Market-driven agribusiness

Even though farmers now total only about 2 per cent of the population, by most measures they are a very important part of the Canadian economy. They utilize billions of dollars of net assets to produce raw material for thousands of different consumer goods. However, changes are under way, which mean that the small, independent farmer no longer is the centre of the food chain.
These days, most farmers are weak links in the food industry; instead they are currently like production engineers for supermarkets and food manufacturers. The latter two, rather than farmers, increasingly are deciding what is grown on the land.
Family farms more and more have come to resemble a big business. They need to have a multi-year strategic plan, computerized cost-accounting, and try to act like marketing executives.
If a farm whose main product is, perhaps corn, that is a commodity to which it could add little value. Corn prices have soared as increasing amounts are being diverted to ethanol, but still it is a cyclical commodity. Farmers have diversified to other items where demand has snowballed.
There are several trends in the food market that farmers should appreciate. Families spend less time preparing meals. To save time they want processed food that can be put in a microwave oven. With higher incomes, customers have become more quality conscious. Travel, multiculturalism, and television have made the public more willing to experiment with something other than "the same old thing." Also, the public has become more health conscious, ordering more fruits and vegetables grown organically, and people want more "natural" or "light" products.
Those moves are likely to assume more importance because then farmer will be better able to control their exposure to the unpredictable fortunes of commodity markets. Farmers thus must start producing food that meets precise consumer requirements.
At the same time, the food business has evolved for food processors and retailers who are calling the tune. For those who want to supply food to restaurant chains, an altered approach is needed to meet their continually expanding market. Too, if a restaurant chain wants a certain product, such as large potatoes delivered every Monday, only a big farm would be able to sell to a supermarket.
Similarly, if a McDonald’s, with its thousands of restaurants, needs huge quantities of milk, no independent, small dairy farmer can compete for that business.
Some restaurants form exclusive contracts with suppliers, and thus are involved directly in food production. So, large farms may have arrangements with, say, tomato growers to furnish massive quantities promptly and on time. Factories may need maybe as many as 1,000 pigs a day, pretty much shutting out small farmers. Bakers may want guarantees against grain shortages or even higher prices. Only vast organizations can fulfill those demands.
Obviously, market-driven agribusinesses are replacing the small farmers.

Bruce Whitestone