

privately owned spur to Weston. Atone time the rail line transportedasparagus, but it is now mostlyused to ship grain. Large shipmentsare necessary to make short-linerail systems cost-eective. Te lineborders the soon-to-be-developedBlue Mountain Station property inDayton and will be a transportationoption for businesses that locatethere.

Railex is a relatively new regional

asset. Located on the Port of WallaWalla property at Wallula, Railexprovides speedy shipment of prod-ucts that need controlled environ-ments to markets on the east coast.A built-in system enables each carto be monitored for location and in-ternal temperature. Te train has Zdesignationgiving it priority overeverything on rail except Amtrak

and travels intact to New York.Eight million pounds of perishableproduct are shipped to Schenectady,N.Y., each week, but there hasbeen low utilization of space ontrains moving westward. Railexmanagement is actively seekingproduct to be shipped in bothdirections. Customers have beenable, in some cases, to sharecars.

While the train itself maynot qualify as a value-addedbusiness, Railex will attractbusinesses that use its serviceto locate nearby. Nurseries andsimilar companies in the Wil-lamette and Skagit valleys aretrucking their products to theRailex terminal to take advan-tage of east coast markets. Tisrepresents a paradigm shiin

the past, goods were shipped fromrural eastern Washington to west-ern Washington and Oregon fordistribution.

Commercial air service iscrucial in this region for accessto customers, for access to stateand national government, andfor employee recruitment. heWalla Walla and ri-Cities airportsprovide choices for flying out, butinbound flights to Walla Walla are

problematic. Maintaining sufficientpassenger numbers on Walla Wallaflights is challenging. HorizonAirlines has reduced Walla Wallaservice from three to two flightseach day. he Walla Walla airportis an essential service provider, so,if needed, federal subsidizationcould be invoked in order to main-tain local service.

FINDINGS

Voice of experience: Don Carlo Vineyards and WineryTim and Lori Kennedy started Don Carlo Vineyards and Winery on a 12.5-acre parcel near Milton-Freewater. They often nd

themselves dealing with conicting regulations because their business activities take place in both Oregon and Washington. As

a member of the Oregon Wine Board, Tim is working with the Oregon Liquor Control agency to smooth the licensing regulations.

Summer 2010 17


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Voice of experience: Key TechnologyKey Technology manufactures equip-

ment for food processors throughout

the world. The company was originally

formed by the Key family in Milton-

Freewater to produce equipment to

remove stems and vines from the green

peas grown in the region.The driving force for agriculture and

agriculture-related businesses to use

technology is to achieve the following

outcomes:

wConsistency of product. Use of

low-skilled labor causes variation in

product, and increased use of technol-

ogy enables businesses to decrease the

need for low-skilled labor.

w Improved product quality.

w Improved up-time and reliability of all

the companys equipment.

w Improved percentage of good product

from a widely varying commodity resource.

wReduction of energy costs.w Improved shelf life of products at retail

level (a large amount of product is dis-

carded when selling fresh).

w Improved cleanliness and detection and

removal of pathogens in the product.

Businesses that support agricultural

product processing and their customers are

located all over the world. Most are

privately owned, and most were started

by high-energy entrepreneurs and are

located near major agricultural areas.

Many started near universities with

engineering programs, and most are

$10 million to $15 million operations.

Key Technology currently has busi-ness locations in Walla Walla, the Neth-

erlands and Bend, Ore. Its Walla Walla

location accounts for 60 percent of its

business. Sales were approximately

$90 million in 2009, and Key and its

employees spent nearly $30 million

(mainly in salaries and purchases) in

the Walla Walla Valley that year.



19/32

RegulationSWater. Te water in this region,excluding Burbank, is part of onewatershed. Water issues are impor-tant, complicated and sometimescontentious, because:wWater is limited.

wQuantities available for use vary.wRights in the Walla Walla Water-shed have been over-appropriated.Tree sources of water rights aresurface water, shallow gravel aquiferwater and deep basalt aquifer water.wWater laws dier between Wash-ington and Oregon. Guidance from awatermaster or legal counsel may beneeded to ascertain rights.wIn Washington, no new waterrights are being issued; there is awaiting list.wNew shallow exempt wells in high-density areas in Washington aresubject to limitations and metering;no industrial use is allowed.wIn the Oregon portion of the studyarea, surface and shallow rights arenot likely to be issued. Rights fordeep basalt water may be possibleto obtain if the well is not within ave-mile radius of Milton-Freewater,

where usage may aect the cityswater supply.Whether water is available for

new uses is a matter of allocationand reallocation of resources.

