A new type of agriculture is emerging that will increasingly distinguish its members from old-style “commodity agriculture.”
Last week, at the National Agricultural Bankers Conference in St. Louis, at least three speakers mentioned the growing chasm between “value-added agriculture” and “commodity-based agriculture.” These speakers saw value-added agriculture as the wave of the future, and encouraged the bankers in attendance to promote it with their farm clients.
Former U.S. Secretary of Agriculture Dan Glickman said the traditional viewpoint in agriculture, particularly in row-crop agriculture, has been: “If we grow it, they will buy it.” But those days are over. In the future, “if the consumer wants it, we will grow it, and we will meet their specifications and demands,” he added.
“We are in a much more consumer-driven society,” Glickman said. “The consumer is king and queen in this world.”
As a result, farmers will increasingly look at growing crops or raising livestock with specific consumer attributes. For instance, enhanced vitamin A rice. Or, plants with pharmaceutical qualities.
On the meat side, livestock producers will be told to produce according to certain specifications. For example, Safeway Foods recently developed its own meat processing plant, Future Beef. Future Beef will supply all of the beef that goes into Safeway Stores, said Vern Pierce, beef and dairy economist at the University of Missouri.
“Who’s going to make the decisions in this organization?” Pierce asked. “The CEO of Safeway Foods.” And, the CEO of Safeway Foods will take his cues from the retail consumer.
Livestock producers can either meet the companies’ specifications or find themselves at the whims of the commodity markets. Chances are, they will find the commodity markets are much less lucrative, financially.
In commodity-based agriculture, it’s “the business law of the jungle,” said David Kohl, agricultural economist at Virginia Tech and a well-known speaker in agricultural circles. Producers who sell to commodity markets are on a constant treadmill to reduce their overhead in order to preserve any form of profit margin.
Value-added agriculture, on the other hand, is an opportunity for producers to increase their profit margins by growing a product that is in high demand or possesses certain attributes.