How to Diagnose a Wicked Agribusiness Crisis

The Iran War is hitting American farmers from multiple directions — not just through higher fertilizer costs, but through the rising price of diesel and gasoline too. 

But this is far from agriculture's first energy crisis. In fact, during past crises we built tools and strategies for surviving the exact kinds of disruptions we're facing right now.

Today, Sarah Mock and Trey Malone, along with special guest Otto Doering, look back at the 1970s propane crisis to find lessons for what to do (and what not to do) in response to our current energy squeeze. Then, they lay out a strategic framework for tackling these very kinds of "wicked problems" that seem to have no good solutions.

You'll walk away with a better understanding of:

• How to use Rumelt's Kernel of Good Strategy to accurately diagnose the real problem before reaching for solutions — and why skipping that step is where most strategies fall apart.
• Why building trust and surfacing hidden value judgments are prerequisites for solving problems that pit interconnected stakeholders against one another.
• What today's energy-agriculture collision, from AI's rural electricity demand to solar on farmland to farm bill uncertainty, means for how agribusinesses need to be planning right now.

Agribusiness Blueprint is brought to you by Purdue Center for Food and Agricultural Business: agribusiness.purdue.edu. To learn more, follow, The Center for Food and Agribusiness on LinkedIn

Agribusiness Blueprint is supported in part by the USDA National Institute of Food and Agriculture (NIFA), Award No. 2022-68006-36433.

Transcript

SPEAKER_00 0:00

The Iran conflict is causing pain in the ag industry. Fertilizer is a big part of that, but it's not the whole story. In fact, the soaring price of gasoline, diesel, and other energy products could turn out to be the biggest problem for farmers and the agribusiness sector coming out of this war. For those feeling the pinch, today's situation looks like a policy quagmire, leaving many wondering what possible solutions are even on the table.

SPEAKER_03 0:31

If we look at today's situation, there we're dealing with something where politics and war are giving signals to the market. We're in a situation now where the cost of gasoline has gone up about a dollar. And now the politics come into this and the values, and it's all based on logistics. The problem is not that there isn't the oil in the world. The problem is getting it from one point to another.

SPEAKER_02 0:59

So we're not in a shortage position yet. Like I can still fill up my truck. It costs twice what it did two weeks ago, but there is gasoline there. What was it like in the 70s when you basically had this massive energy shortage? Like, what does that look like on farm when all of a sudden there's just nothing?

SPEAKER_03 1:16

We start thinking about rationing fuel and trying to deliver it directly to agriculture.

SPEAKER_00 1:23

As American agribusinesses struggle to write the ship during today's energy disruption, we have this history and the tools we built to survive in the past to guide us. So we're talking energy, policy, and agriculture today on Agribusiness Blueprint. This is Agribusiness Blueprint, a limited series podcast about American agriculture's most impossible challenges and the agribusiness leaders who solve them. You're here with me, Independent Ag journalist Sarah Mock, and my co-host Trey Malone, the Associate Professor of Agricultural Economics and the Bolgi Chair at Purdue University. And today we're talking about the wicked problems of American agriculture and energy policy. We'll start by looking back to the 1970s, when a propane shortage in Louisiana threatened to rot Indiana's corn crop. We'll dig into the strategies developed in that era to address this problem and how we're adapting them today to deal with the current energy crunch related to the Strait of Hormuz. Finally, we'll talk about how to apply these tools in your agribusiness by accurately describing the kernel of the problem, building trust in and outside your organization, and only then finding an achievable path towards a solution that works for the people involved. To get started today, we're heading back in time once again. Last episode, we talked about the boom years of the 1970s and the 1980s farm financial crisis, but there was a mini crisis that happened in the midst of all that that we left out. To help us understand that history, we're joined today by Otto Doring, a retired public policy specialist from the Agricultural Economics Department at Purdue University, and a man who experienced this historic disruption firsthand.

SPEAKER_03 3:17

We got to a point in the early 70s where there were some serious energy problems with respect for agriculture. And the chair of agricultural engineering phoned up and said, I need an economist to help us. We're facing the harvest season with shortages of natural gas and propane, and we don't know quite what to do. And from that point, I was engaged 24-7 in all sorts of crises in the early 70s.

SPEAKER_00 3:50

The specific crisis that kicked off in 1972 was a natural gas and propane shortage. For those who aren't deeply embedded in commodity grain production, propane is a central ingredient to one key stage of growing corn. After harvest, corn kernels have to be dried down in order to prevent spoilage. And this step is carried out by burning propane. Without this critical drying fuel, a wet fall could doom the corn harvest to destruction and farmers' pocketbooks along with it. So the natural gas and propane shortage was no small problem for Midwest farmers or their lawmakers. But the problem was the shortage itself wasn't really something they could control. It was being caused by policies decided on the other side of the world, but it was furthered by decisions here at home. From Otto's perspective, the problem was in the policy.

