BY KEVIN MOE
Those new to Minnesota are often shocked by the sheer number of food and agricultural companies headquartered here. In many cases, these people have grown up with our products—Cheerios, Spam, Land O’Lakes butter. And they all turn out to come from the same area? The food industry is baked into the state’s identity—its earliest baseball team was the Minneapolis Millers, named, of course, in honor of the city’s major industry in its early days.
Minnesota tops the charts when it comes to ranking the states across several agricultural dimensions. The Minnesota Department of Agriculture notes that the state ranks third in the nation in agricultural cash receipts at $14.6 billion. We are number one in sugarbeets, number two for processed sweet corn, oats, and wild rice; and number three in soybeans, spring wheat, and dry beans. Our first-place ranking in turkey production and second-place in hogs earns us the eighth slot nationally in livestock at $7.8 billion.
Agriculture and food are the state’s number-one export at $8 billion. Machinery exports, in second place, are only half that. Actually, agriculture counts for more than one-third of all Minnesota merchandise exports, making this state the fourth-largest food/ag exporter in the union. And our ag value is increasing—in 2000, ag exports were only $2.3 billion.
Six of the 17 Fortune 500 companies headquartered in Minnesota are food related: CHS, Supervalu, General Mills, Land O’Lakes, Hormel Foods, and The Mosaic Company. Cargill is ranked number 1 on Forbes’ list of America’s largest private companies—and that is among all industries. With the exception of Austin-based Hormel, all of these companies are in the Twin Cities area. Is it safe to say that the Twin Cities could be considered the “Silicon Valley of Food?” Does such an appellation have merit? Does it make sense? And what is the role of a business school in making this happen?
“All the ingredients are there to create that innovation ecosystem,” says recently retired Cargill CEO Greg Page, who is now an Executive Leadership Fellow at the Carlson School. “If you look at how things have evolved in other industries, there is a certain positive network effect of being in a place where those skill sets are residing. But are we there yet?”
Page warns that although we have the ingredients to be preeminent in the food/ag space, there are aspects to be thought about long and hard and decisions to be made. “We have to think about what claims we are going to make—to pick some places where we are advanced to begin with and likely to supply employment,” he says. “The trick is to map out where we can be great, instead of saying ‘from the seed to the tabletop, we’re going to be preeminent.’ That’s a pretty bold presumption to assert about ourselves.”
Professor and Edson Spencer Endowed Chair in Strategy and Technological Leadership Alfred Marcus points out that Minnesota is built on its agricultural prominence. “We’re in the middle of the agricultural heartland and ag is the core foundation of the Twin Cities, the state, and the economy. In Chicago, the core foundation is butchering and selling meat, but our market is milling and selling grain. We’ve cornered that market,” he says. “Overall, food is a foundation for our economy. All the other great industries have built up around it. For any economy to develop, you have to have agriculture to feed your people so they can head to the cities to make steel. That’s how the Industrial Revolution started—it began with agriculture.”
While the Industrial Revolution started with agriculture, agriculture now needs the help of industry to stay healthy. Jim Prokopanko, retired president and CEO of The Mosaic Company and now a Carlson School Executive in Residence, once put the issue in its broadest terms: “The challenge remains to feed more than nine billion people by the middle of this century, and to accomplish this without harming the environment—especially our increasingly scarce land and water resources.”
Enter science. “A lot of these things are going to start in science. Science and engineering are big drivers in these things,” says Professor Michael Boland of the Department of Applied Economics and the director of the Food Industry Center. “Business development requires public/private cooperation. In any city where you have land grant universities like the University of Minnesota, you find many examples of these partnerships. For example, there’s been a high degree of public/private cooperation in industries such as dairy, apples, and wine and addressing state issues such as invasive species, improving water quality and soil productivity, pollinators, and similar topics so there’s already a hub started here.”
Marcus agrees, pointing to Norman Borlaug as an example. “He’s probably the most important scientist of the last 50 years of the 20th century,” he says.
Borlaug, who was awarded the Nobel Prize, the Presidential Medal of Freedom, and the Congressional Gold Medal, earned his MS and PhD degrees from the University of Minnesota. Working with combining different plant seeds, he successfully developed varieties of high-yielding wheat. Imported into India and Pakistan, which were suffering severe food shortages, these plants helped both countries become self-sufficient in wheat production. Borlaug was subsequently heralded as the father of the Green Revolution and the “Man Who Saved a Billion Lives.”
