Does Agriculture have an Agricultural Economics Problem?

I’m beginning to think that the agricultural community has an agricultural economics problem. I’ve come to this position following the news about Earls herehere, and here, and the Canadian agricultural industry’s response.

They’ve even begun to disparage the last bastion of purity, marketing. I guess marketing is only good when the label is promoting Canadian products? Many in the industry are touting the benefits of marketing when the object being marketed supports their prior position.  For example, McDonald’s Canada promotes their products by stating that they use 100% Canadian beef.  Marketing. They also promote McDonald’s working with producer groups on sustainable beef, which they hope to begin sourcing from certified (there’s that word again) Canadian farms in the near future. That’s marketing as well. Go figure.

Even politicians, who would think based on their prior policy positions would be grasping the free market with both invisible hands, have recently turned protectionist. Free trade deals only mean so much, I guess. The Premier of Saskatchewan, the Hon. Brad Wall, has recently suggested that Canadian consumers should support Canadian farmers and stop going to Earls.  Many management scholars would disagree with the Hon. Mr. Wall and the Hon. Mr. Ritz, however. I’m reminded of a quote by Peter Drucker, who famously stated,  “Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”  You can read more about the importance of marketing in that socialist rag Forbes here.

As I see it, the problem lies in the fact that few in the industry (or at least the ones with the megaphones) do not seem to have taken an agricultural economics course. Maybe they have and they failed it. Maybe they did well in the course(s)and just forgot all of the information. I can’t tell the difference from where I sit.

To be clear, I’m of the belief that free markets work. Given information, and a little entrepreneurial spirit, different value chains emerge to meet the needs of a differing set of consumers and consumer preferences. When a firm or industry attempts to market a homogeneous product to heterogeneous consumers, there are several consumers who needs are not perfectly met. Sometimes that is the most efficient outcome.  Sometimes it is not.

The issue over Earls and the histrionic response from the Canadian agricultural industry, has led me to believe that a brief review of some key economic concepts may be in order.  I am outlining these in the form of questions; some I have added further questions to, some I have not.

  1. If you do the math and the cost to get verified isn’t worth the premium gained from getting verified, then don’t get verified. But also don’t complain when other outlets choose to purchase from a verified supplier.
  2. If the answer to (1) is no, should different value chains be encouraged to develop to more appropriately meet the needs of consumers?
    • This acknowledges the fact that different value chains marketing to different consumers are not, in fact, directly competing with each other.
    • If a consumer wants an organic product, for example, they are not going to purchase a non-organic product, no matter how much it is stated that they are equally safe/healthy/etc.  Don’t worry about it.  Move on.
    • If it upsets you that a private company went to another supplier to find a product that more closely met their need (verification), then get verified and win back the customer.
  3. Does agriculture think that all consumers should value all attributes in the food they consume in the same way?
    • Should all steaks be mandated to be served well done? If not, why not?
    • Are all wheat varieties created equal?
      • Why is it that utility functions based on soil type and weather patterns are valid, but those based on processes and perceived ethical differences are not valid
  4. Does agriculture think that food service firms are in business to serve agriculture or the customer?
    • Does agriculture understand that their customer is, in fact, Earls.  If your customer leaves you, should you yell and scream and vent on Twitter, or should you examine your business model to see if there are ways you can adapt to meet these needs.
  5. Does agriculture know that there is, in Canada, certified humane beef from Canada.  It is sold in Sobey’s under the Aspen Ridge (R) brand.  Perhaps Earls inquired about the ability of Aspen Ridge to be a supplier, I do not know. I don’t think Premier Wall knows either.  Perhaps Aspen Ridge did not have the capacity after their contract with Sobey’s to meet Earls needs.
  6. Does agriculture understand that an unverified standard is just that, unverified. Just because a code of practice exists, does not mean that every producer has read it cover-to-cover and could pass a test on it. Conversely, not being certified does not mean that farms do not abide by these practices. It just means that they are not certified.
    • Would a rancher pay more for a certified bull or just a bull where the owner said, ‘trust me, he’s a fertile one’?
    • Would a certified public accountant be able to charge more than a non certified accountant? Why do we have all these CPAs running around, I wonder?
    • Would a certified financial planner be able to charge more for their services than an individual who stated they know everything there is to know about financial planning? They took the same classes and everything…
  7. Does agriculture know that we live in a demand pull world.  A supply push mentality may not always work. It may work sometimes, but perhaps not every time.
  8. Does agriculture know that antibiotic-free process standards do, in fact, allow for therapeutic treatments in livestock. Most often, these animals are treated and then moved into a conventional value chain. What it does mean, and what agriculture is good at misleading the public on (ahem, Mr. Ritz) is the use of ionophores and other feed additives that, as antibiotics, treat bloat, acidosis, etc. and help with weight gain. Again, if the cost/benefit from using these safe tools is greater than the benefit of not using and marketing through a different channel, than stay with conventional production. However, let’s not try to bully other Canadian (and U.S., N.Z., Australian, wherever) farmers who choose a different practice and market for their beef system.
    •  This does not mean that farmers cannot use these tools. It may mean that marketing options are limited if they are used. Again, if the returns from this system are greater than the returns from a different system, then use the one that makes you the farmer the most money. Go ahead and maximize profits as Milton Friedman intended.
  9. Does agriculture have a problem with marketing? Does agriculture understand that when McDonald’s markets their beef as 100% Canadian, that is in fact, marketing! If beef from other countries is so bad and so unsafe, then I would hope that Mr. Wall and Mr. Ritz would do their best to tear up those free trade deals they were promoting a few months ago.
Advertisements

Author: ericmicheels

Assistant Professor, University of Saskatchewan

4 thoughts on “Does Agriculture have an Agricultural Economics Problem?”

  1. Dear Dr. Eric,
    Could you please write more on how are you thinking of managing and marketing agribusinesses? I have keen interest to know more about that. Being a person from Bangladesh, I can implement your well advised guidance to boost up our Agri businesses.

    1. Dear Dr. Eric,

      I would love to be with you to do research with you though my background is in Mechanical Engineering and in the last semester of EMBA major in Finance at Brac University. I would love to do MS.C in Agriculture economics under your supervision. Because, Bangladesh is mostly dependent on the Agri business as well as RMG. I would be able to contribute to local economy after having vast knowledge by doing research under your supervision.

      Would you please let me know what are the possibilities might be to get the funding?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s