In this region, water issues are be-ing addressed innovatively throughthe eorts of the Walla Walla Wa-tershed Management Partnership(WWWMP), which is becomingwell-known for successful watercollaborations.

Part of a unique, 10-year pilotprogram, WWWMP coordinateswith water users, environmental-ists, tribes and counties and sharesgovernance of Water ResourceInventory Area 32 with the stateDepartment of Ecology to improveows for sh while providinggreater exibility for irrigators andother water users. Its jurisdiction

includes the watershed from theridge tops to the Columbia River,the Walla Walla River, the ouchetRiver (a Walla Walla River tribu-tary), Mill Creek, and the distribu-tory basin in which numerouscreeks begin and end in dierent

streams. Te region straddles theOregon-Washington state line.

Some local water-related chal-lenges are:wDemand for water is increasing,because consumption by humansand the regions abundant agricul-tural resources is increasing.wTe Endangered Species Actchanged how water issues are ad-dressed. Fish are now a major focus.wTe Clean Water Act 303(d) meansthat water-quality attributes for alllife forms are considered.wTis is a bi-state basin, and eachstate has dierent laws.wOver-appropriation of water rightsmeans that actual water availabledoes not match paper rights, and insome cases junior water rights maybe turned o.wTe region features a braided dis-tributory river system.

Local water planning and bankingagreements can be creative withinthe program to enhance ows by:wUsing existing water rights in anew place, from a new point of di-version or at a dierent time of year.wChanging or using a new source ofwater or employing conjunctive useof groundwater and surface water.wEngaging in groundwater storage(shallow aquifer recharge).wUsing less water voluntarily or

simply agreeing not to use thewater right without losing it underrelinquishment.

Agricultural and industrial waterrights dier. o change the useof water rights is a long process.Working with the WashingtonDepartment of Ecology to transfer,sell or change rights may take years.For a fee, the Walla Walla County

Conservancy Board will processchanges in 8 to 12 months. TeOregon Water Resource Depart-ment has a similar process. Whenbuying water rights, importantconsiderations are whether writ-ten rights equal physical amounts

available, whether rights havebeen relinquished or are no longeravailable for use, and whether theconveyances are appropriate for theanticipated use.

Water rights held by the Cityof Walla Walla may provideroom for growth, but growthwill depend not only on the legalright to use but also the physicalavailability of the water. Tere-fore, growth may require real-locating some agricultural waterto municipal use. Te purity ofWalla Wallas waste water enablesit to be committed as a waterright.

Crops produced in Washing-ton and Oregon dier becauseof the availability of water.Because Oregon irrigators haverst access to water from the WallaWalla River, which originates in

Oregon, many orchards and othercrops requiring summer irrigationhave been established. Washingtonirrigators have less access to summersurface water and have developedinnovative water management andcropping patterns to mirror wateravailability.

Te Confederated ribes of theUmatilla Indian Reservation and theU.S. Army Corps of Engineers areconsidering a 30-mile pipeline to

move Columbia River water to agri-culture users predominantly in theMilton-Freewater area, in exchangefor leaving more water in the WallaWalla River for salmon movementduring the summer. Enhancing thewater ow could enable additionaleconomic development, recreationaluse of the rivers, and salmon-relatedtourism and shing.

FINDINGS

Summer 2010 19


20/32

Public health. Complying with pub-lic health regulations can be expen-sive and time-consuming. o ensurethat businesses operate in a safe, ef-fective manner, regulatory processesinvolving food are complex and mayinvolve multiple agencies at local,

state and national levels. It can takesix months to a year to obtain per-mits for land use, buildings, waterand sewer and to develop regulation-

compliant designs.Oregon and Washington pub-

lic health departments operatesimilarly. For any type of foodsystem, the owner will deal withthe county health department.Te initial focus is on water andseptic systems.

If the business works withdairy, retail eggs or customslaughtering, state Departmentof Agriculture regulations apply.Te USDA is involved if the busi-ness engages in interstate com-merce. Other state agencies mayalso be involved. For example,the Department of Ecology may

be involved if industrial waste sys-tems are required.

