INTRODUCTION and BACKGROUND
Marketing boards and their counterpart in the U.S.A., co-operative associations, are constantly subject to political review, administrative tinkering, litigation, and challenge. Their existence confronts many assumptions that are made unconsciously in a society that values private enterprise and private ordering. The way marketing boards make decisions on terms and conditions of commodity pricing is often assumed to have a negative impact on market freedom. Dealing with this idea is obviously beyond the scope of this paper, and I encourage you to rely on Adam Smith and Karl Marx to get a sense of how broadly arguments about marketing boards are framed. The issue I want to consider is how best to make decisions, and how parties to negotiations and their advisors should approach decision making, based on the current context.
The current general structure of marketing boards in Ontario is the outcome of a long debate about re-balancing negotiating power between producers and processors. The basic thesis behind joint action by producers in Canada is the same as the argument set out in an American Supreme Court judgment by Justice Harry A. Blackmun, who stated:
Few farmers, however, so long as they could only act individually, had sufficient economic power to wait out an unfavorable situation. Farmers were seen as being caught in the hands of processors and distributors who because of their position in the market and their relative economic strength, were able to take from the farmer a good share of whatever profits might be available from agricultural production. By allowing farmers to join together in co-operatives, Congress hoped to bolster their market strength and to improve their ability to weather adverse economic periods and to deal with processors and distributors.
National Broiler Marketing Assn v. U.S. 436 US 816, 825-26 (1978)
Anthony Winson, in his book The Intimate Commodity: Food and the Development of the Agro-Industrial Complex in Canada (1993, Garamond Press, Canada, at pp. 87-88) argues that the negotiating objectives of producers have not been fully achieved, although negotiating power has been changed because of legislation that supports orderly marketing.
Negotiation is of course, the most widely used consensus-based decision making method, and negotiating processes can range from amicable to bitter. In my view, many of the negotiation techniques and styles that create extreme positions and damage stability are both unnecessary and dangerous in the context of commodity pricing. Breakdowns in negotiation are often a result of lack of preparation and planning over negotiation goals, and therefore ineffectiveness at the table, rather than lack of power. Such negotiations are often marked by too much emphasis on the distributive aspects of the situation (i.e. seeking to obtain all possible monetary benefit from the other side), and too little thought to the implication of the distributive approach on the industry as a whole (i.e., ensuring stability and long term survival of the market). (See Fisher and Ury’s Getting to Yes Toronto: Penguin, 1981 for a description of these styles and benefits and drawbacks associated with them.) This tension between integrative bargaining and distributive bargaining gets reflected in negotiation style and process as well as outcome, and the failure to reach an agreement that would be better for the subsequent loser in the arbitration process often reflects a failure to resolve this tension.
In Ontario in the last decade, processors have argued that negotiation rules and powers need to be revised. As examples, there have been calls to disband marketing boards, to amend the regulations to allow opting in by producers instead of compulsory membership, to exempt producers who are also processors from paying fees to marketing boards, and to require individual processors to negotiate specifically with those producers from whom they buy.
None of these requested changes has occurred, but there have been variations in the manner and scope of negotiations over time. My experience with various entities as a facilitator, mediator, and arbitrator in the agricultural commodity industry leads me to believe that additional negotiation training, more effective use of bargaining opportunities, increased use of neutral parties as mediators and facilitators, and judicious use of arbitration as a limited and informal method to resolve only distributive disputes, should allow the complex set of relationships in this sector to be maintained in a relatively stable yet flexible form.
Given the pressures in these industries, maintaining relative stability is no mean feat. When the wrong weather system can fundamentally change the quality and supply of product in a matter of hours, stability is hard to come by. When capital consolidation can shift the number of producers or processors, and sometimes both, significantly from year to year, relationships are easily upset. Finally, with domestic and international markets subject to enormous variations in accessibility, there is significant risk for processors who make pricing and volume arrangements in February for products that will be delivered in late August, processed and then sold later.
