What negotiation power do we farmers have when we discuss with our partners?
Well, let’s find out.
With a simple Google search, anyone can find out the cost structure of producing corn, soybean, or other crops.
Let’s compare it with one of the most popular products ever made.
iPhone
If you want to know the production cost of an iPhone, it’s impossible to find accurate data made public by the company.
You will find some calculations made by third parties.
Some say it is around 500 USD to produce an iPhone.
But the actual cost is not disclosed. It’s a secret very well kept by the company. Because from here comes that huge profit.
Why should we farmers be so transparent with our costs while others are not?
In the world we live today, this is a weakness because we don’t have space to negotiate with our suppliers/customers.
In this way, the value created by us farmers is transferred, even if we want it or not, into others’ pockets.
What can we do to overcome this?
Well continue reading and you will find out.
Why knowing the farmer’s cost structure is not fair?
Negotiation power
When a farmer negotiates with a supplier to buy inputs like fertilizers, it is a power imbalance.
I’ll tell you why. As a farmer, I am an open book, and my supplier well knows all my costs.
In contrast, my supplier is entirely opaque or non-transparent. I don’t know anything about his cost structure. Who do you think has more power to negotiate?
The supplier can play the card of a good guy and be generous with us and give us a 5 % discount. But we don’t know that his margin is 200%.
So we as farmers are happy with the discount.
When all my aces are transparent to others, I don’t have any power to negotiate.
It is not an equal partnership
As a supplier representative, maybe you are not the CEO of the company you are working for but…
If you know the cost structure of the product you sell to the farmers, why don’t you share the cost structure with us? In this way, we farmers have the feeling of equal partnership.
We can look at your cost structure and find that the material cost is too high, or the material you use is not good quality. Or the cost of production is too high for this product. And you have to invest in better technology to decrease your production costs. Or some of your equipment needs some upgrades.
When your costs are transparent to us also, we might find out that the price you ask the product you deliver to us, farmers, is too high. Therefore we farmers also have the power to offer you only 35% of the price because that would be fair.
If we see your product’s cost structure, we can show you also how to improve your costs. And you can sell your products at a lower price. And we can both benefit? What do you think?
We have no control over our profit margin
We farmers have a low margin for the products we sell. We usually harvest once per year, not as a factory producing equipment every 30 days. Our capital rotation is 1 per year. Even if we want to increase it to 2, we can’t do it in many cases because of the weather conditions. And in this production cycle, every day is a risk ( storm, drought, floods, and so on). And risk should be compensated by profit.
Meanwhile, many other businesses have the production cycle to 30 days in 1 year; therefore, they rotate the capital 12 times. This higher capital rotation gives them more opportunities to make a profit. I gave you only 3 reasons why knowing the cost structures of farmers is not fair in a world in which everyone keeps these data for themselves in order to:
- have more power to negotiate
- gain more profit from their products
- make sure their risk is rewarded
Keeping this data for ourselves is simply a FAIR GAME.
What do you think?