The new generation business.

Think big. Start small. Stay solvent.

University professors across the country instill this straight-forward business philosophy in their students. Dale Ludwig lives it.

As Exec Dir/CEO of the Missouri Soybean Association and Missouri Soybean Merchandising Council, Ludwig has not taken the road often traveled as a state commodity executive. Thinking outside of the box in describing Ludwig, would be like calling renewable fuels just good for agriculture.

Along with farmer-leaders, he has served farmers by engineering ten new, farmer-owned businesses, raising nearly $100 million in capital to make the vision of value-added agriculture a reality in Missouri.

THE SECRET?

"Plan your work and work your plan ... starting off, of course, with good ideas," says Ludwig.

Banking on value-added agriculture as a means to grow their businesses without expanding acres or herd size, agricultural producers across the country have formed hundreds of value-added ventures in the past half-dozen years thanks in part to the assistance of USDA Rural Development, and in Missouri, the Missouri Agricultural and Small Business Development Authority (MASBDA) value-added grants.

The following is a list of some of the projects Ludwig has helped develop:

Missouri Food and Fiber, Inc.--MOF2, LLC (www.mof2.com)

The world's first identity-preserved (IP), farmer-owned firm, organized across an entire state. MOF2 and its farmer-members deliver IP soybeans, corn, wheat and other grains to end-use customers from St. Louis to Singapore and from Tokyo to Taipei.

Ludwig and other farmer-leaders developed a new model for delivery rights with MOF2: delivery rights based on the acre. This allows for producers to deliver different commodities and even different varieties within the commodity portfolio, maintaining equal opportunity for all farmer-members.

This question of delivery for many producers is the important question when deciding when to join a particular group. This is an important consideration, but with the expansion of value-added ventures into multiple-entity processing this is not as big a concern as it once was according to Ludwig.

"The great part is that most of the ventures will work with producers who may be geographically out of position to arrange delivery," said Ludwig. "We also helped design a delivery rights model based on the acre to address specialty crops and delivery of multiple commodities, which is very challenging with identity-preserved products."

Missouri Farms Dairy, Inc.--MFD (www.comfycows.com)

"California may have Happy Cows, but our cows are not only happy--but comfy. And we all know a comfy cow is a happy cow," explains Greg Sharpe, northeastern Missouri soybean farmer and chairman of the Missouri Farms Dairy (MFD) Board.

All jokes aside, one might wonder why a group of soybean farmers decided to get into the dairy business. The answer is simple. With the growing demand for dried distillers' grains and soybean meal from renewable fuels, and the declining dairy industry in Missouri, MFD setout to prove large-scale dairies could work in the state. Milking more than 1,200 cows, MFD is on its way to fulfilling its mission.

TransCon AG, Inc.--Pony Express (www.ponygold.com)

Several years ago, soybean farmers were at a meeting talking about all the great uses for soybeans. The only product without soy, as the group agreed: beer. That would all change with a farmer-owned group, called TransCon AG, which set out to create premium, grower-owned beer with soy called Pony Express.

Although the road to marketing success has been laden with challenges, the product is available in western Missouri and eastern Kansas, and has been shipped to global markets in Southeast Asia.

Alma Meats, Inc.--Alma Meats LLC (www.almameats.com)

In most cases, new generation cooperatives must be engineered from the ground-up. Alma Meats is different in the sense it was an existing business, which asked for assistance in taking the group, formerly a traditional farmer-owned cooperative, down the new generation business road.

The result is a new, value-added meat processing facility positioned to produce their own-branded products, as well as private-label products for others. Led by the American Soybean Association's former President, Neal Bredehoeft, it is well on its way to value-added success.

Biofuels, LLC

Several years ago, when it appeared the federal government may not pass the biodiesel incentive, Missouri farmers partnered with fuel distributors to form a biodiesel distribution business. In light of more recent developments, creating this relationship positively impacts Missouri by making biodiesel more readily available.

1Soy, Inc.--Soy Labs, LLC (www.soylabs.com)

Functional food is a commonly used term in the agricultural industry that is not often defined.

"Foods with benefits beyond basic nutrition. This is how we define the future of foods found in functional foods," explains Ludwig.

A diverse group from nearly every corner of the state, 1Soy evaluated multiple value-added opportunities for soybeans, particularly in food, before settling on a two-pronged approach. First, start at the retail level with branded items, such as CardioTrim (a heart-healthy nutraceutical supplement --made from soy--and focused on weight loss) and then move into a vertically integrated strategy with specialty ingredients.

