A Negotiation Primer for the Agricultural Industry

Introduction

Negotiation is a process by which a group of people comes to a common agreement about a matter that interests all of the people in the group. Negotiation is a basic approach that is used when coming to agreement on any specific issue. This process is one in which the basic elements are learned early in life and applied regularly in all stages of our lives. Any parent will readily admit their experiences in negotiating with their parents as children and the facing similar situations when negotiating with their own children.

Because negotiation is something each of us does regularly, we tend to take the process for granted when involved with negotiation of some type. The following outline is intended to be a comprehensive assessment of the process of negotiation as applied in a general non-specific way. It is not tied to any particular type of negotiation situation or example. It can be used in any situation.

The outline identifies keys steps or negotiation opportunities that are confronted throughout the process. The issues identified in this outline are steps that anyone could use when approaching a negotiation situation. The outline begins with a set of general considerations and then launches into some specific examples.

Prepare for the negotiation by doing your homework.

In order to successfully negotiate with other people you have to know what you want to achieve from the negotiation and be thoroughly familiar with the subject of over which you are negotiating. You must assume that the person with whom you are negotiating has as much, and perhaps more, knowledge about this as you do. Doing your homework will serve to narrow this “knowledge gap” and make you better prepared to assess the progress of the negotiation as it proceeds.

• Know your product Know your market
• Know as much as you can about the person with whom you are negotiating
• Don’t underestimate the other person who is negotiating
• Assume the other person is as well or better prepared than you are.
• Decide what you want from the negotiation process Before you enter into a negotiation, be realistic about what you can achieve from the process. The outcome of a negotiation process is often affected by the time and effort that people put in before the process is started.
  

Preparation is the most important thing you can do to increase your chances of a successful outcome.

Have a clear goal in mind

You may set a series of goals before the negotiation starts. If you do that, you can reassess or re-evaluate which objectives are most important to you during the negotiation.

Always consider your alternatives if the negotiation process is not successful. In the case of a seller of goods, you may have to find a new market to evaluate, or a new set of people with whom to seek to negotiate.

If you are dealing with someone who injured you or damaged your property, how will you recover the for the injury or property damage you suffered if you can not reach an agreement with the negotiation person. In either case, consider the steps you want to take if negotiation is unsuccessful and consider what your best outcome will be if this opportunity proves to be unsuccessful.

Identify your negotiation interests from your negotiation position

At the outset of the negotiation process, you should distinguish between your interests and your position in the negotiation. A negotiator’s interests in the negotiation are the reasons why a person acts the way he or she does. These interests tend to drive the decisions that are made when a person’s negotiation position is determined and then communicated to the other parties.

Interests in a negotiation may primarily be economic, but they could take on other characteristics as well, such as social justice, equality or achieving a moral objective. Whatever agreement you reach must be one that makes sense for you in light of your current situation and the interests you have in the transaction or situation. For example, whatever terms you agree to in the process must be terms that cover costs and generate an acceptable amount of profit for your efforts.

Your negotiation position, on the other hand, is a set of decisions you make to achieve the interests you established at the beginning of the negotiation process. Your interests are what you want to achieve and your position is how you have decided you will achieve these interests. Your negotiation position may reflect an unwillingness to discuss certain issues. These issues are taken off the table. At some point during the negotiation process you may have to reevaluate your position to determine if it will help you achieve your interests. If the position will not do that, the position should change to some other position that will be successful in achieving the interest. The negotiation process often involves a give and take between a person’s interests and positions.

Identify your negotiating partner’s interests and distinguish them from the person’s negotiation positions.

Just as you have identified your own negotiation interests and positions, you can also try to identify other person’s interests and positions. Why do they act the way they do and what do they hope to achieve by doing so? Some partners may be unwilling to disclose their interests if they believe that doing so will have a negative impact on their ability to achieve their interests. Although it will be helpful to identify a person negotiation interests, in many cases you will not be able to do so.

Decide on your negotiation philosophy.

