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More to grain marketing than price

Making your product available to customers is likely more important than price over the long-term

Correction: Mar. 6, 2015 – Without a doubt, the biggest fallacy about Canada’s grain producers is that they are good marketers. I would argue instead that few grain growers actually have real marketing expertise, and even fewer actually market what they produce.

Grain producers who have spent many hours or days attending marketing groups, courses, and seminars along with the many farm advisers, brokers, market specialists, and educators who offer them will disagree. So will farmers who are inundated with market information via online sources, from newsletters, subscription services, direct mail, on-air radio broadcasts and even person-to-person contact with buyers, brokers, and advisers.

It’s also true: most growers do follow the “market” closely. Successful farmers understand and probably employ a host of marketing tools including storage, contracting, futures, basis, targets, options and deferred delivery. A percentage of producers even sell and replace the physical commodities with paper under the guise of marketing rather than realizing they are actually making an investment or speculating (which is what such actions actually are, and what they should be evaluated as).

The problem is that nearly all this effort is focused almost entirely on capturing a price. But price is only one part of marketing.

In fact, some business gurus argue that price setting is the least important component of marketing. Your product’s qualities, how you make it available to your customer and how they perceive your product are likely more important than price for long-term profitability.

True marketing consists of ensuring you are offering the consumer the right product, in the right place, at the right time, at the right price. Marketing requires not only the setting of a price, but also understanding and responding to the wants and needs of the customer.

Is your farm business — and is the Canadian agricultural industry — actually offering the right product in the right place at the right time at the right price? How well are we as farmers and as an industry actually marketing what we grow and produce?

Branding commodities

Unfortunately, nearly all Canadian farm production is in undifferentiated commodities. Farmers tend to perceive little difference between a bin of a specific crop that they grow and a bin of the same grain of a neighbour, or of the same crop grown in the U.S., Brazil or Australia, for that matter. Wheat is wheat and corn is corn after all. They are relatively easy to grow worldwide and similar types are used for the same purposes no matter where they are grown or where they are processed.

Unfortunately, producers of undifferentiated commodities have very few marketing tools they can use to compete for sales and market share. In a free and open market with a large number of sellers, price becomes the primary way to market a commodity. As a result, commodities are defined by prices continually trending down because producers not only compete on low prices but also increase production and supply in an attempt to compensate for lower prices.

But growers have another option. Rather than staying on the commodity treadmill and continually chasing prices lower, it is possible to differentiate a commodity.

According to Dave Dolak, a marketing expert from Charlottesville, Virginia, “The answer lies in first identifying or devising ways to create unique attributes and unique promises of value offered solely by you and your product offering.”

That sounds like a mouthful.

When asked if it is possible to do this for a commodity crop such as wheat, Dolak replies: “definitely!” He points to coffee as an example of a crop where companies and countries have used differentiation and branding to increase their market share and price. Columbian coffee and Kona brand coffee have become recognized brands, and consumers look for those labels when purchasing.

Dolak has written a short e-book entitled “How to Brand and Market a Commodity” which gives a step-by-step process that commodity producers, companies, and countries can use to differentiate a commodity and compete for market share on something other than price. The e-book is available through Amazon.com.

“Commodity marketers are often very surprised to learn from customers that price is not the most important factor — let alone the only factor,” Dolak says.

Canadian wheat

A useful case study is Western Canadian wheat. Dr. Rex Newkirk is vice-president of research and innovation at the Canadian International Grains Institute (Cigi) in Winnipeg. He explains that Cigi has been instrumental in the development and maintenance of export markets for Canadian grain for many years by providing buyers of Canadian wheat with technical training on the milling, processing and utilization of that wheat.

Cigi’s work was complemented by the analysis and assurances of wheat quality provided by the Canadian Grain Commission and the identification of market and export opportunities by the Canadian Wheat Board. Together these three organizations created a brand for Western Canadian wheat. That brand identified Canadian wheat as very high quality, safe, clean and wholesome grain, and it assured customers that wheat from Canada would meet or surpass their expectations.

The effort succeeded, Newkirk says. “Canada had a strong brand for its wheat.”

