Moving forward.

I just got back from the 19th NAMC in San Diego. It was a great conference, filled with informative sessions and good camaraderie. When the planning meetings for this conference began more than a year ago, prices of mushrooms were down, operating costs were dramatically up (fuel, insurance, etc.) and production problems loomed to various degrees. I thought to myself, "How in the world will this conference be a success? No one will attend!"

Isn't it amazing how things have changed? Now, due to demand exceeding supply, we are once again seeing the price of processed mushrooms jumping up to fresh prices. Picking has been good too and farms are making some money.

So with that comes a conference that was, in my opinion, upbeat, optimistic and informative, covering some of the most important issues facing the mushroom farm community today. Important issues such as improving the environmental impact of compost production, the survival of farms in a changing environment ranging from human resource matters to technological advances in growing, and surviving competition in a changing world.

Ray Samp, who moderated the session on "Keys to Farm Survival in a Changing Environment," made an interesting comment after four people gave their talks on this subject. The comment was, "Did you notice that not one mention was made concerning production?" He was right. Not one person discussed what they needed to do to increase production. In the past, production topics would have been the focal point of the conference. Now there are other issues of concern and additional ways to improve profitability.

Other very important subjects discussed at the conference were marketing, nutritional value and food safety. Jan DeLyser of the California Avocado Commission gave a great talk on how they have marketed avocados. I am amazed at how that industry has substantially increased sales of a product that has nominal nutritional value and limited uses in food preparation as compared to mushrooms. They have a complicated marketing system, but bottom line, there are significantly more dollar spent as a percentage of sales for avocados than mushrooms.

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Armed with information received at the conference, I want to key in on the technological changes occurring in our area of the country. As stated at the conference, the eastern United States is well behind the technological advances used in other parts of the world. There are good reasons for this. To date, the infrastructure of growing houses, composting facilities, labor, and raw ingredients have permitted growing mushrooms at profit levels satisfactory to growers. Sure there are cycles that make us cringe at times, but overall the way we have grown mushrooms has worked, so why change?

Will this continue? I believe the answer is no. For various reasons, the rest of the world has advanced more quickly. To our benefit, other countries have been the guinea pigs and learned through trial and error. Today, there are proven, turn key systems to make compost and grow mushrooms. These systems are much more efficient than our methods where we grow mushrooms in 60 foot doubles on beds with four doubles here and 12 doubles four miles down the road and 10 more in the opposite direction.

If this is so, why are we not making the changes? Not everyone will make that step due to the expense or because the next generation is not interested. A small, handful of growers in the area have made the move toward the new growing technologies, but there are a lot who aren't even listening or looking.

Now you might be thinking I am talking about these industry changes because I want to make loans. The truth is, these changes are major investments and can scare the bank as much as the borrower. Despite this, it is true that I want to make loans and I believe it is true that it is just a matter of time for the changes to take effect and push out the old way of growing mushrooms. I see us standing right at the brink of major changes in the production of mushrooms. As key players make technological advances in new growing facilities and composting develops to Phase II and Phase III tunnels, I see the margins shrinking as supply/demand ratios change along with continuing increased costs of production to the point where the old way of growing mushrooms will not be profitable enough to continue for all the hard work involved.

In short, we are on the brink of technological changes that deal with economies of scale. Costs continue to increase and that will not change. When the product sold does not increase in price along with increased costs (true of most all agricultural products), producers are forced to increase their production in some way with a lower fixed cost per pound in order to survive. This scenario may be 10 years down the road, but this is only around the corner in terms of long term planning and setting goals for where you want to be in the industry.

I realize everyone has reasons for why they are or are not considering changes. I realize, also, that there are very good reasons for some not making changes. The thing I do not understand is why more growers aren't trying to learn more of what is available to them. There is so much free information out there on improving ones operation. If growers went to this conference and learned one thing, it might be the one thing that spurred them to do something different down the road and ultimately might have been the one thing that saved them.

Agriculture, by its very nature, is very responsive to technological changes. No matter if it is dairy, chickens, field crops or mushrooms, as technological advances occur, the old systems become obsolete overnight. Technological advances such as milking parlors with freestall housing for dairy, machinery such as articulating 4WD tractors and large planting/harvesting equipment or mushroom growing rooms with metal shelving and nets, set those who take advantage of these innovations apart and ahead of the rest of their respective industry. I am not saying you will go out of business if you do not change. I am saying that eventually the technology gives those using it an economical advantage by shear economies of scale.

When new technology is adapted by a few, the dynamics in the marketplace will be altered. The few embracing the technology will be able to produce much more, gradually affecting the supply-demand ratio seen in our market. When this occurs the pressure will be a lower price for the product. If this occurs, as costs to produce continue to increase, the old way of growing mushrooms will have too slim a profit margin. Those implementing the new technology will also be accepting slimmer margins, but because their costs to produce have been reduced, they will remain viable and more profitable.

My concluding comment is merely that we need to be open to learning what is out there and ask questions. Then again, what do I know ... I'm just a banker.

Keith M. Silfee

Vice President

Relationship Manager

The Peoples Bank of Oxford

Div. of National Penn Bank

610/998-1552

kmsilfee@peoplesoxford.com

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