Back in my days as a banker, a wise man told me the secret to making money. A system, if you will, an economic truth. It comes in four steps and two rules. It goes like this:
- Buy as low as you can.
- Sell as high as you can.
- Do it as often as you can.
- Do it as big as you can.
Rule 1. All four steps are interrelated, any one of them will affect the other three.
Rule 2. You should follow all the steps and all the rules.
I asked the man, "What does this apply to?" He said "Anything and everything." I asked, "Who does this apply to?" He said, "Anybody and everybody." The "you" can be an individual or the industry. I asked, "What's up with this `as you can' part?" He said, "It is both a limit and a challenge to the individual and industry."
It's really no big secret. It's a fairly universal economic truth. Does it apply to your favorite Dow Jones stock performance of late? Does it apply to the housing market and the associated toxic paper? Does it apply to the cart vendor on the streets of New York City? Does it apply to your operation?
Let's dissect this secret as it relates to production agriculture. As producers, you don't really "buy" the item in question as a street vendor or produce buyer would. Or do you? You "buy" seed, fuel, fertilizer, land, machinery, labor, repairs, insurance, taxes, etc. You convert your money, all that stuff, and your hard work into potatoes. For the system to work well, you should buy as low as you can.
The individual "you" searches hard to find the best deal. The "industry you," despite those efforts, ends up buying those goods at the general market price. If you are in the market for diesel, and diesel is generally $5 a gallon, you are probably going to pay somewhere around $5 a gallon. There is a challenge and a limit to "buying as low as you can."
As producers, you sell your production. Individually, you should try to sell as high as you can.
Collectively, despite those efforts, you are going to receive somewhere around the general market price. There is a challenge and a limit to market price.
The "do it as often as you can" part can be a little fuzzy. The street vendor has the choice of going to the marketplace once a week or every day. The grocery store can choose to be open certain hours, certain days, or 24/7. As producers this "often" part is a once a year deal. You have one season to raise one crop. Your annual frequency to the marketplace is exactly one time, unless the weather decides to rough you up and then you didn't even get a full one-time opportunity.
"Do it as big as you can" is a keg of dynamite. Remember the "steps" are interrelated, "you" is both individual and industry, and "as you can" is both a limit and a challenge. The individual "you" is challenged to produce to the best of your abilities but limited to what Mother Nature dishes out. The industry "you" is challenged and limited by what the market dishes out.
The "industry you" must realize the limit of step four because of the interrelationship with the other steps in the system. An imbalance will affect the general market price. And just like not liking $5 diesel, you might not like the market price of "your" potatoes. Despite your best efforts to reduce input costs, they may be more than the market price received. If so, your annual opportunity for success in the marketplace has been wasted.
This system is really quite simple when the four steps are in the right relationship and the rules are followed. Out of balance, the mess is quite complex. "You," both individually and industry have the ability to keep things in balance.
United Potato Growers-that should be you-has the information to make the system work well.