The Superiority Illusion in Agrochemical Purchasing
Last month we revealed stark variations in UK ag chem prices, with some farms paying as much as 55% more than others on a single product.
This week we explore what this means at an individual farm level, and why farmers are likely to overestimate how well they purchase.
“We thought we were getting good prices, we were wrong.”
First, the methodology: we offer a service to digitise farm invoices and benchmark the data across our database – the largest real-time source of data in the UK.
From this, our users receive a Buying Score reflecting where they sit in the market. 10/10 is the best price in the market, 1/10 is the worst price in the market. This gives us a quick proxy for how well a farm is buying overall.
But here’s an interesting fact:
4 in 5 farms registering for price check expect to score 8/10 or higher.
In reality, only 1 in 10 farms achieve this.
There is an effect in psychology called Illusionary Superiority, also known as the Above-Average Effect.
Out of 10, where would you rate your driving skills, relative to the rest of the population? The vast majority of people would say 7 or higher. Even though the average is logically 5/10! It is a proven bias of human nature to overestimate our own abilities, especially where a subjective judgement is required.
Illusionary Superiority is particularly acute where there is poor information or standards of comparison.
The parallel? The lack of price information in today’s ag chem market encourages the vast majority of farmers to overrate their own purchasing. This is reinforced by suppliers and buying groups who go to great lengths to assure they are supplying at the cheapest price – “but don’t you dare share our prices!!”
Don’t just believe – check the data.
The Devil is in the Detail
We analysed the average farm portfolio on Yagro Price Check. The result, only 20% of your products are at the best price in the market. This leaves 80% of your products where you are overpaying! Further still, 19% of your products are likely to be the worst price in the market. And with price spreads of up to 55% per product, that’s a lot of money left on the table.
By moving all of a farm’s portfolio to a 10/10 score, we have found savings opportunities up to £44 / Ha.
The best buyers we’ve seen on Price Check also face this spread, but skewed towards the best prices. But even from a score of 8/10, there is a lot of money to be reclaimed from your supplier.
This type of portfolio pricing is dominant in many retail settings. Your supermarket will entice you with promotions on select brand items, but make very high margins from regular staples you might never think of challenging. Sound familiar?
And the common approach to benchmarking today is to check your total line in the accounts: how much did you spend on insecticide? And herbicide? Analysing at this level hides a multitude of sins for you supplier.
So what can you do?
For the buyer, it is critical to check each and every product and transaction, rather than relying on a sample of products. Your supplier will know where you are not checking, and ramp up prices accordingly.
It is perfectly possible for the farm manager, armed with the right information, to achieve a 10/10 across the board following negotiation.
But who has the time, or information, for such an analysis?
Yagro Price Check gives you the tool and information to achieve this in a simple, hassle-free way. We provide you with a detailed analysis of each and every product you have bought in the season, and point you to the areas of key savings to make an immediate impact on your farm’s profitability.