TOPIC: Any thoughts ?

I posted this under KY prices this morning after reading some great post by Billy, Rootman, Bcastle and others.

Great post fellas!!!
I have always said the local dealer is taking huge risk for small profits. If the market moves the wrong way the local dealer can end up taking a total loss. The local dealer is probably the one taking the biggest risk in the entire process.

Weather or not I sell a pound for $450 or $600 per pound, I know what I am getting the day I sell it. If I am happy with what I sold it for the day I sold it, I do not worry if the price goes up or down. On the other hand if I do not like the price then I do not have to sell my ginseng.

Now the local buyer on the other hand can lose up to $50 bucks or make up to $50 bucks per pound typically. Making 10% is not all that much when you factor in all the expenses and all the risk taken.

If a local buyer buys 300 lbs and pays $500 per pound and he sells it for $550 per pound that's OK in my book. To put out $150,000 to hopefully make $15,000 in a market that fluctuates daily is risky business. 10% profit is a fairly small margin in most business models.

I still say it is unfortunate the Digger has to settle for less than they want. But price is market driven. Just like corn, some farmers sell at $4.00 per bushel and it may go to $6.00 per bushel the following month. Some sell enough corn at $4.00 per bushel to cover expenses and hold on to some to sell at a higher price in an effort to \"play the market\" with hopes of making more profit. But they can get burnt if the market goes the other way.

Talk to a couple different farmers sometime and get their take on the corn market. Typically their opinions on what the market will do is often as different as night and day even thou they read the same futures and yield forecast reports and know the weather conditions for the states that drive corn prices.

So I would suspect that the same differences in opinion as to what the Ginseng market is going to do may take place between all involved in buying and selling.

I hope we all get $600 and higher again someday soon. American Ginseng is still some of the best ginseng in the world.

The entire process from \"A\" to \"Z\" is not right thou.

The American digger does all the work!
The local buyer takes all the risk for small dollars
The middlemen make all the profit
The end user in China pay's crazy high prices per oz or per lb

I am posting something below and I have no proof of this and this is only my speculation as to what the process may look like. So if you guys want to add to it feel free. But each one listed below is where ginseng would get marked up prior to getting to the end consumer.

THE PROCESS FROM \"A\" TO \"Z\"
I suspect this is something like what goes on below and each time the price gets marked up for storage, shipping and for each transactions.

Digger sells his ginseng.
Local buyer buys his ginseng.
Local buyer sells to a larger US buyer.
Larger buyer sells to large broker/exporter.
Ginseng is stored in American warehouse(s).
Larger broker sells to large Asian buyer.
Larger broker/exporter ships ginseng to Hong Kong.
Ginseng is stored in Hong Kong.
Large Asian buyer sells to large Asian Wholesalers.
Large Asian Wholesalers sells to smaller Asian wholesalers.
Smaller Asian wholesalers sell to retailers.
Retailers sell to China consumer.

This example may show too many steps involved. Or perhaps it is only the tip of the iceberg and may lack some of the process. Does anyone really know? if so please explain it to me. I would like to know.
Thanks,
Latt

Latt,

Good Post, however i tend to dis-agree with some of what you have listed.

1. I agree that the american digger works, and for the most part does the most labor intensive part of the process, but then there is grading, packing, shipping, packaging ect... ect. all of these things are costing somebody something.

2. The local buyer is not out on an \"island\" so to speak on pricing. For the most part they are told prior to purchasing any amount what their buyer will pay for the ginseng. The local buyer takes a risk by buying inferior ginseng or improperly handled ginseng or by storing ginseng improperly and it becoming molded. I know a buyer that has been in business 20 plus years and the only time he lost a great deal of money was because he allowed a large amount of goldenseal tops mold. If the local buyer pays too much for the ginseng then he absolutely did it on his own speculation.For 250.00 dollars you too can become a dealer but you better make sure that you have some sort of distribution chain in place and maybe some contracts prior to buying ginseng.

