Can differentiation free farmers from commodity pricing models? Part 2

Aug 1, 2022 | Pest Management

In this blog we will cover differentiation approaches and how to maintain differentiation through the following approaches:

  • New cultivars
  • Newly legalized or deregulated crops
  • Organic and beyond organic production methods
  • Sustainability focused production methods

Differentiation approaches

                Quickly switching production to new cultivars of main crops is a common approach for limited duration differentiation. Typically procured from specialty breeders, new cultivars such as honeynut squash are purchased, brought into a crop rotation, and marketed as a new take on an old standby. This approach, unless all breeding is done in-house, implies that a new cultivar is available to, at the very least, several farms at once, which may seem to negate some potential differentiation benefits. However, this availability and lack of complete uniqueness for new cultivars is actually a benefit to the farms embracing a new cultivar. The market must be informed of a new cultivar, its qualities, and must accept them before the benefits of differentiation can be harnessed, this awareness campaign is much less resource intensive when several farms are pushing the same message.

                Newly legalized or deregulated crops provide a similar differentiation approach to new cultivars. However, for newly legalized or deregulated crops procurement of the crop is not the main speed bump to production at scale. Often entirely new cultivation methods, or significantly adjusted cultivation systems will be required, adding to switching costs for the farmer. Additionally, legalization or deregulation may not occur at a single moment in time, but as we have seen recently may be a slow domino effect over several decades, limiting the geographies that can switch to the new crop. These factors combine to extend the longevity of differentiation and may artificially inflate crop value. This can be a blessing and a curse for a budding industry around a deregulated or legalized crop. Inflated value and high barriers to entry can lead to complacency and inefficient growing methods, which will inevitably snap back harder when the wave of commoditization comes. The farmers who understand these artificial forces from the beginning, however, can gain a significant long term advantage by preparing, and being highly lean and efficient from day one. With the ability to take the hit of heavy commoditization, allowing them to survive the wave and be one of the few left standing in a commoditized industry with drastically fewer competitors. This will result in an accelerated consolidation with the new industry.

                While these first two approaches to differentiation have limited life cycles built in, organic production methods, and beyond organic or no-residue production methods, have already proven to be viable differentiation methods for decades. This naturally makes switching to organic or beyond organic production methods highly favorable, however beside truly effective turnkey systems such as IntraLights, many organic production systems are simply not effective, leading to increased application rates in the case of organic chemical fertilizers and pesticides. These increased application rates combined with the significantly increased cost of these organic chemicals make most farmers hesitant to switch without the ensured efficacy of turkey organic systems like IntraLights.

               Sustainable production methods are the final central approach to differentiation we will discuss here. A switch to sustainable production has many desirable outcomes, not the least of which is differentiation. If we expect societal and governmental trends to continue as they have over the past several decades, we can expect more incentives and regulations to come into play, pushing farmers to sustainable production. We can expect carbon off-set farming to bloom as an industry, and we can expect consumers to vote with their dollars for sustainable production. Similar to foreseeing the lifecycles of differentiation for new cultivars, newly deregulated or legalized crops and organic/beyond organic production methods, farmers who see the writing on the wall and move ahead of the competition to sustainable production will reap the greatest rewards. These farmers will signal to the consumer that they are willing to make the investment that the consumers want to see in sustainable production, generating not only short to mid term differentiation, but for those who capitalize properly on this differentiation, generating long term customer loyalty. These innovated farmers will also be prepared ahead of time for governmental intervention. They will not be left with unusable stocks of banned chemicals, and won’t be scrambling to secure write-offs, they will be ready for them when they arrive.

Maintaining long term differentiation

                Maintaining long term differentiation can be a struggle for large and small farmers alike. As discussed previously the time and expense invested in breeding new and highly differentiated cultivars, or in setting up new and regulated cultivation systems for newly legalized crops, can be quickly lost to commoditization. This quick commoditization may come from weak IP protection, or over saturation of an emerging market. Other differentiation methods which capitalize on social movements, organic or no-residue production, and sustainable approaches, can be significantly stickier while still facing the danger of long term commoditization.

                In the case of differentiation through varying production methods several social movements lead to this approach’s long term viability. Organic food purchases have been rising year over year, with these purchases passing $60 billion USD in 2021. Just a few days ago, from the time of writing, a new study has been published showing that 80% of the population of the USA test positive for glyphosate contamination. The increasing evidence of agrochemical contamination in and on produce, and the correlation to agrochemicals being found within our bodies, is fueling this change in purchasing patterns. Beyond customers increasingly moving toward organic only food production a new movement is growing, beginning in Europe. The no-residue movement is a movement of consumers seeking not only organic food purchases but entirely clean, no-residue produce which is free from any chemical contamination, organic or non-organic.

                The cause for these two movements, which both allow farmers to differentiate their commoditized crops, are closely related to the sustainability differentiation approach. This approach is based not only on the aversion of customers to consuming chemical contaminated produce, but on the general aversion to their use due to correlations to environmental harm. These consumers assume that agrochemical contamination of the environment, through run off and food chain propagation, is causing serious environmental harm, including harming water ways, oceans, and causing the dramatic fall off in insect populations. These customers may also feel concern for farmers and farm workers being repeatedly exposed to highly concentrated agrochemicals.

                These three movements and the differentiation approaches they provide are valuable for farmers across the board. However, if these movements continue to grow, and if their concerns are validated perhaps resulting in more stringent government regulations we can expect the differentiation value to be slowly lost over the coming decades. While several decades of differentiation are nothing to turn your nose up at, ultimately we are seeking generational and long term differentiation to protect farmers and their families’ livelihoods.

                The core requirement to a long term lock-in of differentiation is where branding and marketing coming into play. The early movers are not just those who will first receive the benefits of differentiation and removing commodity pricing models. They are also the farmers who can, if their brand is properly associated in the mind of consumers, command customer loyalty and brand recognition for the long term. The members of organic, no-residue, and sustainability movements are still early adopters of these world views. As such they have a greater respect for farmers who embrace them and provide their desired product. In some cases, the members of these movements view their desire for organic, no-residue, or sustainable produce as a crucial requirement for their personal health and the health of their families. Providing a source of trusted organic, no-residue or sustainable produce, or ideally of all three, will lock in customers for life, and may garner generational loyalty.

                  The best route to claiming all three social movement based differentiation channels is by installing IntraLights as your crop protection system. This allows for an honest and trustworthy claim of no-residue produce, which may encompass organic production methods, as well as promotion of your production methods as sustainably focused and no-residue. Switching to organic production methods without installing IntraLights is a recipe for constant worry and stress. Most chemical based organic pesticides simply cannot provide the efficacy of their non-organic counterparts or of IntraLights. Most organic chemical pesticides cost significantly more than their non-organic counterparts, and as their efficacy is reduced their application rates must be increased, exacerbating the increased costs, and increasing labor costs. IntraLights entirely negate these problems, crop protection treatments from IntraLights are automatically applied every 24 hours, and with the wide range of insects and pathogens targeted by IntraLights, scouting, identification, and manual treatment is a thing of the past. Differentiate your produce today with the most effective, longest lasting differentiation solution, and reverse or stave off commoditization.