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Low retail prices can cost more than you expect

A former fertilizer dealer suggests the time and effort you put into finding lower prices on inputs might be better spent focussed on agronomics and marketing.


November 19, 2007
By Helen McMenamin

As input costs rise, any chance to buy fertilizer or chemical at a discount
looks good, but one former fertilizer dealer has some advice on prices.

"If you're buying massive quantities of a product, bulk purchasing may
be worth exploring," says Neil Jorgensen of Lethbridge, Alberta. "But,
for the most part, the savings are a bit like a Soviet shoe sale. The prices
look good, but everybody has to have the same size feet."

Before you go into a buying group, think about your expectations for your local
dealer, Jorgensen advises. As a big purchaser, or as part of a group, you can
buy fuel direct from the refinery and save a little. But, be sure you are completely
self-sufficient and never need emergency help. "The refinery won't deliver
on Christmas Eve when you've run out of fuel. You can't expect the local dealer
to do it either when you're not a regular customer."

Bulk buying affects the local community. The amount you save may not compensate
for the loss of the community and the services that maintain it. The work involved
in a bulk buying group surprises people, says Jorgensen. "Usually, it starts
out as a non-profit venture. The logistics don't seem too onerous, but as the
group grows, things get more complicated. A whole lot of little things build
up."

Jorgensen says that at first, there is hardly any bookkeeping involved. But,
as the group gets bigger and better, gathering the cheques becomes quite a chore.
Then, there is always somebody who needs a pallet and a half of something. Who
moves that half pallet of chemical? Who counts it? Who handles product complaints?
The work involved does not seem like much until the group starts to grow.

If you think ag retailers are making huge profits, Jorgensen asks you to take
a closer look and see how they live. You will likely see they are not getting
rich on your business. "Don't count the equipment he uses in the business,"
he says. "You want that to be reliable and safe – you benefit from
its reliability and accuracy. You want your local dealer to be reasonably well-compensated,
too. If you squeeze too hard, you may not save yourself anything in the long
run."

Farmers often say they would jump at a chance to buy fertilizer at a $20 a
ton saving. And if you can squeeze that sort of saving out of your retailer,
and you are using 150 pounds of product an acre, you are cutting costs by $1.36
an acre.

"You may push your dealer for similar discounts on other inputs, which
may add up to $4 or $5 an acre. But, you've put the retailer in a position where
he's struggling just to survive. If you've cut him down to that sort of margins,
you can't expect any favours. And who knows what you might need at seeding time?"

Focus on more production
The big downside, according to Jorgensen, is that you can spend a lot of time
looking for hot deals when often you can earn more by focussing on what you
can do to increase yields, or more effectively marketing the crop. An extra
bushel or two per acre, that may be easier to get than big discounts on inputs,
can have a huge impact on your bottom line.

"How hard would it be to pick up an extra bushel or so? It doesn't take
massive changes. You just need to get each of many little things as right as
you can to raise yields."

Timeliness can be a key ingredient. Your supplier can help you achieve this
by making sure you are using products correctly and at the right time. "You
need to know what you're giving up while you're searching for the best possible
deal on inputs," says Jorgensen. "The $5 you might save is not that
much, really. The Royal Bank says the difference between farms going forward
and those that are sliding can be as little as half a bushel an acre. But you
need to get that extra half-bushel on every acre, year in and year out."

Jorgensen says that if you really want to save on production costs, do not
seed! Then, you can save on the cost of seed, you do not need fertilizer, pesticides,
seed dressing or any of that expensive stuff. You will not make much money,
but your savings will be huge!

"Why are you farming? To save money or to make money? If you're farming
to make money, make sure your supplier is reasonably well-compensated too, so
he has the motivation and the resources to work with you to maximize your profits."
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