SPEAKER_03 4:51

So any gas that passed state borders had a capped price that was set by the federal government. And this ended up being one of the factors that caused a shortage of natural gas.

SPEAKER_00 5:07

For many, it's probably not hard to imagine why a government set price for something like propane would lead to a shortage. But it's worth understanding the mechanisms and specific conditions at the time. Because this wasn't a simple case of bad central planning, it was a combination of imperfect decisions and unpredictable external events.

SPEAKER_03 5:32

And President Nixon put on price controls. So you had natural gas but at a relatively low price whenever it crossed a state border. And because there were some physical shortages, we ended up with the gas in the state becoming incredibly expensive, high priced, and the gas that crossed going from Louisiana to Indiana being incredibly low priced, and that low price was forced on the industry. Well, what the people do? They sell their Louisiana gas in Louisiana to fertilizer plants, to chemical plants, and the supply to Indiana dries up.

SPEAKER_00 6:22

Maybe the solution to all this seems simple. Remove the price control and allow natural gas to move wherever people are willing to pay the most for it. This is exactly what Otto argued back then. But the problem is this couldn't happen quickly or easily. In fact, removing the price cap required an act of Congress. So with the most straightforward option, more or less off the table in the short run, what else was possible? From Otto's perspective, it was time for the state to do whatever it could to protect the harvest.

SPEAKER_03 6:54

So Indiana ponied up instantly, enough money to buy a hundred million gallons of propane, which we bought in Louisiana. Okay, good deal. Problem solved. Then we tried to get the propane up to Indiana. Well, we couldn't. Pipeline capacity was booked for the normal transfer of propane and natural gas. We tried to get rail cars. Well, propane is not only valuable for agriculture and grain drying, General Motors uses it for heat treating gears. So General Motors got ahead of us and signed up all the rail cars that were available and filled them with propane and brought them up to the auto plants in Michigan where the cars were sitting on demourige, i.e., General Motors was using them as propane storage so they wouldn't run out of propane. So we couldn't move the propane.

SPEAKER_00 8:07

As you can see, the problems just kept piling up. The most straightforward options would not only be difficult and time consuming, they would probably come too little too late. And the creative workaround seemed nearly as impossible. But as Otto and his collaborators continued to reckon with the grim situation for agriculture, time did not stand still. And the problem continued to evolve.

SPEAKER_03 8:34

Citizens generally decided that they needed to do whatever was best for the country. We knew we were facing absolute physical shortages, and the question was not just drying fuel. In fact, because we produced the propane and the natural gas, we were better off for those than we were for liquid fuels. So liquid fuels, that's what we're after. What do we do? An incredible effort was put into conservation and it had impact. And some of it was forced. We had days of odd and even license plate numbers, where if you had an odd number, you could line up for gas on Monday, Wednesday, Friday. If you had an even number on your license plate, you could do it the rest of the week.

SPEAKER_00 9:24

This national effort to manage the energy crisis was painful for individuals, companies, and the country as a whole, especially during the most acute six months of formal rationing. But for our purposes, what we care most about is the outcome of the crisis for agriculture. So, did Indiana farmers get the crop dried down, or was the harvest in 1972 lost to spoilage due to a lack of propane?

SPEAKER_03 9:50

How did we solve the problem? We didn't. We had a warm, dry fall, and that more than anything else got us out of the problem.

SPEAKER_00 9:59

For those with a crop in the ground in 1972, this was as good of an end to the crisis as they could have hoped for. But this is far from the end of the policy story. With the immediate catastrophe averted, those in the thick of policymaking continued to push for changes that would ensure this wouldn't be repeated in the future. But the problem now was those with their hands on the levers of power were in genuine disagreement about what the impacts of a given change might be.

SPEAKER_02 11:36

This is the classic thing that in a lot of the introductory economics textbooks they say, look at how stupid this was. It's so much better once we fixed it and made the market work. So it's just funny to hear that the stuff that gets passed forward in our textbooks were actually developed in conflict and in debate.