In developing a commercialkitchen, it is necessary to adhereto water and waste regulations, theU.S. Food and Drug Administrationcode for kitchen design, and require-ments for wholesale or retail use. Ifthe business will be handling retailfood, the county health departmentwill assist with the designs. Separate

Voice of experience: Shepherds Grain

licenses are required for restaurants.County extension agents may help

guide businesses through the regula-tory processes. Washington StateDepartment of Agricultures SmallFarm & Direct Marketing Handbook,Regulations and Strategies or Farm

Businesses in Washington State mayalso be helpful.

Land use: Washington. Walla Wallaand Columbia counties comprehen-sive plans are required to complywith Washingtons Growth Manage-ment Act. Te act denes permitteduses for each zone. Zoning is fo-cused on land use and is not tiered.

When an owner wants to developproperty in Walla Walla County,Community Development Depart-ment sta membersbuildinginspectors and plannersworkwith the owner or a representativeof the ownersuch as an engineer,surveyor, building contractor orarchitectto determine how theproposed development ts the zon-ing criteria. ogether they review theoptions available.

Te development may be a

permitted use, may require a con-ditional use permit or may not beallowed without a zone change. If thedesired use does not t the zoningcriteria, the owner may choose tomodify the plan to comply with zon-ing criteria or propose an amend-ment to change the Walla WallaCountys Comprehensive Plan or

development code. ime and processrequirements will vary accordingly.

Walla Walla Countys Compre-hensive Plan is reviewed each yearthrough a formal docketing process,and citizens may propose amend-ments to the plan, regardless of

whether or not they own propertyin the area aected by the proposedchange. Tis is only for areawideamendments. Property-specicchanges can only be requested bythe property owner. ypically, publicworkshops are held before the publichearings.

Zoning is important to entrepre-neurs. Growing crops is an approveduse in almost all zones of WallaWalla County. Accessory uses thatmeet certain criteria may also be al-lowed in primary agriculture zones.Manufacturing is not allowed in allzones, and value-added agriculturalbusinesses may be considered manu-facturing. Unlike Umatilla County,in Walla Walla County there is nominimum acreage requirement forwineries; wineries can be permittedwithout any growing acres.

Land use: Oregon. Oregon hashad comprehensive, statewide land-use planning laws for 35 years. Teywere originated by farmers intend-ing to protect farmland from urbanencroachment. Many of the land-uselaws are made by the state legisla-ture, and, as a result, there are listsof what uses are allowed and what

Shepherds Grain was started in 1999

by Fred Fleming and Karl Kupers, grow-

ers who decided to de-commodify their

wheat by marketing high-quality our

directly to the consumer. They combine

traditional farming skills with todays

technology, practicing soil and water

conservation, minimizing the use of

fuel and chemicals, providing wildlife

habitat, and creating a fair-value chain

by telling the story of what they do. They

worked with Washington State University

to evaluate all costs, from producer to

market, in order to establish a protable

rate of return for everyone involved.

They produce three types of

high-quality ourhigh-gluten, whole-

wheat and low-gluten ourfrom hard

red spring wheat and hard red winter

wheat, and they market them under the

Shepherds Grain trademark.

Fleming and Kupers hope that Shep-

herds Grain is a legacy that will enable

their families to return to the farm.

FINDINGS



21/32Summer 2010 21


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business may be required to complywith regulations developed for otherindustries.

State business licenses are re-quired. ransacting business in morethan one state requires compliancewith each states laws, as well as fed-

eral regulations.Wineries must be licensed to

produce and sell alcoholic beverages.Every state requires a permit to sellwine, and there is no continuity inthe working relationships betweenstates.

funding

As for every business, funding iscrucial for value-added enterprises.Funding experts oer several veryspecic messages:wDo not underestimate the capi-tal needed to start and maintaina value-added business. Businesscosts are oen higher than expected.Plan to subsidize the business as itdevelops.wIt can be dicult to get a loan for anew value-added venture when thereis no similar business that the lendercan use for comparison.w

Money is available for businesseswith sound business plans.wBuild a team of professionalsanaccountant, attorney, bookkeeperand nancial advisorwho haveknowledge of the industry and canprovide support as the businessdevelops.