With Soy Labs, 1Soy's first joint venture, they have the soy food industry management in place and marketing strategy implementing value-added success. Recently, Soy Labs identified, Lunasin, a soy peptide, which may be the component in soybeans actually responsible for soy's cholesterol-lowering benefits and heart disease prevention action.

Mid-America Biofuels, LLC

The first-of-its-kind joint venture between farmers and ADM, today operates a 30 million gallon nameplate biodiesel production facility in Mexico, MO.

Not only has the project injected much-needed jobs to rural Missouri, but it has provided stable markets for soybeans at the soybean processing facility next door.

Revolutionary Ingredient Technologies, LLC--RevingTech

"If you always do what you have always done, you will always get what you have always got." This statement underscores 1Soy's attempt to differentiate specialty soybean production and processing in a new way.

"Creating something new in the soybean industry, is not only hard to explain, but hard to accomplish," said Kelly Fork, central Missouri soybean farmer and chairman of the board.

Ludwig and others identified unique technology and a reliable partner with years of experience in the soy food industry to begin the innovative RevingTech company. The company intends to utilize the proprietary process to improve the incorporation of soy into a variety of products across many industries.

Paseo Biofuels, LLC--Paseo Cargill

Lead by the founding Qualisoy chairman and former chairman of the United Soybean Board, David Durham, this group has partnered with Cargill on biodiesel production--who is also expanding the size of its soybean processing facility outside of Kansas City, MO, near the Paseo bridge.

Ludwig's ability to realize the importance, particularly of the economies of scale in biodiesel production, and his relationships with agribusiness, provided farmers the opportunity to partner with one of the world's leaders in agricultural grain processing.

Missouri farmers are now positioned to partner with Cargill and to create one of the largest biodiesel production facilities in the country with more than 40 million gallons of annual capacity.

DefineX, LLC--an electronic management system for IP grains

One of the greatest challenges facing producers has been the question: How to track and trace specialty products in a low cost way? The answer from Ludwig and other value-added leaders is DefineX, a unique and innovative electronic management system.

For several years, Ludwig and others have been defining and re-defining an electronic way to manage the challenges of IP or specialty, value-added grain production. A recent recipient of the coveted USDA Small Business Innovation Research--SBIR--grant, the organization is developing modules for farmers and agribusiness, as well as customers and consumers.

They intend to answer the age-old question: Do you know where your food comes from? (And is there value in being able to answer that question?) DefineX is currently focusing on IP or specialty grains and animal production may be a logical next step for the company.

GETTING IN THE RING

One of the unique aspects Ludwig brought to all the aforementioned and diverse value-added groups, was a personal experience in agricultural production and agribusiness; and his risk in production agriculture that continues to this day.

"He grew up on a farm. He worked for major agribusiness companies. He still farms today, both grain and cattle. He ponies up leadership and resources for these groups," exclaims Greg Sharpe, president of the Missouri Soybean Association.

"We could not ask for more from an executive, or leader, in identifying and implementing avenues for farmers to create additional revenue."

by Alex Stemme, Missouri Soybean Association

WHAT BUSINESS ARE WE IN?

"The core question you must ask is this--what business is this new generation business in?" says Ludwig.

In essence, there are two ways of creating wealth, according to business experts at the Harvard Business School:

1. Be the LOW COST producer of a product or service.

2. DIFFERENTIATE your product or service.

Basically, the opportunity most value-added investments have is the chance for producers, who typically operate in the low cost arena, to diversify their business into a differentiated-modeled business. However, a number of value-added opportunities also produce products which operate under a low cost business model.

"The big question long-term is how we continue to add additional value to the value-added products we're processing," explains Ludwig. "We've taken this approach as it relates to biodiesel. For example, we've invested a substantial amount of research into designing additional product streams from methyl soyate [biodiesel] and glycerin co-products from the biodiesel production process."

IF YOU BUILD IT, THEY WILL COME?

Another challenge many value-added ventures face is deciding where to build the facility. Many groups struggle to overcome their emotional ties to a region and focus on the economic returns of the proposed venture according to industry experts.

Some groups also fight the desire to build and own a facility versus whether to simply lease a facility, or potentially even have products toll manufactured for them.

"There are two old philosophies for these groups to address. Half a loaf of bread is better than no bread at all--this applies to marketing--half a market or even some of a market is better than no market at all," explains Stemme. "In the other extreme, half a baby is worse than no baby at all--this applies to manufacturing--a facility running at half capacity maybe worse than simply not having a facility at all."