When somebody wants to sell you something, they have to talk it up. That’s fair. Everyone knows it’s a basic business principle. They also know the importance of buyer beware. Today, though, there just seems to be so much hype around, especially if you’re talking new ideas for differentiating what your farm produces.
It can be fatal to make the wrong choice. But then, missing out on the next opportunity is costly too. Some ideas really do seem to have a golden future.
Which are gold? And which are lead balloons?
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It’s time to change the question, says Brennan Turner, CEO at FarmLead. “The bottom line is there’s going to be a market for every single type of differentiated agricultural production product. The question is, how big is that market?”
And here’s another poser. How many farmers is there room for? “I’m all for investing and innovating to create new market opportunities, but what it comes back to is the ability to do good market or product research.”
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Also vital, though, is evaluating the research that other people do. Increasingly, value-add entrepreneurs are driving up farm lanes looking for growers to source the raw material for their hot idea.
If they overestimate the size of the market, it’s invariably the supplier (i.e. the farmer) who ends up feeling it.
“It’s simply a supply/demand functionality,” Turner says. “There’s a law of diminishing return: if they only need 50 growers and they sign up 100, there’s going to be some people that are left hanging in the wind. It’s not easy to figure out what is the right size and fit for programs like these.”
Which means farmers are understandably a bit reluctant to sign on because it isn’t easy for them to scope out the market either. Will the premiums pay for the added production costs and any yield penalty? Will the market be viable long-term?
Besides, farmers have also learned that what gets touted as market research may really have been cobbled together with the primary purpose of raising capital and attracting suppliers.
“Everyone is trying to get attention from a venture capitalist or a private equity firm to help finance, and you could argue, subsidize, some of these new consumer goods and food products,” Turner says. “There are upfront costs associated with R&D and consumer research, and a lot of these new products are coming from smaller companies where they don’t have an internal budget to do these things.”
“It’s about them beating their chest to stand out as much as possible. And the things that seem to catch the most attention are the ones that are so much more differentiated, like cellular meat.”
What do you need to ask?
Even so, there is real money to be made when the right idea and the right market come together, especially if that idea meets the ethical, health or environmental preferences of consumers with cash. So what questions do farmers need to ask before deciding whether to take part in a differentiated program?
First, advises Turner, ask where your grain or other commodity is going to end up. Insist on clear information on what sorts of products it is going into, and especially on how many other growers will be contracted.
Also ask to see their consumer research. If you need to, in fact, don’t just ask. Insist. And make sure it’s in black and white so you can check it out independently. A spiel over coffee isn’t good enough.
Assessing the competition is also crucial. “Find out how many other companies are trying to do this,” Turner advises. “Are there 10 companies competing for this sort of program or is it just one or two?”
And think strategically. It may sound ideal to get in on the ground floor, but if that means you’re the ones who have to learn all the hard lessons, it can be a costly introduction.
Also get over the idea that smaller is always better, or that your goal is to be unique in the marketplace. It’s a common — and sometimes fatal — mistake.
“The smaller the market, the more risk there is in terms of liquidity,” Turner says. “If it’s a small program and there are only two or three downstream customers and one of those customers pulls out it can be a pretty significant hit,” Turner says.
“So, that leads to another question: how many downstream customers are participating?”
The reality is some new food products will make it and others won’t. And another reality is that there is clearly a lot money being injected, especially into developing products that strengthen the link between farmer and consumer.
“It’s a net positive,” Turner says. “Everyone is trying to figure out what’s really sticking, what’s working and what messages are the most important, and if farmers are involved in that messaging to the consumer, then I think it’s a win.”
But remember first principles. “Ask what safeguards are in place in case they sign up too many growers and have too much supply,” Turner says. “How are they guaranteeing the premiums that are being offered? And what could prevent them from paying a premium?”
