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Marketing Strategy

RSS By: Scott Stewart, AgWeb.com

Marketing Strategy

Will Independent Family Farms Survive?

Mar 20, 2011

At the Professional Dairy Producers of Wisconsin Business Conference last week, one of the speakers, Linda Wenck, presented research from the Illinois Farm Bureau about consumer perceptions of farmers. The Stewart-Peterson staff who came back from that event were fascinated by the research. They brought the info to me because they knew about my passion for helping American farmers maintain their independence and ability to keep their farms in their families, as opposed to selling out to foreign buyers or big corporations. I wrote about it in my latest white paper, “Heads Up: A Futuristic View of U.S. Agriculture and the World, and What You Can Do to Protect Your Prosperity.”

As we move forward, the global demand for agricultural commodities could continue at a rate that leads to very attractive levels of profitability for agricultural producers. In fact, unprecedented levels of profitability. We are seeing it today: $5 and $6 corn prices are almost becoming common.  With high prices come big price swings. Extreme volatility in the future will most certainly cause widespread pain and put many producers out of business. As we begin losing producers to these wild market swings, we’ll see those who survive emerge stronger, increase in size, and continue the acceleration toward a landscape with fewer, larger farms.
 
This consolidation of farms could bring about massive structural changes in agriculture that could have significant impacts on our economy. What happens when outside investors buy agricultural land? A dramatic shift, in that many producers will no longer be farming ground that they own. Instead, they will be custom-farming ground for big corporations. It will almost be like a landscape firm descending on a community with their lawnmowers, driving around on the yards and cutting the grass, packing up the equipment, and driving back to their home base at the end of the day.
 
Under this scenario, farmers would own the machinery and provide the labor; however, they wouldn’t control the land and wouldn’t control the commodity that they are producing. The farmer would work on a margin for labor and a machinery investment, and not benefit from the widely profitable prices. Farmers may be forced to competitively bid for work, possibly online, in reverse auctions. In other words, farmers’ efforts and machinery would boil down to being commoditized. This is an extreme thought; however, when you think about just how good most producers are at growing corn and other commodities, it is not beyond comprehension. Vertical integration has already occurred in some sectors of agriculture.
 
The impact of farm ownership changes in rural America will be extreme. As farm size grows dramatically, and/or farms are taken over by outside investors, what need is there for local businesses to support local farmers? Machinery will be bought direct through large buying groups, or through massive corporate purchases. Fertilizers and other supplies will be delivered direct in large quantities, and not filled through local suppliers. Financing will not come from the local bank. It will be tied in and financed through the large corporations. In this scenario, all the money inflow and outflow that occurs, and the volume and velocity of dollars that flow through rural communities, dries up. The bank owners and local businessmen that served on the boards of directors of the hospital and the school will no longer be needed in the community. When they die, they won’t have piles of money to donate for a new wing on the hospital, a new library, or to replace the carpet in the church. All that money would go to some rich stockholder, possibly one from a foreign country. This trend has already begun.              
 
Now, let’s tie this to what the Illinois Farm Bureau research says about consumers’ perceptions of agriculture: Wenck said consumers generally like farmers, but they dislike anything related to a corporate farm, or the idea of an absentee owner running the farm from outside the community. This leads me to wonder if the loss of independent farm ownership is likely to cause a consumer backlash that will result in falling demand for products that are heavily dependent upon consumer choice—products like beef, pork and dairy. If we have consumer concern now, when 98 percent of U.S. farms are family owned (according to the American Farm Bureau), what will consumer perceptions of agriculture be when that number is much lower?
 
I realize that my futuristic look at agriculture and rural community life may seem bleak, but it is a realistic view of what can occur. We’ve already started to see this occur as the number of farms has decreased in the U.S. It will only be more dramatic as ownership continues to change.
 
What can your response be? Prevent the extreme from happening. Make money. Make lots of money. Remain competitive and independent. The downfall of rural America is only going occur if farmer producers across this country do not maximize their profitability, take advantage of record prices when they occur, and make record profits. Those who leave money on the table are leaving opportunity on the table, and ultimately are opening the door for that opportunity to be snatched up by others. The most important thing all producers in the United States can do to control their own destiny is maximize their own profitability and their own financial strength.That is what Americans do best, and that is what American farmers have to do if they want to survive, thrive, and help America and American agriculture remain strong.
 
The research shows that consumers connect with individual farmers and farm families. Let’s keep our farms strong by using all the tools available to us to survive the market volatility that is in our future.
 
I will be happy to send a copy of my white paper to my readers. Simply call me at 800-334-9779 and I will send one to you. Or you can request a copy at www.stewart-peterson.com.
 
Scott Stewart is president and CEO of Stewart-Peterson, a commodity marketing consulting firm based in West Bend, Wis. You may reach Scott at 800-334-9779, email him at scotts@stewart-peterson.com.
 
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Neither the information presented, nor any opinions expressed constitute a solicitation of the purchase or sale of any commodity. Those individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report.  Futures trading involves risk of loss and should be carefully considered before investing.  Past performance may not be indicative of future results. Any reproduction, republication or other use of the information and thoughts expressed herein, without the express written permission of Stewart-Peterson Inc., is strictly prohibited. Copyright 2011 Stewart-Peterson Inc. All rights reserved.
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