Marketer: Berkshire Value Chain led by the de Martines Family Farm Stratford, Ontario

Overview of the Business

The Berkshire Value Chain (BVC) involves the production and marketing of breed specific pork cuts to a select group of high-end restaurants and specialty retailers. The breed, namely the Berkshire, holds a very small share of the total pig production within Canada. However it is distinguished by taste and a reputation for juiciness and tenderness. By comparison, mainline commodity pork production is derived predominately from the cross breeding of three major breeds (Yorkshire and Landrace on the female side; a Duroc cross on the male side). Over the past thirty years, the emphasis on leanness and rapid growth has led to some complaints of dryness and the lack of taste of pork. Thus Berkshire pork presents an opportunity to create a memorable taste experience that can serve as the basis to develop a unique branded product within consumer markets.

The Berkshire Value Chain brings together several individual players and conditions all of which are fundamental to its formation and market position. They include:

• The idea – specifically the opportunity to bring to the ‘table’ a succulent tasty differentiated pork product. This was driven by Bruce Thompson, a chef employed by Ontario Pork, an industry organization with a mandate to create and develop new marketing opportunities for pork as a preferred meat choice.

• A motivated producer with relevant experience – Fred and Ingrid de Martines. While commencing hog production in 1979 as traditional pork producers, the de Martines’ always had a strong desire to ‘do something’ different. This vision led them to seek and experience new opportunities such as direct sales and wild boar production. Fred now plays an instrumental role as the Chair of the Steering Committee in making the idea a reality.

• A group of like-minded producers – since Berkshire pigs as a breed are rare; the ability to supply is a significant constraint. The idea coupled with the drive of the chain leader (Fred de Martines) has resulted in the assembly of eight producers committed to the production of Berkshire hogs in a systematic and timely manner.

• Resources and support – the transformation of an idea to a working value chain in bringing a product to market requires organizational and financial support. To this end, two organizations contributed to the process: (1) Ontario Pork – through the introduction of the idea and the linking of producers with potential customers within the restaurant and retail trade; (2) The University of Guelph, Ridgetown College – in the provision of facilitation services to attract and recruit other producers to be part of the production chain and to assist in the financing of the detailed business plan that serves to guide the chain.

Marketing Strategy

The Berkshire Value Chain marketing strategy has as its objective to deliver a differentiated branded product to a targeted customer base through a very focused channel to market. Simply, it comprises:

• Branded Berkshire Pork positioned as unique and tasty.
• A small group of dedicated producers.
• Custom killing services provided by a small abattoir.
• The supply of product to a select group of high-end restaurants and specialty retailers. This is being done both via distributors and to some extent directly.

The customers include a set of high-end (white table cloth) restaurants located in Southern Ontario, mostly in the Toronto area. In addition, the chain is undertaking to develop new supply relationships with a distributor that services specialty retail stores.

The initiative is producer formed, producer driven and producer managed under the auspices of an organizational structure called Black Bow Farms Inc. The purpose of this structure is threefold:

• To purchase weaner pigs from contributing producers.
• To feed and ‘finish’ pigs to market weight.
• To slaughter, process and market the finished pigs.

The ownership of the growing pigs by the value chain entity is an important structural feature of this enterprise. This decision was made for three reasons: (1) assurance of supply – ownership prevents the individual producer from making alternative last minute marketing decisions; (2) the ability to apply standard feeding protocols and manage quality. For example, the growing pigs are fed a wheat and barley diet (no corn which is the typical diet for pigs in south western Ontario); and (3) the creation of a platform from which to compensate producers and ultimately share benefits. In this regard, the contributing producers are paid as follows:

• An agreed sale price for the weaner pigs.

• A management fee for the feeding and finishing phase. Note: Black Bow Farms Inc. does not own its own feeding facilities. Rather it uses the facilities owned by its own members and remunerates the member for the service provided.

• Distribution of final net margins. Once all marketing, selling, processing, feeding, purchase and other operation costs are covered, what remains is a net margin. The producer-owners then decide on what funds are to be reinvested and what funds are to be distributed back to the owners. This is done annually.

Marketing History

The history of the Berkshire Value Chain is a good example of ‘opportunity meeting capability’. The opportunity to supply a specialty line of pork products was introduced by an individual (Bruce Thompson, Ontario Pork) with experience as a chef and a wealth of contacts within the restaurant and food service segment. The capability lay in the hands of an individual pork producer with more than 20 years of experience in producing and marketing unique pork products. The coming together of these two forces led to the ultimate formation of this value chain.

Fred de Martines and his family immigrated to Canada from the Netherlands in 1979. At that time he began as a hog producer, starting with a 40-sow farrow-to-finish operation and rapidly expanding to 130 sows. By way of background, all hogs in Ontario are marketed by means of a single-desk selling system operated by Ontario Pork – the producer organization is mandated by provincial marketing legislation to sell all hogs in the province.

While the de Martines family established itself in the hog commodity business, they continued to pursue two personal objectives:

1. To do something different other than being a commodity producer.

2. To deal with people. Note: prior to immigration, Fred work as a sales representative for a major feed company, a position he very much enjoyed.

As part of the Perth County Pork Producers Association, Fred gained direct sales experience by selling pork processed by local abattoirs to customers. He enjoyed selling and wanted to expand the product line. However he did not receive the necessary support to do so from association members. This motivated Fred and Ingrid to consider other alternatives that eventually led them to establish their own direct sales company - Perth Pork Products Ltd. As well, they explored other product options which led them to the production of wild boar as a specialty meat.

