Value vs. Volume
There’s an old saying that wheat is “13% protein and 87% politics.” What lies in between?
Now and in future, ‘value’ in agriculture and food supply chains is being dictated by:
Environmental impact, from seed to plate;
Nutritional qualities that cannot be seen and don’t count in standard grades;
Social attributes such as working conditions and community impact.
‘Volume’ has become uninteresting to consumers and society – and herein lies the crux of the challenge for modern agriculture and food stakeholders. Every business system operates to maximize volume and minimize unit costs, and it works brilliantly… except at the field level.
Let’s look at some of the drivers behind high-volume crops, in comparison to the impact that productivity growth has had on soil health. The big winners in agribusiness in recent decades (as measured by sales/margin) have mostly dealt in seed, fertilizer, pesticides, handling and transportation.
Seed genetics have played a significant role in steadily growing production volumes. Big yields lead to big handling volumes for the export-focused shippers who dominate handling and transportation businesses. But at the field level, genetically-modified seed is a lot more expensive than farmer-saved seed.
Steady growth in yields has also benefited fertilizer companies, but soils not so much. Anhydrous ammonia – typically the cheapest form of commercial nitrogen fertilizer – was first used to help pack soils under airport tarmacs. It’s unpleasant to work with for the farmer up in the tractor cab applying it, and it kills earthworms in the ground on impact.
Fun with Numbers: The manufacture and trade in commercial fertilizer products (like urea, potash, sulfates and ammonia) is very much an export game, with fewer players even than in agribusiness, and even larger volume transactions. Fertilizer tenders can exceed a million tonnes at a time, which compares to bulk grain trades in the 50,000 metric tonne range.
Terminology: ‘Dockage’ refers to the percentage of a truckload of grain delivered to an elevator that is deducted (valued at zero) by weight in the final payment to the farmer. It’s weed seeds, chaff, broken kernels, stones and mudballs, etc. collected along with the grain during mechanical harvesting of the crop.
Modern pesticides go a long way to reducing the amount of dockage that farmers collect, and that reduces the costs of commercial cleaning. In fact, because trade rules are based on historically higher dockage, companies can even add crap that was removed back into some outbound shipments.
Pesticides create the field conditions for less dockage in grain deliveries, which benefits the farmer through reduced price deductions, and the grain handler through reduced cleaning costs and the transformation of dockage from [worthless] to [the price on the sales contract]. Back in the field, excessive use of pesticides and overly simple rotations have led to herbicide-tolerance in a growing spectrum of weed species… in other words, mutated plants that can’t be controlled with chemicals anymore. These are becoming very expensive problems in commercial grain fields.
The transportation companies that move bulk commodities simply gain business as trading volumes increase. Trucking companies, railways, and ocean vessels have modernized along with the agriculture and food commodity business to accommodate larger shipments, helping to keep grain cheap in global markets.
Soils or Supply Chain?
It is finally starting to sink to people paying attention that the old mantra ‘agriculture feeds the world’ needs a serious rethink. It’s a chase that led to all these negative unpriced externalities and ecological degradation.
We need to back up and ask the basic questions that matter to every human including those running this business of agriculture and food.
How exactly do big export programs serve rural farming communities?
Are we operating on the right side of the commercial tradeoff between healthy soils and supply chain efficiencies?
How and what benefits accrue directly to farmers who grow commodity exports?
To the extent that one’s answer to the above is ‘via price’, the question then becomes, how long until the associated negative externalities are also factored in?
Between now and then, what is the roadmap to restoring natural health in and around croplands and reducing the use of expensive seed, fertilizers, pesticides and offshore markets, to establish a new model of farm profitability?
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Or, just…
Summary
It's not crazy to suggest that some of the old ways of doing agriculture might be worth taking a look at again. For example, Chicago’s C*boe opened a fancy new open outcry trading pit just last year, in response to surging options trading volumes.
Here’s a thought for the lobbyists struggling to maneuver through the growing confusion, tension and resistance to modern agriculture: lay off the gas pedal for a moment in the messaging around volumes and exports. It’s not resonating with the public because of the associated costs to the domestic environment.
Now might be a good time for many of us to re-watch the classic Trading Places. Kinda like Blackberry, it’s a cautionary tale that privileged incumbents should heed, and that the newcomers in agriculture will delight in.