BEYOND THE NUMBERS
'BUSINESS AS USUAL' MAY BE RISKY BUSINESS
by Dave Maaske
Given the tumultuous political and economic events that occurred after the terrorist attacks on 9-11, we could use some good news. Here's the news: The North American agricultural market outlook will remain relatively strong over the next 12 to 18 months, despite the slowing economic growth that began before the events of 9-11.
Knowing our markets will be strong gives us time to settle back and enjoy a good business year. A few aggressive companies, however, will be taking strategic steps to cause their competitors to miss out on that enjoyment. Maybe you should consider a new, challenging strategy.
PLANNING/BUDGETING FOR 2002
This is a time when market leadership, market/profit shares and brand dominance can shift radically. This is due to a rare convergence of (a) a healthy agricultural outlook amid (b) a slow general economy - wounded further by terrorist action and an uncertain global military picture - which creates (c) extremes of corporate reaction, from retrenchment to aggressiveness.
In short, this is a time when traditional market leaders can either stretch their leads or sit tight while aggressive new leaders emerge from the middle of the pack. It is a time to know your customers and make decisions to create value for both your customers' businesses and your own.
In light of 9-11, a strategy of "business as usual" may be the riskiest and least productive strategy of all, because there is nothing "usual" about the opportunities that lie ahead in the agricultural markets, and nothing "usual" about the contextual forces at work.
The overall U.S. economy is expected to remain in negative territory the early part of this year. However, the aggressive monetary and fiscal policies currently in place - and steps to strengthen homeland security - are expected to result in economic recovery in the second half of 2002.
Dr. Harry Baumes, managing director of DRI-WEFA, says net farm income for 2001 is estimated up $3 billion, to a high of $49 billion. The forecasts suggest this trend will continue well into 2002.
For 2002, U.S. government payments may decline, which will likely result in more income from marketing and less from the government. The outlook for net farm income is flat to down five percent for the calendar year, compared to 2001.
For now, the slow economy means that machine tool, equipment suppliers, freight companies and other general industry firms are willing to take some deep discounts to obtain current business. Now might be the perfect time to invest in higher productivity. It's certainly time to assess your core competencies relative to your competition. Will your competitors be investing to become low-cost producers? Should you?
This is an excellent time for companies serving agriculture to promote their brands' benefits and value creation potential, because many producers are willing to invest in their businesses. Companies with growing customer-based brand equity will likely be rewarded with rising market share as the overall market expands.
MARKET SEGMENTATION/PRODUCT MIX
Companies that truly understand their customers develop product and marketing strategies directed at separate and distinct market segments. In agriculture, the crop or livestock product that is produced, in part, defines the segments. Knowing the economic outlook for these segments will help fine-tune your segmentation strategies and achieve product mix and profitability objectives.
The DRI-WEFA forecasts indicate meat animal cash receipts in the U.S. livestock sector for 2001 likely will be up $1.2 billion when the final figures are in. Dairy products will contribute a whopping $4.6 billion increase over a year earlier. Growth on this scale likely will not be repeated in 2002. On the crop side, almost all sectors were expected to show growth for 2001 - feed crops up $1.4 billion, oil-bearing crops up $700 million and food grains up $100 million. In the longer term - 2002 and beyond - crop cash receipts are expected to continue to increase due to lower global carry-over stocks and relatively strong demand and prices. Acreage planted to major crops in 2002 in the U.S likely will rise based on the current outlook for prices, production costs and farm policy loan rates.
Considering these segments, which of your products will appeal to an increasing, profitable market? Lowest first-cost products may trail in this climate to those offering better long-term value. Think about your strategic brand positioning. What tactical marketing changes will you have to make to take advantage of the new conditions or will you need a whole new strategy? AM
Dave Maaske is a member of the Strategic Services Group at Charleston|Orwig, Hartland, Wis. He serves on the Conference of Business Economists, a Washington, D.C.-based group that meets annually with the Federal Reserve Board.