| Herb Industry Analysis for New Grower |
Answered by: Richard Alan Miller
Question from: Joe Hamill
Posted on: November 27, 1998
I am interested in going into business as an herb grower. I am developing a business plan to determine the feasability of such an operation. In my research I have come across the term BULK NUTRIENT SUPPLIER. These suppliers appear to be very high up in the distribution channels. My question: Are they the primary buyers of raw herb crops e.g. roots and are there only 12 of them? What would be a good source for an accurate analysis of the herb industry facts and figures?
Titled "Economic Outlooks for the Year 2000," the following paragraphs are from my new book Successful Farm Ventures In North America (Acres, USA), with a CD-ROM edition for projecting spread sheets. This books will be released sometime in 1999. I will be giving several workshops (16-hour, 2-day events) to support this book, the first of which will be in Minneapolis December 8, 1998. (For more information on that event, please call Fred Walters (Acres, USA) at (504) 889-2100.)
The actual monitoring of herb and spice imports into the United States is quite limited. While the USDA Foreign Agricultural Service has published data, other monitoring systems (like Chemical Marketing Reporter) show import figures into the Port of New York to be twice those reported by FAS for the entire nation.
Other major Ports of Entry, like San Antonio, TX, do not even formally monitor the amount of crops brought in from Mexico, Central and South America. Why are there not more detailed studies on the actual dollars involved? One reason is because most herbs and spices are treated as "non-storable" commodities. Their individual total gross sales are usually quite small and uninteresting as trade.
Some, however, have such significant gross volumes in sales that they are often grouped for stock and trade on some of the Exchanges. One export example from the United States are the red peppers (including paprika, used to color hot dogs). Another would be garlics and onions. The next question that arises is what constitutes an herb or spice? These examples seem like they are foods.
The herb and spice trade has several distinct markets. For simplicity, they are often referred to as foods, drugs, cosmetics, and dried florals. As food, most herbs and spices are not the primary ingredient, but used to enhance. To monitor the amount of basil, for example, used in the manufacture of pesto is almost impossible. The oregano used on pizza is another example.
The USDA FAS has published data to indicate that the United States now imports more than ten times the spices that they export. For example, the United States imports of just selected dried condiments, seasonings, and flavoring materials in 1987 were valued at nearly $439 million. Meanwhile, exports of specific spices and seasonings (including dehydrated onion and garlic) were valued at $62.7 mil- lion.
The important point to remember is that these figure are often in conflict with other reported import figures, and they only reflect those markets where herbs and spices are sold as foods. These figures to not reflect those crops which might be marketed as pharmaceuticals (drugs), cosmetics, or even the growing decorative floral markets.
In an important study made last year by this author, it was shown that products imported (in this category of markets) which could be grown, manufactured, or otherwise processed on the West Coast of the United States was in excess of $20 billion, more than 40 times what might be indicated by current available studies. Why are we importing with such large figures when our economy needs to export?
The primary reason is that most spices and herbs require special handling and are labor-intensive. Third World countries, with very cheap labor, can afford to subsidize these types of crops as their market niche in world economy. However, as world economic standards become more uniform, the ability to compete becomes possible.
The markets are large for these types of crops, and is growing at an annual rate of more than 20 percent in some cases. A typical example is psyllium hulls, now used as a major source for dietary fiber. Last year the industry imported more than $100 million from India, while this year a major cereal manufacturer has announced that they plan to spend more than $40 million in advertising it’s use in their cereals in 1990.
Other new crops with good market futures include comfrey for cattle feed and pyrethrum as an organic insecticide. While the market potentials for these types crops are staggering, new farm methods are needed to make them feasible and in volumes sufficient to meet world demand. Most of the mechanized machinery or technology to farm these types of crops competitively in the United States already exists. The problem is how to get access to the markets.
Despite these obvious potentials for rural economic development and growth in small farm agriculture, almost all herbs are imported. Many come from Mexico and South America, but others arrived from as far away as Rumania, Yugoslavia and Poland. Much of the peppermint and spearmint leaf comes from Egypt and Bulgaria, whereas orange peel is imported from Haiti and Spain. As shipping costs go up and demand increases, prices also increase.
Many herbs bring prices that are far higher than could be expected from the cost of production. Farm prices, in general, range from $600 to $2,500 per ton. One to three tons per acre is the average harvest. This kind of return rivals that of the most lucrative farm crops; yet, once established, herbs will continually produce this high return with lower continuing cash requirements. The primary investment is labor.
Proximity to the market is also less important than with other commodities. Partly, this is true because once they are dried, herbs are relatively easy and light-weight to store and transport. Also, these higher prices make it feasible to ship over long distances. A 10-ton load of herbs is often worth $10,000, whereas a similar load of wheat is generally worth $2,000 (or less).
If present trends continue, the herb and spice markets should continue to grow for many years. Herbs should have greater potential as cash crops in areas that are not suited to the more familiar farm crops. Areas with limited water and poorer soil can produce as much income per acre with herbs as the most fertile areas with abundant water-producing traditional farm crops.
In addition, the investment requirements are lower when growing herbs. The primary investment is labor. And since the total volumes used by specific end users is less than the major crops, smaller farm ventures are favored. These markets are well suited to the need for diversification in agriculture. Machinery costs are less and chemical costs are almost nonexistent in their production.
Since recorded history, the country which controlled spice trade has also con- trolled world trade. This is true even today. With only slight modification in farm practices and technology, the United States has an opportunity to compete in these commodities. They will also strengthen rural economic development by favoring the small farm and agricultural diversification.