Canadian ag business icon Art Froehlich sums it up in just four words. “The market never lies,” says Froehlich who farms and also acts as chair and director on a long list of prominent businesses, organizations and charities. “You may not like what the market is telling you, but the customer never lies.”
To most farmers, marketing means pricing your crops and livestock. But pricing is only one component of marketing, and today, with our processors, elevators and farms all getting more specialized, gathering and evaluating market information may be our most critical marketing function.
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That’s a change for agriculture. Instead of looking at what the customer wants, the strategy that has paid at the farm level has been to simply concentrate on increasing production.
The challenges — which are very real — are to find what kinds of information can actually make a difference to your success, and then to figure out how to act based on what you know.
Froehlich is committed to that process. “Sometimes the customer may be wrong,” he agrees. “But the customer always has a right to go elsewhere.
“As we move from being commodity producers to producers of products,” Froehlich continues, “we have to dig deeper to determine what it is the customer actually wants.”
The rewards for growers who modify their production to meet customer wishes can be significant. For example, Michigan fruit growers have always produced enough apples to meet the needs of the state. In spite of this, a few years ago consumers began switching to imported apples, driving down the prices Michigan apple growers received.
While some orchard owners simply attributed the lower prices to the law of supply and demand, Stephen Harsh at the University of Michigan reports that other, more entrepreneurial apple producers talked to retailers and consumers and discovered that consumers were buying imported apples because they wanted a sweeter apple than those traditionally grown in Michigan.
These apple growers then started growing Honey Crisp, a new, sweeter apple, and now they are successfully marketing this specialty apple for twice the price of the imported apples that had taken their market.
According to Harsh, most farmers continue to grow crops which they have traditionally grown regardless of the demands from consumers. However, very successful growers are always searching for ways of producing a product rather than a commodity so they can extract a premium from the marketplace.
“Farmers need information flow from consumers,” Harsh concludes. “They have to open communication channels. They have to develop information networks, and not just with the local buyer but on a global scale.”
Information versus data
Most farmers will argue they already have lots of information. They spend a lot of time collecting and working with production and financial numbers for their operation. Most growers follow crop prices on a daily basis and many subscribe to a market service. An increasing number of growers are also hiring consultants or market advisory services.
Michigan’s Harsh fears they’re making a fundamental error. “Producers are awash in data but lack good information,” he says. “Data is raw facts. But
data has to be processed and transformed into usable information.”
He compares the quality of many market reports to the numbers that pour out of your combine yield monitor. They aren’t really useful unless you put them into a detailed perspective.
Information is unique
Harsh recommends a new way to think about it: “The real dollar value of information is the value of the changes you make based on the information less the cost of the collection of the data.”
Still, even collection of the best available data and top-notch analysis of that data is no guarantee that the information that is generated from the data will be beneficial.
In January 2009, market analysts for the federal and Alberta governments and the province’s crop insurance program met to set price outlooks for major Alberta crops. It’s a critical step with a lot of money riding on it. Based on their outlooks, farmers can then buy price insurance that pays out if market prices in the following fall drop more than 10 per cent below the price level announced in the spring.
Alberta producers consider the spring price to be a fairly good indicator of expected fall prices. However, of the 39 crops in the program, the analysts were high with their outlooks on 35, and the commission ended up making payments on 30.
Wheat prices were overestimated by 30 per cent, the spring durum forecast was over 40 per cent higher than the fall price, and the barley price was wrong by more than a third.
If professional analysts can misjudge prices by this much nine months out, what hope does an individual grower have of utilizing market information?
In fact, non-experts may be better able to utilize information in a changing environment than experts. According to the influential book Entrepreneurs and the New Economic Theory, experts tend to be overconfident in their own knowl-
edge, data, and information, and they will ignore signs and information that suggest they may be wrong in their predictions.
Some growers are even creating their own information services. The United Potato Growers of America (UPGA) is such an organization. With no formal price discovery system for potatoes, growers have suffered a roller-coaster of prices and supplies. “Growers were not producing to the demand because growers simply did not know what that demand was,” says Barb Shelley, UPGA communications officer.
Potato growers decided to create their own information system by uniting together as a co-operative. The UPGA collects production, sales and delivery information directly from the member growers. The UPGA also monitors demand. This supply and demand data along with analysis and market information is then made available to all co-op members.
According to Jennifer Bond, economist at the University of California, Davis, using a co-operative model to collect data and information can improve the quality of information. Bond says co-op members are more willing to share production and pricing information with a co-operative which they are a member of.
Most farmers, however, will have to look after their own information quality.
To start, Froehlich recommends establishing a broad base. “Use four or five varied sources of information on which you want to base your management decisions,” he advises. “If possible, find a contrarian point of view. Take your lens off when reviewing data. Everyone has a bias and your bias will impact the quality of information that you develop from the data. Most importantly, growers have to ask more questions.”
Take as hard a look at your marketing information sources as you would at your sources of production information, Michigan’s Harsh adds. “Consider who put the information together. What is the track record of the person or persons presenting the information?” CG
edge, data, and information, and they will ignore signs and information that suggest they may be wrong in their predictions.
Some growers are even creating their own information services. The United Potato Growers of America (UPGA) is such an organization. With no formal price discovery system for potatoes, growers have suffered a roller-coaster of prices and supplies. “Growers were not producing to the demand because growers simply did not know what that demand was,” says Barb Shelley, UPGA communications officer.
Potato growers decided to create their own information system by uniting together as a co-operative. The UPGA collects production, sales and delivery information directly from the member growers. The UPGA also monitors demand. This supply and demand data along with analysis and market information is then made available to all co-op members.
According to Jennifer Bond, economist at the University of California, Davis, using a co-operative model to collect data and information can improve the quality of information. Bond says co-op members are more willing to share production and pricing information with a co-operative which they are a member of.
Most farmers, however, will have to look after their own information quality.
To start, Froehlich recommends establishing a broad base. “Use four or five varied sources of information on which you want to base your management decisions,” he advises. “If possible, find a contrarian point of view. Take your lens off when reviewing data. Everyone has a bias and your bias will impact the quality of information that you develop from the data. Most importantly, growers have to ask more questions.”
Take as hard a look at your marketing information sources as you would at your sources of production information, Michigan’s Harsh adds. “Consider who put the information together. What is the track record of the person or persons presenting the information?” CG
