One axiom everyone should keep in mind is this: “Few things are more harmful to one’s life than to know enough to think you’re right but not enough to know you’re wrong.” Any discussions you hear about topics in today’s world such as genetic modification, nutritional value, or climate change that omit the hard facts of the matter are probably political ones and not scientific ones.
In terms of making a profit from growing potatoes, how much do you really know? Do you know what the term “inelastic demand” means? Do you know the effect that “potato market inelastic demand” has on your farm’s profitability?
Inelastic demand is when consumer demand does not change as much as price changes. For example: When price decreases 20 percent and demand increases only 1 percent, demand is said to be inelastic. This situation occurs with a vengeance in the consumer side of fresh potatoes. Put another way: The consumer wants only a certain amount of potatoes, and lowering the price does not result in a commensurate sales increase. The result? When potato supply rises above consumer demand, price (the potato crop’s value) tumbles disproportionately.
Another point—and this observation comes directly from a former buyer for the nation’s largest produce retailer—is that retailers understand inelastic demand and know that the average farmer has no idea what it means, nor how to deal with it. Retailers know that even a slight oversupply of consumer packages will force a reverse auction among farmer-suppliers, enabling the retailer to make great deals at the farmer’s expense. And they do. Why not? Contrarily, a business-oriented potato producer mitigates the threat of inelastic demand on a crop’s value by:
- Holding price by not revealing an oversupplied situation; or
- Not allowing oversupply to happen in the first place.
Any discussion you hear about the value of a potato crop that omits the impact of good supply administration due specifically to the effect inelastic demand has on a potato crop’s value is probably one of an uninformed producer and not that of an informed businessman.