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Markets aren't the problem

Article-Markets aren't the problem

Burt Rutherford Marketing
There are no simple answers to current economic challenges. Whatever the answers are, I’m betting they have more to do with working together to find solutions, rather than lobbing mud at one another.

I’ve been known to cuss a fence post, knowing full well I was the one responsible for setting it crooked or out of line, notching it wrong, driving a staple askew, etc. I’ve never talked to one, though, because their opinions never change.

The same goes for people with closely held beliefs, often founded more on emotion than fact. That’s why there’s little upside in trying to change the minds of folks who believe beef packers are responsible for lower calf prices, narrower cow-calf margins and the gutting of rural America. Whatever comes to light from the current investigation into market reaction following the Tyson plant fire in Kansas, few are likely to change their opinions one way or the other. Besides, that argument misses the point, in my opinion.

Back in the early ’80s, too many agricultural operations were over-leveraged as they sought to get bigger. That happened in the name of overcoming narrowing margins with more volume and increasing economies of scale.

Interest rates were 18% and higher. Operations went bust. Economic pain was prevalent but overshadowed by emotional pain, as ways of life and generational legacies were threatened — and in some cases, shattered.

Farmers drove their tractors to Washington, D.C., demanding change. Others made a statement by crashing tractors into their local banks.

It was the lender’s fault. It was the government’s fault. It was another country’s fault. It had to be somebody’s fault. But, there was no one to blame in particular.

Agriculture at the time was hammered by an assortment of factors, from spiraling inflation to cash-strapped consumers, which encouraged consolidation and concentration. Those in the cattle business were also hamstrung by years and years of declining beef demand.

Factors are different these days, but frustration seems similar as producer attrition continues with further consolidation and rewards for increasing economic efficiency. You likely heard about the hornet’s nest USDA Secretary Sonny Perdue poked at this year’s World Dairy Expo simply by observing that it gets tougher and tougher for small producers to survive the economics of the business.

Some producers weathered the storm back then, of course, just as many thrive today. Strategies are as diverse as the producers employing them. Arguably, and in broad terms, there seem to be a couple of common themes.

First, rather than growing their own operations necessarily, some producers recognized the opportunity to play bigger — reap some of the benefits of economy of scale — through tighter horizontal and vertical cooperation.

Examples include:

  •  feedlots working together to negotiate more favorable pricing terms with packers,
  •  cow-calf producers of all sizes pooling cattle to foster marketing advantages and collective buying power to lower input costs
  •  stocker producers expanding via supplier cooperators. In many cases, a prerequisite likely was diversifying the current definition of the business and how it works.

Next, there often seems to be emphasis on adding value — and more importantly, figuring out how to retrieve more revenue from adding value.

Examples include things as rudimentary as preconditioning calves, as well as things as complex as harnessing genomic selection and advanced reproduction technology aimed at creating calves, and then managing them for specific consumer markets.

There are plenty of threats today, real ones.

For one thing, the cattle industry’s social license has never been under more consumer pressure. That’s why major retailers and their suppliers continue scrambling to document things like animal welfare and environmental sustainability.

Then, there are new and emerging technologies that some believe could forever change food production.

“We are on the cusp of the deepest, fastest, most consequential disruption in food and agricultural production since the first domestication of plants and animals 10,000 years ago,” according to “Rethinking Food and Agriculture 2020-2030,” from a think tank called RethinkX.

The report describes technology now used in commercial food production called precision fermentation, which significantly reduces the cost and raises the quality of manufactured proteins.

There are no simple answers to current economic challenges. Whatever the answers are, I’m betting they have more to do with working together to find solutions — within sectors and as a collective industry — than with wasting time and effort lobbing mud at one another. 

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