Farm profit's 'chokepoint'

10 May, 2013 02:00 AM

TIM Mazzarol says there are three broad options for the great swathe of Australian farmers struggling with profitability: get bigger, go niche, or collaborate.

Or "get out", the Winthrop Professor of Marketing at the University of Western Australia might have added; except he is analysing what it will take to maintain profitable food and fibre production.

Australian farmers have never been more productive, and the food price index has been rising over the past decade, yet farmer debt is at record levels.

There are a range of factors at play, but Prof. Mazzarol's focus is on the supply chain, specifically on the "supply chain funnel" that is occurring as more of the global food supply is channelled through fewer companies.

There are tens of thousands of producers in Australia, and millions of consumers, but the food and fibre that leaves the farm hits a "chokepoint" between farmer and consumer.

The "choke" takes the form of a relatively few, mostly big companies, often multinationals, that by occupying key positions between farm and plate have taken control of much of the supply chain.

Food marketing that used to be farmer-owned through co-operatives or State governments is now mostly in the hands of global traders.

"These firms and large global buyers now dictate quality and the timing and price of food from producers," Prof. Mazzarol wrote in the online journal, The Conversation.

"Major retailers and buyers will demand more quality and stricter controls over food safety issues. Some will work with small groups of selected, often large scale producers, to supply produce at pre-determined levels of quality, price and delivery times.

"Many smaller farmers will not meet the necessary standards."

Prof. Mazzarol and some colleagues have been investigating how average family farms - agriculture's "middle" - can survive this new trading environment.

The usual path is to get bigger to improve economies of scale, or to focus on higher profitability by selling niche products rather than commodities.

Prof. Mazzarol is contributing to a book that explores another option, the farmer co-operative.

"It's always disappointing to hear people say that co-operatives are an old business model," he said. "They're not - they are becoming a very dynamic model in some countries."

Through the 1980s and 90s, the co-operative model came to be seen as an anachronism in the push for open markets.

In Australia, co-operatives were also handicapped by regulations that favoured corporations, and doubts about the model's longevity surfaced as the shareholders of some prominent agricultural co-ops chose to cash in their investment, stripping co-ops of resources.

But successful "new generation" co-operatives are re-emerging everywhere, evolving alongside the surviving co-ops from another age, like the 60-year-old Murray-Goulburn Co-operative.

There are solar energy co-operatives in Germany, car-sharing co-ops in Sweden, chicken meat co-ops in Greece. The Scottish Agricultural Organisation Society has wrested back the Scottish pork industry from a near-wipeout by Scandinavian and Irish pork imports.

Prof. Mazzarol referred to a study of several European Union agricultural co-operatives found that by aggregating producers into a meaningful scale, investing in their own research and development, and creating desirable producer brands, the co-ops successfully competed with three multinationals that controlled 40-80 per cent of EU markets for the co-ops' products.

The natural companion to ag co-operatives - and sometimes, Prof. Mazzarol said, a necessary one - is a form of co-operative finance.

"An important part of the architecture of what we need to build is 'patient capital' for these agricultural industries," he said.

"I'm sure some people will say that's just rural welfare, but we need to ask some bigger questions. If we just stick to an economic rationalist model and say, 'if farmers aren't big enough they can all go out of business' - well, we might lose more than we anticipate.

"Farming isn’t just about producing food. It's about the communities in our rural areas.

"Co-operatives often have a dual function, to generate economic capital and also to generate social capital in the communities they operate in.

"They aren't just another cartel. They are there to benefit the community."

Date: Newest first | Oldest first


10/05/2013 2:41:37 AM

I'd rather see rural communities supported than more tax dollars thrown at first home buyers to prop up the real estate market.
Michael Croft
10/05/2013 6:20:22 AM

The death of co-ops in Australia is a classic case of divide and rule. We must ask why was this done and who are the winners, because it certainly wasn't farmers or rural Australia.
Michael Croft
10/05/2013 6:56:20 AM

The death of co-ops happened in response to a growing glut of food which turned farmers into price takers. As much as I support collaborative enterprises, farmers, as price takers in a power play, have little choice but to do as market 'forces' dictate - including disbanding co-ops.
Love the country
10/05/2013 7:11:09 AM

With good rains in most of wa wheatbelt, it's going to test the grain marketers again.last time the was good crops in wa, farmers were paid a pittance.yet the ones who mooted the demise of AWB said the competition amongst the buyers would be furious .well, we may be testing there theory again in November.lets watch this space,so far it's 1 zip, farmers lose.
10/05/2013 7:32:03 AM

Farmers have been chasing increased production for decades with ever increasing inputs. Perhaps we should take a step back and look at planning profit into our businesses rather than the production that fills the pockets of those selling the inputs first.
10/05/2013 7:36:51 AM

When interest is your largest cost 'love' it is only a matter of time before a page in the Elders is needed. You can always forward sell. You could have booked some of this year's production at $340/t back in December. Were you too busy whining on Farmonline?
Joe blow
10/05/2013 8:21:23 AM

We've been though this all before in the early 1970s. Corporate farms were going to be the way. Not many of them left. Farmers joining up together. Not many of them left. Better to go share farming or leasing. Not many of them left. Get big or get out. They are now finding tough. The survivors being the highly efficient, tightly run farmers quietly expanding.
10/05/2013 8:29:53 AM

Forward selling....hmmmmm....that worked out well for a lot of people a few years back! Gee wish I had forward sold some for this year, would be working out well considering I'm in need of a rain badly to get the crops in.
Over the Hill
10/05/2013 8:31:59 AM

Any chance that the animal welfare lobby, who are oh so quick to claim “greedy, rich” farmers might be sent a copy of this report to see the “real” world view if farm finance? Not that they really care, they are all about their own agenda without a second thought for the people working 7 days a week to keep food on everyone's table.
Roger Crook
10/05/2013 8:41:22 AM

For those interested in cooperation a good case study is at: Back in 2009 I wrote a paper for an agricultural internet site which is now defunct. Called the Paradox of Profit, it discusses cooperation and my concerns for rural debt, nearly five years ago. Nobody was interested then. Anyone interested now can find my telephone number in white pages. Bayonet Head, Albany.
1 | 2  |  next >


Screen name *
Email address *
Remember me?
Comment *


light grey arrow
I'm one of the people who want marijuana to be legalized, some city have been approved it but
light grey arrow
#blueysmegacarshowandcruise2019 10 years on Daniels Ute will be apart of another massive cause.
light grey arrow
Australia's live animal trade is nothing but a blood stained industry that suits those who