SPEAKER_00 11:55

What Trey is pointing out here may seem obvious. Of course, 2020 hindsight is a real thing. It's easy to point out good and bad decisions made in the past, because now, in the present, we have a clear understanding of not all the predictable outcomes, but all the actual outcomes that resulted. And from this perspective, we're much less sensitive to the alternatives that decision makers were considering at the time. We have to consider all the options and all the potential outcomes of each of those options as we make difficult decisions that move the industry forward. And oftentimes today, just as was true in the 1970s, the best options are off the table. And the second best solutions are so difficult as to border on impossible. There are many situations today where what we'd prefer to do is not viable. And when choosing among the lesser options, we have to contend with a thicket of knock-on effects in policy and politics, the economics of other industries, consumer impacts, and more. This is one of the reasons that energy crises, like the 1970s propane shortage, are wicked problems. They have no easy solutions, and different stakeholders will always insist on radically different paths forward. Today, agribusiness is facing more wicked problems than ever, especially in the sphere of domestic and international policy. So, what tools do we have to deal with these nearly unsolvable problems? That's after the break. Today's episode is brought to you by Purdue University's Center for Food and Agricultural Business. For 40 years, the center has helped agribusiness leaders make better decisions using the kinds of tools you're hearing about in this episode: clearer strategy, stronger marketing and financial thinking, and better management in a system that doesn't behave like any other industry on Earth. If you want to go deeper, the center's programs and research are built to help professionals apply these frameworks, not just learn them. Explore 40 years of insight and find out what's next at agribusiness.purdue.edu. Now, back to the show. So the energy crisis of the 1970s represented a wicked problem, especially for the agribusiness world. But what exactly does that mean?

SPEAKER_03 14:27

Wicked problems are, first of all, the ones we all hate to face because they're largely intractable. Good example of a wicked problem: health care. And just think your way through that. Number one, you're talking about the medical profession. What does it want? How does it perform best? What rewards does it want from the system? You're talking about health insurance companies. You're talking about Medicare and Medicaid. All of these things interacting together with whether an individual takes care of themselves. This all involves markets. It involves policies. And wicked problems almost always involve people's values as well. And it's the values that are really incredibly difficult to work with.

SPEAKER_02 15:27

I like to always say that one of the most important parts of strategy is knowing what it would take to change your mind. And I feel like in wicked problems, oftentimes there is nothing that you could do to change somebody's mind on whatever that thing is. And so it creates this, to your word, intractable challenge of saying this is an issue, but you will not solve it the way that it needs to be solved.

SPEAKER_00 15:52

This is our working definition of wicked problems. They're problems that pit interconnected people and organizations against one another due to their differing incentives. And they're problems where the best solution is often off the table, and where other less ideal options would simultaneously impact policy, economics, and individual and organizational values. So what do we do then with these wicked problems? How do we strategically start solving them?

SPEAKER_02 16:22

The only way that you can solve a problem is if you accurately identify and define what it is in the first place. So Roomelt's kernel says we diagnose a problem first and foremost. And most strategy fails at that diagnosis level. You did not effectively diagnose what the actual meaningful challenge was for your business or for your country or for your household, for your farm. Until you effectively diagnose a real problem, you should never be moving toward what is the next step of a good strategy, which is a coherent action. You should not be thinking about what is the thing that will solve this until you have effectively diagnosed the actual challenge at hand.

SPEAKER_00 17:06

From Trey's perspective, identifying this kernel of good strategy is the most important thing that any strategist, from farmers all the way up to our top lawmakers, can do. Because it's only by understanding the true heart of a wicked problem and separating it from the noise of competing problems and issues screaming for our attention, that strategists can find paths forward that address that kernel without getting stuck on details that just don't really matter.

SPEAKER_02 17:35

And that's what Otto did, I think, better than anybody else in that era. And I'll point out that once you effectively describe a challenge, you can then set up hypotheses to test whether or not your solution actually solves the issue.

SPEAKER_00 17:51

So the relevant question for us today is how do we take what Otto learned in the 1970s and our strategy for identifying remote's kernel and apply it to our current wicked energy problem, the sudden spike in fuel prices related to the US-Iran conflict in the Middle East. The first step from Trey's perspective is not to repeat our past mistakes.

SPEAKER_02 18:13

The obvious response is that we need to ban high prices. But the challenge associated with any type of knee-jerk response like that is that you forget what prices actually are. And prices are signals. And just because you ban the price does not necessarily mean that the problem goes away. So when I think about the better solutions right now, we should probably be talking more about increasing the options associated with what type of energy you need. A, maybe you're talking about getting lean, which is look at what happened to cars in the 70s. That's when you you saw the explosion of demand for Hondas. Now, are we going to see it with electric vehicles? Maybe. I don't know. But the bigger, I think, conversation around what this means for public policy, we really need to be focusing on what the objective function is for the policy before we write some half-baked bill.

SPEAKER_00 19:09

This is valuable advice on what not to do, but what exactly is it that policymakers should do instead? What deeper lessons from the 1970s experience might we apply to our crisis today?

