More than 90 minutes listening to one speaker usually is quite boring in my opinion, but Allan Gray, the Land O’Lakes chair of agribusiness at Purdue University, kept my attention for his oneman presentation at the Agricultural Retailers Association annual conference. His opinions seemed right on target from my look at the U.S. ag retailer business.
For the program, his presentation was listed as “Future of the Industry” but he put a timeframe with his presentation title: “Retail Outlook to 2025.” Putting himself into the shoes of ag retailers, he said, “I say consolidation is coming to our industry. I say partnerships are going to mean a lot more to us moving forward, and it is going to be human talent that is the key for what we have to do to be relevant over the next decade.”
He went on to say, “I think the economic reset we are headed toward will drive efficiencies, and efficiencies are scale driven … Consolidation creates winners and losers, but the non-emotional side of me says that scale matters. You spread fixed costs over a larger number of assets and acres and that improves your efficiency.”
That reset of the economics for farmers is quite obvious because Gray noted that Midwest farmers
have been profitable at a level that cannot be sustained forever, and commodity prices had to drop back to a different plateau. “There have been profit margins six out of the last seven years in the Midwest of $150 to $200 per acre on average. That is profit above all costs. That is not sustainable; $200 per acre pure profit is not sustainable.”
Large-scale producers/farmers will increase their acreage, and ag retailers will be fighting for the business of the big producers to establish a foundation for their retail operations. The smaller farmers will be the profit gravy, at least that is the way I see it based on what Gray said.
Gray sees the success of one ag retailer in competition with another one based on moving data and information into insights that are then presented to the producer as implications for his farming operation. People within an ag retailer organization have to work with farmers on what the implications are to change the way things are done. A retailer’s staff has to explain what all this data means and how it can be used to improve an operation.
I agree with Gray in that an individual retail operation won’t likely be able to provide all the insights by itself that a producer needs. Partnerships, strategic alliances and joint ventures are probably necessary because not all the new services, information and resulting insights are likely to be affordable by some or even many retail companies. Insights to provide implications from data aren’t cheap to be developed.
Ag retailers have been competing on the quality of service provided to customers, and Gray showed results of the most recent Midwest ag survey showing that the biggest farmers do recognize differences in service, but they also don’t see much difference in the information provided by one retailer to the next. Therefore, providing insights and implications to earn the confidence of customers has to be a new mindset, not only technology investments.
And finally, I agree with Gray about partnerships with customers being necessary for the future.
Concerns of who owns the data will go away if a retailer does right by a customer. “Data sharing is less of a concern if they trust that I can use their data to help them be better and that I won’t be selling that data to anybody.”