Online Ag Retail May Gain Momentum For A Pivotal Year
Online purchases of crop inputs have attracted renewed interest. Although many consumer segments have been disrupted by technology offerings in the past decade—Netflix versus Blockbuster to name one—consultant Steve Watts points out the first wave of e-commerce for ag retail appeared 20 years ago, and it included Rooster.com.
“Rooster.com was funded by DuPont, CHS and Cargill,” says Watts of the Farrell Growth Group. “Sufficient financial backing was never a problem at Rooster.com; getting traction was the problem”
With more than a handful of entities now offering e-commerce in the ag retail space, many in the industry see 2018 as a springboard year for e-commerce and ag retail. So what makes this second wave in the industry different? Watts says many factors are coming together.
“Technology, farm size, age demographics and the depressed farm economy are helping ensure e-commerce will gain a foothold in ag retail this time around,” Watts says. “In the many examples of disrupted consumer segments, it may seem like brick and mortar have fallen prey overnight. But they’ve fallen prey to their own defensive thinking and a gradually eroding value proposition.”
In 2017, USDA found 23% of farmers bought any type of farm input (generally categorized) online, which is 4% higher than 2015.
In The Market. Of the e-commerce businesses, some are competing with traditional ag retail, and others aim to provide tools to help retailers transform their businesses.
“The industry has seen a proliferation of several online platforms as everyone is thinking about their own approach to change their business models,” says Daren Coppock, president and CEO of the Agricultural Retailers Association (ARA). “The core of the ag retail industry is still being a long-term strategic partner for the grower. Retailers have been out there for decades building relationships with customers, and they can bring a suite of products and valuable services.”
Members Only. In 2017, Farmers Business Network (FBN) made a splash in ag retail with FBN Direct, its e-commerce offering. In the pilot year, Amol Deshpande, CEO of FBN, says 35% of FBN members (6,000 and growing) purchased crop inputs on FBN Direct. In one promotion for the Cyber Monday after Thanksgiving, FBN Direct had transactions from 400 accounts.
FBN Direct is one of FBN’s four business divisions. The others are analytics, finance and crop marketing. In February 2018, FBN became a member of ARA.
Blake Sczepanski farms 9,000 acres in northwest Minnesota with his brother. He says being a transactional customer with FBN fits their farm.
“We buy about 90% of our chemicals through FBN Direct,” he says. “The hardest part for me is understanding rates of chemicals, but that’s just a simple phone call to FBN, and they can help.”
FBN measures its footprint in the total number of acres—21 million acres currently—and Deshpande says the company thinks its members will represent 25% of the acres in the U.S. by mid-2019.
FBN Direct offers crop chemicals, fertilizer, seed in some geographies and services such as spraying.
Farmers can drive to one of nine warehouses to pick up product if they need it sooner than the one- to four-day delivery window provided by FBN.
To access FBN Direct, a farmer must pay $600 each year to become a member of FBN.
Collaborative Footprint. Another group that piloted a program in 2017 and is targeting 2018 as a foundational year is CommoditAg. This startup was born out of Illinois-based The Equity, and today, it also includes Sunrise Cooperative in Ohio, Landmark Services in Wisconsin, MKC in Kansas, and others as partners.
“As the agriculture industry continues to evolve, we are partnering with the most well-recognized names in ag retail to ensure farmers have exactly what they need from people they can trust,” explains Ryan Wermert, CommoditAg’s chief strategy officer.
CommoditAg looks to leverage the existing infrastructure that traditional ag retailers have but focus on providing a product-only purchase with either pickup or delivery services. This year, the company has crop production, plant nutrition and adjuvant products available online—with seed targeted to be added in 2019.
“It’s a matter of giving the customer choice,” says Tim Bence, chief operating officer for CommoditAg. “The Equity has been in business for 98 years, but we know the market is evolving. A lot of customers have moved online.”
Bence explains The Equity’s involvement doesn’t change the business’ core mission, but the firm recognizes that up to 25% of the market could adopt e-commerce.
“With the online experience, it’s not just necessarily cheap prices. It’s table stakes that prices are competitive. We have to deliver a good customer experience—online and in-person,” Bence says.
E-commerce challenges the traditional business model. It decouples product from service, which is typically added into the total cost and seen as high-service.
“CommoditAg is a way for farmers to get products they need from a local company. They don’t need the application, they don’t need the advice—just the product,” says Sunrise Cooperative CEO George Secor.
Sunrise Cooperative is bringing four of its warehouses online with CommoditAg in 2018. Secor says today half of the cooperative’s customers apply products themselves. It used to be less than one-third.
“We didn’t have any customers come to us and say they wanted online ag retail options, but we felt it was important to be proactive in this way and offer that choice,” Secor says. “Overall, CommoditAg isn’t the way cooperatives have always done business in the past, and I don’t see how we lose by offering this.”
In launching CommoditAg, the team reports that the timing felt increasingly important.
“This is going to be a big adoption year,” says Cheryl McWhorter, vice president of business alignment at CommoditAg. “We are working hard to get everything worked through so we can service that last mile.”
From The First Wave. Perhaps the sole survivor from the first wave of e-commerce is FarmTrade, which launched as XSAg in 1998 but got new ownership in 2012. FarmTrade only deals in ag chemicals, though it has previously ventured into animal health and seed sales.
