There has been an ongoing discussion in the agricultural sector about whether primary producers (farmers) are price makers or price takers. Due to the dynamics of the food supply chain farmers are very often price takers i.e. they are given a price and they can take it or leave it.
Many economists would suggest that farmers look at becoming price makers i.e. look to, or create, markets where they can demand a premium price or get a higher profit on what they sell. These so-called "niche" markets. The problem is that the premium price is only in place whilst there is a shortfall of supply against demand. The minute that demand equals or exceeds demand the suppliers become price takers again. The brake factor with primary production is that there is often such a huge lag phase between when a farmer decides to change their production methods (e.g. move to organic practices); move to free range from intensive production or vice versa and when they are then physically able to supply the market. This lag phase can vary from months to several years and by this time the market dynamics may have changed completely. There is also the "lemming" phenomenon in a market in that potential suppliers may move to an area where there are deemed to be better financial returns only to see those returns demininished or negated because the market is then oversupplied.
The other brake factor with agriculture is that working capital i.e. the money to buy the inputs such as livestock, feed, seeds, fertilisers, is very often borrowed in the hope that when the final crop is harvested there will be sufficient difference (margin) between the growing costs and the final crop price to pay back the loan and the interest and provide a living for the farmer.
The problems in the UK and indeed Europe with low bulk milk prices (liquid milk direct from the farm) and the viability of farming businesses has been in the news for some time. The EU is actually building up a "butter mountain" by so called intervention. There is currently 83 million kilogrammes of butter that is in storage because it has literally been taken off the market in an effort to maintain current prices. Market intervention is a tool that governments or trading groups can use to influence food prices, but it goes against the principles of "free" global food markets.
There have been many other examples in recent weeks of the weakness at primary production level of the global food supply chain. The US hog (pig) industry has been hit as described by Sox First and the chocolate supply in Ghana. The US government has also being buying pork meat to limit the drop in price to the tune of $151 million and the UK pig industry faced similar problems about eighteen months ago but there was no intervention in the UK market. I wrote quite recently about sugar shortages too. This is a difficult time where the market economics of the food supply chain are really under scruitiny.