I have done work in several commodity sectors at the provincial level, and I will show why consensus-based decision making processes–i.e, negotiation and mediation with specific disputes, and facilitation with multi-party sector participants–are to be generally preferred over arbitration and adjudication, despite the legal power that certain boards or the Farm Products Marketing Commission may have. In addition, I will show how these sectors’ characteristics mean that even when arbitration is required, the adjudication process should be more informal and less adversarial than what would typically occur at a hearing. In short, consensus should be the preferred method of decision making in these sectors at all times, even if the power to adjudicate issues is available and may seem enormously attractive–or dangerous, depending on one’s perspective. We should keep sight of these characteristics in giving advice and assisting clients in these sectors with their disputes.
Factors Encouraging Consensus-Based Commodity Pricing and Sector Management.
Despite the battles that have raged over boards and their powers, there are numerous factors that encourage consensus based decision making, and should make participants in the negotiation process more able to use integrative bargaining methods.
A: Negotiation is mandated by the legislative scheme
First, of course, the regulatory structure allocates the power and the obligation to negotiate to these Boards. I do not intend to debate here the merits of marketing boards in general, or the intentions of the previous governments that set up these structures. Rob Wilson has given you some detail about the structures, and for my purposes I need only point out a few specific items. My point is that the legislation exists and creates a context in which all law-abiding entities must act. I will use the example of the Processing Vegetables sector, the one with which I am most familiar, to illustrate these points. I will be focussing on those items related to negotiating authority.
The Farm Products Marketing Commission in Ontario Regulation 440 (R.R.O. 1990, Reg as am.) has delegated its authority to manage producers by requiring them to be licensed by the Ontario Processing Vegetables Growers (the “local board”) “before commencing or continuing to engage in the producing or marketing of vegetables” (para. 10(a)). Processors are prohibited from commencing or continuing to engage in the processing (a broadly defined term) of vegetables unless they are licensed by the Commission (ss. 3(1)); in addition, the local board can prohibit any person from processing vegetables that have not been sold by or through the board.
The board also has the power to provide for “the control and regulation of agreements entered into by producers of vegetables with persons engaged in marketing or processing vegetables and the prohibition of any provision or clause in such agreements” (para. 10(j)).
Read out of context, this seems like a power that allows the board to set the terms that it wants. However, the Regulation also permits the Ontario Food Processors’ Association to appoint members to entities defined as “negotiating agencies”, which are “empowered to adopt or settle by agreement . . . minimum prices, terms, conditions and forms of agreement, charges, costs or expenses” [related to the production or marketing of vegetables].
Here then is the first characteristic: negotiation is a matter of regulation, and producers and processors are required to negotiate. If processors and the local board do not appoint members to the negotiating agency, the commission has the power to make the appointment, and if no settlement is reached, has the power to trigger arbitration or enforce a final offer. Industry members are therefore in the position of taking the negotiation opportunity or having a result imposed on them; i.e., of complying with the law or not being able to carry on their enterprises. Because the law reflects the state’s decision on how these relationships should be managed, then the legislation itself can also be seen as a statement of expectation. The expectation of the government should be that this negotiation process will be fair, or fairer to all parties than the alternative.
Whether this fairness is achieved in practice is another question, of course, and depends on the ability and resources of the negotiators themselves. (I leave aside for the moment, but will come back to whether granting a local board the power to negotiate on behalf of all producers as opposed to having each producer negotiate individually is the fundamentally unfair change in negotiating power.) The significant point from a negotiation theory standpoint is that the parties have a chance here to fashion their own negotiated result, and not have it imposed. The compulsion to enter into negotiations is different than a compulsion to settle. Here the parties have the opportunity to settle, and if they cannot, the dispute is resolved by a third party.
While a default to a timely arbitration process is necessary, especially in the context of annual crops, a negotiated decision is more acceptable and considered more legitimate to parties than adjudication. This opportunity is especially significant when the arbitration procedure is final offer selection. Parties who have a decision imposed do not often accept that their position was wrong (or at least more wrong than the other side’s) when an arbitrator rules against them. Instead, they often argue that the arbitrator made an error, that the evidence wasn’t given the proper weight, or that the lawyer did a bad job, and that the other side’s position is still unacceptable.
