There has been an annual farm profitability crisis for far too many years, and farmers need input supply companies to be part of a discussion to find solutions.
All too often we witness input price s tracking grain prices, which means that any margin made from higher grain prices is required to pay for higher input costs.
Because of a growing lack of competition in the upstream industry, input prices are increased at will. In fact, when a fertilizer executive was asked several years ago why companies were increasing prices, even though their manufacturing costs were not going up, the response was, “because we can.”
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Yet far too little attention has been given to the unbridled power the upstream industry has amassed over the years.
Proof of that is demonstrated in how much focus there is on market issues in every one of the numerous agriculture “visioning” conferences that abound.
There is lots of talk about needing higher market prices, more power in the marketplace and how producers need to collaborate with processors and retailers.
However, it’s as if the input industry and its escalating prices are forbidden territory.
Agriculture industry players and stakeholders have known for years that success is contingent on a strong relationship between the primary production sector and the downstream industry: buyers of the products farmers produce.
While that relationship may have faltered from time to time, it’s been generally acknowledged that the value chain needs to work in sync to maximize value for our products.
Farmers have frequently complained bitterly about how little of the market dollar accrues back to the farmgate, how low market prices are and how they are price takers with little power against a consolidated downstream industry.
All of those challenges have led to a stronger impetus to work together and strengthen the idea that there should be profitability at each level.
And of course, farmers blame the processors and retailers if there is no profitability at the farmgate.
As academics, think-tanks, lawmakers and farm leaders have said many times, a strong relationship is needed between farmers and processors/ retailers that recognizes the need for profit at each link in the chain.
But where are the input supply companies? Why are they not called on to shoulder some of the accountability in making sure each level of the food chain is profitable?
Processors and retailers should be indignant that the blame for low profits at the farmgate is put on them while input supply companies duck the fray.
Truth is, it doesn’t matter what the market price is. The input costs increase to match the increased revenue the farmer received from the market the previous season.
Market prices in Canada are largely set by the world price because we rely so heavily on international markets. That leaves us no other option but to turn to the input side.
Input supply companies must do their part and farmers must rally to gain more power in the input market to stave off the inexorable momentum toward mere serfdom.
If processors and retailers are pressured to ensure that the producer link in the chain is profitable, no less pressure should be applied to the input side to ensure an appropriate price at which farmers have a chance at profitability.
Recall my earlier comment about the fertilizer industry executive who said, “we increase the price because we can?” That happened during our last food crisis.
The food crisis and perceived food shortages in developed countries drove up commodity prices and escalated input costs.
In some developing countries, where there was a real shortage of rice, producers couldn’t plant a crop because they couldn’t afford the fertilizer. This was because prices jumped to keep shareholders happy.
These companies are celebrating again because grain prices are strengthening and they anticipate farmers increasing fertilizer application to maximize yields of higher priced crops.
All this is to say that it behooves industry participants to ensure input supply companies step up to the value chain table and shoulder some of the responsibility in making sure every sector in the food chain has anequitable shot at profitability.
