One of the most common pieces of advice given to farmers during times of tight profit margins is to diversify their operations. In other words, find another way to make money. Add livestock. Get an off-farm job.
Michael Gunderson, an agricultural economics professor at Purdue University, thinks there's better advice for farmers trying to bridge the gap to a future with greater long-term economic potential.
"There is one thing that strategy researchers agree on, whether they are consulting companies or academics: Strategy requires focus. Strategy isn't just about what you're going to choose to do; it's about choosing what you're not going to do," he told attendees at the Federal Reserve Bank of Kansas City's annual agriculture symposium.
In other industries and businesses, success comes from intense focus and outcompeting everyone else.
"A farmer, a producer, who is going to focus on generating a million dollars or more for their farming operation, they don't have time for another job. They need to focus exclusively on making that business successful," he says.
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For many farmers, operational excellence means reducing costs as much as possible. The costs associated with growing corn haven't declined as much as costs in other industries, such as producing microchips, and while that means there's economic opportunity, it's also difficult.
"The farmer that's successful on operating cost in the future is a well-educated farmer," he says.
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But, there are two other ways farmers can earn higher profit margins and give their businesses staying power for the long-term: Provide a specialized product or become closer to the consumer.
Producing a specialized crop--like organic blue corn to make tortilla chips, non-GMO soybeans destined for overseas crushing facilities or malting barley for a local brewery--undoubtedly comes with extra costs and labor, but those stringent quality requirements also come with greater revenue and profit potential per acre.
"These aren't necessarily niche markets, and these aren't necessarily small producers," he says, citing the thousands of acres of tomatoes grown for Red Gold, in Indiana.
Another way producers can capture more of the value of the American's food dollar is to build customer intimacy. Gunderson says this includes things like agritourism, community-sponsored agriculture and coordination with local restaurants to highlight a special product.
These ventures come with their own set of challenges, but he's seen producers build successful businesses by selling an experience rather than just a product.
Still, it's not practical for all farmers to get out of the commodity chain.
"I think if we want to have a healthy, vibrant, productive, profitable agriculture in the future, we're always going to have some commodity production," Gunderson says. "But, if that's the only way, we're probably headed to fewer than 100,000 farms. If we have producers who think about these other two value disciplines and how they can compete in the marketplace, there's probably opportunity for them."
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