However, the change to the CWB in 2012 has had a negative impact on that brand. There may have been expectations that the private trade would ensure our brand is maintained, but there have been problems. Buyers have reported being disappointed with cleanliness and quality in a number of shipments. They had even bigger concerns with the shipping delays last winter. In a world of just-in-time delivery, our brand was degraded by the inability of companies to deliver on time because of their difficulties in sourcing the specific quality requested by a buyer, rail movement problems, and delays in loading vessels.

In order to rebuild the tarnished wheat brand, Team Canada was developed. Cereals Canada, provincial grain commissions, exporters, and individual farmers are now joining Cigi and CGC in actively marketing all grains. It is hoped by including people from every level of the value chain on trade missions to importing countries, we can assure buyers in those countries of the quality and value of Canadian grains.

Lynn Jacobson, a farmer from Enchant, Alta., took part in the Team Canada mission to Asia last fall. He was very direct in his comments about Canada’s wheat brand. “Over the last few years, no one had been branding Canadian wheat. Canadians had not been making visits to millers and they (the millers) were not happy about this. You cannot sell wheat with just a phone call… Skype is not a face-to-face meeting.”

Adds Jacobson: “U.S. Wheat Associates, the Australians and the Russians are meeting with Asian buyers regularly, and we have to go there too if we are to compete in those markets.”

Even more importantly, it is hoped the Team Canada approach will provide better feedback of what our customers are demanding.

Jacobson brought back an extremely important message for producers. “Millers are now complaining about quality of Canadian wheat,” he reports. “The only advantage Canada has is our wheat’s quality. If we ever go away from quality we will lose markets. If we don’t have quality, even the U.S. market will disappear. We will become a residual seller of wheat if we do not supply what the customer wants.”

As an example, Jacobson notes that buyers have been concerned about the gluten strength of our wheat for the last few years. He notes gluten strength varies between varieties, yet some of the most popular varieties we grow have low gluten strength. Even so, we continue to grow these varieties because of their agronomics and high yields.

The fact that these varieties are not meeting the needs of our customers is feedback that farmers must get and act upon. Jacobson hopes the Team Canada approach will deliver this feedback to farmers.

Canada has worked hard to build a very favourable brand for our wheat. Until recently our wheat could be considered as Perrier compared to tap water. But to maintain that image will take a lot of work, especially by producers.

We cannot expect multinational grain companies to spend money to tell buyers that Canada has the best wheat in the world when they are also trying to sell wheat from other wheat-exporting nations. Branding of wheat ultimately falls on the producer, and it will be the effort that producers put into true marketing that determines whether Canadian wheat maintains its differentiation as the highest quality in the world, or if we lose this positioning to lower-cost producers.

Interestingly, Dolak also points out that countries like China, Korea, and India are increasingly using branding techniques to differentiate and market the commodities that they produce. It would be a real shame if Canada and Canadian producers lose our Canadian wheat brand to other countries because they are better marketers than us.

Make no mistake, using all available pricing tools to lock in a price is a critical, necessary skill for farmers. But this alone is not marketing. As farmers and industry, we must do more to actually market our grains rather than just price them.


The 4 Ps of grain marketing

Business theory breaks the job of marketing into four components, referred to as the Marketing Mix or the 4 Ps. These components are product, place, promotion, and price. any business which does not address all four of these components is setting itself up for failure in the long run.

If you are truly a good marketer you should also be addressing all four of these sectors, and you should be able to answer the following questions for whatever you produce:

Product

  • What does the customer want and need from what I produce?
  • What specific features add value to what I produce?
  • How will the customer use what I produce?
  • What quality or factor is missing or lacking from my production?
  • How is it different than what my competitors are producing?

Place

  • How can a customer see and know what I am producing?
  • How will I deliver what I am producing to the customer?
  • Are there alternative delivery channels to get my production to the customer?
  • Who will be my sales force and how will they meet with the customer?
  • How are my competitors approaching and selling to customers?
  • Can I provide better service or delivery than my competitors?

Promotion

  • How will my production be promoted to customers?
  • When will I promote my production?
  • How do my competitors promote their production?

Price

  • What is my cost of production, delivery, and service to customers?
  • What is the value of my production to my customer?
  • How will my price compare to competitors’?
  • What impact will a small increase or decrease in price have on sales?

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