Giving up the power of joint decision making is a strategy that can lead to feelings of coercion and unfairness, even if the adjudication resolves the dispute for the present. Over time, the failure to reach a negotiated settlement leads to frustration, breakdowns in relationships, a waste of resources, poor communication, and instability in the industry.
From a dispute resolution systems design perspective, therefore, the legislation mandates
a) the requirement to negotiate,
b) the opportunity (but not requirement) to settle, and
c) access to a neutral third party in the event settlement cannot be reached.
This structure maximises the opportunity for the parties to reach their own agreement, and creates risks if they do not, or if they refuse to participate. In my view, this approach also limits the power of parties to act unreasonably, and tends to create a climate in which a negotiated result is far more attractive and likely for the parties to pursue. In addition, this approach limits the otherwise potentially coercive power of the local board or commission, keeping these entities’ ability to prohibit processors from carrying on their business without approval distinct from setting contract prices and conditions. Setting contract price and conditions is therefore not an unfettered power, but is a process in which each entity has identical authority to participate and faces the same risk if settlement is not achieved.
In some sectors, conciliation or mediation is possible as an interim step between negotiation and arbitration. This step is consistent with the general goal of facilitating negotiation, for mediation allows the parties to negotiate with the aid of a neutral third party.
An interesting amendment to the processing vegetable regulation now allows the parties to settle at any time up to and including at the arbitration. Previously, there was a date on which the parties were required to tender final offers and after which they were not permitted to change their positions. Since the parties exchanged their offers simultaneously, this limitation had the effect of leaving the parties with new positions to which they were unable to respond. This adjustment, which allows the negotiation process to continue until absolutely the last opportunity, is a positive one.
B: The Negotiations occur annually
The second point is that this opportunity is of course repeated every year. The Regulation has a schedule of dates for completion of negotiation for each crop. The impact of repetition between the same parties in negotiating situations has been clearly demonstrated in game theory and negotiation training. The conduct of a party that knows it will be facing future negotiations with the same party opposite is usually different than that of a party facing a one-time only negotiation.
While on reflection this point seems obvious, it is often overlooked during negotiations. Parties are caught up in the moment, and lose perspective, competing over the limited margins that are available at the moment. However, the negotiations from one year are well remembered the next, and therefore completely competitive approaches, including threats to break off for instance, or strongly positional bargaining, are not sustainable over time; these tactics eventually become barriers to negotiating effectively. The annual occurrence of negotiations tends therefore to constrain such tactics within a more limited range than in single occurrence negotiations. This is not to say, of course, that positional bargaining does not occur, because some distributive bargaining is inevitable, but merely that completely competitive approaches have a limited utility in annual negotiations, and the opportunity for consensus should generally be more attractive than breaking off negotiations.
A related point encouraging consensus is the long term interdependence of producers and processors. Producers today have generally made significant capital investments in land, and equipment, and have significant annual expenditures in seed, fertilizer and labour in a high risk industry. The location of production is fixed by geographic and climatic conditions, with long term storage or long range shipping of raw product not being feasible for producers. This set of conditions demonstrates the reliance of producers on local processing capacity. However, the same limitations on storage and shipping create significant limitations on the ability of processors to source raw product, and processors also have major investments in processing capacity in their physical plant, transportation and storage systems for processed product, and labour. Each sector needs the other to be viable in the long term in order to maintain their own viability. The ability to force economic resources out of the other sector through price negotiations needs to be balanced against the need to protect the other’s survival. This interdependence should also increase the attractiveness of consensus based approaches to decision making. The arbitration process tends to push parties to the extreme position that they think can be achieved, while the risk of not achieving this goal makes a negotiated result more attractive.
In light of the ongoing relationships that exist, despite changes to specific participants, the annual negotiations build the potential for achieving long term benefits, including realistic pricing expectations, and a consistent approach to pricing. For instance, parties can invest in obtaining strong market information, can develop independently verifiable data, and can agree on parameters and issues that would be persuasive and are therefore worth developing information about. Consistency also permits clear communication on issues, in that there are opportunities to correct and clarify problems over time, even if in a particular year some price factors are not completely agreed upon.