In addition to the goal of the negotiation, you should also decide on your negotiation philosophy. What are the fundamental principles that guide your thinking and your decisions during the negotiation? Your negotiation philosophy considers the approach that you will use in the negotiation process. If you are selling something you want to make the buyer of your goods happy since future sales to this customer are just as important to you as the present one. You may be willing to make the buyer happy, but there is a limit to how far you are willing to go to do so. You are not willing to sacrifice any of the key issues that concern you in order to allow the buyer to be happy with his own outcome in the process.

Some types of negotiation can be less than pleasant experiences because of what is being negotiated and the circumstances under which this process operates. If you have been injured in a vehicle accident negotiating with the person you believe to be responsible for your injuries or damage, or that person’s insurance company, can be a stressful experience. Nothing requires it to be that way, but it often is. Negotiations to break apart a marriage, determine custody of the children or set a fair and reasonable amount of child support are other examples. Negotiating for a land lease or a bank loan might be more pleasant experiences for everyone involved.

For example, is every point or issue in the negotiation process of equal importance? Are there some issues that are relatively unimportant to you? Are there some issues that are absolutely crucial to the success of your efforts while negotiating. For example, if you are negotiating for the sale or purchase of something that is subject to a lien owed to someone else, you want the outcome of the negotiation to allow you to payoff the other lien and still have funds remaining for your effort. The value of the item might be close to the amount of what it is worth, and therefore, obtaining a fair price for yourself is an important objective.

Developing this philosophy will also require you to consider how the negotiation process will affect the person with whom you are negotiating. Do you enter the negotiation with the objective of gaining an advantage over the person with whom you are negotiating. Do you view each issue with such importance that the loss of any one of them is a failure for you in the process? Despite what some people may think, negotiation should not be viewed as the verbal equivalent of a fight to the death where one person walks away as a winner, and the other party crawls away from the negotiating table in shame and embarrassment after being thoroughly beaten by the other side. Likewise, it should not be considered as a competitive exercise in which only one party can emerge as the clear winner and the other parties are labeled as losers in the competition. Overwhelming your opponent or taking advantage of him or her is unlikely to make that person 4 willing to do business with you again. What is gained if no one wants to do business with you because of your attitude and practices about the negotiation process?

Set the ground rules for the negotiation process.

Ground rules set the stage for how a negotiation starts and how it functions during the process. Deciding on these rules before the negotiation starts will help to avoid needless delay while minor issues are resolved.

• How should the negotiation be held? In person, on the phone, through the mail?
• Where and When should it be held? During the day? During normal business hours? During the evening? A weekend? At a time when both parties are rested and not distracted by any other issue or events
• Who makes the opening statement? Do you consider it to be a sign of weakness to make the opening statement of your position?
• What should the opening statement address? Few if any negotiations address the crucial issues at the outset. Many sessions consist of fact finding efforts designed to get to know more about the situation and the other person who is involve din the negotiation. Is the negotiation partner a patient person? Is s/he someone who is well prepared to embark on the negotiation? Is s/he eager to negotiate to a successful conclusion or do s/he seem disinterested in the outcome?
• How long will the negotiation last? If a single session does not result in an agreement decide if the parties will continue the negotiation process or if they will consider the process to be ended. If the process is to continue decide who is to take the next step.

Be attentive during the negotiation process!

The negotiation process is an important part of your business. Be sure that you treat it as such. In most negotiations you will be able to achieve only some of the goals that you set for yourself at the outset. Therefore, you will have re-evaluate your position from time to time during the negotiation. This is to be expected.

When there is a need to revaluate your position, be sure to evaluate all choices before you decide how to modify your position.

Negotiation Examples and Learning Opportunities

Fact Situation 1: Common Facts:

Richard and Jane Chainie want to get into the business of raising turkeys for Albuquerque Tender Turkey Company (ATTCo) Each flock of turkeys will be about 10,000 birds. They will be housed for 11 weeks and then shipped to market.

