By Kimberly L. Morgan and Jessica Ryals
In nearly all introductory economics courses, the agricultural industry serves as the primary example of a “perfectly competitive” market structure. In theory, farmers are not able to set prices for their products, and instead “take the price” offered by market buyers. To achieve profitability, a grower works year-round to find ways to reduce costs, such as growing a single crop or renting more land, to take advantage of management expertise and investment in equipment.
Let’s look at the other side of the profit equation to explore opportunities for Florida’s small- and medium-sized farmers to find ways to improve revenues. We can do this by identifying markets where they have some measure of influence on market prices.
We describe markets in which firms may offer their products by setting their own prices as “imperfectly competitive.” Why are markets considered imperfect? What does this mean to farmers and buyers? What are the added costs and benefits related to stepping into imperfect markets?
Successful ventures into imperfect markets are motivated by the farm manager’s decision to intentionally focus on solving the why lurking behind a customer’s buying decision. For example, why do we eat turkey on Thanksgiving, and maybe Christmas, but rarely during the rest of the year? Are there a lack of turkeys at other times of the year? Why can my class of college freshman rattle off the names of more than 10 apple varieties, but struggle to identify which nuts are picked off trees versus harvested from the ground? In this article, we highlight the power of marketing management to communicate and deliver added value to customers, which can result in higher farm revenues.
When farmers find ways to invest in marketing activities, intentionally carve out a targeted segment of buyers, and invest effort in building long-term relationships with customers, they become “defensibly differentiable.” The defensibility results from the ability of the farmer and the customer to nurture this relationship over time. The differentiation is built around the needs and wants unique to the target market and known only to involved parties. Higher profits are driven by tracking the marketing costs and setting prices to capture improved revenues that reflect the value of this shared information.
To make money, farmers need to track customer data because it serves as the market feedback needed to make decisions to build their defensible market strategy. Prices tell the buyer what the farmer has invested in supplying the food and communicate why the food serves as the best choice to meet the buyer’s needs.
The consumers’ actions up to and including the decision to buy the food informs the farmer about why that item is their preferred choice. Armed with this data, the farmer discovers the answers to the economic questions of what to produce, for whom, how much and when. This keeps customers returning to the farmer while also attracting others with similar demands. Empowered with market intelligence, farmers can make annual production and marketing decisions to protect their clients from competitors and cultivate their share of the target market.
Why would a farmer be willing to invest in understanding individual food buyers’ wants and needs and setting their own prices? The food system works the way it does because it has proven to be efficient and effective over time. Keeping up with every person’s tastes and preferences is an impossible task for a single farmer. Identifying a market segment of buyers who are willing and able to spend their food dollars on a specific set of food products requires committed effort and the ability to react quickly in response to dynamic situations and unexpected events.
As experienced farmers know, acquiring the necessary knowledge of market trends to communicate a “price story” requires time, effort, and perhaps, additional risk to the farm business. Added marketing costs and regulatory requirements beyond the farm gate, which include packing, storage, distribution, shipping, etc., must be factored into the pricing strategy.
BUILD CONNECTIONS ONLINE
The key element that is driving opportunities for farmers to compete in imperfect markets is access to relatively cheap technology. Online platforms such as Facebook, YouTube and Instagram are useful to build connections that shrink the distance between farm and customers. Farmers can use these platforms to position their farm story and attract the attention of key influencers.
Farmers can also share their relationships with their extended networks, which capitalizes on their investment in these promotional tools. Once a marketing campaign has begun, marketing managers can collect data generated by social media platforms, internet orders and mobile purchasing apps. This can capture real-time market reactions to messages aimed at communicating the value of product offerings.
The Southwest Florida Fresh (swflfresh.com) website was created by the University of Florida Institute of Food and Agricultural Sciences in response to the devasting impacts of Hurricane Irma (2017), and more recently, the COVID-19 pandemic, on Florida’s southwestern farmers. The platform reduces distribution complexities and provides a regional brand for local producers, while meeting customer expectations for fresh local produce available at convenient venues. With consistent branding aimed at sharing each individual farm story, customers will continue to recognize and seek out your farm products across market outlets.
Imperfect markets offer farmers improved profit margins, driven by the ability to set prices, based on knowing why people buy. Remember, that first customer costs a lot of money and time to attract, and data gathered along the way is valuable information. Long-term profitability for farmers who defensibly differentiate their food offerings is reliant on building loyalty and trust with customers, finding ways to encourage them to spend more at each visit, and incentivizing them to share their experiences with their friends and family networks.