Consistency leads to more informed decision making based on objective information that is widely known, and reduces both the attractiveness and efficacy of extreme positions. Parties with experience negotiating with each other are less likely to try or be able to take advantage of temporary inequalities in information or opportunity because they are likely to be found out over time, and there will be repercussions in the next round.
Use of consensus based decision making also means greater flexibility exists to fashion detailed responses to specific industry or party issues. A final offer selection arbitration or imposed decision will generally be a precedent industry wide, and different terms are then difficult to manage and agree to. A negotiated agreement, however, can bargain around all issues at once, and develop a more refined solution; therefore, accommodation on issues of relatively different significance to parties is possible.
Parties to pricing agreements want to achieve as much industry stability and predictability as possible. Wild swings in prices can have devastating impacts in the short term, and lead to relatively permanent and unnecessary negative impact. Decision making by third parties reduces stability and predictability. However, where changes in regulations, treaties, price inputs, or markets can be anticipated by parties, allowances can be made over time to reduce the negative impact of sudden changes. In addition, even if allowances are not made in a particular year, potential impacts can be discussed and the parties can thus be better prepared to negotiate when changes actually occur.
Factors Leading to Ineffective Bargaining and Unnecessary Third Party Decision Making
Despite the factors that tend to produce incentives to bargain effectively and reach a consensus decision that is in the overall interests of all sectors, there are still significant breakdowns, too frequent resort to arbitration, and dissatisfaction within industry sectors. One philosophical factor is the general perception of unfairness or constraint on the part of processors who are required to negotiate or sell through a board. Again, this argument is beyond the scope of this paper, and I leave it aside for others to argue. Even accepting the current context, there are other factors that drive parties toward positional bargaining and a zero-sum approach to commodity pricing; a summary of them is set out below.
A: Distributive Aspects of Negotiation
The key point about the negotiation of commodity pricing is of course, that there is an unavoidable distributive aspect to it. A purchase and sale is better for a buyer at a lower price and better for a seller at a higher price, no matter how the remainder of the transaction is handled and no matter how amicable the process of negotiation has been. This transfer of resources generates significant pressure in the negotiation, and the impact of moving a price point is undeniable. The key issue then is how can this pressure best be handled so as to minimise the negative impact of this pressure.
B: Relationship Pressures
Although no longer as significant an issue in the Processing Vegetable sector, one of the key problems in commodity decision making generally is that parties tend to come together only when negotiating must take place, and when the pressure to deal with distributive issues is highest. The immediacy of pricing issues tend to distort both the willingness and ability of negotiators to take a longer term view of the industry as a whole. Relationships are not easily developed or maintained when distributive bargaining is taking place, and damage to relationships requires significant time and effort to repair. This concern may seem less significant than establishing a price, but negotiations among acrimonious parties are difficult and time consuming to conduct; in addition, settlements are likely to be less creative, more difficult to sustain over time, and more subject to suspicion and criticism that requires excessive effort to manage effectively. Parties who are suspicious are likely to engage in “reactive devaluation”, or immediate criticism of the other side’s proposal, just because it comes from the other side. Relationship breakdowns lead to negative interpretations and assumptions about the other side’s motives and statements, tend to make parties hide or limit the information that will allow effective decision making, and undermine the ability to take advantage of future opportunities or to deal with future problems.
C: Time Pressure
Although annual negotiation may limit the ability of parties to be extreme, the tight time frames also limit the ability of parties to manage the negotiation for maximum benefit. Time is at a premium in most negotiation situations, but the deadlines in agricultural commodities are especially significant. First, negotiations must be completed for the industry so that contractual arrangements can be made among individual producers and processors, and production commenced. This schedule has no flexibility in it. Second, there is often no chance to go back for more or better information, or to re-analyze a problem in light of information from the other side, or even to have an adequate opportunity to persuade the other side. Third, the trust required to change a position based only on the other side’s assertion (usually a rare occurrence anyway) is very difficult to generate and maintain in tight time frames.
D: Communication/Information Breakdowns
Since competitive markets are doing their negotiations at about the same time (Canadian and Ontario negotiations may trail the more southerly U.S. comparables slightly, but the information transfer is not instantaneous), rapidly changing information is gathered and processed while negotiations are occurring. Not all information will be revealed during negotiations, since all information about prices and growers in other markets cannot be divulged to competitor processors. In addition, complete information about a competitive market will usually not be available until some time after negotiations are finished.
