The Problem

North American farmers are receiving inadequate returns on the land, labour, capital and management they invest in their operations. If we compare net farm income to total farm equity we quickly see that farmers could do better investing in almost anything else and receive higher returns.

Three lessons from history are clear and must influence the way we challenge the marketplace:

As the value of the land increases the farmer is confronted with an important investment decision. If the farmer sells the land and invest the proceeds, will his returns be significantly greater? In most cases, the answer is yes. While increased commodity prices do contribute to increased current income, by factoring in the increasing land prices they also erode the value of capital return.

Then, we see that as farm commodity prices rise, farm input costs rise to consume a larger share of the value created by the farmer. We may “feel” great that we are receiving prices of $2.00 where we were previously receiving $1.00. We may continue to be happy that, of the new $1.00, 60 cents goes to increased input costs, because we are left with 40 cents more than we had before. However, the financial reality is that if we used the same resources in different economic activities we would retain more, in some cases almost all, of the revenue growth for our own families.

Despite the predictions of the past 30 years that farm product prices will always rise, the truth has been that prices also decrease. As demand increases production is ramped up through new technologies and from regions of the world that were previously not a significant factor in world supply. For example, China is building massive farms in Africa and new land is coming under production in Brazil and Eurasia. Better technology is increasing yields in all producing countries as farmers chase the more-bushels strategy to increase revenue.

Farm commodity prices will always retreat from highs. It is only a question of when and by how much. A big part of the economic problem is that farm input costs never retreat as much as farm commodity prices – or at all. This has been the driving force of consolidation and bursts of farm bankruptcies for half a century.

The Solution

GFA’s strategies, on behalf of our members, are created to form permanent structural changes to the business environment. From reducing input costs to providing the means to capture more value from the supply chain — only by building a farm business alliance will there be any lasting solution.

No individual farmer or small group of farmers can command the market power required to sustain the systemic forces required – regardless how large their individual operations. It is necessary to make systemic changes to properly reward the land, labor, capital and management invested by farmers.

The solution will not come from our governments. The amount of governmental power that would need to be exercised would challenge our independence and wreck the industry in the process. This is our industry and our responsibility, as allies, to shape the way we do business.

The only viable solution is building the farm business alliance with the clear purpose of maximizing farm profitability on all fronts.

Unlike compulsory systems around the world where organizations or governments are able to mandate participation and obtain government financing, GFA built a dynamic business alliance that farmers employ voluntarily. This fundamental farmer-choice impelling a private business to focus on Member profitability drives GFA to ever higher levels of achievement and distinguishes it as a unique business model.

It is GFA, focused on building the farm business alliance which makes literally all the other successes possible. It is critical that Members understand that building the business alliance is a core purpose in and of itself.

When we become a Member, and later renew our membership, we are not buying crop protection productions, nor purchasing oil, nor getting a discount at EMCO or a fantastic reduced premium on our farm insurance. In fact GFA does not sell any of those things – or anything other than the Membership. So when we become a Member, we are not buying products. We are building the farm business alliance.

That is the decision we have each made that makes possible continuing and future gains in profitability.

It is easy to say things like:

The power of partnership
Many farmers can achieve together what none can achieve alone
Power in numbers turns into market power

It is easy to say those things. It is sometimes not so easy for us to genuinely appreciate the practical meaning and the powerful purpose that exists by simply participating in GFA.

The history of big breakthroughs, in things likes glyphosate or ivermectin or grassy weed herbicides; these things are merely examples of what we achieve in building the business alliance, how we can multiply our MarketPower to achieve real change from suppliers. None of them by themselves are the reason to participate in GFA.

Encouraging new businesses to create competition for our input dollars or leveraging our volume for stronger rebates such as with NAPA Auto Parts, or to give us an equity stake in the supply chain like ProjectN, these are not by themselves the purpose of membership in GFA.

All of those things are the products of our joint effort. We become members of GFA to build the farm business alliance and in building the alliance we create the basis for more and more opportunities to maximize farm profitability. By building the farm business alliance we are also creating the necessary pre-conditions to maximize profitability on the outputs side – the marketing and trading of our farm products.

GFA is the key farm business strategy for each of us in confronting and managing input costs going forward, and developing information, marketing and management tools to lift the returns on the land, labour, capital and management we invest in agriculture.

So GFA’s role is primarily about building and managing relationships at the farm level, negotiating advantageous terms with suppliers to provide products and services to our farms, developing the foundations for new profitability opportunities, and providing independent information that contributes to maximizing each of our individual profitability.

GFA does not manufacture, sell, store or otherwise handle any products other than Memberships and information. Instead GFA negotiates the availability of products through many different suppliers. When possible and not prohibitively expensive, GFA may also coordinate access to suppliers for Members so that Members do not have to go through multiple contacts to multiple suppliers to access a given list of products. For example you can access most suppliers through the online Member Value Portal on the web site either bySuppliername.

GFA acts as a management partner for each Member’s farm operation, always available for use as much or as little as he or she wishes.

On the input side of the equation, it is GFA’s role to help Members buy well, and to buy profitably. This is primarily achieved by negotiating access for Members to bottom-line benefits in all key input areas from crop protection to veterinary supplies

This includes working with many existing suppliers, and encouraging entirely new opportunities, more options, greater convenience and, in many input categories, much more competitive pricing — that is, lower costs and maximum profit.

GFA’s work with farm input suppliers has resulted in a continually available and growing “product inventory,” numbering in the thousands for its Members who work more than 20 million acres of land of every farm type. And this product inventory continues to grow rapidly from many different suppliers.

This work has brought farmers hundreds of millions of dollars in additional profit they would not otherwise have realized.

On the outputs side, GFA’s role is to develop strategies and active projects to increase the price Members receive on their production and to ensure they retain a higher proportion of the value of their products. Or, to sell well and sell profitably.

Throughout the value chain, GFA works with suppliers to find efficiencies in logistics, administration, marketing and other variables that also impact farm profitability. This efficiencies can include reducing or eliminating costly steps in the general retail system. For example, by creating critical masses of Members ordering from the suppliers in the same geography, we reduce the suppliers’ logistics cost which translates into a better price for us on the farm. By receiving direct-to-farm-delivery we not only enjoy the convenience and time-saving of not having to haul our inputs from retailers on our own trucks, but also eliminate the suppliers’ need for intermediate warehousing and the multiple handling and transport steps involved in the general system. Therefore we create efficiencies in the entire system as individual farmers acting in a business alliance and we gain real advantages for our effort.

A more research oriented but important example has been the work GFA has done to understand the grain handling, marketing and transportation system so efficiencies can be identified.

Finally, and increasingly importantly, GFA is working diligently to negotiate arrangements and create systems to ensure Members have access to the best information to operate our farms with technical expertise and best business practices. As well, we want GFA to provide us with market information and competitor intelligence to increase our market power and allow us to easily make quicker and better decisions.