When seeking funding for a newbusiness or project, an entrepreneurwill be asked to demonstrate plan-ning and capacity. Following are

types of information a lender mayrequire:wA business plan that describesthe business, explains how it canbe dierentiated from other busi-nesses, identies the target marketand describes how it will be reached,outlines job creation and retention,and describes the managementsexperience.

wA capital plan itemizing and ex-plaining anticipated costs and capitalpurchases necessary for startup and12 months of operation.wInvestment of 35 to 45 percent ofthe cash needed. In order to set theproject up for long-term success,

equity contributions can come frombusiness partners, as long as they arenot loans. Te higher the loan-to-cost ratio of a project, the greater thechance that the project will fail.wA 12- to 24-month cash ow pro-jection with realistic expectations ofrevenue, expenses, ongoing capitalpurchases and loan payments shoulddemonstrate how the bank will berepaid and summarize assumptionsused to develop the projections.wAn inventory of the owners per-sonal nancial health, including acredit report and score and a com-plete personal and household budgetto demonstrate viability withoutfunding from the business for atleast the rst 12 months.

A variety of funding optionsmay be available for the enter-prise, including friends and family,bank loans, venture capital, angel

investors, and grants. Ports havethe ability to issue revenue bonds.Columbia County is eligible to usethe Columbia Regional EconomicDevelopment rust, a fund that of-fers small business loans. Te Portof Columbia facilitates access to thisfund. Creative funding, such as de-veloping strategic partnerships andnegotiating with customers, is also apossibility. Shepherds Grain, for ex-ample, was able to self-fund because

they benetted from a relationshipwith ADM that lowered their startupexpenses.

Community banks are locallyowned and operated and oer loanand deposit and, in some cases,brokerage and wealth managementservices. Teir business is relationship-based, and their clients benet fromthe banks understanding of the local

the counties may allow. Te countyplanners work with the public to in-terpret the rules but are constrainedby state law.

Protection extends to farmingbut not necessarily to value-addedbusinesses. On a case-by-case basis,

the county must determine allow-able uses. Goal 3 protects the farmground, Goal 9 ensures that the landis managed to protect economic

development, and Goal 14 ad-dresses urbanization and theneed for businesses that use largeamounts of water and generatesignicant wastewater to be lo-cated in urban areas. Tis makessome urban-scale enterprisesinappropriate for lands that arezoned for Exclusive Farm Use(EFU). Cities have more exibil-ity with planning issues than docounties.

Land-use permits on farmground (EFU zoning) are basedon the type of use and the typeof soil. Wineries and vineyardsare allowed uses, and the Oregon

legislature recently rened the scaleand dened what can be included at

a winery. Te permit may be for awinery alone, or it may be permittedas commercial use in conjunctionwith farm use. Many other typesof value-added businesses may bepermitted for lands under countyjurisdiction. A business could alsobe located inside city limits.

EFU zones require an 80-acreminimum parcel size. UmatillaCounty is considering whether tomake application to the state to

reduce the minimum parcel size sothat enterprises may go below the80-acre lot size.

Licensing. Because value-addedbusinesses are oen unique, regula-tory agencies may not understandthe proposed processes and whetherregulations currently in place are ap-propriate. At times, the value-added

FINDINGS



23/32

economy, climate, industry, tradi-tions and buying patterns that willaect the new business. Tey canoer unique or customized loans tot individual borrower and projectneeds. Te banks can also accessvarious lending programs. Most

community bank loans are less than$2 million.

Community banksare morelikely than larger banks to invest innew businesses, especially smallerprojects that limit their risk. Com-munity banks generally do notprovide working capital or equityinvestment. Each banks level ofrisk tolerance is set by its board ofdirectors. All banks operate with theunderstanding that the business orbusiness owner will repay the loanand cover any loss.

Business loan options may in-clude lines of credit to fund short-term expenses; term loans to fundxed assets, equipment and somestartup costs; Small Business Admin-istration programs to nance startupcosts and equipment or bricks and

mortar; Farm Service Agency loanguarantees for agriculture produc-tion; and USDA Rural DevelopmentLoans for most projects except agri-culture production.

When considering a loan, bankslook for the business owners abilityto keep going. Guarantors or col-lateral are usually required to secureloans. Loan covenants outlining theminimum and maximum nancialboundaries expected of the businessare frequently used.

Availability of credit is inuenced

by current economics, by the FederalReserves OMC monetary policy andby bank examiners enforcement ofrisk-management practices.

Te end of a recession can be agood time to start a business withgood ideas and sound business

plans. Borrowing rates and businesscosts are likely to be low, thoughcredit availability may shrink. Laboris oen available, and customerexpectations may be lower.

Funding is available for the rightstartup businesses. Not all bankssupport agricultural business, be-cause agriculture oen carries highrisks and is a specialized industry.

