The Compost Solution Workshop COMPOST IS HEATING UP. ARE YOU READY? February 28, 2007

1. The Compost SolutionWorkshopCOMPOST IS HEATING UP. ARE YOU READY?February 28, 2007 Building Valuable & Sustainable Organics Markets Dan Noble, Executive Director “We Build Healthy Soil”

2. Topics • Marketing Principles • Why Recycled Resources are Different • Organics Market and Brand Building • ABC’s of Organics Market Channel Development • Strategy Development (including branding) • Relationship (public/private relationship branding) • Collective (state and local market development)

3. Why Recycled Resources are Different • “Negative” Source • Flush it away, the “yuck factor” • Causes disease if not “sanitized” – must be “bad” • Cost control, NOT value added – pay to get rid of it! • Recycling is NOT a big end-user value • Reused, recycled is NOT “new” to the end-user • But it IS “value added” to the community (resources managed) • And it IS “value added” when remanufactured, e.g. compost • “Biosolids,” “Residuals”, “Waste” is NOT a brand • Only re-names a substance (e.g. sewage sludge, green waste) • Why a valuable resource? What’s the category of value?

4. Marketing Principles • What’s a Market? • Marketing = Giving people what they want; vs. • Sales = Giving people what you have • Requires thinking from the end-user backwards (What do they want?) • Marketing is solving a problem for someone! • Give them what they want = you provide value to them • Actually deliver it to them, build or use a “market channel” • Marketing is NOT education (giving people knowledge to solve the problem themselves)…. You’re not giving them knowledge, you’re delivering a solution (does entail some information… but not much) • Therefore, all markets are local AND personal; and it’s NEVER “FINISHED”! • Marketing is becoming known, BRANDED, for delivering value • Value = price minus cost (“value added”, “profit”, “bonus”) • Every thing and action has a “value” – category of value • Your commitment to values IS your “Identity” (Brand)

5. Branding = Trusted for Value • Categories of Value • Everyone’s values are different, i.e. “market diversity,” multiple categories and sub-categories • Create new categories, e.g. cola, PC’s, cell phones, co-compost, etc. • Subdivide an existing one, e.g. diet cola, thin laptops, reliable phones, turf grass topping, etc. • First in, can “Own” a Category • Kleenex owns facial tissue, Xerox owns copiers • Brand trust adds value to a commodity = price >> cost • Brands, like culture and mind, are never static • Changing (product life cycles) • Solid brands can have long lifecycles in stable categories

6. Unique Characteristics of Soil Amendment Markets Public Agencies Have Valuable Resources, However…… • Historically Not Used to Developing/Investing in Markets • Markets Not Viewed as Assets (Like a Landfill is) • Dialogue and Actions Not Focused on Trust, Market Development, Creating Strong Brands and Public Perceptions • Production of Raw Materials Happens Independent of the State of Market Development • Products Can Be Viewed as a Waste Management Solution • Resource Suppliers Can’t Go Out of Business • Must Move the Material • Traditional Market Economics Don’t Apply

7. Organics Market Sectors • Residential/Retail Landscape – High value, low volume bagged market (move to curbside service?) • Commercial/Wholesale Landscape –Higher volume, medium value • Environmental – Remediation, Stormwater & Erosion control • Agriculture/Forests –Based on crop and soil needs • Bioenergy – Direct energy, conversion to fuels and using or selling power

8. 9-12 Generic Compost Niches Commercial Residential Ag Tier 3: Between Communities – “True Market” Tier 2: Community, Municipality, Agency – Barter, “Give Away or Subsidized Market” Tier 1: Residential, On-Farm - “Do-it-yourself Market” • No one niche is “right,” correct or “the best.” • Generating agencies are typically involved in all at the same time. • Compost Market Development Strategies and Tactics must work synergistically to build compost value and volume. • This is still a goal to which all our members are actively working. Environmental

9. Investing in Markets • Have You Heard this Question? Is There a Market? • Markets Do Not Exist By Themselves • Markets Are Built By Companies Investing in Solving Unsolved Problems • Relationships Between Producers and Marketers Always Includes Market Investments • Part of Gross Margin • If Not - No Profit - No Expanding or Stable Markets • Releasing More Product into an Existing Market Without Addressing an Unsolved Problem will Drive Prices Down • Better to Look at Finding New Customers - Invest! • In Our Case - Loser Can’t Cut Back Production of Raw Materials

10. Compost Market Structure HEALTHY SOIL MARKETS $/ton Compost Marketer $/ton COMPOST PRODUCER Retail ORGANICS GENERATOR Collection & Transfer Commercial/ Municipal Soil Amendment Transporters MULCHER Chipper/ Grinder Agriculture ENERGY Residuals LANDFILL ADC Mulch Water/Irrigation Agencies

11. Big Questions for All Players! • Does every contracting relationship openly and explicitly build market assets? (If not, why not?) • What’s the Market Development Investment Strategy and Tactics of the Organics Generator and Water Agencies? (the main investors in the soil/water connection) • Why are you investing the way you are? • Is it working for both your ratepayers and the environment?) • What’s an appropriate Investment? • Depends on how much people WANT the product! • Can be 10-100% of facility investment/year!

