6 September 2002

BUYINGGROUPSOFFERBARGAININGPOWER& ECONOMIESOFSCALE

Time is short, so why waste it? Haggling over input prices can easily erode precious work time. So why not get a buying group to negotiate for you?

Many farms have already realised benefits from such an approach. In the arable and livestock sectors alike, savings of up to 15% are possible which could make the difference between profit and loss.

As farmers grow busier, it seems theres never enough time to drive the best deal. And how can one producer negotiate as good a deal as a buyer representing a hundred? Standing together to strike the best terms makes good sense. That goes for seed, feed, fertiliser, fuel, agrochemicals, spares or any other sundries so essential to running a farm business.

Farming companies have done that for years and extended the same bulk-purchasing philosophy to machinery. Who can afford to ignore the benefits of uniting to exploit their combined purchasing power and economies of scale?

It need not mean losing a trusted trade adviser. Merchants and distributors offer advice as a separately costed service – proving free advice always was an illusion funded by more costly products.

But buying groups are not risk-free. Checking the financial security of a group before and after joining is vital. Cross-checking prices against another source is also worthwhile. And beware rising overheads. As a buying group expands and takes on administration staff, it could pile up overheads similar to a merchant or distributor.

Also it may pay to use an input costs service which compares prices from up to a dozen suppliers. That could help confirm the success of your group or help you find the lowest input costs of all by buying directly from your supplier.

Whatever your purchasing policy, it pays to ask two questions. First, am I getting the best possible deal? And second, if not, what can I do about it?