“We’ve always been a source of innovation in the science of agriculture and productivity enhancement and it has a global reach of immense proportions,” Marcus says. This global reach, however, sometimes has local impacts. “People travel and see the high quality of the produce in other countries and wonder why we can’t have the same level of quality in the U.S.,” Marcus says. “This puts a great burden on the retail outlets to lower the amount of food that they have to throw out by better understanding their customer and their customers’ consumption habits.” The retailer is stuck between the rock of low prices and the hard place of the appearance of quality. “In the Twin Cities we have a great laboratory of food retailers competing with each other,” Marcus says. “There is probably more diversity in our choices than in any other metro area in the U.S., but none has found in my opinion the absolutely perfect formula.”
Consumers want their produce to be fresh, but the produce is often traveling vast distances and it sits in the supermarket for long periods of time, hurting its taste and nutritional value. “Supply chain efficiencies based on data analytics and a better understanding of inventory turns have the promise to improve this process,” Marcus says.
In the food industry, there is an entirely linked value chain of inputs, transportation, and retail. Consumers are increasingly demanding to know where their food came from and how it got to their retail outlet. “There are vast changes at each stage in this chain,” Marcus says. “Farmers, as always, are interested in the most output for the least input and this means increasingly understanding nearly each square centimeter of where the food is grown and how to adapt the seed, the water, and the chemicals that are used in that centimeter. The technology now exists to do this kind of precision agriculture and some of it has come from the University of Minnesota.”
Associate Professor and John and Bruce Mooty Chair in Law and Business Paul Vaaler agrees that technology is king. “Ag is high-tech in the 21st century. Being an ag producer is a high-technology operation,” he says. “Land O’Lakes is not just selling commodities like butter. It is involved in sophisticated nutrition preparation. That’s high technology that has years in basic research and legal work in terms of patents and licensing the properties.”
Vaaler, who recently participated in an agribusiness roundtable on WCCO Radio with Boland and Minnesota AgriGrowth Council Executive Director Perry Aasness, said food and ag products are often in battle for the market, not within it. “That means you have to be prepared to manage products and services that are going to have really high highs and low lows. They are dynamically competitive.”
Professor Marcus’ recent book, Innovations in Sustainability: Fuel and Food, looks at how competition in the marketplace effects a company’s willingness to adopt sustainable innovations. The book has chapters on such food companies as General Mills, Kellogg’s, Coke, PepsiCo, Whole Foods, Walmart, Monsanto, and DuPont, and in studying them, Marcus gleaned much about the state of the industry today and where it may be going.
“What we have globally is a situation where we’re producing more calories than we ever had per person on less land that has ever produced these calories,” he says. “What we have essentially is not a situation of massive malnutrition, although that certainly exists, but of seven billion people, two billion are undernourished and two billion are overnourished, overweight, and obese.”
This affects the food industry because food is increasingly inexpensive. It’s becoming a commodity.
“There are many factors for this. One of them is, in the U.S., the use of corn for ethanol has been reduced, so the price of corn has been going down,” he says. “And there’s generally lower commodity prices. There have been good crop yields and harvests in the last couple of years.”
Where prices have gone down, one would think it would be a good thing. But it’s not good for seed companies. DuPont and Monsanto are both in the midst of very radical restructuring.
“Both had a similar business model. Both sold farmers seeds that could resist herbicides. But, genetically modified seeds are hard to sell in the European market, people are afraid of consuming these seeds,” Marcus says. “There was never any scientific evidence that they would harm anybody or most Americans would be mentally deranged by now.”
Both of these companies were betting their future on this product specifically and they both financially had a hard time. If we look at companies at the next level, like Cargill, they too have suffered financially from the same kind of issues as quantity prices are on the way down.
Other issues are facing food producers. “If you look at Coke and Pepsi—and you have to remember that Pepsi is the largest snack company in the world—their core products are salt, sugar, and fat,” Marcus says. “Now if you look at their global sales growth in sugary sodas, it’s been almost minimal. There’s been a substantial decline in U.S. sugary soft drinks.”
These companies are really facing a strategic conundrum of where to go next. What has sustained them in profit and revenue is not the same as it had been in the past.
“It compels them to innovate and go beyond the idea of introducing diet soda to diversifying the products they sell—selling different beverages, teas, fruit juices, energy drinks, and bottled water,” Marcus says.