Venture capitalists follow newtrends. Tey tend not to be attractedto production agriculture, but theymay invest in the manufacturing

Summer 2010 23


24/32

Voice of

experience:ThunderingHooves

The Huesby family practices value-added

agriculture through organic farming and

livestock production, direct marketing,and as a U.S. Department of Agriculture-

certied meat processor.

The company is currently replicating a

modular meat-processing system for use

by others. With the closure of slaughter-

houses, Hawaiian producers are sending

animals to the mainland for processing

and cryo-packaging. The processed prod-

uct is then returned to the islands for

sale. The Huesbys modular system will

enable producers to process their meatin Hawaii, improving their prot margin

and providing a fresher product to local

consumers.

Joel Huesby noted that small

processing plants can be easier to

manage and may have better ac-

countability and quality control than

large plants.



25/32

FINDINGS

side. Entrepreneurs should weighthe pros and cons of involvingventure capital investment in theircompanies. Venture capital fundingrequires accountability to the inves-tors. Without venture capital invest-ment, the entrepreneur can control

the companys destiny. Full owner-ship of the company might be morepersonally rewarding than havingpartners and owning a fraction of alarger business. Te availability ofinvestment capital has diminished inrecent years. Geographic remotenesscan create challenges for attractingventure capital nancing.

Angel investors are more ame-nable to agriculture. Tese individu-als are willing to invest $25,000 to$100,000 in new ideas for fun, tomake money and to give back to thecommunity. Oen, angel investorslook favorably at projects in commu-nities that encourage entrepreneurialspirit. Blue Mountain Station mayfacilitate connections between busi-nesses and angel investors.

Companies owned by entrepre-neurs who focus on sustainable,protable growth and creating value

(as opposed to creating wealth) arevalued by investors and strategicbuyers.

Investors look at the chemistryof a new business: entrepreneurialspirit, experience in the industryor in managing a business, marketresearch, and whether the markethas been tested. Whether or not theyintend to invest, banks, venture capi-talists and angel investors oen meetwith young companies to listen and

oer advice. Tis interaction helpsthe company, builds the relationshipand enables the potential investorto watch the company in its earlydevelopment.

How much of the potential busi-ness should be in place before talk-ing with potential funders dependson the stage of development andhow much money is neededthe

larger the funding request, thegreater number of details that shouldbe in place. Te entrepreneur shouldbe able to point out gaps and oerplans to close them.

Te trend is for companies notto over-plan or over-raise funds

to launch the product. Researchshould be adequate to ensure thatthere is a market and that the prod-uct ts the market. It is prudentto be a fast follower, as opposed tobeing on the leading edge of pro-duction. Te product will likely takelonger to develop and establish thananticipated.

From an investors point of view,the most important criteria for an at-tractive investment are that the com-pany has good people and a positiveculturethat everyone associatedwith the company understands andsupports the business.

Standards of measurement for in-vestment in a business have changedfrom inputs to outputsfrom thenumber of employees, amount ofventure capital raised, number ofproducts and number of partners tothe number of customers, revenue

and potential prot.

maRketing

Marketing has signicant eecton the success of a value-addedbusiness. Promoting the productincreases sales and also providesfeedback that the entrepreneur canuse to continue to develop the prod-uct being sold.

Relationships are crucial. Per-sonal, passionate marketing engages

potential consumers, tells the busi-ness story and why it is important touse a product, and creates demand.Many consumers are looking forhealthy products that have been re-sponsibly produced, and a personalapproach builds trust and rekindlesthe romance of feeling connectedwith the land.

Self-marketing reduces business

expenses, but hiring a distributorto ensure market placement and toensure that the vendor is consistentlysupplied with the product may opti-mize market position, avoid loss ofshelf space and increase sales. Tis isparticularly true with the promotion

of alcoholic beveragesit is hard forsmall companies to compete withlarger companies.

Developing a good relationshipand working closely with thedistributor will help the entre-preneur determine what the con-sumer wants. Distributors cantell the story behind the value-added business to help establisha connection between consumerand business.

On-premise sales lead to o-premise sales. Retailing out oftasting rooms (state law regu-lates how many locations may bemaintained) allows the producerto sell products that are notproduced at sucient levels tomaintain market space in otheroutlets. A number of local win-eries have tasting rooms in westernWashington.

