I’ve recently been covering a couple of issues that show how today’s markets can be the enemies of tomorrow’s markets.
We need tomorrow’s markets because that’s where the money and the margin are going to be. We need today’s markets so that we don’t go broke before we get to tomorrow’s markets. So when the two collide, it can be a rather discombobulating experience, leaving one wondering which way to go.
This issue came up when I was covering the dispute between farmers and Louis Dreyfus Canada over Nexera canola the grain company contracted but wasn’t able to take delivery for this past fall and winter. It sounds like  a simple contract dispute, but it isn’t, because Nexera’s still new in the market, even though it’s been out a few years, and the market’s still being built. It’s a rotten situation for the farmers who contracted the canola and were depending on deliveries to give them the cash to pay their winter bills. But it’s also a crappy situation for the grain company, which had to sign contracts up to a year and a half before meeting the food service company needs that it had to hoped would be there to consume the healthy, high stability oil. In the meantime the worldwide financial and economic collapse hit harder and harder and made many food companies slow their conversion from lower-quality oil to the improved canola oils and left Louis Dreyfus with a gap between when its buyers wanted the oil and when farmers wanted to deliver it. So they have refused to take delivery but have paid farmers what most see as a fair price to keep the canola on-farm until they can use it. It’s a messy compromise. No one’s happy.
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I’m not trying to make you cry for a giant, multinational grain company, which is, after all, a Big Boy. But I do sympathize with everyone from farmers to grain companies to product developers like Dow AgroSciences to the fast food companies who have to go through the extremely complicated process of creating a new supply chain and having it all come together at the same time. In this case, a few bits came on line on schedule, a few didn’t, and now everyone’s mad at each other. One thing I was glad to hear from Dow this week was that the Nexera market is steadily growing and that they believe these problems are just growing pains. That doesn’t make it any easier being a farmer with bins full of canola you want to deliver and can’t yet, but it does suggest that farmers shouldn’t let this dispute convince them that the Nexera market isn’t what it was claimed to be. It’s a baby market and it’s going through some teething right now, from what I can discover. (I live in a household with a 13 month old that is teething right now, so I can sympathize, even though she isn’t messing up my cash flow.) Assuming that specialized crop varieties like Nexera are not worth trying or sticking with because of this particular problem and going back to today’s cash market for commodity canola would be abandoning one of tomorrow’s markets for the comfort of today’s. The problem is, bulk commodity canola production, like all bulk commodity production, is likely to be a low-margin business in the future, and specialized production is likely to be the margin-maker. Somehow farmers have to straddle the two markets.
A similar situation exists in the uproar over new genetically modified (GM) flax varieties being developed at the University of Alberta. Producers and the flax industry – already ravaged by the collapse of European sales this winter because of accidental Triffid traces in shipments of prairie flax – were horrified to find that researchers had applied for open-air field tests this summer. Farmers and industry felt that the market was already wrecked this year by the traces of a 10-year abandoned GM variety that never went into production, so it was insane and suicidal to allow other ones to get out of the lab.
And that makes sense to me. But, after talking to the researcher, I must say I also sympathize with him. And it’s not just because I admire his scientific abilities, but because his innovations in flax – producing flax with fatty acids that are ideal for the South American fish farming industry and for human health promotion – could build lucrative new markets for Canadian-grown flax. The Chilean fish farming industry is desperate for a replacement for the fishmeal it now feeds its farmed salmon. The altered flax oil the researcher is developing could fill this need and get us more trade with Chile. That would be good. And if flax that improves human health can be commercialized, the domestic market could substantially grow and reduce the reliance on Europe.
But between building those new markets and keeping today’s markets is a risky period. How do we keep the Europeans happy with non-GM flax and develop GM varieties to the point at which they can be introduced? Sometime the Europeans are likely to budge on their zero-tolerance for unapproved GM traits, but when? And how long can we hold up the research that will give us tomorrow’s markets? This dangerous gap reminds me, as everything does, of Admiral von Tirpitz’s Danger Zone, which was part of his Risk Theory during the Anglo-German naval race before the First World War.
Tirpitz understood that the nascent German navy, which was nothing when he began building it up, faced a danger zone between when the British realized Tirpitz’s evil designs to challenge the Royal Navy and when he would have enough battleships to make “Copenhagenizing” (pre-emptively sinking) the German fleet too dangerous for the British. He needed to shepherd his fleet through the dangerous waters during the buildup phase and keep it alive until he had the monster he wanted. Then the risk would pass to his opponent.
This is where we’re at, in a stretched-sense, with both the new markets for canola and flax. One, with its present wrinkles for farmers trying to market the crop, runs the danger of choking off its crop suppliers before it can lock down the demanders. (I doubt there’s any real danger of this, but it’s a worry.) The other market runs the risk of being snuffed out if this Canadian-born research doesn’t occur, or moves somewhere else and is incorporated in other nations’ flax varieties.
How do you get around these problems, how do you bridge this gap between present and future market needs? Well, as farmers with the biggest stake in the present and future markets, that’s something you’ve got to work out.
