12/05/05 From auction to contract

12/05/05 From auction to contract

One of the more noticeable trends in agriculture these days has nothing to do with technology, marketing, or research. It has to do with a basic staple & how the producer sells his goods. Producers have noticed in recent years the efforts made by giant corporations like Wal-Mart, McDonalds, and Tyson in reaching out to them. The reaching out is not just a way to say "we want to buy your product". It is also meant to explain how they do business, how the producer can best tailor their products to be bought by their company, and how genuinely supportive they are of agriculture and realize they have to take care of their producers if both of them want to stay in business. Of course, as the power of these corporations grow stronger, so do their ability to command price, and specifications. CRAWFORD: In increasing importance in being able to assure that products are delivered to buyers with desired attributes. For a hog packer, that they get hogs of a uniform weight and size because attributes like that would reduce their processing costs. And U.S.D.A. analyst Jim Crawford says it is this fundamental shift that is dictating the growing number of commodities and raw product sold under contracts, versus the traditional means of cash markets. Produce growers were among the first to experience this change as box stores and retailers began using contracts to guarantee specific products. But now that change appears to be affecting livestock markets as well. Crawford is the author of a study that compares the number of marketing and production contracts from 1969 to today. Thirty-five years ago, only twelve per cent of the value of commodities was sold under contract. As of 2001& CRAWFORD: Marketing and production contracts covered about thirty seven per cent of the total value of production. Almost all hog market transactions are contract based. And fed cattle transactions are also undergoing a greater reliance to contracts. That is a two edged sword in the cattle industry, weighing greater assurance of quality verses a perceived loss of power over larger processors. And Crawford believes the trend towards more contracts will continue. CRAWFORD: We think that it's quite likely that more and more production will be grown under contracts that specify particular quality attributes to the some of the crops or some of the meat products, and that also specify particular shapes or weights for livestock, or they specify particular types of production processes such as those underlying organic production.
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