Economists will tell you when lots of us are competing for a customer’s dollar, the price will fall. In this post, I am going to give you a counter example from Scotland. I am going to show you how we can make jobs and raise wages by co-operating with each other.
Let’s set the stage. Twenty-seven dairy farms who together produced 17 million litres of organic milk a year thought their industry was overcrowded. Prices were falling and it seemed fewer and fewer farmers could make a decent living.
Luckily for them they have good extension services in Scotland and they got some help re-organizing. This is what they did.
To sell their milk only into the organic market where they get higher prices.
- Acknowledged that to deliver fresh milk, end-to-end temperature control and hygiene in a milk supply chain is important and players have to co-operate in a process of give-and-take.
- Noted that like consumers all over the world, Scottish consumers want Scottish milk simply because we all like to know where our food comes from.
- Identified a mid-sized but Scottish dairy, Graham’s who already market organic milk and butter to supermarkets Sainsbury’s Tesco, Waitrose and coffee chain, Starbucks through an organization of 280 full time staff and a fleet of 100 refrigerated vehicles.
- Arranged to supply Graham’s in return for milk pick-ups and level, consistent of supply which was achieved with seasonal pricing.
- Provided dependable support so that Graham’s could develop a branded label to compete with supermarket ‘own labels’.
- In two years, the original 27 farmers achieved a price increase of 20% with a combined value of £7m (USD12m+).
- Demand for organic milk increased possibly due to other factors but partly because it was available consistently and its source was pleasing to consumers.
- The original goal of selling organic milk as organic milk helped achieve consistently higher prices.
- Because Grahams could rely on dependable supply, they were able to take advantage of new opportunities that presented themselves downstream, particularly demand from upscale supermarket Waitrose, and pass the demand back upstream to the farmers.
- Because the farmers, Grahams and the extension advisers had a track record of working together, issues which used to be subject of competitive bargaining could be addressed constructively and creatively.
The super-result: more jobs and a stronger economy
- Consumers have more access to high quality food from a food chain they trust.
- In exchange for being dependable and responsive, the current farmers have moved from believing their livelihoods were risky to better prices and consistent custom.
- The producer has expanded their market and product range and know they could expand again if demand arose.
- The farmers are able to welcome new organic dairy farmers to join the system.
Expand the economy one community at a time
What are the lessons to be learned from Scottish organic milk producers?
If you want to get your part of economy moving again, and I am sure you do, then:
#1 Don’t just think price and simple competition. Think supply chain which means lots of suppliers working with lots of producers and lots of retailers.
#2 Look for junctions where our naïve competition is creating silly inefficiencies.
#3 Use specialists in industry (as opposed to business) management to collect data from the supply chain and balance feedback and confidentiality.
If you mean to be in your business, then be in it. Love it. Shape it. Don’t just try to reap a profit, but work to create the economy that allows us to reap a profit.
One supply chain at a time, at home in our own communities and ‘without waiting for no one.’
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