The Profitability Gap

It is a continuing fact that when farm prices increase, input prices rise in lock step

Growth in crop and livestock returns are typically claimed by the value chain on either side of the producer.

Farm price declines rarely equal a like decline in input costs, as the graph below illustrates.

problemgraph

Statistics Canada shows that from 1985 to 2008 Canadian farmers produced $802 billion in agricultural output. Of that $802 billion, farmers were able to retain only $3 billion in net realized farm income.1

Trade in food commodities has exploded from U.S.$13 billion in 2003 to over U.S.$260 billion in 2008.2

Consolidation in both ends of the value chain has reduced competition and further eroded farmers’ influence in the industry.

 

Farmers must have more market power

Input supply companies are largely getting a “free ride” because of a lack of competition.

Several years ago a fertilizer executive was asked why companies were increasing prices, even though their manufacturing costs were not going up. His response was “Because we can.”

There is lots of talk about farmers needing higher market prices, more power in the market place, and how producers need to collaborate with processors and retailers.

Processors and retailers are blamed for all the profitability challenges farmers have, yet the input industry and its escalating prices get away unscathed.

FNA is making a difference

The mere hint of FNA moving into an area has in the past resulted in an immediate, significant reduction in, for example, fertilizer prices for that area.

Another example of FNA’s influence is when FNA negotiated with its suppliers on behalf of Members to introduce Aurora clodinafop grassy weed herbicide at almost half of the going price, resulting in sixty million dollars worth of price reductions over a mere thirty days.

With a strong FNA Member presence in an area, farmers are guaranteed the absolute lowest price, either through FNA sourcing products for Members at cost and undercutting the competition, or through buying from mainstream suppliers, when those suppliers have been forced to drop the price so far that FNA’s suppliers can lower the price no further without losing Members’ money.

 

More Members are required

The FNA farmers’ business alliance is more important now than ever before.

If every producer in Canada was a Member of FNA, manufacturers would have to come to FNA to negotiate prices, as farmers would be the input price setters, not merely price takers.

All that is required to achieve this is to keep growing the Membership, then to maintain it.

“Make no mistake, input supply companies fear the presence and growth of FNA because they see their control over the market slipping away.

An annual FNA Membership is a small price to pay to know that you, together with other farmers, are controlling the agenda on the input side. It’s a small investment to ensure that the typical fertilizer or herbicide company can no longer say, “We’re increasing prices just because we can.”

SOURCES:
1 StatsCan  Cat. No. 21-011-X, Cat. No. 21-010-X

Conference Board of Canada Report, July 2008