Do you ever look back, “Those were the good old days?” We all have periods in business when there is a golden age. A period when competition might be reduced, margins are great, demand is strong, and we perhaps assume the good times will roll forever.
Realistically, we know that they don’t.
The Wall Street Journal has a story this week on ride-sharing services drivers from Uber and Lyft facing tougher times. Average monthly driver income fell by nearly half from late 2013 to this spring. At the same time, the number of households receiving income as a driver is twenty times higher in the same period.
Many people become Uber or Lyft drivers to gain secondary income, and the numbers show that they are driving less with the increasing number of drivers, thus earning less income per month. All told, the best time to be an Uber or Lyft driver might have been pre-2018.
This totally makes me think of organic production. Right now could be the real sweet spot for organic producers. As grocers push the product at a premium, an increasing of amount of farmers are considering the production practice to earn extra income on their acres.
Organic food sales are on the rise, according to the Canadian Organic Trade Association. In 2017, 66% of Canadian shoppers purchased organic produce weekly, — a 10% increase over 2016. We know that in the long-term Costco and Walmart are pushing this growth as they combat tight grocer margins in a very competitive market. Limiting options is just one tactic used by grocers to steer you to higher margin options.
For example, I was at Costco last weekend, and I was trying to buy some pasta. Just regular pasta. My options were organic/gluten free chickpea pasta or organic durum pasta. If you like treasure hunts you should go to a Safeway, Sobeys, or Albertson’s and try to find non-organic strawberries or lettuce. It might be there, but you will have to hunt.
As organic production moves from niche to main stream does it shrink producer margins and force us to remember a better time, especially for the early adopters of the production practice?
Look at the example of ag-retail and retail seed margins. As canola has expanded from 13,534,800 acres in 1998 to 22,810,000 in 2018, the seed has become more expensive for the farmers with the addition of traits, seed treatment, and improved genetics, but the margin for the retailer is at all time lows. A gross margin of $10 a bag means more in ROI at $300 per bag than $650 per bag. This margin deterioration has been driven by numerous competitive factors, but I can attest that as canola acres grew its became less enticing to be a canola retailer. I hear the same thing on corn and soybean seed as well.
From Uber and Lyft’s perspective, more drivers means better service for the rider through cheaper fares, shorter wait times, and a higher probability that taxis are used less. The drivers might be seeing it another way.
For organic growers, I wonder if not-so-great times are ahead. Like your favourite Uber driver, extra supply of product doesn’t mean that it will show on your bottom line, which is what really matters back home on the farm no matter what your production method is.