Michael Porter discusses two basic approaches a business can make its way in the world. The first is to be a high volume/low cost commodity provider; the second is to sell differentiated products, those with one or more attributes that help them stand out in the marketplace and hopefully garner a price premium. Economists sometimes refer to these as being price takers and price makers, respectively.
We see this clearly in agriculture. Many farmers, those who tend to operate on larger scales, produce milk, corn, wheat or other basic commodities which are pooled with those of other producers and sold. Little or not information of how, where or by whom it was grown travels along to end consumers. Indeed, these products are largely homogeneous and interchangeable. No one producer influences the price, they simply sell at the going rate. These producers do very little if any marketing; marketing is done by others, much farther down the supply chain. They gain only a small amount per unit sold and must sell a lot to make a living.
At the other end of the spectrum, many farmers create value by differentiating themselves, offering products with information on where, who and how: local, organic, free range, fair trade, etc. This information needs to be communicated somehow: by promotional material, labels, displays, newsletters, websites, social media, etc. They make money both on production and marketing, capturing both premiums and a larger share of the food dollar.
I made the graphic above as part of a presentation I am doing; I found it both amusing and hopefully instructive. A farmer may choose where they wish to be on that scale – their position in the market place in a sense – by what they like to do and do best. Are they good at/like selling, communicating, interacting with people-implying a need to wear deodorant? Or are they good at and just want to produce, drive the tractor and take care of plants and animals, and leave the marketing to a few phone calls if anything?
I must admit I stole this idea from Chris Fullerton, formerly of Tuscarora Organic Growers and PASA, from a talk many years back. Credit to him, and if anyone knows where he is, say hello and thanks.
Written by: David Conner
Department of Community Development and Applied Economics
University of Vermont