Ag Retailers Adapt in Digital Age

Only 25% of U.S. crop farmers purchase inputs online in 2017, according to USDA. ( Lindsey Benne )

While e-commerce remains a small segment of the overall agricultural retail marketplace, it’s poised to own a bigger piece of the dollars spend on inputs in the future. 

“The growth of e-commerce has transformed consumer retail and is now poised to accelerate changes in agricultural retail,” says Will Secor, grain and farm supply economist with CoBank. “E-commerce startups in ag retail have eroded farm supply margins by bringing in new competition to the industry and by increasing price transparency.”

Only 25% of U.S. crop farmers purchase inputs online in 2017, according to USDA. But, that’s up from just 16% in 2013. The total number of farmers purchasing inputs online increased by 40% over these four years.

This trend is likely to continue, Secor explains, due to continued farm consolidation. Around 40% of farms with more than $250,000 in sales purchase inputs online. That compares to 24% of farms with sales of $10,000 to $99,999.

Despite relatively low sales, e-commerce companies focused on agriculture pose a threat to brick-and-mortar retailers in two ways, Secor explains.

  • Any new competitor will erode sales and margins to some degree.
  • E-commerce sites increase transparency for product prices.

Traditional ag retailers will need to transition to an omni-channel strategy and capitalize on their unique value proposition in order to grow and succeed in the digital age, according to a recent CoBank report authored by Secor. 

“Focusing on the competitive advantage traditional ag retailers have in distribution and service and investing in the right technologies will allow them to succeed in the changing environment,” he says. “Retailers need to leverage their physical assets and relationships with farmers.”

The physical footprint of traditional ag retailers is one of their competitive advantages. E-commerce platforms without a physical presence are less equipped to provide farmers with immediate support during uncertain time windows caused by variable factors, such as pest pressure and weather, Secor says.

Even though more transactions are shifting to e-commerce, four requirements are needed to be successful, says Tim Bence, CommoditAg chief operations officer. They are:

  • infrastructure
  • human capital 
  • proven capability 
  • strong supply chain relationships

“Most of the time when purchases move online, it’s transactional first—you want to save money,” says Bence, whose company launched in 2017 to serve farmers through local ag retail but with an online ecommerce platform. “But then it becomes about the ease of transaction.” 

That ease of transaction can be defined in many ways. To Bence, farmer expectations are driven by competitive pricing, product selection, quality assurance, availability, agronomic information, payment options and data-driven recommendations.

 

Key E-Commerce Trends for Ag Retail

Chatter and buzz around the rapid development of e-commerce start-ups in the agricultural retail industry continue to grow. Two hyperbolic claims illustrate the debate around the future of e-commerce in ag retail, says Will Secor, CoBank grain and farm supply economist. The likes of FBN, AgVend, Agroy and other online ag retail websites are nothing to worry about, and e-commerce will be the death of traditional ag retailers. 

“While the discussion about online ag retail can often devolve into an ‘either-or’ choice between these claims, the future of traditional ag retailers is more nuanced and lies somewhere in between,” says Secor, who recently authored a CoBank report about e-commerce disruption in ag retail. His key findings include:

  • E-commerce remains a relatively small but growing segment of the overall agricultural retail marketplace. 
  • Online ag retail startups are compressing margins for traditional ag retailers through increased competition and price transparency. 
  • E-commerce platforms that lack a physical footprint will struggle to fully serve farmers, especially in the tight and uncertain time windows endemic in production agriculture. 
  • Traditional ag retailers are doubling down on their competitive advantages while building their online presence. 

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