To chase consumers, many companies have been outright buying healthier and more nutritious brands. Page says consumers are also interested in what’s behind the food. “We have people looking for ‘story food.’ Who raised it, the size of the farm it came from, and what kind of water resources are being used,” he says. “And there’s avoidance when you look at packages. We used to feature what food did contain and what nutrients it brought us. Now marketing claims what isn’t present. No added sugars, gluten free. To me, it’s an exciting time, but a difficult time for packaged good companies because there are so many substreams flowing through the food system.”
But of lot of these acquisitions don’t work out as well as planned. When Sean Walker, a senior vice president at General Mills and president of its Latin American operations spoke at the Carlson Global Institute’s Global Matters event in April, he said companies that do not execute things that leverage its strengths will most likely fail. In his talk, “Achieving Growth in Challenging Markets,” Walker said companies need to better understand their strengths and opportunity areas and know how to play them.
“Sometimes in order to succeed you have to figure out how to strengthen something you’re not particularly good at. But you’ve got to know those things before you start heading down the road,” he says. “Understanding what you’re good at, what you’re not, what your capabilities are and what they’re not, is the key to success, particularly in emerging markets.”
For example, Kellogg’s bought Kashi, a California-based whole grain cereal company in 2000. Initially, the acquisition was brought to corporate headquarters in Battle Creek, Michigan and it subsequently went into decline. “When Kellogg’s took it over and tried to absorb it, the company hit a dead end,” Marcus says. “For the standard, traditional food companies, they have acquired more healthy and nutritious brands, but they need to integrate these brands into what they did historically.”
This is a period of great turbulence for major food companies as their traditional growth path has hit a dead end, Marcus says. “Say you are a Pepsi. You can buy snack companies throughout the world, and that is one avenue for growth—the same kinds of products that have given you success before.” But is it sustainable?
“Coke is much more a global company than an American company, but even globally they have to make choices,” Marcus says. “Are they going to stress the products they used in the U.S. or are they going to find local brands which they buy? In an ideal world, a company like Coke would like to sell the same one thing everywhere in the world. Simplify their product, simplify their advertising. It’s a problem that is particularly acute in the food business right now. Demand is very diversified.”
How best to meet these challenging demand? Page has an idea.
“I see an enormous role for business schools to train the people to have the skills to determine what people really want and translate that into marketing plans and products,” he says. Boland agrees. “Organizations can teach people the specifics of the institutions, but it helps to have some broad exposure to an industry,” he says. “The strategy being carried out by food companies is based on strategic concepts. It’s similar across industries.”
It may not at first seem obvious that agriculture and a school of management are a natural pairing, but it turns out it may be the most synergistic pairing of all, especially for the Carlson School.
To begin with, most of modern economics, starting with Adam Smith’s 1776 seminal Wealth of Nations, used agriculture and its products as foundations of market formation and trade. Flash forward 240 years later and we see interactions with finance, strategy, and pricing critical for many of Minnesota’s most global firms. Start with General Mills. This firm has been a destination for the Carlson School’s best and brightest students from undergraduate and graduate programs for generations. Since 2009, it has hired 72 Carlson MBA and HRIR students alone. Whether it be for brand management, strategic pricing, or global supply chain optimization, the links between agribusiness and management are clear. Next is CHS, another destination for the Carlson School’s best students with a focus on harmonizing the competing agribusiness output for food and energy stocks. Minnesota also has many progressive agribusiness companies looking for similar talent.
“The needs our employers are increasingly expressing for talent acquisition have significant industry sector components,” says MBA Programs Assistant Dean Phil Miller, ’97 MBA. “In the food and ag sector, it is often not enough to just know the sector or a function. You need to combine strategic, cross-functional thinking with deep knowledge of things like commodity markets of agriculture-specific supply chains.”
To address these needs the Carlson School is featuring a dual degree MBA with the College of Food, Agricultural and Natural Resource Sciences’ (CFANS) Applied Economics master’s program starting this fall.
“Developing deeper programming and engagement in regionally and globally important industry sectors has been a priority for the Carlson School,” Miller says. “Food and agribusiness is a sector with both great University of Minnesota depth and importance across multiple colleges. The Carlson School has a growing partnership with CFANS and this dual degree is a natural outgrowth of that partnership,” Miller says. Cross-University collaboration is critical to future success. What the larger University can accomplish collectively is often greater than what any single college can do on its own.
