Contract Killing
December 8, 2010 There’s an old mariner quote: “Once ashore, we pray no more.” In other words, sailors in dire situations will promise to change their evil ways in exchange for salvation, but only until they are rescued.
I heard this saying quoted recently listening to a National Public Radio report discussing what lessons U.S. financial institutions have learned from the credit crisis of 2008 and 2009. Basically, the analyst being interviewed was saying that, after being rescued by the government bailout, most financial institutions have returned to their shortsighted, pre-crisis ways.
Sadly, I think many ag retailers suffer from this same shortsightedness. This seems to be particularly true when it comes to fertilizer contracts.
I remember, almost two years ago now, sitting down with several fertilizer industry insiders and retailers at the Missouri Agribusiness Association winter meeting. We were there to discuss the future of fertilizer wholesaling and retailing following the rollercoaster ride of price hikes and crashes that occurred in 2008. The question on everyone’s mind was the same — how can our industry avoid this kind of financial meltdown in the future?
Bill Jackson of AgriServices of Brunswick perhaps summed the industry’s predicament up best. “We’ve been a handshake industry forever, but many of the customers in 2008 that bought high didn’t want to pay high,” said Jackson. “So that obviously has to change.”
Later in 2009 at the Agricultural Retailers Association (ARA) meeting, J. Stephen Lucas of Jayhawker Consulting, came to the same conclusion. “I’m horrified that people buy and sell stuff without contracts,” said Lucas. “Sure, you can view your grower-customer as friends and good old buddies, until there’s a $100 per ton difference in the fertilizer price. Then, without a formal contract in place, you may find out that grower-customer isn’t such a good old guy after all.”
The takeaway from this was that ag retailers needed to begin using formal contracts with their fertilizer customers. To this end, ARA introduced an industry document earlier this year.
Given these facts, I put a question on our annual CropLife 100 survey asking retailers if they now use formal contracts for their fertilizer sales. Naturally, I expected the majority of respondents to say that this practice was now standard operating procedure for their outlets.
Not quite. Only 5% said they’ve always use contracts, with another 40% saying that they have started to use them in the past few years. But the remaining 55% are not using fertilizer contracts regularly, with 36% responding that they have “never” used them.
It seems as if retailers, coming off a very profitable year in 2010, feel our industry is safely ashore and the praying to change our ways can stop.
In my mind, all this calls to mind another famous quote: “Those who do not remember the past are condemned to repeat it.” I pray I’m wrong.
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