Costs and profit

[cowman]

I wonder how a big powerful monopoly union is much different than a corporation that has a monopoly? I guess that definitely isn't a free market either?
We lament the fact government doesn't set limits to a monopoly situation in beef packing, but in reality how is education and health care any different?
Don't these powerful unions basically force the government to pass laws that protect their monopoly?
And in reality they have been price gouging as well as they are the only game in town?
I think the whole concept behind Wayne Easters report on agriculture was about increasing market power for primary producers? Or bemoaning the lack of market power?
Aren't Cargill/IBP dealing from a position of market power right now? Aren't the doctors and teachers dealing from a position of market power right now, also?
If farmers had market power they could pretty well do whatever they chose...pretty well like Cargill/IBP and the doctors and teachers?
Would that ever happen? Would a government ever allow it to happen? Well definitely not in Canada where the whole country operates on a policy of exploiting the peasants for a source of cheap food.

[farmers_son]

What you are really talking about is competition. It could be argued that labour unions are a means of employees increasing their bargaining position with their employer. When it comes to increasing their wages they may have created a competitive advantage over if there was no union. The downside is they pay dues.

Cargill and IBP do have market power because of their dominance in their industry. Doctors have market power not only because of the service they provide but because the universities limit how many doctors are graduated creating an artificial shortage.

If we realize the effect of competition is to drive all profit out of an industry then we can understand why the oil companies not to mention Cargill and IBP seek ways to limit competition’s effects on their enterprises.

Farmers have no market power. Another way of describing the primary producer and agriculture is nearly pure competition. We are told and have come to believe that our low returns are a natural result of supply and demand. While supply and demand do work to match production to demand that does not explain why many industries are profitable while primary agriculture is not when they all face supply and demand issues. In the case of Cargill and IBP they are part of the same value chain yet they are more profitable than the producer. Competition does explain how different industries can sustain different levels of profitability whether those industries are the energy industry, the health care industry or primary agriculture. The five forces of competition are:

1) Competitive Rivalry
2) Power of suppliers
3) Power of buyers
4) Threats of substitutes
5) Threat of new entrants.

You can see that these forces are all in play in primary agriculture, explaining our low profitability. Likewise you can see how Cargill and companies like them use these forces to maintain their competitive advantage.

Anyone interested in reading more about the Five Forces there lots of information on the Internet. One good source of information is at:

http://www.quickmba.com/strategy/porter.shtml

[Horse]

It seems quite obvious that those making exorbident wages or profits from the oil sector feel all is well ,but the other 3/4 of the population are footing the bills and no way to recover thier costs,
I wonder how many of thge farmers of today are making thier income from farming and how many are hiding taxes in the farm and pretending to be farmers.

[cowman]

Horse: Do you think you are the landed gentry or something? That the world owes you a living?
Hey if oil is where the money is then get into oil.... if your desire is to make "exorbidant wages or profits"! No one holds a gun to your head and tells you, you have to keep losing money raising crops or cattle?
Everyone makes their own choices in this world? In Alberta you have one hell of a lot more choices than just about everwhere else? I see kids, eighteen, nineteen out hustling, making a buck and getting ahead in a big way...is there any reason any other person can't do that?
There is no reason anyone, in Alberta, can't be successful and share in the wealth!

[farmers_son]

I think Horse has a point. While Cowman is correct in saying that if oil is where the money is then people would be expected to leave agriculture to go seek their fortunes in the oil sector. And certainly we are fortunate to have the oil and gas here close to home in Alberta and Saskatchewan rather than just being on the paying end of the stick.

But after all this is an agricultural discussion site and one would expect the discussions to focus on agricultural issues. I for one still believe that farmers should farm, should be able to earn a decent living and pass the farm down to their children instead of having to sell out to an oil industry executive. The high cost of energy is a very, very serious problem for agriculture throughout all of Canada. The prospect of people having to leave their farms to seek employment off farm because farm returns are not enough to support a family is a serious issue also. It should not have to be that way.

Cowman said “There is no reason anyone, in Alberta, can't be successful and share in the wealth!” That is all fine and good. But who is going to look after the farm? We need agriculture in this country too, not just oil and gas. If we want an agricultural industry then it needs to be profitable too.

[FarmRanger]

Whoa! I agree with you f_s, didn't think that would ever happen! hehe

I think the difficulty lies in finding workable solutions to the problems of low commodity prices and high input costs. We don't want more programs that allow our suppliers and buyers to just skim off any government support we manage to get as farmers.

Countries that have ignored simple market forces have weakened their agriculture industries in the long run, do we want to do the same?

[farmers_son]

Exactly so. Getting a job in the oil patch should not necessarily be the solution for chronic low returns in agriculture. When you refer to simple market forces you are really talking about the five market forces that I mentioned in my earlier post. The answers are there, we just need to accept that change is necessary and that we are capable of change.

[cowman]

farmers son:Who, pray tell is going to be doing all this changing? In case you haven't realized it the farm population is not only shrinking, but is aging very rapidly?
I don't see agriculture producers moving towards any kind of position where they can be "competitive" on any kind of scale like the "health industry" or major corporations. The fact is to be "competitive" you need to be organized or "mobbed up" if you will? I certainly don't see that happening? In fact I would suggest it is a lot worse than it used to be? The farmers groups and co-operative ventures are actually decreasing? Or am I wrong?

[farmers_son]

No you are not wrong. The challenge for producers like ourselves is to marshall our resources in such a way to improve our lot. You are correct to point out that in order for producers to increase their competitiveness they need to come together.

[cowman]

I find it very frustrating when barley prices are worth less than they were thirty years ago and cattle,while improved, are worth a lot less in real dollars than they were 20 years ago.
I don't see farmers moving in any way towards co-operating on anything?
A few small groups trying to establish niche markets that usually fail? I believe everyone one of us has a duty to take care of their interests in the best way they see fit? In the long run this Canadian government isn't going to stand up for us and even try to give us a level playing field to compete.
For an old guy like me it doesn't matter. I am solvent and don't really need to make a profit in agriculture, however the young person does? How can we expect young people to enter agriculture and make a go of it when the profits are either non-existent or so miserly that a job at Macdonalds looks better?
I don't have any solutions...I don't know if there are any? I think we slipped past the point of no return several years ago.
Pretty pessimistic I know.