This pressure can lead to last minute or new information being produced in circumstances that tax the ability of parties to handle it, and raise suspicions about its credibility and therefore persuasiveness. Parties under time pressure often have breakdowns in communication because they attempt to be fast, rather than efficient or clear.
Some information is easily and objectively verifiable, such as exchange rates, while other information is subject to significant differences in interpretation. As in all negotiations, creating the most persuasive argument about information can lead parties to feeling that they are being manipulated, with the predictable negative result in the negotiation.
E: Volatility of Conditions
Processors face large risks in buying at a fixed price today and selling at an unknown price in the future. Producers have some level of certainty about pricing when they start production, but face the risk of not being able to deliver in the proper volume or quality if growing conditions are not appropriate. Both parties understandably try to minimise these risks, and one way to do so is to have the price move to the “safest” point possible. All such attempts to bargain for factors that are not within the control of the parties tend to lead to arbitrary positions, anchoring, and equally stubborn resistance, for two reasons: first, since it is not possible to predict with certainty that a negative impact will occur, and because a negative impact for one party may well be neutral (or even a potentially beneficial bargaining point) for the other, there is no incentive to share any risk; second, there is no mechanism to “return” a concession in the event the negative event does not occur. Parties are therefore left to manage and spread risk as much as they can by negotiating cushions into pricing that can only hurt the other side.
F: Processor Position in Food Chain
Food processors bargain with the collectivity of producers through the marketing board, and sell processed product into a highly concentrated food retailing industry. Although there are processor collectives for price bargaining for raw product, processors are competitors. They cannot unify to the same extent that producers can, and they have a very limited market power to command an adequate return for their finished product.
Anthony Winson’s Intimate Commodity, which I have referred to above, reproduces a chart based on Michael Porter’s work on analyzing competitors in industries. He sets out the following summary of relative bargaining power:
Determinants of the Relative Bargaining Power of Buyers v. Sellers
A buyer group is powerful when
A supplier group is powerful when
• it is concentrated or purchases large volumes relative to seller sales
• it is dominated by a few companies and more concentrated than the buying industry
• products purchased are standard or undifferentiated (i.e. commodities)
• it sells products with few substitute products for sale to buyers (highly differentiated products)
• buyers incur few costs when switching to alternative suppliers
• buyer is not an important customer of the supplying industry
• buyer poses a credible threat of backward integration
• supplier’s products are an important input to the buyer’s business
• supplier’s product is unimportant to quality of buyer’s products or services
• supplier group poses a credible threat of forward integration
• buyer has more complete information
• buyer can influence consumers’ purchasing decisions
Using these criteria, Winson’s conclusion is that food retailers are enormously powerful in Canada. He also cites the “index of concentration” test, used to assess mergers for anti-trust purposes in the U.S.A., and finds that the index of concentration in the Canadian food retailing industry is eight times greater than in the United States, far beyond levels that would trigger anti-trust review of the industry. Processors clearly have significant difficulty therefore, in managing both input costs of raw product and the processed product sale price. Pressure from retailers to lower prices creates pressure to lower prices at the raw product phase, regardless of the potential impact on the producer. A distributive approach to bargaining is a natural result.
G: Criteria for Pricing
Another issue that tends to create distributive, rather than integrative bargaining, is using a cost of production approach to pricing. While this approach is not typical of the Processing Vegetable board, cost of production has been used in the potato industry and has been argued by processors in the grape industry as a pricing tool. That it has been used on both sides of the fence approach shows that this approach is used when it is seen to be advantageous, and when the commodity is considered only as an input cost, rather than a marketable product in itself. The difficulty with cost of production pricing, however, is that there is no incentive for efficiency on the part of the producer, and no or only a very indirect relationship to changes in the market value of the product. Both these problems tend to make negotiations using this approach excessively detail oriented and, over time, somewhat parochial. Negotiations over changes to an industry and the value of the product in the market are not adequately dealt with, because the processor’s relationship to the final market has no bearing on pricing for the producer.