12. ABC’s of Organics Market Channel Development $ $ $ $ $ $ $ $ $ Markets: Retail/ Commercial Agriculture Erosion Control Markets: Retail/ Commercial Agriculture Erosion Control Markets: Retail/ Commercial Agriculture Erosion Control COMPOST PRODUCER COMPOST PRODUCER COMPOST PRODUCER ORGANICS GENERATOR ORGANICS GENERATOR ORGANICS GENERATOR Compost Marketer Compost Marketer Compost Marketer Mass Mass Mass Mass Mass Mass Mass Mass Mass A B C Autonomous (I) Buddy (I-thou) Collective (We) • Strategy: Make Appropriate Organic Market Channel Investments • Pilots: Develop Market Pilot Programs with a Channel “Buddy”, and • End-Users: Participate in Collective Market Expansion • Programs

13. Investing in Market Channel Development • A. Strategy: Positioning Yourself for Advantage • Planning & Forecasting: What is the current and potential market need? • Modeling: Craft flexible, quantitative models. • Pro-active channel management: Is the channel developed or underdeveloped? • B. Channel: Processing and Distribution • Are the channels existing, or must we build them? • Facility size, investment & siting: permitting and public acceptance • Product Fit, Offering, and Brand • How sophisticated are you (and them) at market development • C. End-User Markets: • Do they exist? What is the competition? • What is the brand status?

14. ABC’s of Organics Market Channel Development • A. Organics Resource Portfolio Strategy: Market Channel Development Planning by Generator Agencies • B. Individual Public/Private Marketing Pilot Programs: Focused on expanding and investing in specific market channel development activities • C. Joint/Collective Programs: To develop new (or expand) markets “Good, Better, Best Priority” to Build Organic Market Channels C is Good that we’re working on “C-Collective Programs;” B is Better to be intensively building markets via “B-Specific Channel Case Studies;” A is Best if generators also have “A”- coherent and comprehensive organics reuse investment strategy w/ specific plans.

15. Market Channel Development: Standards and Tools • Channel Development Requires Setting Standards – for Make it, Sell it, and Count it! • Make it! Product & Manufacturing Standards • Seal of Testing Assurance (US Composting Council STA Program, www.compostingcouncil.org) • ACP Compost Use Index (Developed with UC Cooperative Extension Scientists) • Sell it! Marketing Standards – Next slide and Handout • Count it! Investment Standard – Needs to Be further Developed • Tools Must Be Developed A.“I” -- Strategy Development Tools – Audit and Strategic Considerations Outline B.“I-Thou” -- Pilot Study – Program Outlines C.“We” -- Collaborative Programs – Specific to each Program/Market D.“Integrative” – Local Organics Advocacy & Marketing (LOAM) Tool Box

16. Critical Marketing Standards • DON’T • “Dump” product in compost markets (erodes price & value) • Fund marketing partners to compete for share in same market • DO • Invest in brand building (strong brands build market value) • Target and invest in new markets • Create “fail safe” markets (inventory management standards) • Build long term, mutually beneficial partnerships (specific market development and brand building) • Other Important Standards • Healthy Soil Standards, Compost Product Standards • Capable Manufacturing Process Standards • Application Process Standards

17. A. “I” Identity and Strategy Requires A “Top Down” AND A “Bottom Up”, & “Outside-in” AND “Inside-Out” Approach … in a word …INTEGRATED 1. Identity (Brand) = Commitment To a Set of Values 2. Market Channel and Capacity Assessment (“market intelligence”) 3. Strategy Development – Ever More Integrated • Horizontal: Interagency, Inter-stakeholder and Interdepartmental: Solid waste, Air, Water, etc.; Private sector, Enviro & Citizen Groups; solids, water, energy, etc. • Vertical: Local, National, International; Values, Strategy, Operations, Tactics/Actions 4. Tactical Implementation – Matches the Integration and ongoing relationship development of your Strategy Two Recent (partial) Examples in So. Calif. • Orange County EMS Identity: • Developed Identity (Brand) that relates directly to it’s EMS value commitments. • Developed comprehensive market portfolio plan for biosolids • Working with ACP to develop the Local Tool Box for Orange County • County of San Diego: Through public process – • Developed an organics management policy (strategy) outline. • Working on Tactical Plan Development

18. B. “I-Thou” Specific Projects • Orange County Market Expansion: Increase specific markets in Orange County via specific new member partnerships between OCSD, OCIWMD, Western Organics and Synagro. • LA City Quality Enhancement: Raise value of curbside collected green material LA City and a potential new member private contractor. This will entail fully understanding the private contracting methods and how these can be reworked to create higher value feedstocks. • Curbside Residential Delivery: Kellogg Garden Products looking to team with compost blowers and their customer stores (e.g. Home Depot) and go beyond the “five bag limit.” • Commercial Market Expansion: More compost used for top dressing each year; Engel and Gray and a potential new agency member in the Santa Barbara area.

19. C. “We” Collaborative Projects • ACP – CIWMB - Caltrans • Agriculture Specifications • Compost Labeling and Use Rules • Center for Sustainable Organics Management • Develop with US EPA, CIWMB, UCCE, SDSU and ACP a “center of excellence” devoted to organics management • Erosion Control BMP • Compost is not widely used by California developers to control erosion and for stormwater management. • ACP is co-sponsoring a program with Filtrexx International to change that. • Water Efficient Landscape Solutions (www.waterconservationsummit.com) • Branding, Outreach and Public Education • Ordinance Development • Industry Collaboration

20. ACP’s Main Challenges • Weak Demand for Building Healthy Soil • People (farmers and landscapers) aren’t seeing a big need • Weak Support for Building Healthy Soil • No focused vehicle for investing in building healthy soil Solutions: • ACP Membership and Investment in building Markets • Public and Private Sector Industry Collaboration (Membership) • Create Healthy Soil Market Expansion Programs • Local Organics Advocacy & Marketing Tool Box • Team with Water Districts • To create water use efficiency programs by building soil w/ compost • Water and sanitation agencies work with the private sector to save massive amounts of water

21. Questions?Comments?Discussion … Association of Compost Producers Building Healthy Soil Though Local Partnerships