Newsletter No. 27 – June 2005 Item 1
Contributed by Paul Benson, Ontario, Canada
In any well established industry, the only source of value to participants comes from the end-user of the products. Their purchase dollars pay everyone’s bills and provide the profit due to anyone who participates in providing that product in a professional, customer-focused manner.
There may be short-term opportunities for profit by some participants in the chain prior to the industry reaching a stable, consistent, and productive level, but these opportunities are most likely transitory. For example a breeder market develops, typically using investor capital, until volume production is achieved.
Similarly, there may be “fire sale” pricing as some participants exit the industry and others address production and quality issues. These types of opportunity are unlikely to enhance the value of industry products as seen by the retail customer, and may indeed put them off purchasing (too much uncertainty).
In assessing value, the customer is likely looking for quality, value, consistency and availability of product.
If everyone involved is focused on enhancing final customer value, the customer recognizes it and the size of the industry “pie” grows exponentially.
Problems occur when any one part of the chain operates without providing any additional value, or acts in a way that reduces value. Examples might be aggressive trading of poor quality product and dumping it on unsuspecting customers. Other “value leaks” occur when either availability or quality is unpredictable, or one portion of the chain takes profits disproportionate to their contribution (“starving out” other effective participants).
Examples of these problems abound in agricultural history in many countries and continue today! The challenge lies in learning from them and reducing or avoiding similar practices. The value chain is really only as strong as the weakest link. Overall strength requires partnerships based on mutual respect and understanding.
Delighting your customers and looking out for everyone in the industry is the best policy for building a loyal customer base and growing the industry into a competitive presence in the food production environment.
Concentrate on building you own strengths as professionals in agro-business, but also support your business partners in achieving a win-win result for your customers. The results will repay your efforts handsomely, as the ultimate value delivered grows exponentially, and your share will reflect that growth.
Good luck with the development of an effective, responsible, and sustainable industry!