H: Bargaining Teams and Multiple Parties
Although there is safety in numbers, there are also logistical problems associated with negotiating in teams. Teams are more difficult to manage than individuals, and decision making can be bogged down. Boards have a democratic structure that may require ratification before offers can be accepted, while processors may have differing particular objectives within a generally agreed negotiating framework.
Varying priorities among different parties on the same side can get traded off in ways that are individually problematic, even if they are acceptable overall. For instance changing prices based on production methods can shift returns for producers, while adopting premiums for certain characteristics may have significantly different impacts on total expenditures for processors with different needs.
Also, while producers and processors may have concerns for the industry as a whole, there may not be concern for individual producers or processors. Changes that may not be bad for the industry as a whole could have a significant negative impact on an individual grower or processor, and the negotiation process will break down as the parties look to their individual interests and survival, regardless of what might be reasonable across the sector.
Responses to Tendency to Bargain Distributively
As can be clearly seen, as many or more pressures to bargain distributively exist as pressures to bargain integratively. If however, the long term difficulties of distributive bargaining create problems, waste resources, lead to breakdowns and ultimately damage the industry, how can these pressures be handled more constructively?
First, naturally, there must be recognition that some of these negative impacts are unnecessary; more explicit regard for negotiation process helps parties define their goals more clearly, and adapt the process to achieve those goals more explicitly. For each of the factors listed above, effective negotiators can limit the negative impact of distributive bargaining and maximize the opportunity for integrative bargaining.
A: Distributive Aspects of Negotiation
Clearly, there must be some distributive bargaining to set prices. However, the issues where distributive bargaining should be clearly defined. Since distributive bargaining techniques such as anchoring on positions, establishing “bottom lines” for bargaining, and setting final positions on a “take it or leave it” basis may be accepted and used by all parties for pricing issues, there may be opportunities to ensure that these techniques are limited to those issues for which distribution is necessary, and not used in those areas where parties can establish more creative options, develop mutually beneficial strategies, and increase the value of the industry as a whole.
Where distributive bargaining reaches an impasse, there are of course many techniques such as splitting the difference, flipping a coin, and trading concessions, that can be used to preserve certainty and achieve a result that may be better than a loss at final offer arbitration. However, even if arbitration is used, it should be limited to those distributive issues that parties have been unable to resolve, for two reasons. First, on integrative issues no arbitrator is likely to be able to establish a decision that would be accepted as legitimate, nor is an arbitrator likely to be able to satisfy the goals of the parties by choosing one from among a variety of options. On distributive issues, objective criteria will help to establish a framework that will allow the arbitrator to be confident in reaching a decision, and the parties will not be required to give in on the distributive point.
However, in light of all the factors that affect bargaining, it clearly is not useful to engage in a price setting adjudication that eats up resources out of proportion to the process and damages relationships and future negotiations unnecessarily. The price setting process is still subject to all the timing and information constraints that affect the industry generally, and is meant to be a relatively summary and informal process. Parties generally do not exchange information until the day of the arbitration and have limited time to review and respond to it. Arbitrators are subject to strict time limits for hearing the case and issuing a decision, which reduces the opportunity and scope for excessive weighing of detail. Finally, the use of final offer selection with parties who conduct repeat negotiations leads to presentation of relatively reasonable positions, rather than to having extreme positions presented in the hope of a windfall.
Therefore, the arbitration, although distributive in nature and conducted as a hearing, should also retain a perspective on the purpose and goals of the overall process: to establish a price for product for the year, in an industry where the parties have long term relationships and recurring negotiations. This should result in the arbitration being considered as one of many annual steps that will continue to occur, and the arbitrator should try to ensure that the decision will re-inforce as much as possible the approach and objectives of the parties in those cases where they have reached a negotiated settlement.
B: Relationship Pressures
Another way to manage these integrative issues is to develop good rapport among representatives, by developing relationships away from price negotiation settings, in order to create realistic expectations, and to develop knowledge of each other’s goals and constraints. These investments will allow the negotiation to be conducted more effectively and efficiently. During the negotiation process, effective listening techniques can maintain relationships by demonstrating understanding (not acceptance) of the other’s perspective, thereby avoiding unproductive rehashing of opposed positions. Maintaining some of the same people on negotiating agencies for several years can develop consistency and rapport that will make negotiations more efficient, and transfer that efficiency to subsequent bargainers.
