WHILE other people know a lot more about the country's recent stoush with China on barley than me, I want to talk more generally about the risks of relying on a limited number of customers.
There are times where a concentrated market outlet is the correct business decision, and can be quite lucrative. But the risk is always there, and it can go pear shaped if that market is lost.
Therefore, you should always have a contingency plan in place.
Some agribusiness producers have niche markets. Normally the relationship with the customer has been built up over many years, and other producers would really like to have the same opportunity.
Though the agribusiness owners in this category that I know, all have a Plan B, and are acutely aware of the risks.
For example, contracts for beef with the big supermarkets are hard to come by and tightly held. These types of arrangements are classic examples of building up the connection, and demonstrating a track record of supply within specifications.
I also deal with some viticultural businesses that have contracts with certain wineries, and these have generally served them well across the years.
Some agribusinesses choose to have multiple enterprises, while others concentrate in one area.
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For instance, there are those that have a grazing and cropping operation, and others that run a 100 per cent cropping system. Neither are automatically right or wrong, it comes down to personal choice and economics.
Capital outlay and ease of management also plays a big part in this decision.
But it can go wrong for the agribusiness owner if they deliver a product (such as grain or livestock) and the buyer doesn't pay.
The numbers can get a bit scary if this happens, as many primary producers receive their income in very large chunks, and delays can be quite stressful and have other economic implications.
If a purchaser goes into liquidation, this normally sets off a series of dominoes, and affects many businesses in the supply chain.
To give some level of protection in these circumstances, an astute agribusiness owner would register their security interest on the Personal Property Security Register.
Done properly, this elevates the debt above the level of the unsecured creditor, and improves the chances of recovering a higher percentage of any outstanding debt.
There have been articles written on the PPSR previously in the Stock Journal, and there are some commercial lawyers in SA that are all over this subject matter.
Choice is a good thing, and some people relish the opportunity to grow a specialised market, while others are content with a more commoditised approach.
It comes down to whatever works best for the business.
As long as the producer is aware of the inherent risks with a particular marketing approach, is able to mitigate the risks as best they can, and are aware of possible ramifications, that is all that matters.
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