The Price For Profits
June 2, 2011 As I’ve said many times before in this column, ag retailers are, as a group, some of the nicest, most friendly people you could ever want to meet. I was reminded of this fact on a recent visit to several outlets in Northern Kentucky.
At the time of my visit, this area was being hit with some serious rainfall, leading to some of the worst flooding in a generation. While most of these operations were fortunate enough to have kept their facilities above water, many of their grower-customers were not. “We are doing what we can to help them,” said one retailer. “We’ve even sent a few of our folks out to so-and-so’s farm to help stack sandbags.”
As people and neighbors, ag retailers are great folks. But at times, this “good guy” image has seemed to hurt this important segment of the agricultural community, particularly when it comes to making a buck or two.
In this issue of CropLife® magazine, you will find the results of our 15th Precision Ag Adoption Survey. Conducted with Purdue University, this study goes to hundreds of retailers to find out how they are using precision ag technologies in their operations, what technologies they plan to implement in the near future and, most importantly, if they are making any money at all in the process.
It’s on this last point that the industry seems to have a problem. During our 14th Precision Ag Survey in 2009, 43% of those polled felt that they were either covering their fixed and variable precision ag costs or making a profit at it. This year, the percentage is an identical 43% — meaning those retailers that have “figured it out” has stayed the same. Trouble is, precision ag technologies have vastly improved in accuracy and efficiency over the past two years. Why haven’t profits increased?
One of the most telling statements in this year’s report compares precision ag profitability to custom application’s. “None of the components of a precision technology package can come close to the profitability of a traditional custom application service, where over 70% of respondents said their dealerships were at least covering fixed and variable costs or they were making a profit.”
I know when I’ve talked informally with ag retailers about the lack of profitability in precision ag, many of them have said they are afraid to charge too much for these services for fear of “turning off” or “outright losing” customers. Of course, this was the same argument I heard back in 2006, when gas prices were first headed above $4 per gallon. While 99% of CropLife 100 retailers that year said this was negatively impacting their businesses, more than 50% were afraid to pass these costs onto their customers.
To survive in the fast-paced, technology-driven world of 2011, I believe ag retailers will need to not only work with more precision ag practices, but figure out how to make them a profitable part of their businesses. After all being a “good guy” doesn’t mean you can’t be a good businessman as well.
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