SPEAKER_03 19:21

In the energy crisis in the 70s, it was such a national crisis that important players were really willing to take some pain themselves to modify their value judgments to try to reach a solution for the nation. And that's what you've got to have. You have to figuratively get these people around a table and get them to the point where they will put their value judgments on the table. Value judgments that are hidden will stop any solution because people won't know why you wouldn't agree. You have to be willing to put your value judgments on the table, and that's scary, because then you might have to compromise one of them. And where solutions of some sort came about, different players developed trust in each other, number one. At that point, they were willing to put their value judgments on the table, compromise a little on their value judgments.

SPEAKER_00 20:37

Understanding the key values of the people involved is the heart of Roomel's kernel. Even more than the physical, political, or economic realities, what people involved in the problem want or believe tends to be an overpowering force in any negotiated solution. We can see that now with our current fuel crisis, where the problem is not an actual physical shortage of gasoline or diesel. Today's wicked problem exists at the intersection of national politics, consumer prices at the pump, and international relations as the Trump administration and its allies attempt to balance competing values around affordability, and by extension, electability, global security goals, and likely many other priorities. But as Otto says, until these priorities, values, and incentives are clearly defined and stated, it's not possible to identify the real heart of the problem.

SPEAKER_02 21:31

But here's the thing, you're never going to get to somebody's true incentives if you're strangers, right? So in general, I think that we're far better off in strategy to spend a lot of time really trying to understand what the perceived problem is or what the the incentive to solve that problem might be in a way that that really captures what they actually feel on the ground. So one of my favorite things is I'll ask strategy groups or any strategy meeting what why does your strategy succeed or fail? And oftentimes what they'll say is, well, it's the execution that makes it fail. And what I hear in the background, the static behind that statement, is that my strategy was genius. What I came up with was perfect. The reason that this thing didn't work is because the people who worked for me are morons. And since they're morons, the execution fell apart. But if they had just done exactly what I said, nah, I would have been perfect. Everything would have been awesome. Well, guess what? You failed because you did not meaningfully spend time understanding and articulating what the problem was to the people that you're supposed to have a relationship in your firm. And that failed not because your people are idiots, but because you didn't spend enough time working together to solve the issue.

SPEAKER_00 22:46

Or potentially because you picked a solution that they couldn't execute on, but that's on you. That's right. You need to pick solutions that your people are capable of executing on.

SPEAKER_02 22:57

Yeah, yeah, totally. Very easy, I think, when people talk about strategy to forget that there are a handful of requirements for what strategy really means. So, first and foremost, the thing about strategy is A, you have to have a plan. Winging it is not a strategy, that's just a reality. The other thing that you have to remember is that strategy requires the anticipation of others' behavior. You cannot just create a strategy that happens in a vacuum. If your strategy is just that I said this and it's supposed to happen because I'm saying it from Mount Sinai, no, you failed. No, you have got to be premeditating. You have to be anticipating exactly what somebody else might do. Now, that might be a competitor. That probably is also going to be your employees. It could be your manager. Either way, you have a bad strategy if you did not anticipate what the reaction was from somebody else.

SPEAKER_00 23:53

Again, these reactions to your strategy, whether they're reactions from your employees, teammates, managers, or, you know, the Iranians and the Israelis are factors that have to be anticipated. And we anticipate these reactions in part by understanding the values and incentives of the other players in the space.

SPEAKER_02 24:25

It's a challenge now when you look at who is on what side of what argument.

SPEAKER_03 24:29

There was not a tremendous political divide where you got automatic knee-jerk reactions to proposed solutions. And it meant you could do economic analysis, and in the back of your mind, you could think that there are reasonable people on both sides of this issue that I might be able to get to some middle compromise course, or at least something that might move us towards a better situation. Today, it is very hard for me to say, as an economic analyst, I could sit down with both sides and try to convince them that there was something we could do that would make the problem better. I mean, I'm not even talking about solving it. And it might mean a little bit of new regulation. It might mean a little bit of market freedom, on the other hand. Today, I think it would be difficult to do that because you would have the people who want absolute market freedom, absolutely tying on to their value judgment, and the people who wanted to regulate the devil out of stuff, wanting to regulate everything, and little room in between to try to balance off. There are places where you need regulation where there is market failure. There are places where we are regulating now where there is not market failure, and we probably should back away from it. But at this point, it's difficult to begin doing that in the specific instances that might help make a wicked problem better.