Buying local products has becomepopular. Certications by third-party evaluators such as SalmonSafe, Food Alliance and Global Gapmay improve market position. Teyrequire the producer to meet speciccriteria, such as water, chemical andworker safety. Tird-party certica-tion increases producer costs, butsome consumers are willing to pay apremium for foods that meet thesestandards.

Packaging, advertising, brochuresand websites are proven promotionaltools, but new tools maintain con-sumer awareness. Examples includesocial networking, recipe cards instores, table tents where the productsare served, -shirts, encouragingchefs to use the product in cookingand using such phrases as gluten-free to capture the audience.

Summer 2010 25


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Voice of experience: Aliì Kula Lavender FarmAliì Kula Lavender Farm (AKLF) is a

13.5-acre farm located on the steep

slopes of Mauis Mount Haleakala in

Hawaii. Owners Aliì Chang and Lani

Weigert have divided the management

tasks between themhe farms, and

she markets.

The farm harvests lavender by

hand. Some is sold fresh, some is

distilled for its oil and some is sent

to vendors who create value-added

products. In addition to on-farm sales,

the product lines are marketed via the

Internetwhich accounts for 15 per-cent of their businessand wholesale.

AKLF has relied upon others for

technical support, product develop-

ment and marketing:

wThe farm had technical guidance

from and found resources through

existing businesses in the Pacic

Northwest.

wLack of knowledge about value adding

and a lack of money for investment in

things such as certied kitchens led to

nding others to produce for their pri-

vate label. By doing so, they avoided the

need to purchase equipment and create

recipes. An entire list of products has

been developed through their partner-

ships. Culinary, bath and aromatherapy

lineswith 75 products in allaccount

for 82 percent of AKLFs revenue. As the

farms business strengthens, so do the

businesses associated with them. As the

economy slowed, they worked togetherto grow, and the eort has helped them

all.

wLimited marketing funds and a deeply

ingrained understanding of their

Hawaiian culture resulted in a creative

marketing plan. In the Hawaiian culture,

grandparents hold places of highest

honor and their opinions are respected.

With that in mind, 300 senior citizens

were invited to the farm and intro-

duced to the products. A very inu-

ential network grew from this groups

word-of-mouth advertising.

The owners of AKLF have based

their entire business model on aloha,

Hawaiis cultural values of love, hon-

esty, friendship, responsibility and

stewardship. Training ensures that the

employees understand the aloha phi-

losophy that is the owners standard

for meeting guests expectations.

Most visitors (99.5 percent) travelto the farm as individuals rather than

in tour groups. AKLF respects the fact

that tour buses would be unfriendly

to the rural community.

AKLF is now also growing olive

trees, with its third harvest in 2009,

and is planning to purchase an olive

press.



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agRitouRiSm

ourism provides jobs and economicbenets for the community andprovides opportunities for visitorsto learn about the area. ourism isincreasingly important to the studyregion. Between 1991 and 2008,

tourism revenues in Walla WallaCounty grew from $40 million to$85 million. In 2009, $6 million intaxes was generated by tourism.

Agriculture and tourism are be-ing linked more frequently. In thepast year, Washington State ourismand the Washington Departmentof Agriculture have been holdingseminars throughout the state tobring together tourism entities andproducers.

Tere are many denitions ofagritourism. ourism Walla Wallasworking denition is: Agriculturaltourism allows farm operators toincrease income through a variety ofservice initiatives, such as farm dem-onstrations, harvest festivals, farmvacations, school group tours, hayrides, pick-your-own-crop harvests,bed and breakfasts, campgrounds,crop mazes, and a host of other

products and services.Te wine industry, successfulincubator programs and promo-tions of the area as an artistic andcultural hub have sparked localagritourism. Zoning along Wash-ington Highway 12 has encouragedagritourism uses.

Visitors want experiences. Tosealready available locally are you-pick produce, farm stands, farmersmarkets, birding, horseback riding,

cheese making, corn mazes, win-ery tours, winemaker dinners andchef s tables. Other opportunitiesmay include farm, barn or historichome tours; working on a farmor in a vineyard; crushing grapes;cooking classes; and shopping at afarmers market with a chef to learnhow to select ingredients. Terealso may be more opportunities to

promote the Walla Walla Sweet On-ion, Washingtons state vegetable.

o be successful, such programsneed champions and committedparticipants. ourism Walla Wallapromotes Community Councils tar-get region and partners with groups

in other areas.Community Supported Agricul-

ture programs enable customers toreceive a share of a farms harvestin exchange for advance payment.Several farms in the region oer thisprogram. Local citizens enjoy thebenet of fresh food while support-ing local agriculture.

