An increasing and diverse demand, rapid adoption of new technologies, limitations on global agricultural resources, and a society with increasing expectations of agriculture to produce a safe, abundant, affordable — and now "sustainable" — supply of food, fiber, feed, and energy will all shape the future environment for crop producers. In addition, crop producers' ability to generate profits will change with the profitability prospects of input suppliers, customers, competitors, substitutes, and new entrants.

The drivers of change suggest it will be critical for crop producers to be diligent in their pursuit of ever increasing productivity. To meet the demands of a growing global population with limited natural resources and increasing societal requirements, producers will need to continue to increase yields per acre at increased rates. At the margin, total production can be increased by bringing new lands into production, but those available, productive lands are limited. Thus, technology adoption will continue to play a crucial role in enhancing the sector's productivity. The pace with which these technologies are developed and adopted will depend on both the economics of crop production and society’s willingness to accept the new technologies. We believe it is not a matter of if new technologies will be adopted, just a matter of the speed with which they are adopted.

An analysis of Porter's Five Forces that affect profitability indicates that scale efficiencies will continue to be a critical driver of a crop producer’s competitive position. In particular, while customer buying power and input supplier power are not considered to be major deterrents to profitability, inter-firm rivalry and the relative ease of entry into the sector will continue to place pressure on the industry. While competition in the customer segments will keep buyers from significantly influencing the general market, the number of producers in a given crop producing area and the lack of differentiation make bargaining against customers very difficult without significant scale. Bargaining power usually requires some form of scale which allows the amount of product controlled to be significant in the marketplace. This is either done through scale within the operation or formal collaborations with other firms to appear bigger to the marketplace. This may be in the form of cooperatives, partnerships, LLC’s, etc. and may include local, regional, national, and/or international collaborations.

In addition, the competition for limited, available land is fierce, and those producers with greatest efficiency are at a competitive advantage in acquiring those resources. While scale efficiencies normally suggest expansion of the farming operation size, producers will also have to purposefully improve the productivity of the land they manage. This will require the adoption of technologies that allow producers to drive down costs per unit, including a combination of information, biologic and other technologies.

In the future, crop producers likely will also have increased opportunities to differentiate their businesses and commodity production. Synergistic activities including marketing fertilizer from livestock waste, providing services to other producers including grain storage and trucking, and even off-farm employment all could become viable business opportunities. Producers able to meet unique contract specifications or negotiate preferred supplier contracts may ultimately increase their profitability by reducing their reliance on traditional commodity production and markets.

For More Information

Land O’Lakes Member Services Interview with Great Lakes Manufacturing Experts. (2008).

Porter, M.E. (1979, March/April). How Competitive Forces Shape Strategy, Harvard Business Review, 57(2), 137-147.

Porter, M.E. (1980). Competitive Strategy. New York, New York. Free Press.

Porter, M.E. (2008, January). The Five Competitive Forces That Shape Strategy. Harvard Business Review, 86(1), 78-93.

Population Reference Bureau. (2010). World Population Data Sheet. Available online: http://www.prb.org/pdf10/10wpds_eng.pdf.

Rankin, A. (2010). Sustainability Strategies in Agribusiness: Understanding Key Drivers, Objectives, And Actions. Unpublished Thesis. Purdue University.

United States Department of Agriculture, National Agricultural Statistics Service (USDA-NASS). (2007). 2007 Census of Agriculture-United States Data. Available online: http://www.agcensus.usda.gov/Publications/2007/Full_Report/usv1.pdf.

 

Elizabeth A. Bechdol (beth.bechdol@icemiller.com), is Director of Agribusiness Strategies, Ice Miller LLP, Indianapolis, Indiana. Alan Gray (gray@purdue.edu) is Professor Department of Agricultural Economics and Director of the Center for Food and Agribusiness and MS-MBA program, Purdue University, West Lafayette, Indiana. Brent Gloy (bgloy@purdue.edu), Associate Professor Department of Agricultural Economics and Associate Director of Research of the Center for Food and Agricultural Business, Purdue University, West Lafayette, Indiana.