A Lesson from Dr. Seuss in Protecting your Niche

A Lesson from Dr. Seuss in Protecting your Niche

I’ve been fortunate to benefit from the wisdom of great mentors who passed down their knowledge and helped me to learn and develop. But I wasn’t introduced to one of my most enduring sages at either of the fine universities I attended or through my professional exchanges, but rather my pre-school readings. The immortal Dr. Seuss (“‘On Beyond Zebra!” 1955) gave us these wise words on competition:

And Nuh is the letter I use to spell Nutches
Who live in small caves, known as Nitches, for hutches.
These Nutches have troubles, the biggest of which is
The fact there are many more Nutches than Nitches.
Each Nutch in a Nitch knows that some other Nutch
Would like to move into his Nitch very much.
So each Nutch in a Nitch has to watch that small Nitch
Or Nutches who haven’t got Nitches will snitch.

While I presume the good Doctor was primarily relating an ecological parable, I think it is also apt for understanding the importance of protecting your market niche. Specialty crop producers often look to a market niche to generate a fair return on their labours. But committing to any market brings the risk that some other grower/harvester ‘Nutch’ will snitch your Nitch. Without differentiation, a compelling and sustainable low-cost structure, or other means to protect your market share, you may soon see yourself on the outside of the niche/Nitch looking in.

An example of what can happen when you don’t protect you niche can be seen in the production history of North American ginseng (Panax quinquefolius) in British Columbia. Chai Na Ta Corporation, the first commercial grower in the province, established 5 ha in 1982. Thanks in no small part to the dedicated support of a horticultural extension officer in central BC, by 1994 production grew to 130 producers generating 1,100 tonnes of ginseng from 700 ha and with farm receipts of about $78 million (data from Association of Ginseng Growers of BC and Statistics Canada). But things started to go awry in the late 1990s. Ginseng prices peaked in the mid $70s (USD) per kg in 1993 just as most producers were jumping on board. By 1999 prices had fallen to $18 to $25 per kg, which while still nominally high relative to carrots or potatoes, did not cover the very high establishment and production costs.

By 2003 consolidation had reduced the number of BC growers to 30, with a smaller production area but more than double the total annual production to 2,500 tonnes. This larger production volume however, only grossed $45.7 million. Working harder, producing more and making less is not an uncommon situation to many agricultural and forestry operations, but they are not the hallmarks of a sustainable market niche. Rather it looked very much like ginseng was sliding down the slippery commodity slope to profit oblivion.

The general decline of the sector was reflected in Chai Na Ta’s rise and fall. As a publicly traded corporation, filings with security regulators show Chai Na Ta’s net annual earnings grew from $0 in 1982 to more than $6.8 million in 2000. This fell to a net loss of $9.5 million in 2006, and the following year the company discontinued operations.

The industry collectively had fallen into a commodity trap. From it’s onset, North American ginseng was highly dependent (95% +) on export to China via the Hong Kong market place. Producers did little or nothing to add value or differentiate their output from ginseng produced anywhere else in the world. Ginseng was initially a high value commodity that ultimately went bust because the market became saturated with supply. First from other areas in North America (most notably in Ontario and Wisconsin) and then from China. Once the Chinese started growing North American ginseng, their minuscule labour costs, lax environmental standards and general lack of enforced regulations gave them the low-cost production structure that ultimately gave the PRC Nutches ownership of the North American ginseng Nitch.

The few remaining producers are now moving down the path towards creating an identifiable brand for North American ginseng, focusing on adding value to their production rather than trying to market dried roots to processors in China, moving away from high cost artificial shade systems to natural shade agroforestry systems, and marrying their operations with agri-tourism ventures to gain new revenue streams outside of primary production. Restricting production, serving smaller specialty markets and moving from “price takers” in the commodity market to “price setters” of products and services may finally land them the deed to a sustainable Nitch.

AgForInsight RSS feed AgForInsight LinkedIn

© 2009-2017 by George W. Powell. All Rights Reserved.

Terms of Use | Copyright | Privacy