“We’re a trading floor for chemicals,” says Jeff Stow, president of FarmTrade. “We have buyers and sellers, and we just facilitate the transaction. The majority of our buyers are farmers, about 70%, and the other buying is from other retailers or distributors.”
Right now, the site has hundreds of sellers. About 40 sell often, and about 10 complete the majority of the website’s sales. The site has more than 100,000 farmers and other buyers registered, and it has 20,000 active users annually.
“I buy more than half of my herbicides and fungicides online through FarmTrade,” says Greg Close, a corn and soybean farmer in Reynolds, Ill. He started buying online nearly 20 years ago for his 3,000-acre farm.
Farmers who join FarmTrade go to the online trading floor and place a “bid” for the chemical they want, and member retail or distributor companies respond by accepting or countering offers. After farmers accept a seller’s bid, they still don’t know who sold the product, unless it happens to be included on the shipping information.
“We’ve seen a steady 5% to 10% growth year over year with jumps as high as 30% in tougher market years,” Stow says.
Two-Pronged Approach. A startup, AgVend, launched in December 2017. It also guards the seller’s identity. AgVend provides retailers with two e-commerce solutions. The first is a public marketplace, where buyers can search and buy crop protection inputs. The second is a digital storefront that retailers can use on their own websites with their own branding.
“The industry is ready to experiment and figure out how to evolve,” says co-founder Alexander Reichert.
The site’s marketplace directs users to search for a product and zip code. Retailers can select to limit products so that they are only searched within a certain radius of any zip code. For example, searches are within 50 miles from a location or distribution point.
The results include products; bundled services, such as application; price; and pickup or delivery options. The location is known at this point in the search; however, the exact retailer is unknown. After checkout, the retail partner is revealed for contact information.
“Our research showed that farmers truly value the relationship with their retailers, but they wanted to be selective in how they purchase products and then how services are bundled with those products,” Reichert says.
AgVend aims to add crop nutrition products by the second quarter of 2018. Currently, it has independent retailers participating in Washington, Oregon and Idaho. At press time, relationships with midwestern partners were pending.
Eye On Expansion. The site Agroyinc.com mimics the Amazon model by putting wholesale agricultural products online. Agroy Inc. started two years ago and represents 1,000 farmers.
“This past fall, we had 250,000 acres, and in just three months, we’re up to 8 million,” says Brad McDonald, Agroy Inc. co-founder.
Retailers and other input suppliers can market products for free on the website, both with and without shipping price options.
“We act as a third-party seller like Amazon and work within the current retail system,” McDonald says. “Retailers see us as a free marketer for products and another way to increase market share.”
Arrival Of Change. All entrants in the marketplace are challenging the traditional ag retail business model. Watts says what e-commerce is highlighting is the battle for the value-conscious buyer.
“No ag retailer can realistically expect to garner sufficient product margins to cover excessive operating costs while providing average or unwanted service,” he says. “Traditional ag retail needs to modernize its value proposition. Additionally, ag retail needs to do a better job in explaining their added value so customers are focused on more than just price.”
Although he believes change is coming to ag retail thanks to e-commerce, he thinks the nature of the business is still driven by people—due to their boots on the ground.
“It is the people in ag retail who play a key role–perhaps the most important role–in how far that penetration will be,” Watts says. “I firmly believe the ag input retail business will be one of the most difficult for technology to disrupt, due to the complicated nature of the industry driven by the weather and biological organisms. High-quality PCAs or CCAs will not be sidelined anytime soon due to some computer algorithm. The products and service programs you’ve developed will not be sidelined anytime soon either.”
Watts gives these three takeaways for ag retailers:
- Most consumer retailers being washed ashore probably once thought they too had impenetrable moats around customers.
- The retail crop input market—in some part—will be served by e-commerce, but we may be surprised who will be the players.
- Perhaps most important, many more farmers will follow the early adopters, unless traditional ag retailers make some needed adjustments in the structure of their businesses. This includes cost, price and recognizing who really defines “service” and “value.”
Editor’s Note: Sonja Begemann contributed reporting to this article.
Services Ready On The Sidelines
The past two years have seen more than a handful of entrants directly selling crop inputs online. Related, a series of companies are digitizing ag retail albeit not directly with e-commerce.
“We need to continually change our business to increasingly take advantage of technology,” says Teddy Bekele, WinField United vice president of ag technology. He says a focus of WinField United is to make ag retail more digital. As examples, WinField United has partnered with 16 retail businesses to redesign their websites, and they are working to transition the business from paper tickets to online tracking.
“I like the term e-business, which means making the business more digital and streamlining the processes behind the scenes,” Bekele says.
To connect retailers and growers through next-generation communication and with real-time agronomy and services, Agrible is launching its retailer services for 2018.
“Retailers have data that is very localized, and with our modeling for nitrogen, phosphorus and insect pressure, they can help the grower with recommendations,” says Jason Little, Agrible director of sales.
For example, on the Agrible platform, growers and advisers would receive an alert. From there, they can communicate; confirm a recommendation; and in the future, order product.
In early January, Brandt Consolidated launched a product finder mobile app. Along with sharing product details, it helps connect users with local sales reps. Coming soon is a “where to buy” feature based on the user’s GPS.