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In 1896, only the third year that the USDA
published a Yearbook of Agriculture, J. Sterling Morton
understood that simply enabling farmers to increase productivity
did not improve their economic well-being. Despite the 110 years
that have elapsed since, we remain incapable of devising an
economic system that enables farmers to “secure satisfactory
remuneration.”
Ample data now show that the expenses most
farmers incur in producing their crop and livestock commodities
absorb all of the cash receipts those commodities earn. The
problem is not that farmers are inefficient or bad
managers – the problem is that they have no market power
to enable them to capture sufficient value for their labor.
And as agricultural economist Willard Cochrane
and others have demonstrated, simply “increasing the annual
product per acre” leads to over-production, which further
exacerbates the problem.
So how do we address this age-old problem? There
are at least three avenues we could pursue and they are not
mutually exclusive.
New marketing relationships
First, we can assist some farmers in transitioning from
commodity production to the production of highly differentiated
food products that command more value in the marketplace. As
Michael Porter of the Harvard Business School has pointed out,
products can be differentiated by their quality, their
attributes, or the service that accompanies them.
Today’s food market shows strong demand for
products with
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quality traits that provide superior taste,
health and nutrition;
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attributes such as being produced and
processed locally, good environmental stewardship and/or
appropriate animal care; and
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services that allow consumers to enter into
trusting relationships with producers and processors.
Of course, if farmers are to capture part of
this higher value they must be part of a marketing relationship
that retains part of that value on the farm. Based on research
that the Leopold Center has sponsored and the actual experiences
of farmers, it would appear that there are two potential
pathways.
Direct marketing where farmers produce,
prepare and sell their produce directly to consumers. This
option appears to work best for very small farmers, although
some farmers have achieved impressive sales using internet
technology.
Values-based value chains wherein a group
of farmers forms marketing networks featuring their own brand.
They become partners in long-term relationships with processors
and distributors using pre-established agreements that guarantee
fair compensation to the farmers for their investment and labor.
Such “fair trade” agreements, in turn, become one of the
value-added attributes of the product. The value chain option
has the potential to reduce transaction costs and supply large
markets like restaurant chains, health care institutions and
school systems, as well as interested retail chains. This option
is best suited for midsize, independent family farms.
The Leopold Center also has helped to develop a
marketing coalition, the Association of Family Farms, which is
now working with the National Farmers Union to assist interested
farmers and fishermen to establish such value chains throughout
the nation.
Stronger marketing position
A second avenue, probably the only option available to producers
of undifferentiated commodities, is to strengthen the marketing
position of farmers. The classical antidote to market power is
competition, but competition only works in competitive markets.
As individuals, farmers have never been in a competitive
position with other players in the supply chain, consequently
they have become raw-material-supplier-“price-takers.” And,
unfortunately, farmers end up competing with each other for land
and other resources.
Individually, farmers who produce
undifferentiated commodities simply do not have the power to
compete with the much more powerful processors, distributors and
other players in the food chain. Their only option is collective
bargaining.
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"Finding Grandma's Spectacles,"
used with permission, J.N. "Ding" Darling
Foundation. |
In 1925, Ding Darling recognized this fact in
one of his famous cartoons entitled “Looking for Grandma’s
Spectacles.” The cartoon features Congress, the Farm Bloc and
the Agriculture Department desperately looking for the farm
industry (Grandma’s) “spectacles,” labeled “cooperative
marketing.” All the while, the spectacles are perched on
Grandma’s head.
This second avenue is not a new idea. While some
dismiss it because no one has ever been able to effectively
organize farmers into collective bargaining units, two things
have changed.
First, we now have far fewer farmers to
organize. As of 2002, only 70,650 farmers produced 61 percent of
total farm commodities nationally. We can reasonably expect that
by the time the 2007 Farm Census data is collected, that total
figure will be even lower.
Second, given our new electronic communications
technology, it will be much easier to organize farmers into
collective bargaining cooperatives than it was in the 1920s.
Conservation compensation
A third avenue would be to improve net farm income by
compensating farmers adequately for the public goods they can
provide. The Conservation Security Program (were it fully
funded) is an important first step toward that end.
Farmers are in a position to provide much more than food, feed,
fiber and fuel – they are the front-line players in protecting
the environment and maintaining the ecological health of our
home, planet Earth – and it is in all of our interest to
compensate them adequately for doing so.
Fred Kirschenmann |
