Procurement strategies of commercial producers
Agricultural producers are facing significantly lower commodity prices and farm incomes, which have resulted in intense pressure to lower their costs.
One way they have sought to do this is through aggressive negotiation on purchased inputs. Much of this negotiation has focused on price. Farmers are asking for and expecting price reductions, but suppliers are hesitant to lower prices. In many cases, these suppliers have laid in inventories at costs that provide little flexibility to reduce prices without dramatically compressing their own margins.
We all know that buying and selling inputs is more than just receiving or offering a lower price. But can we be more specific?
If farmers obtaining agricultural inputs were to use a bid or specification sheet standard in other industries’ procurement approaches, what categories might be included? Maybe it would include some or all of the following:
- Product performance – Effectiveness of the product in enhancing or protecting output (yield, rate of gain) and evidence or documentation supporting the performance claims.
- Product price – Net price including transportation and shipping charges and any service fees.
- Quantity or volume discount – Any price discounts or service fee reductions that depend on quantity purchased or packaging or bundling with the purchase of other inputs.
- Storage, delivery time and conditions – When and how the product will be delivered, storage arrangements and penalties or backup if delays occur.
- Local contact – Name and contact information (cell phone, email, etc.) of the specific person to contact if problems occur in fulfilling the purchase agreement or in the efficacy of the product.
- Application services – Cost and performance specifications including timing of any application or other services.
- Financing terms – Financing or credit terms offered, including cash discounts, interest rates, repayment terms and the approval process.
- Warranty – Performance guarantees and terms of reimbursement for non-performance, including documentation requirements and party responsible for servicing warranty claims.
- Technical documentation – Product performance documentation and details of product specification including quality characteristics.
- Compliant response time and process – Procedure for filing complaints concerning product or service efficacy or effectiveness, including process and time delays in response or resolution.
- Technical support – Availability of technical support to answer questions concerning product performance and efficacy including process to contact technical support personnel.
- Information services – Availability and provider of any information or data analysis services, including fees charged for such services and contact person.
Purdue researchers explored farmers’ input-procurement procedures in the latest iteration of the Large Commercial Producer Project, a study conducted every four years to explore the fundamental attitudes of commercial agricultural producers and how they impact buying decisions.