3. the supply chain in which you listed may or may not be correct, If you choose to bypass the chain altogether you could simply call up Hsu's ginseng or any other known exporter and sell directly to the exporter. I tend to picture the ginseng chain as a large funnel with the U.S. on the large end of the funnel and china on the small end. refer to the following link:

big5.hsuginseng.com/content/content.aspx?CatId=106708660

The problem is that very few exporters have been identified so most people have to used the traditional supply chain.

Personally, I would like to see wild american ginseng being processed here in america from the growing to the marketing. Our ginseng laws are all based on the assumption that all of our ginseng is to be exported. This thinking is outdated and there has been an explosion of asian immagration into the u.s. in the last 200 years.

Ok im done ranting latt, i have given myself a headache.

Let me add 1 more thing... I feel that the growers/diggers have the power to change the ginseng market for our benefit. We hold the key to the entire wild ginseng market but because it is so dis-organized we have to settle for what is offered.

K_duce,
Thanks for the information. Makes since.
Latt

Personally, I would like to see wild american ginseng being processed here in america from the growing to the marketing. Our ginseng laws are all _base_d on the assumption that all of our ginseng is to be exported. This thinking is outdated and there has been an explosion of asian immagration into the u.s. in the last 200 years.

K_duce,

I completely agree with you there. I guess I hadn't thought about it that clearly before, but out laws are based on export for the most part.

As with anything produced, there is a funnel on either side of some sort. In this case, we have many people producing, so there is a wide part of the funnel on the digger end. However, statistically, only few people export, so the funnel is small on the export points. Likewise, the receivers on the other side are few, so another small funnel end, and the consumers are large in number, so another large end. Basically, you have two funnels put together at the small end.

There must be some form of collection network on this side and on the other side a distribution network.

This isn't unique to ginseng, its the way a free market works.

You know, I really appreciate the way some of you are thinking. You are trying to analyze the situation before jumping to conclusions. This is the way solutions are found. I would love to be able to sell my ginseng for $3000 a pound, but, I know it isn't worth that to anyone else. It is only worth what I can get someone to pay me for it. The ebay guy you all are talking about is finding a way to get more for his/her sang. I think he/she would be hard pressed to sell several hundred pounds that way, however. I am a conservative through and through and believe in the free market system. I must confess, however, I am worried that the ginseng market might go the way of the fur trade if we are not careful.

Vow! It's really a good description of the wild ginseng business from diggers to the end users. Let me give you my guess of the two funnels from price:In US 450>500>550, In HK 550>650>700>1000.

I copied this reply over to this thread for Bill who accidentally posted it separate.

TNhunter

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Folks all,

Lots of good posts here fellas!

I have followed this thread along, (including the thread on Kentucky pricing) and I have seen a lot of good thinking here.

I especially like the funnel analogy, and Brads enhancement of two funnels meeting at the narrow ends. ... I am no economist, but I would expect that the high mark-ups occur at the narrows, and that this is the big unknown for us diggers, and the end users.

My 2 cents:

Some may disagree, but it is my contention that the big p_layer_s have seen to it that the commerce laws (and therefore, all the way back thru the system) have been \"groomed\" and \"cultivated\" in their favor.

If that is true, then this is the current reality of it all, and we as diggers either \"play in\" or \"opt out\". ... And, the end users are in a similar situation at the far end.

One pertinent question might be that; Can we as diggers and local buyers, (which I am not) be creative enough to come up with an alternative marketing strategy? ... Perhaps American markets?

As Brad points out, any commodity is only worth what it can be sold for, and this particular year has made things tough for both local buyers, and anger and grumbling among us diggers.

It is my hope that we all think things thru clearly before we are too hard on our local buyers. ... Nothing wrong with changing local buyers either, so lets all just try to use critical thinking. ... Short of organizing, and fighting it out with the big boys, its the best we can do for the time being.

