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Friday, July 27, 2012

Is the customer always right?

I don't think I've ever mentioned that I am a member of the Rural Leadership North Dakota Class V.  We're a diverse group of leaders from across the state working together on leadership development, community building, and issues.  (My issue is local food...I know you're shocked.)

By virtue of my membership in this group, I have had a lot of doors opened to me that I wouldn't have had otherwise.  Does anyone remember the meetings?

At the end of June, our group traveled to Minneapolis to explore regional agriculture issues, import/export, and finance.  While there we had the opportunity to meet with the executive team from AgriBank.  Like I said, doors were opened...the WHOLE executive team met with us and discussed agricultural trends and issues.

On of the issues presented was the topic of hog production.  One of the vice presidents shared that projections indicate hog producers can expect to break even prices up to $5 per head profit on each pig for 2012.  An article in Dakota Farmer verifies this information with a $4 per head projection.  You read that correctly:  $4 per head.  This is compared to $14 per head profit hog producers enjoyed in 2011.  So in just one year, hog producers are, at best, making a third of what they made just a year ago.

This news came just after the restaurant chain Cracker Barrel announced it wanted to source pork from systems that do not use gestation crates.  (A gestation crate is where a pregnant female pig is kept until she gives birth.  She cannot turn around nor is she with other pigs.)  Cracker Barrel is not the first company to make such an announcement, neither will they be the last.

As we left AgriBank, I sat next to a pork producing friend of mine.  We've known each other 25 years and grew up together in 4H and FFA.  We don't agree on everything, but we can always have a good discussion!  I asked him the following question:
"We're at a time where pork producers are struggling to make a profit, any profit, even just $4 per pig.  If Cracker Barrel and other companies, at the urging of their customers, are asking for pork to be produced a certain way and are willing to pay a premium for it, shouldn't we as producers oblige those customers?  Isn't it in our best interest to respond to what customers are asking of us?  At $4 per head, what is our bargaining point?"

We talked about the expense of implementing group systems rather than the individual crates.  We talked about price increases to consumers that might drive down consumption.  All real concerns.

I'll be honest, we direct market all of our products.  We know exactly who are customers are and what they want.  They tell us and we listen.  For example:  I like big chickens (and I cannot lie, you other brothers can't deny---sorry, I couldn't help myself).  At least 4 pounds, preferably 5.  But guess what?  Very few of our customers do!  They want smaller chickens.  We have one customer that orders 80 chickens and she doesn't want them more than 3 pounds.  And she gets them, because that is what my customers want.

Why can't all of us as producers listen to our customers?  We're so busy trying to tell them why we have to do it a certain way, we forget to ask them what they really want.

Well, in the case of Cracker Barrel and others, our customers are telling us.  And we need to listen.  After all, isn't the customer always right?




P.S.  I've got more thoughts on this subject that I'll share next week...stay tuned!



2 comments:

  1. The customer might (and I stress might) be always right if 1) they understand what they are asking for and 2) are able to grasp the fact that if producers do what they ask that prices will go up because changes cost money. Do the customers at Cracker Barrel and everywhere else really understand WHY crates are used for sows? Or do they just say "oh no, that poor pig!" So while I don't overtly disagree with you, I think that the population doesn't understand - or really cares to understand for that matter - the real consequences of our sometimes ridiculous expectations. That's my two cents. Anna

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  2. The customer really talks with money. A customer that wants what amounts to an entire pasture pen worth of chicken? I'd accomodate her too! If she wanted all of those pieced? I might not be so obliging, unless she wanted to pay for my time to do that, the extra bags, etc. Will customers pay for pork that is going to reflect the restructing costs of refitting the barns, and the increased human labour costs involved? If I'm only going to get $4 on the nose of the hog, I'm not going to be very motivated to add a lot of time or cost to my production model. So the bargaining point will have to be an increased retail price that gets passed back to the producer. That's a big gamble for Cracker Barrel et al - because they have no guarantee that customers will actually buy pork meals if they cost significantly more. If all the former pork eaters suddenly started choosing chicken dishes instead, then the restaurant would order less pork. The producer is then stuck, because he just got a huge loan to refit his barns and hire more workers to manage the sows, and now his buyer is buying less pork. Until the producer can make the paradigm shift in his head to a low input production model, such as the Polyface one (which is supplying a local Chipotle), he will really be put over a barrel on this one.

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