In times of negative margins for farm commodities, smart farm managers turn their thoughts to alternative and niche markets to increase profitability.
And while it makes sense on the individual level to consider those options, it can also inadvertently create a bandwagon effect that eventually undermines the profitability that initially attracts people to those niche markets.
Niche markets are, by definition, small and specialized markets. They are not immune to the laws of supply and demand. A problem results for the industry when enterprising farmers see success in a commodity and gear up production – with no view to the true market potential or the impact on the market of increased production.
I speak from my own experience as a sheep farmer. The sheep industry is very small compared to many other farm commodities in Ontario. It is also perhaps one of the largest niche markets. It is currently returning reasonable positive margins. As a producer in the sheep industry, I worry that it will once again grow at a pace that will swamp demand.
By my calculation, 100 producers entering the industry with family sized operation would increase Ontario lamb production by close to 20 per cent – and return the industry to the overproduction and negative margin days of 2002 to 2007. History shows us that in the 2001 to 2006 period, lamb production expanded by over 20 per cent, and prices dropped to well below the cost of production. It took five years of losses to reduce the provincial flock to sustainable levels and positive margins.
The actions of only 100 producers entering the sheep business could not only be a big disappointment to those 100 producers, but could also destroy the margins of the existing 4,000 producers.
I’ve learned, over time, that it is in my best interests as a sheep farmer to encourage profitability in other commodities. If other commodities are not profitable, then some of those producers will migrate into my commodity and adversely affect my business. That’s part of my personal motivation for ensuring that we have good risk management programs in place for Ontario farmers.
I serve on the board of the Christian Farmers Federation of Ontario, and we have been active members in a coalition that is developing a comprehensive risk management plan. Such a program would help bring stability to many facets of Ontario agriculture and would be good News for both large commodity producers and those who produce for niche markets. If we can all work together, we can all prosper.