Me personally? ... I am sitting on my small amount of 'seng until late December to mid-January. That is a total gamble on my part, because I will sell then, rather than risk spoilage/aging.

Although aging, and expected physical limitations won't allow it these days, I had fur trapped for over 40 years, and now with ginseng, I am seeing marketing parallels that are worthy of concern.

Let all proceed with caution folks, and this forum is a teriffic tool to that end.

Bill

Bill wrote:

If that is true, then this is the current reality of it all, and we as diggers either \"play in\" or \"opt out\". ... And, the end users are in a similar situation at the far end.

One pertinent question might be that; Can we as diggers and local buyers, (which I am not) be creative enough to come up with an alternative marketing strategy? ... Perhaps American markets?

This is a very good point Bill. I fully agree, we can either play or sit out. I would rather leave the ginseng in the woods to continue to grow and increase the local wild populations than dig it and hold it over. I just personally think it is more valuable in the woods than in my freezer.

Although aging, and expected physical limitations won't allow it these days, I had fur trapped for over 40 years, and now with ginseng, I am seeing marketing parallels that are worthy of concern.

Let all proceed with caution folks, and this forum is a teriffic tool to that end.

Bill

I also see the same parallels with this market as I did the fur market. I am very concerned Bill, very concerned.

Awesome post...and I'd give you a thumbs up if I didn't have to wait so long after the one I gave Billy! 8)


Oh, and one more thing, I personally believe the high markups occur at the retail end of the market. Typical retail here in the US is a 100% markup. So, if I pay $5 for something, I\"ll sell it for $9.95. After you factor in all the costs of doing business, you are usually doing well to make 30%. Now, I'm not saying at all that the markups be they small or large are not warranted anywhere in the chain of the market. I'm just saying that is what I think actually happens from my semi-uninformed position.

BCastle,
I was a buyer for 10 years for a large company. Wholesalers typically survive at low low margins when selling inventory at around 5% markup. The wholesaler makes the majority of their money by buying extra inventory from the manufacturer when items are on sale from the manufacturer. The wholesaler passes on the discount to the retailer during the sale period. However, when the deal from the manufacturer is almost complete the wholesaler buys a large quantity of the sale item and stores it in their warehouse. Sure their is carrying cost by warehousing merchandise. However, it is minimal compared to the profits made when the wholesaler sells the inventory they bought and warehoused at the lower price and sells it to the retailer at the regular price.

The wholesaler makes their money then when they sell their product that they warehoused at the lower price to the retailer for the regular price.

Getting back to the retailer. The retailer is not marking up their goods by 100% typically. I do not know of many business that mark up their prices by 100%

I bought 14,000 different items when I was a buyer and our highest suggested mark-up was 40% on the suggested retail price.

There are exceptions to this and I know a few industries that deal off of 100% mark-up but very few.

I do not believe a retailer in China is buying a pound of ginseng for $1,000 a pound and marking it up to $2,000 a pound to the consumer.

Sorry to finally disagree with you on something. But this is just my opinion and it's OK if you disagree with me. I know neither one of us will lose any sleep over it if we disagree.
Latt

Not at all Latt. I know what the markup in the industries I've been involved with are. I also know, as you say, that some industries run on a much lower volume. Groceries and electronics for instance are razor thin margin industries I know. I was involved in some retail where the markup was as high as 400%...but given that was a specialty market and there were considerable losses to be factored in.

Now, add in the Internet and everyone with a website and a shopping cart thinking he can cut 1% off the going retail price to get more of his competitor's business, and that is how we get electronics as loss leaders!

Isn't it interesting though, that with buying ginseng, it is just the opposite? The buyers are all trying to pay $5 or $10 a pound more than the competition so he or she can buy more of the available ginseng in a given season. Its the same process, but just in reverse because we are buying instead of selling. If we try to sell too high, we can't sell at all. If we try to buy too low, we can't buy at all. So, that being said, any idea anyone has of a price fixing scheme in the ginseng market as far as the US buyers are concerned is crazy in my mind.