The Chainie’s own a 100 acre farm on the outskirts of Appledorn, a village of only 100 people. Most of the Chainie farm has been used as pasture for beef or dairy cattle owned by prior owners or by neighbors who rented the land for that purpose.

To form a production contract with ATTCo, the Chainie’s must build two turkey houses and a manure management system to manage the manure that the turkeys generate. The Chainie’s will also have to dispose of birds that are likely to die while they are raised and build the facilities that are needed to do that..

My-T-Fine Construction Company (MTFCC) is the most well-known builder in Happy Valley, having been in business since 1991. MTFCC’s last construction project was building a two story parking deck at the Salt Hill Apartment complex in Happy Valley. The garage collapsed shortly after it was built and the cause of the collapse is under investigation.

Although MTFCC has never built animal production or waste management facilities, it obtained a set of complete plans for these facilities from the internet. Its principal architect and building engineer are confident the company can build the facilities.

Many of the employees who worked on the Salt Hill parking deck found work with other contractors and refuse to return to MTFCC. Finding skilled workers is difficult in all of the surrounding communities

Divide a group into two teams. One team should represent the interest of My-T-Fine Construction Company. The other team should represent the interests of Richard and Jane Chainie. Give each team the additional facts that are known only to that team. Each team will review the facts and decide if it wants to enter into negotiations with the other team. Each team is tasked is to complete the following steps:

1. Review the situation and reach an agreement among the team members about how you wish to proceed with the negotiation.
2. Decide on which things are essential to your position in the negotiation process.
3. Proceed to negotiate with the other team that shares your situation. Remember that each team has facts about the situation that are known only to the team. The other team should have no idea about the additional facts.
4. Since negotiating with several people may be difficult, each team should select one or two people to be the team’s representative. If necessary the team can be consulted with regard to special issues or problems that arise in the negotiation.
5. If you can reach an agreement that is acceptable to both sides, list the items that will be part of your agreement.
6. Be prepared to represent your team when the three cases are discussed in class

Additional facts known only to MTFCC:

MTFCC has never built animal production or waste management facilities. However, it obtained a set of complete plans for these facilities from the internet. Its principal architect and building engineer are confident the company can build the facilities. How hard can it be, asks their President?

The collapse of the Salt Hill Apartment parking deck has brought a halt to all of MTFCC’s projects. Investigators are going through Company records and key people are being interviewed daily as part of the investigation.

MTFCC’s building cost estimator calculates that the cost of building these buildings will be $230,000. Normally, MTFCC works on a construction cost mark-up of 100%. The loss of revenue caused by the investigation of the parking deck collapse is causing the company to lose money. The company is interested in maximizing its income as quickly as it can.

Additional facts known only to the Chainie’s: If the Chainie’s enter into a contract with ATTCo the Chainie’s must be in operation within six months. ATTCo is pressuring the Chainie’s to decide if they want to raise turkeys for ATTCo. The Company wants an answer soon, or it will pay more attention to farmers who are willing to make the decision.

The Chainie’s estimate they will be able to pay $30,000 per year in principal toward the cost of the construction. They expect to own the buildings in ten years. At a $300,000 cost, the building will be at the average cost for similar buildings on Happy Valley farms.

Situation 2:  Common Facts

The “Sun Never Sets” Farm (SNSF), is owned by a corporation controlled by the Szetts family. As part of the business, the corporation operates a milk, dairy products and ice cream store on the farm premises, including a home and retail store delivery business. It currently needs to expand its milk bottling capacity by about 100% to keep up with demand from local residents and grocery store chains. The size of the delivery fleet must grow from its current size of 6 trucks to a minimum of 12 trucks.

Trucks Are Us (TAU) is a local company that sells specially designed trucks for a variety of commercial uses. When SNSF purchased trucks in the past they purchased them from TAU. The family’s experience with the company is satisfactory.

