Monday, July 10, 2006

Welding adjacent links...

As farmers move into processing with ethanol plants to capture more value, processors may be moving "downchain" to secure commodity supplies. One indication of this business model is showing up in California.
In another new twist, Correia said processors were willing to pay $10,000 to $12,000 per acre for land, regardless of what it has on it, and plant it to tree fruit. Processors, he explained, are consolidating to withstand the pressure they face from retailers.

[More here]
For farmers with low-value crops like corn, this strategy is pretty obvious. For processors of high-value crops (tree fruit) it also makes sense. Walmart has changed the game for all of us. Giant retailers breed in response giant suppliers who trigger the formation of giant farms.

The result is fewer, welded links in the old food chain.


JR said...

I agree that this is will be a huge issue in the future. Clearly, if we are successful in using biotechnology to create higher value crops, the counterbalance to the farmers' negotiating power to claim a share of the value (rather than just a market return for labor and investment) will be the ability of large corporations to simply buy the means of production, hire labor and control the risk of not having access to necessary inputs.

John Phipps said...

There seems to be a delicate balance in the value chain. If your link gets too profitable, look out. Maybe our best bet is to keep our mouth shut when things are going well.

Seriously, if farmers want to prevent this, the best strategy I can see is to own the land. Of course, the buyout process does make some rich ex-farmers, so it's not all downside.