Boerenbond, together with its newly elected board members and members, is thinking about the future of agriculture and horticulture in Flanders within 20 years. Interactive sessions are planned in November to discuss sectoral/business economic themes.
Good business economics – read: sufficient income – is necessary to be able to meet other challenges and therefore be able to change. This week we listen to Xavier Gellynck, professor of agricultural economics and agro-marketing at Ghent University.
Professor Gellynck, how do you view our contemporary sector?
“There is a great diversity among agricultural companies. There are many companies today that are largely dependent on the support measures they benefit from. That is also the main reason why there are still so many of us. Without those support measures, the market would have done its work very differently. The sector also has approximately 2 to 5 percent ‘leavers’ every year and in recent years we have had a lot of privateers on the coast who like to use agricultural land. This can be for industrial or private purposes, but it is also increasingly for nature. In recent years we have been asking ourselves questions about agricultural land that is bought up with taxpayers’ money at exuberantly high prices. So we have a government that, on the one hand, is phasing out support and on the other hand is also active on the agricultural land market.”
How would you describe today’s farmer as an entrepreneur?
“If we look back a few decades, it was originally the son or daughter who was least talented at further education who continued to work at the company and then took over. Today we find ourselves in a completely opposite situation. Now it is precisely the person who has received the most substantiated training who will take the step. This of course has to do with the fact that business operations have become much more complex and require a different form of management. Today we need talented business leaders who want to demonstrate entrepreneurship and do so in a substantiated manner. In the past, in the field of alternatives such as home sales or farm tourism, people often acted based on gut feeling. Nowadays we also see that those who have thought about it carefully and developed a solid business plan are the most successful.”
What do you expect in the coming years?
“I think we can expect a lot from technological tools in the future. I personally believe very strongly in the story of precision agriculture, which should encourage farmers to organize and manage things more efficiently. I am mainly talking about the ratio between costs and revenues. The technology will allow production more efficiently and with fewer additives. I am of course thinking of high energy costs, but also of expensive fertilizers and crop protection products. The more expertly this is handled, the higher the yield we will get from this at the lowest possible cost.”
It no longer just comes down to hard and a lot of work?
“Hard work and long hours are indeed not always a guarantee of a good result. In the past, things could sometimes be straightened out with a lot of extra work, but today a lot more than that is needed. Today we need talented business leaders who want to demonstrate entrepreneurship and do so in a substantiated manner. Everything starts with our farmers. Today, our food industry is the most important manufacturing industry we still have. That is something to cherish and of very great strategic importance.”
What do you think is good market information to base yourself on?
“Market information is of course company-related. If we strive for general transparency, there are often many parties who drop out. We have seen this, among other things, in the context of the chain consultation. If you bring people to a table with conflicting interests, you have the wrong approach from the start. One side wants high prices, the other side wants low prices. There are certain things where we need each other and where we depend on each other anyway. A win-win situation can be created there.”
Does that result in a correct price?
“Perhaps in those win-win situations, but I don’t really believe in the concept of fair or fair prices. What price is that? The price of the company that produces in the most efficient and performant way or is it the price of the small farmer who is also a contractor? Because if you take the latter price, you can speak of cheating the consumer and you are more likely to work with unfair prices. As always, the truth may lie somewhere in the middle.”
How do you think we can get as close as possible to that middle price?
“It makes no difference if you are in the agricultural sector, supplying or processing sector. It is important as a company that you develop a business model in which you make decisive choices. If you, as a small agricultural company, choose a supermarket as a partner, you must be very aware of the choice you make and the consequences it has. If you choose a different model, this will of course have different consequences and require different management. That is very important to consider in the first place. Just because you produce something doesn’t automatically give you the right to get a cost-covering price for it. That’s not the way the market works. You must ensure that you create value for your customer, the end consumer who has to put the money on the table. The value you provide must at least be equal to the value of the money the consumer pays for it. Of course, this value would preferably be transcended, because only then will you have a good relationship with each other and you can work on the future.”
You didn’t see the chain consultation working, but what does have a chance of success?
“The general transparency that I just talked about. You can more likely find this at a level where you do not traditionally sit around the table with just your customer, but rather enter into discussions with multiple parties. This provides a better insight into the problems that each of those parties faces in daily management. I remember initiatives where we brought together the agricultural sector with the processing sector and wholesale distribution. I was impressed that, after the first fifteen minutes of swearing and reproaching, it quickly turned into a meaningful discussion. Everyone left the table afterwards with new insights and much more understanding of each other’s situation. In this way, a relationship can be formed in which you rely on each other’s qualities and capabilities.”
Even with wholesale distribution?
“The finger is indeed often pointed, but that is not always justified. You should just look at their annual accounts. The results they achieve are also nothing to shout about. We see it, for example, at Jumbo, which wanted to open 75 new stores in Belgium per year. There is currently even earlier talk of closing shops again. The other players in the chain don’t have it that simple either. We must of course ensure that if something goes wrong in that chain and the food industry is presented with the bill, that the bill is not automatically passed on to the agricultural sector. That may have happened too often in the past. Agriculture is in a weak position there, namely at the tip of the whiplash effect. That’s where you feel the whiplash the hardest anyway.”
How can we avoid that?
“By making each other much more dependent on each other. Much more than systematically offering the counterparty the opportunity to switch suppliers. As an agricultural sector, we are guilty of this all too often. We’re going to knock on the door and ask them if they want to take our pigs. If the buyer says he is not interested, the next one will soon be at the door. When the third party comes to the door, the buyer can set the price so low that he can almost certainly no longer make a loss. That is of course not a healthy situation. We need to work together much more and concentrate our supply.”
Can such collaboration also bring innovation to individual companies?
“I sometimes find it indignant that agricultural companies join forces with their biggest competitors. By that I mean those who make exactly the same product as themselves. In any case, no one in such groups is going to reveal anything. You would have to be crazy to start sharing your own trade secrets with your direct competitors. I think that in terms of learning effects, farmers can benefit much more from looking beyond the wall to other sectors or even other countries. If you can pick up interesting things there and integrate them into your business operations, then you are being innovative and can develop a competitive advantage. Don’t misunderstand me here, there is certainly a continuing role for trade unions and interest defense, but not when it comes to business operations. For me, that is the responsibility of the individual company.”
Finally, what do you see as an important point of attention for the future?
“Something that we may not have paid sufficient attention to in the past, but which will become more and more prominent in the coming decades, is the story surrounding sustainability. In this regard, a lot will be asked and even demanded of the economy as a whole in the coming years. Of course, the agricultural sector is also in the front row. The time of ‘window dressing’ is over, people are increasingly looking at the bare figures to demonstrate how they work. The financial sector will play a very important role in this in the coming period. Simply providing loans is no longer an option. It will have to be clearly demonstrated that sufficient sustainable action is being taken. The other sectors will follow that example.”
Thank you for your time and expert explanation professor!
Source: Tom Dewanckele.