The dual degree brings together the best of the Carlson School’s graduate management curriculum in the MBA program with CFANS’ applied economics curriculum to build a program that will develop leaders in the food and agriculture sector. “The sector has an aging workforce and at times struggles to attract talent with the required skills and knowledge to have immediate impact. The University of Minnesota is seeking to address this gap,” Miller says.
In addition to the dual-degree program, the Carlson School will offer an agribusiness MBA specialization modeled after the school’s 10-year success with hundreds of graduates through its medical industry specialization.
These initiatives were guided by the school’s leadership listening to the human capital needs of agribusiness commodity giant Cargill and innovator Mosaic. In discussions with these firms, Associate Dean for MBA and MS programs Steve Parente heard “excellence in general management training is not sufficient for the next generation of agribusiness leaders.”
“Future leaders need high competence in finance, applied economics, strategic pricing, and a deep knowledge of the agribusiness supply chain to sustain and advance this critical global industry,” he says. “The Carlson School is uniquely positioned to be a critical education partner to the global agribusiness community as the new MBA initiatives are complemented by an MS in supply chain program, which also began this fall.”
The MS in Supply Chain Management program is a one-year graduate degree for working professionals seeking leadership roles in the field. The curriculum includes coursework in food and ag (farm to fork), negotiations, quality and security, logistics and transportation, data analytics, and other areas relevant to agribusiness.
“These three new programs should provide a trifecta of new graduate program opportunities to train and advance the next generation of global leaders in agriculture,” Parente says.
In getting its feet wet in anticipation of these new programs, the Carlson School partnered with CFANS in the spring to offer the first joint elective specifically for students interested in food and agriculture—a “Food and Agribusiness Marketplace” overview/survey course. The course was taught by Professor Michael Boland of the University’s Department of Applied Economics.
About one-third of the 35-member class were CFANS students and the rest were from the Carlson School. “It’s been a real nice blend of social scientists and physical scientists,” Boland says. “We had full attendance with a waiting list for the first semester. That’s a good sign.”
Actually, Boland says students were clamoring for the class. “We have this master’s program with a lot of persons interested in food. They wanted a class that integrates a number of topics like public health, nutrition, animal welfare, trade agreements, agricultural development. A lot of students wanted a broad survey-type class with exposure to issues including climate change and global warming,” he says. “People are curious about food these days. There is more interest in food labels, what you eat, what is going on overseas, and how we are going to feed this huge population. A lot of people want to know about the bigger world today.”
Boland himself is pleased with the class, especially with the collaboration between the Carlson School and CFANS. “Offering this class is a big thing. We’ve had our undergraduate students taking a Carlson minor for years. We are glad to offer a class with an agricultural focus for MBA students. We hope to build additional coursework in food and sustainability and foster a collaborative learning environment for the benefit of students in both colleges,” he says.
These new classes are by no means the Carlson School’s first excursion into food education. Many classes have food-related items baked right into the curriculum. In Senior Lecturer Jay Lipe’s IBUS 4082W Brand Management class, Undergraduate Program Senior Academic Advisor Kathy Evenson-McDermott taught a lesson on the Slow Food Movement and its late-1980s origin in Italy. “It is a return to cooking in the old way, using traditional and artisan methods to prepare food—and allowing time to work its magic—as well as taking time to sit down and enjoy the food with family and friends,” she says. “We learned about the example of ricotta being aged in wooden forms on a farm in Italy, and how there is bacteria that this wood develops that greatly enriches the flavor of the cheese.”
The class learned how Slow Food is much like a luxury good in that it is made in small quantities, takes time, is of a very high quality, and has detailed craftsmanship behind it. “The food is local in that it is produced by farmers and producers who live in the region and either grow it themselves or work directly with the grower,” Evenson-McDermott says. “The lesson tied in well to the full class as Jay was using a video from Italian chef Massimo Bottura and how he repurposed parmesan wheels that had broken after an earthquake in 2012 into a risotto. Massimo is all about using food and ingredients to their fullest and not letting anything be forgotten.” The class segment really paid off as the students embarked to Italy to see the Slow Food Movement at work in the land of its birth. “They participated in a cooking class in Florence to better understand the Slow Food process, making chicken cacciatore, pappa al pomodoro [tomato bread soup] and a trifle for dessert. The students were taught to see how each ingredient contributes to the whole recipe and were encouraged to stop and taste their cooking to check it. They really had fun with this.”