The ‘wild boar’ experience forced Fred to seek out specific markets for this new product. Two things worked in Fred’s favour: (1) time – from the time he bought his first set of gilts (breeding females), he had two years before he would have saleable product; and (2) location – Stratford with its world famous Shakespearian Festival, has a number of high quality restaurants catering to the tourist trade. Hence Fred developed considerable experience in developing restaurant accounts for his business as well as developing a solid relationship with a local processor with whom he was able to work with to understand cuts, values and most importantly pricing. In the case of the latter, he had considerable help from a local restaurateur regarding value and how to price his saleable cuts. To quote:

“ You have to have a little help when you start. I was fortunate to work with a restaurateur who really helped me understand the value of specific cuts and how to price them in the market I was going after.”

Two years ago, Ontario Pork placed an article in a producer newsletter outlining the opportunity for the tasty Berkshire branded program. The article caught Fred’s attention and he immediately understood the opportunity. This led to a series of events and steps that eventually led to the formation of the Berkshire Value Chain including:

• Attending a conference with 20 interested producers on niche marketing in Western Michigan.
• Attending an initial ‘interest’ meeting hosted by Ontario Pork. This attracted approximately 40 individuals.
• Engaging in more detailed discussions and planning meetings.
• Committing $1,000 to explore the opportunity further and commit to a more serious planning process. It should be noted that when the call for financial commitment was made, only 4 producers responded initially. The Berkshire chain now includes 8 producers.
• Engaging a consultant to develop a detailed business plan.
• Agreeing to the plan in principle and forming the corporate structure described earlier.

Current State of the Business

The Berkshire Value Chain remains in its early stage in terms of its development. Currently the operation is bringing approximately 20 to 30 pigs to market each week. Thus it is able to supply a small number of restaurants.

The chain is also looking to establish a branded line of products with a specialty distributor. This remains in the development stage facing two constraints: (1) available supply – further development and time is required to develop a larger production base; and (2) pricing – returns to producers at a wholesale price is lower than what can be earned selling directly to restaurants. Thus volume to offset a narrower margin is a challenge.

Pricing is an iterative process between customer feedback and a determination of the costs to be covered. In essence, the value chain strives to covers it costs through the sale of primal cuts and how these are priced. Any cuts and byproducts that remain are directed to the making of sausage which becomes a net contributor over costs.

Fred de Martines is the Chair of the Value Chain Steering Committee. With his previous sales experience, his knowledge of processing and the high-end restaurant trade, he makes all the sales contacts as well as develops new business. Perhaps most importantly, Fred has a clear passion for the product and enjoys the challenge of meeting new people.

From a financial perspective, the Berkshire chain remains an emerging enterprise. Most of the producers are involved in commercial pig production – the Berkshire chain represents a small but increasing proportion of their revenue stream.

Key Information Sources/Influences

In view of the focused marketing strategy, the key information sources for the Berkshire Value Chain are the customers (the restaurants themselves); Ontario Pork and in particular Bruce Thompson; and support from the University of Guelph, Ridgetown College. The chain has also benefited from the engagement with the George Morris Centre in the preparation of the detailed business plan as well as in the development of value chain management principles.

Key Challenges

The challenges facing the BVC are as follows:

• Time and effort required to build a critical mass of production. Since the Berkshire breed is small in number, it is taking time and will continue to take time to expand the production capability.

• The risk of being undercut by other producers – there is a concern that the success of the value chain will attract other producers who may adopt a price cutting strategy. Currently the risk of this possibility is small given the limited availability of Berkshire breeding stock.

• Risk associated with relatively few buyers – the chain is currently dependent upon a relatively small set of buyers. While this is inherently the case with any start up enterprise, it is a risk that must be recognized.

• Disease – this is always a risk factor associated with all hog production. Clearly a disease outbreak within a small production base such as the Berkshire group could be disastrous.

Lessons Learned

The Berkshire Value Chain provides a number of lessons to perspective marketers seeking to market a differentiated product:

1. The value of experience – it is evident that the previous marketing and sales experience of the chain leader is a critical factor in the formation and early success of this chain. This provides a vision and a skill set that is fundamental.
2. Building one step at a time – the Berkshire Value Chain is demonstrative of the step by step process it takes to move an idea to reality. It is also evident that each step in the planning process ‘tests’ the commitment of ‘interested’ parties. Clearly the time to make a financial commitment is a critical step and an important one.
3. Understanding costs and pricing - a key lesson learned from this case, is the importance of understanding how a carcass breaks out into saleable cuts and what prices need to extracted from the market to make the production chain viable. Once again, the experience learned prior to the formation of this chain in working with both a restaurateur and a processor has proven to be very valuable.
4. Managing the supply chain – the formation of a corporate entity to own production during the critical supply stage is an important feature of this chain. Experience in agriculture has shown many times that individual ownership often leads to individual production and marketing decisions leaving the organization to whom commitments have been made without expected quantities or substandard quality.
5. Access and effective use of external resources – the chain leader made it very clear: “Good advice is key!” To this end, the chain has drawn from knowledgeable staff within the University of Guelph as well as the body of expertise provided by the George Morris Centre. Further, the chain chair made the point to ensure that you must have persons or a person who can serve as the ‘devil’s advocate’ – in other words, someone to challenge the assumptions and ask the tough questions.
6. Passion for the product and comfort in dealing with people – perhaps the best lesson to be learned from this case is that nothing happens unless there is the belief that a better product can be delivered to the market. Further to this point, it is imperative that the marketer enjoys dealing with people and is good at it. The importance of these attributes cannot be understated.

Final note to the reader

The formation of value chains in the agri-food system remains in its early stage. It requires a vision of what is to done, leadership and collaborative mechanisms to bring together the necessary parties to build the chain and move the project forward. This is not an easy task. Many will show interest but few will ultimately commit to the necessary production and management requirements to make the chain successful. The Berkshire Value Chain exhibits many of these features and serves as an interesting model for development.