If you’re a farmer in 2018 its totally on point to be freaking out about trade wars and Trump tweets wether it be in person or on #agtwitter. It’s palpable how bad the books are looking on everyones farm right about now. The trade war is by far the most popular target for our anger.
When governments start playing hardball with each other over commodity trade it will always be the commodity producers that feel the short term pain. This is not new. It’s just particularly painful for U.S. farmers right now as we are hitting a 12 year low for farm income, along with a huge swath of other super unappealing stats that could describe the current farming landscape.
Shit is not lit.
So if farmers are doing so badly and this has been such a long time coming how is the rest of the agriculture industry fairing? You would expect that if all your customers are eating equity on their long slow path to possible insolvency this would be a big problem for you. Right?
As I am sure this is the case for many of the small service businesses that provide a huge amount of value to farmers it doesn't seem to be the case for larger companies and even “farmer owned” coops.
Why is this? We all know the quote..
“For the farmer, is the only man in our economy who has to buy everything he buys at retail — sell everything he sells at wholesale — and pay the freight both ways.” — John F. Kennedy
Over the years it has risen to some sort of pseudo religious status that invokes pride in the hearts and minds of hard working farmers the world around.
But honestly. Fuck that.
What it describes is one of the core reasons why farmers feel the pain of trade wars and while profits continue to climb for large industry players as they decline for farmers. Farmers are price takers while nearly everyone else are price makers.
Just so we are clear. Free market capitalism does prevent major price injustices as these companies do have to compete on price. Of course, unless they are too busy merging into even larger versions of themselves so they have to compete less. This competition doesn’t mean farmers are winning.
Take for example iconic brand John Deere. If you have been watching, the price of importing steel in the U.S. is going up. Trade Wars.. This could be considered analogous to the price of fertilizer going up if you are a farmer. The only thing different is John Deere has a lever to pull that frankly most farmers don’t. It’s called price.
John Deere is raising its prices to pass through the price increase of steel to its customers.
Those customers are farmers, among others.
But guess what. John Deere is smart to do this. In publicly traded companies short-termism is rampant. Appeal to stakeholders need for short term gains every quarter or perish! Greed is good. John Deere increases its income 50% . Stocks surge! But three months later they might be considered a dog if they don’t focus on short term gains. So for John Deere to thrive it needs to do as the shareholders demand.
John Deere has a price making lever that most farmers have lost somewhere in the machine shed long ago. We are jealous for sure.
But as farmers we actually want John Deere and other big companies to succeed too. We want the side effect of all these profits to fund extensive R&D budgets to build autonomous robots, drone fleets and weed killing machines with fricken lazer beams! The money to innovate like this isn’t coming from the government after all. They have also lost their taste for expensive long term moonshot projects.
So if big co’s making money hand over fist can be good and farmers want these companies new and innovative products whats the problem?
The problem lies in the fact that farmers have given their price making lever away. The problem is that we are participating in an ever more unbalanced relationship with the producers and consumers of our products.
Consuming products from DowDupont, doing our farming magic, and then selling the proceeds to Walmart puts us at the center of a value capture vacuum.
Farmer owned coops, in part, where formed to help with these imbalances that have been on the ebb and flow for ages. It would seem that value they create must be going to “management” or has not kept up with the pace of change looking at the state of the farming economy.
So what to do?
Coops, Checkoffs and other orgs with “farmer made” money should be funding supply chain innovation.
Consumer demands change like the wind. Big companies steer about as fast as the titanic. Consumers want less big middlemen. We need to build new farm powered supply chains that give them that. This gives us back our pricing power.
I can tell you first hand as a farmer I do not currently have the capital or time to hire a “Chief Business Development Officer” or something fancy like that to find me sweet lucrative deals with the next up and coming ‘Gluten Free Protein Packed Kombucha Energy Drink’ producer that happens to like how my way of milking cows fits into their brand strategy. I am also not that interested in cultivating the skills to produce the next hot product inside of our farm organization and all the risk and capital that takes. This is why they took our price making levers away to begin with. Lots of farmers kinda just want to milk cows and grow corn. Not build consumer brands, manage a social presence and be charming biz dev sales types.
The organizations that support farmers need to help build innovative supply chains that empower farmer price making. This is how farmer money can really help farmers.
A supply chain that uses digital platforms to find opportunities for farmers to work more directly with consumer brands that want our products. One that helps source inputs, knowledge, and training that might be required to participate in these value added supply chains.
We need to be able to scale up and down production practices, inputs, outputs and relationships with vendors and consumers of our products. We need to de-risk the entry into value added networks for farmers and encourage the creation of thousands of new brands of new products created from our commodities by shifting from big, once a year commit or leave the industry, contracts with commodity purchasers to smarter obligations into a dynamic marketplaces for product creation.
Farmers will not achieve price making status at any considerable scale without the help of platforms and organizations specifically created to recapture the value we have been giving away.
So before you blame the trade war on your hard times or start thinking about “supply management” or some other top down control idea remember that until we work on balancing out our relationships with big market players through smart innovative competition and taking back our price making levers the money from improved on farm income will mostly just get vacuumed up by the publicly traded big guys with their intercontinental money sucking machines as per usual.