Keys for Differentiation: A Guide for Commodity Producers

October 8, 2018 10:09 AM
 
Being a commodity producer means you are a price taker, forever depending on external forces outside your control. Only the strong survive, by being a low-cost producer or managing price risk exposure

Being a commodity producer means you are a price taker, forever depending on external forces outside your control. Only the strong survive, by being a low-cost producer or managing price risk exposure. So, how can you differentiate yourself in this competitive environment?

Take a page out of the consumer personalization playbook. Consumers want all things to be personalized, and their expectations about food and ingredients are no different. While there are countless consumer food trends, all find a way to stand out in their respective space. We have established segments like organic, non-GMO, chemical-free, and even “rain-fed” for cotton. By following consumer trends and paying close attention to demand, even commodity producers can reap the benefit of differentiation--and a better price.

The Starting Point

Some ways to differentiate from commodity markets include growing ancient and heirloom varieties, especially in grain (spelt, Khorasan wheat, amaranth, etc.), growing for the identity preserved (IP) markets, or obtaining premium or privileged access to a market by using sustainable or regenerative production methods.

Showcasing production methods as “sustainable” as a way to differentiate may still be in its infancy and subject to much debate about appropriate standards, but emerging trends point to a potential opportunity. On the technology front, several companies are developing microbial applications that could reduce fertilizer needs, while others are starting to score the sustainability of a crop. For instance, Pivot Bio is developing microbial technology that allows corn to self-fertilize, while the discovery of self-fertilizing corn in Mexico has created a lot of recent buzz. One day we may be able to brand corn that’s been grown with such technology as having a higher sustainability index.

As another example, farmer cooperative Land ‘O Lakes recently launched a new digital tool to help its members implement sustainable management practices and increase their profitability. The data analyzed by the device will also be available to food companies to measure and monitor the sustainability credentials of their supply chains. Could the Nature Conservancy provide a certification process around your nitrogen management practices similar to how organic producers are certified by third parties like Ecocert for meeting organic production standards?

Two other potential differentiators include focusing on unique food processing characteristics based on the variety selected or growing strategy, and grains that have better feed characteristic. Either could enable commodity producers to “certify” themselves as a good, reliable source of grain for food or feed markets. In fact, organizations like Farm Strategy in Kansas are now actively encouraging farmers to grow better wheat. They even created a sampling system to test wheat for quality lab characteristics (such as mixing stability, absorption rates, and protein levels) to help farmers find the end users who are looking for those characteristics. In addition, Syngenta’s Enogen corn is now being used in feed markets with very promising results. Could you see a premium for growing Enogen corn on contract for a feedlot or dairy operation?

Connecting producers and end users will help farmers stay in step with consumer trends and ensure they produce more of what end users demand. More players throughout the commodity supply chain are now trying to help farmers think beyond bulk grain and start thinking of themselves as vital players growing food ingredients.

How to Hit the Ground Running

Four things to keep in mind before you dive into differentiation:

1. Differentiation takes time to develop. Make sure you are ready to commit to your differentiation initiative. Review what you have, where you are coming from, and what is achievable. Commit yourself to creating SMART goals and make sure you measure against them.

2. Like any “brand” or quality standard, you have to be able to deliver. Buyers might want to source directly from you, but you need to prove you've got a quality product. Be prepared to test and verify the quality of your grains, and also to provide a transparent and comprehensive look at your growing practices.

3. You also need to be a reliable supplier. If people downstream from you are going to depend on your unique product so that they have a single product or business, they need a consistent supply. Are you equipped to deliver - regardless of potential weather-related or pest/disease setbacks? Do your homework and have those tough conversations. You’ll be glad you did.

4. Smaller/unique opportunities require some flexibility. By nature, a supply chain is built for bulk commodity. You may have to store on-farm, under particular conditions, or segregate your crops. You will also have to be willing to deliver and adjust to the intake schedules of downstream buyers.

Don’t let these considerations intimidate you though. Rome wasn’t built in a day, and neither was your farm. Invest the time and research upfront to make sure you are ready to tackle the differentiation beast.

Days of Differentiation

The call for eco-friendly, health-conscious practices in the Ag arena will continue to grow louder in the years ahead. Commodity producers who embrace the drive for a consumer-driven food chain will have a better shot at differentiating their products--and ensuring a healthy financial future of their own.

Commodity producers are not all made equal. You CAN differentiate yourself and your products in the market, but you will need to make sure can commit the time, energy and resources to create a supply chain for your differentiated crop. Ultimately, you need to ensure you are a reliable supplier with solid proof of quality and a constant quantity. Do your homework and be flexible--the effort will be worth it in the end.

This guest commentary was provided by

Alain Goubau, C​o-Founder and COO of FarmLead. The commentary does not necessarily reflect the views of AgWeb or Farm Journal. The opinions expressed are the author's own.

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