Consumers typically see the price for a commodity at the marketplace. But, what we don’t see is how prices fluctuate through the supply chain. Price volatility is a major concern among agricultural producers. Researchers like myself, working with regulators and farming groups, want to promote long-term sustainable practices that may be beneficial to the environment and business overtime. But, price volatility in short term creates stress, anxiety and a barrier to the adoption of long-term sustainable practices.
Here’s a good example. When production of a commodity increases typically marketing delivers the message to consumers and more consumers balance out the supply with a consistent demand. However, when another influence enters the marketplace such as a new regulation, a food safety scare or a new supply comes online prices can drop at both the farmgate and wholesale levels.
On the other hand, where you and I buy food at the retail level such as the supermarket, health food store or restaurant, we often don’t see a comparable drop in prices. Why? Well for the retailer there is an opportunity for a profit. Also, another motivation for retailers to avoid changing the price is to maintain the image of the product in the consumer’s mind.
Think about this scenario. If a bumper crop of almonds in California causes prices to drop and new markets have yet to be established, the farmer receives less. But, chances are the price for almonds will not decrease at your supermarket because of the opportunity for profit and the undesirable circumstances to decrease the value of almonds in the consumer’s mind. The end result can be producers are left with low prices and with less confidence to see into the long-term.
We hear a fair bit about sustainable agriculture and its importance to the environment, our well-being and rural economies. As a researcher and agronomist, I am often faced with the reality of understanding the science while trying to incorporate the approach into the reality of a farming operation. Consumers need to see barriers such as price volatility in order to be a partner in the future of food and agriculture.
What other parts of the agriculture and food chain do consumers like you want to see? Leave your comment below.
I wonder if consumers would consider insurance to guarantee prices.
We are harvesting wheat. We bought insurance to guarantee yield from natural disasters. We also forward contracted sales at above the expected breakeven price for the insured yield.
Due to hail, we are harvesting less than 50% and will be unable to meet the contract. As a result, we are now hoping the price of wheat will fall so that we limit the cost of the wheat we are unable to deliver.
Imagine the family thinking that hard about groceries and trying hedge their budget. It won’t happen. They will worry but also feel they cannot budget to reduce risk in this area.
All of this makes sense. But human nature is selfish and will always be a struggle. A business also has no conscience other than to make money. So, decisions will always be made to optimize profit and nothing else. The only way around it is to eliminate the middleman. And therein lies the struggle. Farmers need to concentrate on farming which is what they do unbelievably well. Marketing their product is a whole other enterprise that really comes down to having the financing. Multiple generation farms have the manpower and intelligence to develop their own packing houses or food stands to market their product. It’s not unlike having 2,000 acres of corn and deciding you also want to start a business for installing drain tile. Similar but very different. If an independent third party set up a packing house, then you have the middleman issue again. At least with family, you don’t have the middleman and hopefully everyone is working for the coming good. You just have the fun family dynamics and generational issues!
CSAs do a great job of communicating the realities of ag to consumers, but I suppose only a tiny fraction of a percent of consumers are exposed to them. All the foodies up here in upstate NY learned a lot about late blight last summer when we had a year without tomatoes!
Hi Matt. Thanks for the comment. You’re so right. CSAs are a great way for consumers to connect with the realities that producers face. I believe more and more people want to be exposed to CSAs and agriculture in general. I hope you continue to read this blog and others like it. I’ll be sure to take a look at your blog and others blogs to gain insight into other perspectives.