Divide a group into two teams. One team should represent the interest of Sun Never Sets Farm. The other team should represent the interests of Trucks Are Us. Give each team the additional facts that are known only to that team. Each team will review the facts and decide if it wants to enter into negotiations with the other team. Each team is tasked is to complete the following steps:

1. Review the situation and reach an agreement among the team members about how you wish to proceed with the negotiation.
2. Decide on which things are essential to your position in the negotiation process.
3. Proceed to negotiate with the other team that shares your situation.
4. Since negotiating with five people will be difficult, your team should select one or two people to be the team’s representative. If need be the team can be consulted with regard to special issues or problems that arise.
5. If you can reach an agreement that is acceptable to both sides, list the items that will be part of your agreement.
6. Be prepared to represent your team when the three cases are discussed in class.

Facts known only to TAU

The owner of TAU is in severe financial difficulty. Cash flow has dwindled and the company needs to raise as much cash as it can, as soon as it can. Most truck manufacturers with whom TAU deals have indicated that they no longer want to deal with it. The only manufacturers who still deal with them produce trucks of lower quality. Typically these trucks must be replaced after 7 years.

The profit earned by TAU on the sale of a typical delivery truck is $6,000. TUA wants to raise that to at least $8,000 per vehicle. The cost of each vehicle to TUA is $30,000. Facts known only to SNSF The corporation has allocated $210,000 for the purchase of the new trucks. If the trucks can be purchased for less than this amount, the corporation will share the savings with the family shareholders. The negotiators for the family want to share in those savings. To meet the needs of the corporation, the trucks must last for at least 10 years. Typical truck warranties are 3 years from the date of the sale.

Situation 3: Common Facts:

Bill and Hillary own a 300 acre dairy farm in Happy Valley. Gradually the size of the dairy has grown and it now milks 200 cows. The dairy farm has all of the machinery and equipment that a typical dairy farm of this size has. The facilities were built more than 20 years ago, but they have been maintained well and operate with few apparent problems.

Bill’s health has gotten worse over the past few years and Hillary is unable to manage the farm on her own. Bill is able to work a few hours a day, but he can not work the full 12 hour days he did when he was younger. Bill and Hillary’s daughter, Monica, is not interested in farming and has a career of her own as an entertainer in Silver City.

George and Laura own and operate a neighboring dairy farm that wants to expand its operation from its current size of 300 cows to 800 cows. In order to do this, George and Laura must find larger facilities. George and Laura know that Bill and Hillary are interested in retiring from dairy farming.

Divide a group into two teams. One team should represent the interest of Bill and Hillary. The other team should represent the interests of George and Laura. Give each team the additional facts that are known only to that team. Each team will review the facts and decide if it wants to enter into negotiations with the other team. Each team is tasked is to complete the following steps:

1. Review the situation and reach an agreement among the team members about how you wish to proceed with the negotiation.
2. Decide on which things are essential to your position in the negotiation process.
3. Proceed to negotiate with the other team that shares your situation.
4. Since negotiating with five people will be difficult, your team should select one or two people to be the team’s representative. If need be the team can be consulted with regard to special issues or problems that arise.
5. If you can reach an agreement that is acceptable to both sides, list the items that will be part of your agreement
6. Be prepared to represent your team when the three cases are discussed in class.

Facts known only to George and Laura: Although George and Laura want to expand their operation, their credit standing is not good. They are heavily mortgaged to Farm Credit (FC) and the Happy Valley National Bank and Trust Co. (HVNBTCO) and these debts may prevent them from obtaining credit at an affordable rate of interest. George and Laura have missed payments in the past year. They are trying to make extra payments to offset earlier missed payments.

Facts known only to Bill and Hillary:

Bill and Hillary plan to continue to live in the home on the farm. They have very little in savings, and need income on which to live. Current monthly household expenses are $1500.00. In addition, Hillary needs $350 for prescription drugs that she needs. Taxes and insurance on the farm cost $15,600 per year.

Although the farm seems to be in good condition, Bill knows that the milking equipment and the barn are in