Te Farmer-Chef Connectionstrend is growing, linking those whoare committed to expanding andstrengthening local, seasonal andsustainable food networks. Whilerestaurants may have been using lo-cal produce for some time, they arejust beginning to identify the farmfrom which it comes as part of theirexperiential marketing. elling thecustomer the story is not yet consis-tently practiced.

Regional products have built upthe Walla Walla Valleys reputa-

tion, but a brand has not yet beendeveloped. ourism Walla Wallais willing to market a brand, butit indicates that a brand must bedeveloped and enthusiasticallysupported by the community to besuccessful.

County goveRnment

and eConomiC

develoPment

Umatilla Countys commissioners

have recognized that agriculture isvery important. Tey seek oppor-tunities for the agriculture com-munity, because that also benetsthe population and tax base. Teyare currently promoting go-belowchanges to the state plan that wouldallow zoning in 40-acre lots.

Ordinances, such as the pestcontrol ordinance, have been

FINDINGS

established and enforced to protectagriculture. he county is support-ive of research on cereal grain andoil seed production. he countyalso invests in research for newcrops, such as camelina, the oilseed plant.

Umatilla County funds its Eco-nomic Development Departmentwith lottery dollars, which can onlybe used for economic development.Te county, the Confederatedribes of the Umatilla IndianReservation (CUIR), the Portof Umatilla, cities, chambersof commerce and communitydevelopment corporations areworking collaboratively oneconomic development issues.Te county helps in administra-tion and grant seeking, as wellas lobbying for and identifyingnew possibilities.

Walla Walla County com-missioners allow entrepreneursto initiate zoning and otherregulations related to value-added agricultural opportuni-ties. he Port of Walla Walla is thelead economic development agency

for Walla Walla County.Neither Walla Walla County norMilton-Freewater is in a federalEconomic Development Adminis-tration (EDA)-recognized district.Being declared an EDA districtoffers the opportunity for federaldevelopment funding. o be part ofa district that crosses state bound-aries would require an intergov-ernmental agreement. Workingwith state regulations would be a

hurdle, according to commission-ers, but would not be insurmount-able because they often worktogether. A Washington-Oregongroup composed of tribal, state,county and city governments andirrigators is seeking federal fund-ing for a water recharge projectthat benefits fish. he governmentlead is the CUIR.

Summer 2010 27


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1. Tere exists a base of knowledgeabout crops no longer processedin the area; entrepreneurial marketresearch should include a reviewof past and present agricultureproducts.

2. It is important to know andunderstand your product and how itts in the market. Market research atstartup, followed by frequent reeval-uation and adaptation, are necessaryfor a value-added business to gaugedemand and to maintain marketshare.

3. Careful market research, a well-organized marketing plan, a soundbusiness plan and marketing toolsare necessary for a value-added busi-ness to be successful.

4. People should move rapidly toexecute a sound business plan. Do

not get lost in the planning stage.

5. Marketing has a signicant ef-fect on the success of value-addedbusinesses. Products that are third-party certied, eco-labeled, brandedor locally produced appeal to somebuyers. Such marketing may increasedirect and indirect marketing oppor-tunities and can result in a premiumpaid to the producer. It is importantto verify the validity of third-party

certiers.

6. Markets for some locally grownor produced products are increasing.

7. Value-added agricultural prod-ucts could benet from establish-ing a regional brand. Te region isrecognized for the high quality of itsproducts, such as onions and wine.

Marketing of local products should

capitalize on that name recognition,and the community should enthusi-astically support branding eorts.

8. It is easier to retain existingbusinesses than to attract new busi-nesses to the region.

9. Te wide variety of soils, cli-mates and elevations in this regionwill support a variety of crops.

10. Many raw productsavailablelocally or easily accessed in the PacicNorthwestoer opportunities forvalue adding.

11. Each of the communities inthe study area reacts dierently torecession and other outside eco-nomic situations.

12. Te number and variety ofcolleges in the study area providesgood employee training opportu-nities for businesses that want todevelop in the area.

13. Te three port districts in thestudy area provide environmentsconducive to business by oeringsuch necessities as facilities andincubators.

