BEING forced to accept the going rate for their produce, irrespective of its quality, is a huge frustration for many farmers.
Penalties for low quality are common, but premiums for high quality are not.
This prompts all sorts of finger pointing and irrational thinking. A common perception is that it makes farmers unique. Some conclude the whole world is against them, with every dollar made by those down the processing and distribution chain at their expense.
In fact, farmers are far from alone on this.
Being a price taker is pretty much normal wherever buyers have difficulty distinguishing between one product and another. Ask a banker about charging a quality premium, for example. The ultimate commodity is money.
And yet it is not inescapable. As the marketing textbooks tell us, there are two options – to be cheap or be different. Thus while most farmers focus on keeping their costs of production down in order to remain competitive, some look for opportunities to stand out.
Efforts to differentiate produce in order to achieve a premium price tend to be more common in other countries than here. You only need to travel 100 kilometres in most of Europe to come across local fruit, vegetables, cheese, wine, smallgoods, meat and other produce claiming to be superior based on regional attributes. Quality, whether express or implied, is integral to this.
In the UK recently I visited a farm that specialises in Swaledale sheep, a shaggy coloured breed from the Lake District. These cost more to shear than their wool is worth and do not grow particularly fast, meaning they are uncompetitive as either wool or meat producers. The farm overcomes this by selling the meat as Swaledale mutton at premium prices through restaurants and local retailers, along with pictures of the breed and claims that it tastes better.
In Japan, cattle producers in the Kobe region have stolen the high ground from Wagyu producers by positioning their meat as a delicacy, renowned for its flavour, tenderness, and fatty, well-marbled texture. The premium they achieve over ordinary Wagyu beef, which is itself differentiated from ordinary beef, is remarkable.
Organic food is also an example of premium differentiation. Those who consume organic food have convinced themselves, rightly or not, that it offers certain benefits. Those who produce organic food are therefore able to charge a higher price.
Some beef producers in Australia sell their meat directly to restaurants. While the benefit of this is mostly a result of cutting out the middle man, some restaurants go further by promoting the merits of the cattle and their environment. Cattle with pretty faces raised on lush green paddocks, they suggest, produce nicer steak. Just as McDonalds can charge more for its Angus burger, it gives them a reason to charge a premium price.
Farmers markets are another avenue by which producers can be paid for quality. Whether it is having the biggest, juiciest apples or the best environmental fairy story, all it requires is plausibility.
All of this reinforces the point that objective quality is not enough to ensure a premium price.
The buyer, whether a consumer, processor or middle man, needs to recognise and appreciate the quality. If higher quality is valuable to a processor or can be conveyed to consumers, a premium is at least a possibility. But if a laboratory test is needed to confirm it, you need a good story. And you can’t assume anyone else will tell it for you.
David Leyonhjelm has been an agribusiness consultant for 25 years. He may be contacted at email@example.com