C: Time Pressure
When parties can develop relationships outside of the regulated negotiation process, they can do preliminary work on negotiation rules outside of critical times. For instance, they might agree on the form of documentation, on issues that should be addressed, on locations for meetings, on ways to manage the time available, on ways to efficiently exchange information, on sources for certain information. All these steps can be taken even if the substantive information will not be available, so they can manage the available time most effectively.
Despite these efforts, however, there will always be time pressure, and explicit recognition of this pressure should also create a level of tolerance, allowing the parties to give each other the benefit of the doubt, so they can focus on substantive issues rather than the lack of time available to deal with them. Tolerance of course requires discipline, rapport, and effort to implement.
D: Communication/Information Breakdown
Again, planning and preparation, ground rules, and an agreement before the process commences about what will be acceptable and useful information can reduce or eliminate unnecessary conflict during negotiation. Communication is often the first skill to break down under pressure, because anger, frustration or fear of losing can take command of the situation. In these situations, there is no substitute for listening effectively, not in order to change one’s position, but in order to demonstrate that the other side has been heard. This breaks the impasse cycle of repetition at a higher volume, and allows the parties to move on to other issues or resolve the one at hand.
E: Volatility of Conditions; and F: Processor Position in Food Chain
There is no effective way for parties through negotiation on product prices to change external conditions or the underlying structure of the industry. Assuming that on reflection the parties agree that these items are not properly part of pricing, then they should be excluded from the negotiations, and be part of the ongoing dialogue about industry matters that can lead to joint actions in support of each other. Making these issues explicit for all parties, will keep them in proper perspective.x
G: Criteria for Pricing
Because pricing is usually more market than cost oriented, formula pricing is not attractive to most parties. Therefore, establishing strict criteria for pricing is resisted. However, a list of price issues can often be developed that will allow parties to prepare effectively and have an efficient process. Priorities and emphasis may change over time as market pressures shift, but if the type and sources of information available are well known, the disputes associated with using them will lessen over time. If possible, parties can seek to reach agreement on how to manage items that are not controlled by either but that do affect pricing (e.g., exchange rates), to develop consistency in pricing and save time.
H: Bargaining Teams and Multiple Parties
There is no substitute for training and preparation. A thorough internal negotiation should be completed before the price negotiation commences, so that negotiators understand their various interests and goals completely and can work with them. Many tools can be used to ensure effective management of the situation, such as a plan for dealing with disputes that may arise during the negotiation, including ground rules to avoid committing unless all are agreed, an agreement to give an opportunity for the teams to meet separately, and an agenda (including timeframes) in order to ensure all issues are adequately explored.
Despite all of the planning and preparation listed above, there can still be breakdowns in negotiation. Parties who are directly affected by the outcome of the negotiation can lose perspective, or become focussed on particular goals rather than an overall result. In these situations, a mediator can help the parties by managing the exchange of information, by ensuring effective communication, by keeping parties focussed on their goals, and by establishing and enforcing ground rules to keep the process moving.
A mediator or facilitator is often used when parties are facing conditions that can affect price, such as storage, quality, or handling, while there is still room to bargain. In these situations, the mediator can help by managing exchanges to avoid the risk for parties who would be uncomfortable making unilateral offers.
Both producers and processors must negotiate in a particular framework mandated by the marketing board legislation and regulations in Ontario. The annual repetition of the process leads to opportunities for real gains, relative stability, and efficient allocation of resources in the agricultural sectors. However, these opportunities will only be realized if negotiators work effectively. When they do not distinguish between distributive and integrative bargaining, negotiators can unnecessarily damage future negotiations and miss opportunities for gain. Avoiding this unnecessary damage should be a primary goal for negotiators and their advisors, even if they must use arbitration to set the terms of agreement. As consensus based decision making techniques improve, there should be fewer unnecessary disputes, and increased stability and predictability in the industry, to the benefit of all involved.
Written by Frank Handy.