Price-Takers Cannot Be Cost-Takers
Tim Raiswell, Managing Director, Loftus Labs
Summary
- Marketplace Interview: Loftus Labs cofounder, Patrick Smith, discussed the economic effects of the U.S. ag industry's reliance on immigrant labor and H-2A visas.
- Labor Costs & Commodity Industry: Washington apple growers spent 99% of revenue on labor in 2023, underscoring the need for effective cost management in specialty crop agriculture.
- Holistic Cost Models Matter: Effective business cost management starts with precise cost measurement, avoiding broad cuts or "block costing" that can harm business profitability.
- Loftus Labs' Ribbon Platform: Ribbon integrates ETL and analytics into a custom agribusiness model, enabling managers to cut costs and improve performance—like one client's 13% labor cost reduction in 2024.
- Affordable & Powerful: Ribbon is less expensive than other cloud tools like Databricks and Snowflake, with pre-built analytics to help agribusinesses identify performance drivers and roadblocks.
Loftus Labs cofounder and parent company CEO, Patrick Smith, was interviewed on Marketplace yesterday (2025-01-22) about legal immigration and the U.S. ag's reliance on the H-2A visa program. Recording and transcript embedded immediately below.
In the context of labor costs, Pat highlights the challenges of operating in a price-taking commodity industry--apples, in this case. Citing a Northwest Horticultural Council study on Washington apple growers' labor expenses over the past decade, he points to a staggering shift: in 2023, labor consumed 99% of revenue, compared to just 37% in 2013 (detail here). This represents a fundamental transformation in the industry, where competitiveness hinges on how efficiently growers can farm an acre of tree fruit. The issue isn't confined to apples; it extends, to varying degrees, across other labor-intensive specialty crops dependent on immigrant labor.
If you operate in a commodity industry, and want to remain in business long term you do not have a choice: you need to become highly skilled at cost management. Commodity industries re-stack constantly, with cost leaders building stronger balance sheets, outlasting less successful competitors using:
- economies of scale,
- lower input costs, and
- lower overhead costs.
The rise and rise of private-equity ownership in speciality crops is a bet placed by that financial sector that it can bring a unique and deep understanding of cost management to the problem.
Effective managerial cost management rests on several core capabilities, the foremost of which is cost measurement. You can't cut a cost you don't measure or understand. You need a holistic cost model for your agribusinesses, which captures all major cost categories allocated back to your business's profit centers at a level granular enough that permits for skilled managerial intervention. A broad directive to cut fertilizer or pruning labor cost cuts will do more harm than good. "Block costing" in specialty ag tends to mean "cost averaging", where managers divide a ranch-level cost by total bins or acres, which is not nearly precise enough.
While many of the growers we work with at Loftus Labs have cost measurement technologies in place, most of the data they produce is trapped in an app, rendering it much less effective as a cost reduction tool. At Labs, we've developed a data platform--Ribbon--that incorporates data extract-transform-load and analytic technologies into a custom agribusiness data model, which allows agribusiness managers and their teams to learn and adopt cost management strategies quickly and effectively. One of our hop-growing clients was able to reduce total labor costs by 13% for crop year 2024 versus 2023.
Working with Ribbon is less expensive than off-the-shelf data technologies like Databricks, or Snowflake, and the toolset acts as a performance booster for in-house analytics or IT teams. The platform also comes with pre-built analytic models on top of an agribusiness performance framework to help executive teams identify what drives or impedes the performance of their agribusiness.
Get some time with one of our agribusiness analytics experts to learn more via our contact page.