14. Rail, truck and barge trans-portation are readily available formoving products to major markets.Railex expands the geographicarea in which this regions prod-ucts can be competitive, and emptywestbound Railex cars oer op-portunities for importing resources.Regional transportation, particularlyaccess by passenger airlines, is aperceived problem.

15. Water supply in the regionis limited, so the availability, alloca-tion and purpose of water usage arecrucial components in local value-added business planning.

16. Water issues are being inno-vatively addressed in the Walla Wallaregion.

17. Zoning and developmentregulations are crucial componentsin value-added business planning,because property development mustcomply with each countys compre-hensive plan and zoning criteria,which are multifaceted and can beconfusing.

18. A variety of business-nancingopportunities are available in theregion. Working with local banks thatare familiar with agriculture may bemore helpful than working with larger

banks.

19. Capital needs required tostart and maintain a value-addedbusiness may be much greater thananticipated.

20. Agriculture and tourism arefrequently linked. Agritourism activ-ities are in demand because visitorsappreciate agriculture-related expe-riences. Capitalizing on agritourism

opportunities can provide jobs andeconomic benets for our regionscommunities. For agritourism to besuccessful, programs need champi-ons and committed participants.

21. Developing, building andmaintaining relationships withconsumers, distributors andothers is crucial to successful

Conclusions express the value judgments o the committee and are based on the fndings.

Conclusions



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marketing for value-added agricul-ture businesses.

22. Distributors can enhancedistribution but can also add majorcosts and control product design.

23. Local restaurants are promot-ing the use of locally produced foodwith increasing frequency.

24. Because value-added busi-nesses and their products areregulated by multiple agencies anddierent departments within thoseagencies, it can be challenging andtime-consuming to ensure all re-quirements have been met.

25. County governments recog-nize the importance of agriculture toour communities.

26. Te governments in the studyarea deal with economic develop-ment challenges and opportunitiesdierently. Umatilla County has adedicated economic developmentdepartment.

27. Walla Walla, Columbia andUmatilla counties may benet fromforming a federal Economic Devel-opment Administration district.

28. Communities that haveinnovative and entrepreneurial en-vironments attract other successfulbusinesses.

Recommendations are the committees specifc suggestions or change,based on the fndings and conclusions.

1. Promote awareness of the regions historical crops and processingindustry, using sources such as Joe J. Locatis, e Horicultural Heritage oWalla Walla County, 18181997.

2. Workshops to teach grant writing, business plan development andmarket research skills should be oered in the region. Explore opportuni-ties to oer workshops and ongoing business advisory services througha variety of organizations, such as the chambers of commerce, WSU andOSU extension services, and the Kaufmann Foundation.

3. Work with agencies to develop a generic checklist of steps forentrepreneurs to use in planning value-added businesses.

4. Educate businesses about third-party certication and the potentialfor an associated price premium.

5. Evaluate the interest in and need for a Walla Walla regionalmarketing brand, such as Walla Walla, wice as Nice.6. Identify or create the organization(s) that will take the lead in facilitat-ing the development of local value-added agricultural businesses.

7. Investigate the potential for importing by Railex products that couldbenet value-added businesses.

8. Trough printed materials or an awareness campaign, correct the per-ception that this region is handicapped by transportation challenges.

9. Evaluate the benet of a unied economic development entity forWalla Walla County.10. Encourage Walla Walla, Columbia and Umatilla counties to evaluatethe benets of becoming a federal Economic Development Administrationdistrict.

11. Encourage and recruit to the area people and businesses that willcontribute to an environment of creativity and innovation.

Recommendations

Summer 2010 29


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20092010study resourcespeakerswRon Brown, Blue Mountain Cider

CompanywDavid Camp, Key Technology, Inc.

wHarvey Crowder, Walla Walla County

Health Department

wMichael Davidson, Tourism Walla Walla

wJennie Dickinson, Port of Columbia

wFred Fleming, Shepherds Grain

wTom Glover, Walla Walla County

Community Development Department

wBill Hansell, Umatilla County

Commissioner

wThomas Henick-Kling, Washington

State University viticulture and enol-

ogy program

wArt Hill, Blue Mountain Community

College Small Business Development

Center

wJoel Huesby, Thundering Hooves

wElizabeth Humphrey, Baker Boyer Bank

wClive Kaiser, Oregon State University

Extension Service

wTim Kennedy, Don Carlo Vineyards

and Winery

wArum Kone, Employment S

Documents

Community Council study - Value-Added Agriculture Report