To ease some of the fears and anti-market sentiment towards water markets, I decided to step out of the water market and find a story that demonstrates how and why markets work. To achieve this objective, I interviewed the owner and operator of the Double Check Ranch: Paul Schwenneson.
What is the Double Check Ranch?Double Check Ranch is a family ranch (three generations) that raises, processes, and directly markets “beyond organic” grassfed beef in the Tucson/Phoenix area of Southern Arizona.How does this ranch differ from others?We differ in that we are 100% vertically integrated. We raise cattle on native rangeland, finish them on our own irrigated pastures, process them in our own state-inspected packing facility, and directly sell to consumers, grocers, resorts, and restaurants. This means our profits per head are 2-3 times the standard “market” return for an average beef animal. Of course, we have to do at least 2-3 time the work, so it’s not necessarily for everyone, but it’s the way we can see to stay profitable and stay on the land.How do you utilize markets in your business model?Markets are more than a theory for us. Markets are a tangible, physical manifestation; a place where voluntary transactions occur. We attend, in any given week, between 5 and 7 farmers’ markets where we interact directly with people interested in buying our product. We influence them through our “story” and our pricing, they influence us through their desires and preferences. It’s an interesting kind of waltz in which producer and consumer are continually exchanging information and cooperating over each other’s wishes. Our “Markets” are a far cry from the modern, standardized commodity markets for beef in which the producer (and even the consumer) has very little control over the prices (and even the information) being exchanged on any given day. It’s not to say that the average stock sale is bad, it’s simply out of touch because a dozen or more intermediaries lie between the rancher and the steak-eater.What would you consider the strengths of a market-based approach?The strengths of a market-based approach are that scarcities are eliminated by a powerful feedback mechanism that is powered by hundreds/thousands/millions of individual decision makers who react to price signals reverberating through the system. This creates an effectively omniscient “invisible hand” that efficiently allocates resources where they are most valued. It relies on bottom-up empowerment of the individual instead of the top-down imposition of regulation. In our case, a segment of the Tucson/Phoenix population perceived a scarcity in healthy, clean, humane beef that was raised in an ecologically conscious manner. They signaled a willingness to pay 20-30% more for the privilege of feeling secure about their food, looking their producer in the eye, and knowing that it came from a well-managed landscape. Not surprisingly, this demand has motivated a number of additional producers to enter the “direct-marketing game” and the supply of “beyond organic” grassfed beef has skyrocketed in recent months. What was once scarce is now relatively plentiful. How beautiful is that?What would you consider the weaknesses of a market-based approach?The main weakness of a market is that it often creates a perception problem. Markets, by their nature, are organic, fluctuating mechanisms that play havoc with our sense of perspective. Being fundamentally innumerate (as opposed to illiterate), we humans are unable to grasp–let alone trust–this system which often seems to yank the rug out from under us. We see egg prices suddenly jump because of a supply problem somewhere far away and we’re tempted to agree that what we “really need” are price controls or some regulation to make things more “predictable.” We are worried by change, and would sometimes rather see eggs steadily disappear from the market aisles as long as the price remained constant. It’s ironic of course, because a vibrant market always creates more of what is wanted and at a cheaper price, but there’s something sort of self-defeating about markets in which it becomes it’s own worst PR nightmare. Markets get viewed as “unfair”, “overly-competitive,” or even “immoral” because of the necessary variances it produces and we can’t stand unpredictability. That’s was basically Marx’s complaint and it’s one that has resonated with people over the years: even if everyone’s boat is on the rise and life is better than it’s ever been, a wide disparity between wealth and incomes just bugs us and motivates us to take anti-market measures. Those measures are usually self-defeating.How do we overcome these market weaknesses?Try to always strive for perspective and develop “numeracy” as well as literacy. I would define “numeracy” as an ability to read the messages portrayed by numbers, to gain some sense of what the actual effects of things are as opposed to the perceived effects are. For example, we have old-timers who call us “crazy” for charging $13.00/lb for Sirloin steak, when in fact it’s precisely the same price in adjusted dollars that they paid in the 1960′s.
From a market perspective, what would you change?Reduce regulation to simply policing the infringements by one actor upon another. Do not regulate the ends, but the means and prevent men from injuring one another.