Supporting Food Entrepreneurs
The MN Cup, the largest entrepreneurship competition in the state, has also embraced the food industry as a vital component. In 2014, it added a food/agriculture/beverage category to its roster to great success. The 2015 winner in this division was SIMPLS, co-founded by Ryan Rosenthal, ’11 BSB. SIMPLS, located in the downtown Minneapolis’ skyway, is a grab-and-go convenience store using locally sourced, organic foods. It playfully describes itself as if 7-Eleven and Whole Foods had a baby.
To further spur food entrepreneurs, MN Cup is launching a new program called Grow North. Funded by General Mills, Grow North will connect food start-ups with experts, thought leaders, advocates, resources, and one another to accelerate the development of ideas and talent in the state. The goal is to push Minnesota to becoming the leading community for entrepreneurs looking to begin a food business.
“Minnesota has all the ingredients necessary to start and grow a best-in-class food, beverage, and agricultural business,” says MN Cup Director Melissa Kjolsing. “We have incredible service providers, researchers and innovators, large company talent, ample government support, and a driven community of entrepreneurs.” She says Grow North aims to accelerate connections among these groups, break down silos, and promote the many great things happening in Minnesota to the rest of the world.
The ties between the Carlson School and the food business community are legion. To name only a few, retired Mosaic CEO Jim Prokopanko, as well as Greg Page, are both Executives in Residence, with Prokopanko also sitting on the Carlson School’s Board of Overseers. Mosaic Senior Vice President Rick McLellan is a Carlson Global Institute Council (CGI) member as well as both Joe Ramaker, ’98 MBA and vice president, finance, planning and analysis at Cargill and Tim Barinka, vice president of marketing at Hormel. Tanya Dowda, the director of strategic projects for Land O’Lakes, can be found on the Department of Supply Chain and Operations’ Executive Committee as well as eight other executives in the food and agriculture industries. The school’s Institute for Research and Marketing has Cargill’s Vice President of Global Marketing, Paul Hillen, on its advisory board.
Page, who retired as Cargill’s CEO in September 2015 and is co-teaching a Carlson School class on corporate social responsibility this fall, shares why he chooses to stay school connected. “Maintaining contact with emerging leaders is important to me,” he says. “It’s a great way to see what the next generation of leadership is thinking. I look forward to hear what is on their minds and where their views arise from and how they came to believe what they do. I see it as continuing education for myself.”
David Clark, ’00 MBA and president of the U.S. Yogurt Operating Unit of General Mills, is another CGI Advisory Council member. He sees the kinship between the two organizations. “Carlson and General Mills are on a similar mission to build their brands around the world,” he says. “A smaller percentage of our sales is outside the U.S., so we’re building that in China and Brazil and India. CGI is doing very similar with partnerships in China and Vienna. There are just a lot of commonalities in our objectives in what we’re doing. It’s very compatible.”
The compatibility allows for mutual benefit. CGI offers Global Business Practicum courses for students to apply their business knowledge and hone their cross-cultural team skills on a real-world business problem. “As a part of that, CGI looks for companies that have a business challenge to give these students,” Clark says. “I always take that as an opportunity to my peers around the world—‘they could really help you if you have a challenge.’”
Last year, Clark’s own company had the challenge. General Mills was looking to launch a new product into Austria, Switzerland, and the Czech Republic—a dinner kit to make Indian food. “Our team in those countries is very small, so it was a great mutual opportunity,” Clark says. “We developed that product platform, but they didn’t have the resources to understand the marketing, to understand the opportunity. The Carlson School said it was going to this part of the world and was looking for work. It was win-win putting these two together.”
Students in the practicum broke the product down in three different markets and brought it back to the General Mills team to make recommendations around strategies, fit, and resources that would be needed. “It was something for us that the team couldn’t have done on its own,” Clark says. “It was a great opportunity to leverage talent at the Carlson School and give students real-world learning. They really shaped the business strategy and a lot of it is in the process of being implemented right now.”
The CGI Council is not the only way Clark is connected to the Carlson School. He will be teaching an upcoming marketing class and will be speaking in others. He also is chairing a committee to create a General Mills-U of M alumni association, something that the company has not had before. “I’ve agreed to chair that to increase the connections between General Mills and the Carlson School,” he says. “I’m looking forward to what that is going to bring.”