Create a Sustainable Competitive Advantage

Competitive advantage can be defined as an advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition. There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support. 

Most farmers are not in the position to find an advantage in the first two ways. Most farmers can change their production and marketing systems and increasing numbers of farmers are producing new crops and new products and experimenting with alternative marketing methods.

A competitive advantage is almost always short-lived. The nature of the market is such that only the innovators, the first ones to take the risks, are going to profit. As others learn how to produce that new crop or enter that new market, competition will drive prices down and profits will disappear.

Niche marketing—selecting a specific group of consumers and targeting them in your marketing effort—is a system that farmers are hearing about more and more. We discuss niche marketing in greater detail below. For many farmers, the niche approach has paid off. But, just as we see organics going from niche to mainstream, any profits from a niche will gradually compete away as others notice it. Unless you are fortunate enough—very unlikely!—to be the only one who can fill that niche, your profits will decline. The process of finding and filling niches is ongoing, not a one-time event.

Success in the short run requires producing a high-quality product or service, working to increase sales and cut costs, diversifying to reduce risk, and finding niche markets where the added value of your product can be realised in higher prices.

Success, in the long run, requires all of the above, plus the added advantage that comes from whatever it is about your operation that cannot be copied or can only be copied with great difficulty or expense. For example, focusing on your location will attract buyers who want to "buy local." Tell the story of your farm—no one else will have quite the same story.

However, there is a growing need for farmers to become market-oriented. In other words: find out first what the market most likely wants and try to produce according to market specifications/demands. Reasons are that consumers have specific demands on quality, food safety and the social conditions under which the products are grown. After they have gained this knowledge, they will decide to whom and how to sell their product. If they do so, there is a better chance that they will get a better price for the product.

In principle the prices in the market, and so the gross income from crop production is variable and fluctuates from year to year and within the season. The following factors bring about fluctuation:

Figure 1.7: Main ways to add value

It is the task of the farmer to combine and consider all these influences and to try to get the best price. However, the factors that influence price can be divided into factors that can be influenced and factors that cannot be influenced.

Factors that can be directly influenced relate to quality, quantity, timely production, packaging and grading etc. You best influence these factors to your benefit if you know what the market demands in respect of them. Therefore, it is important that farmers should identify the possible markets before they start a crop and find out what the requirements are in terms of quality, quantity, timing and presentation. They have to be sure to grow the right variety for the particular customer. For example, tomatoes can be produced for direct consumption, for processing or for markets with different demands on colour, size, ripeness, etc.

Click here to view a video on the future of farming.

Click here to view a video on organic sustainable farming.