I come from a long line of peasants. Our peasantry commenced in Scotland further back than family records reach. It made its way to New Zealand in the 1800s, and other than a short but glorious period of mayoralty, a spot of war and hosting the king for lunch, we’ve been peasants ever since.
I personally don’t mind being a peasant. After all, there’s lots of us out there.
You’d think there would be strength in numbers. But there’s not, and therein I think lies the problem.
You see, and I know that I don’t need to remind you, we farmers are price takers. The reason we are price takers is that we sell for the most part, raw undifferentiated commodity products into competitive global markets.
When you sell something that is near identical to another person or country’s product, such as beef, it becomes interchangeable at the retail end, and therefore you must accept the prevailing market price if you want to get paid.
This wouldn’t be a problem if there was a large pool of buyers competing for your stuff, but there’s not. Most consumer choices these days are influenced and controlled by a small group of very large international players who hold massive market power.
These companies influence what you grow and ultimately decide how much you get paid. For North American beef growers this is approximately 15 cents for every dollar spent in the supermarket. For New Zealand beef growers, it’s around 12 cents.
Unfortunately, when you don’t add value to a raw commodity you must accept you will only ever get a very low return. This why a coffee grower who works from sunrise to sunset gets less than 3% of the price you pay for a cup of coffee in town.
This is almost exactly the same value share that NZ’s deer farmers receive for products containing deer velvet sold in South Korea.
As we peasants know, this all plays out in our bottom line, and while an industry executive will point out the big dollar figures from agricultures export earnings, this doesn’t actually mean that farmers are doing well financially. Others in the value chain might be, but you probably aren’t.
To highlight this point, in 2018 the average NZ farmer’s return on capital across all farm types was 2.5%. Compare this to the NZ share market, which has returned an average of 6.5% since 1900. And just for some further context, NZ supermarkets trundle along at approx 13%.
Yes, there are farmers on the fringes who do well financially, but they are not the average. And when you lift the average income up, the market adjusts accordingly, meaning the average farmer stays on 2.5%. This is because the market will only pay you just enough to keep you interested.
The final niggly piece of the puzzle is the green bit. When you are financially on the rivet, farmers the world over strive to extract as much from their land resource as they possibly can. This is why many of our rivers are polluted, our wetlands are drained and a good chunk of our hillsides are laying in the creek. We may not like regulation, but this is the reason for it.
So what to do? Can we change the game, wrest back some market power and swap our ploughshares for Range Rovers?
The answer, of course, is yes. I know this because there are farmers doing it already. Whether they are forming co-operatives, or selling directly to their end customers, or adding value to their products to differentiate them in the market, there are a number of options.
But as always, there is no free lunch. All these things require us organising ourselves in different ways, taking on even more than we already are, accepting more risk and even putting in capital already in short supply.
It’s no easy feat, especially when so much industry effort goes into developing our skills for life behind the farm gate. But what if that emphasis was keeping us broke? Imagine if, for every dollar that our industry bodies spent on maximising productivity, we put another dollar into identifying innovative value chains that farmers could be a part of and profit equally from.
Over the following three weeks, Dave Eade, Dan Eb and Phil Weir will flesh out some of the options available to us. Phil will talk about the status quo world of low risk and low return. Dan will talk about the middle path of seeking greater margins through moderate risk and effort, and Dave will dive into the less common high-risk, high-effort strategies that have the potential to turn the game on its ear.
MORE Visit farmersweekly.co.nz to read more about Ben Anderson’s farming journey.