One of the most difficult aspects of commodity farming is dealing with the fact that the price for the crops or livestock produced by farmers are by in large dictated by someone else. The markets for corn, soybeans, wheat, barley and conventional milk are good examples of pricing structures that have nothing to do with farming realities and costs. Learning how this works can be a frustrating and costly education, and in many ways resembles a type of gambing that is more risky than going to Las Vegas and playing the slot machines. The battle against the weather, rising costs and market swings can sink a farm in short order. I know first hand how difficult it was to work very hard on my 2-acre vegetable farm, only to have the various venues I sold to offer me a price that I believed was well-below what I considered “fair” in terms of my labor, money, assets and energy.
However, having said that, born out of my experience selling lamb, eggs and vegetables directly and wholesale off my farm and negotiating with organic dairy farmers on price for my job I feel I have a good perspective on what a fair price really is to a farmer. The following is a list of factors that determines a “fair” price, which means from a farmers perspective what is “fair” profitability:
1. The presence of competition. This is the most important factor, which farmers by in large “get” (as in they understand how it works). If there is competition for food commodities, that tends to drive price up. Without competition, the power is in the hands of the processor, purchaser or customer and price will not be as high as it could be.
2. Supply and Demand. If supply is short and demand is long (like it is with organic milk right now), price goes up (given that there is competition). If everyone is growing good quality organic vegetables and wanting to sell into the same venue, price goes down. Believe it!
3. Farm operations that are cost-effective: I see this over and over. Farmers always want the price to go up, but price and profitability are two different things. How the farm is structured in terms of equipment, know-how, layout of the land, land fertility levels, and my favorite “management effectiveness” etc are extremely important factors that effect farm profitability. Some farms need astronomic price levels to be profitable, others do not.
I’ve never yet seen a farmer say that the price was too high. Everybody always wants more money. What determines whether a farm is profitable or not though through the idea of a “fair price” truly in my opinion rests in the realities of competition, supply and demand, and how effective a farm operates at.
Filed under: Uncategorized on February 14th, 2012