SPEAKER_00 26:15

This is the mandate for managers aiming to tackle wicked problems. First, we have to clearly identify and understand the actual problem we're facing. We have to identify the kernel of good strategy. Next, we have to build relationships and establish trust with all the people who could affect our final solution. And finally, we can shape a strategy that addresses the actual problem at hand and that the people involved are capable of carrying out. Today, being able to wield these tools to attack wicked problems like the impact of today's energy crisis is insanely helpful. But in the future, these competencies are more likely to be a matter of survival for individual farms and businesses, and potentially for agribusiness as a whole. Because just like in the 1970s, time doesn't stand still. The problems are evolving.

SPEAKER_03 27:10

Look at what's happening now, where our expansion of electricity demand for artificial intelligence is going to be such it's going to drive electricity prices through the roof. All right, who should pay? That's a value judgment.

SPEAKER_00 27:29

The question of the electricity and water demands of the data centers that power artificial intelligence are just one aspect of the current and future agriculture and energy interface. Depending on your region, we've also seen a big uptick in solar and wind energy production on farmland, or in some cases, displacing farmland, a trend that's perhaps not so different from oil and natural gas drilling on farmland in the past. Needless to say, there are more and more physical, political, and economic intersections between agriculture, energy, and technology all the time. And our collective and individual values around all three of these sectors are evolving too.

SPEAKER_02 28:10

I don't think that there has been enough conversation around the implications of high energy prices in the United States for trade policy. What happens if all of a sudden not just the labor is more expensive, but so is everything else? And how do we preserve an industry that is just a very expensive proposition for anyone? Now, uh at the farm level or at the ag retail level, you have to be really considering all of these different what-if scenarios. I think policy strategy is going to look very different in the near term. Uh, I think that the uncertainty around the farm bill process as it currently exists is something that is really important to keep an eye on. From a strategy lens, like I said, it's not abundantly clear to me that in the long run we're gonna be able to maintain such heavy reliance on guaranteed payments the way that we have. So as farmers or as an ag retailer or as a food processor, we have to be thinking more and more about building in our own contingency plans and not relying inherently on the risk management strategy associated with the federal policy.

SPEAKER_00 29:23

Managing wicked problems is hard, but knowing the context of our industry, the tools that are available, and how similar problems have been solved in the past goes a long way towards helping us shape a workable solution. Agribusiness's wicked problems are not limited to where our industry touches the energy sector. You can find wicked problems in every corner of the industry. But given the current energy crisis related to the Mideast conflict and the energy conflicts on the horizon, agriculture's exposure to the energy sector's wicked problems is only growing. It's pivotal that agribusiness leaders not only stay attuned to the evolving challenges at this intersection, but also that we fight for a seat at the table, not simply to disrupt and obstruct, but to take part in finding the real workable solutions that we need to advance our industry and to keep growing, in every sense, into the future. The good news for people like us is that, from Otto's perspective, the challenge of solving wicked problems will not only be for those with advanced and specific expertise, but for generalists too.

SPEAKER_03 30:34

You've got to have some people who have knowledge that is broad enough to encompass those things that you might not have thought of.

SPEAKER_00 30:46

This is where solving wicked problems in policy and beyond becomes about more than just understanding the history and the table stakes and having a good framework to guide you. It's also about having the right people with the right perspectives around the table.

SPEAKER_02 31:01

It feels like management went from a really small operation to now you're not just managing like a couple employees, now you're managing teams.

SPEAKER_01 31:09

In the end, a bad decision in small business can still be challenging, but the number of zeros you're talking about that starts to elevate pretty quickly when one's making a decision with a firm like a Corteva or John Deere or Bayer.

SPEAKER_02 31:21

Ag has become, in the last 20 to 30 years, so much more technologically savvy and so much more globalized. And the labor demands need to look different in this era. And so I think the talent management strategy has got to look different now than what it did.

SPEAKER_00 31:42

Managing personnel and times of transition, that's next time on Agribusiness Blueprint. Agribusiness Blueprint is a production of Purdue University's Center for Food and Agribusiness. I'm your host, Sarah Mock, alongside my co-host Trey Malone. The show was produced and mixed by me, Sarah Mock, with editing support from Trey Malone and Mike Bolgy. Additional support from the wider team at the Center for Food and Agribusiness. To learn more about programs, classes, and continuing education opportunities through the Center for Food and Agribusiness, visit our website at agribusiness.purdue.edu and follow us on LinkedIn for the latest news and updates. For specific questions about the show, contact Trey Malone and the Department of Agricultural Economics at Purdue University. Agribusiness Blueprint is sponsored in part by the Agriculture and Food Research Initiative Competitive Program of the USDA National Institute of Food and Agriculture, NIFA, award number two zero two two six eight zero zero six three six four three three.