Reported by AgFunder News
Bowles Farming has tried to improve the prices it buys inputs for by grouping together with neighboring farms and approaching retailers. How was that process and what did it reveal to you about the ag retail space?
We approached several retailers with a bulk order for various products and the responses and prices we got back were very different from one another. Firstly, the retailers did not know how to handle the request; this was something so different to anything they’d ever been asked before. We had very senior members of staff at the retailers calling us trying to understand what was going on! Some retailers could only quote on certain products while some didn’t quote at all. The differing prices gave me insight to which retailer specializes in what products. It was very valuable for price discovery as there were a few vendors that gave really competitive prices.
It also revealed to me that the ag retail space is still dealing with perceptions of an industry that were formed 20 years ago. When ag retailers were in their hay day, they were making money hand over fist. Competition was light and margins were amazing. Small retailers were bought up by larger organizations that were ambitious and wanted to grow, while the small retailers cashed out for millions. However, the hay day is over, the competition faced in that business is fierce. I heard a story about a large grower, packer and processor that looked into starting its own ag retail business because they are large enough to be their one and only own customer. What they discovered is that the industry’s margins are so small that many products are being sold at prices that cover only direct variable costs. They discovered they couldn’t do it any cheaper than what they are already paying. In fact, it would likely cost them more.
It was also clear that anytime you do something new there is skepticism. I received skepticism from the retailers as well as our friends & neighbours who we were trying to partner with. Everyone thought there was some grand master plan to get one over on them or maybe we knew something they didn’t. In reality, all we were trying to do is lower a line item on our crop budget.
There is a growing number of agribusiness marketplace startup companies starting to sell crop inputs online with the hope of reducing prices for farmers. But as ag retail is a predominantly relationship-based business, this is creating controversy with some startups trying to disrupt the existing infrastructure while others are trying to work with existing retailers. Why do you think there is so much change happening right now?
I think there is so much change happening now because of a cultural shift due to changing demographics in farming, multiplied by all the money being poured into the industry from venture capital.
Averages are an oversimplification of what’s happening here, but follow the thought exercise because this is what I’m observing in the industry. If the average age of a farmer is 58 years old, they were born in 1960, and if the average age of a first-time dad in 1985 was 25 years old, then their kid would be roughly 33 years old. What happens to people in their 30s at work? They start to come into middle management and/or positions of decision making. The days of goofing off during their youth are long behind them, and they have probably started a family of their own and are trying to further their earning career to support their family. The other aspect that is allowing the change is these grandchildren. This farmer told his child to leave the farm, get a degree and go do something else besides farm; now faced with wanting retirement and no succession plan they are looking for ways to entice the younger generation to come back to the farm. That farming is not just cows, sows and plows anymore. We need software skills, technology integration skills, business acumen; it’s a world stage with bi-hemisphere farming.
These 30 somethings grew up with technology, experienced the birth of the internet and saw the transformation of their lives through technology. These people remember getting up and turning the dial on the TV to change the channel, having a house phone with a cord. Now, these people are using their voice to change the channel on the TV, no longer have a landline phone and carry a cell phone so that they can watch reruns of Green Acres on Netflix while driving the combine. These people know how to learn new technology and believe in the power of the technology because it has transformed every aspect of their lives; just think offarmersonly.com.
Agriculture is ripe for disruption, and how and where farmers purchase the products they need to farm is no exception. However, in many cases, the disruption of ag retail is much ado about nothing. Crop retail is worth billions of dollars involving some publicly traded companies. Don’t you think these ag retailers could hire a college intern and make a website to start offering products online? Of course they can! They have also built billions of dollars of infrastructure over the years presenting a massive challenge to the startups trying to directly challenge ag retail. Some of these new players are also missing the boat in not driving value for both the farmer and the retailer/manufacturer; you aren’t going to add a middleman and take cost out of the system. And trying to call online marketplaces that aggregate volume as something new and special is silly: as they say what was once old is new again — it’s called a co-op. The way they communicate and transact business may be a little different, but it’s the same thing.
Do you think ag retail specifically needs disrupting?
I do think ag retail needs a little disrupting, but not this wholesale baby out with the bath water concept seeming to be portrayed in the media. At the very least a new understanding & covenant needs to happen with the retailers. Long gone are the days when a farmer wants to be taken to the Pebble Beach Pro Am or on a fancy hunting trip to earn their business. Farms these days just want the best price especially as they become more corporate in operating structure. Farms keep consolidating and getting bigger. Bigger means more process control, checks & balances, which means purchasing guidelines. In our company accepting of large corporate gifts is a fireable offense. Remember the appearance of impropriety often does just as much damage as the impropriety itself. Ask a retailer about their margins and I guarantee they will say the margins are razor slim. I have now personally verified that to be the case and believe them, but then I say take a look at your business practices; I’m sure we can cut some fat out and pass those savings on to your customers. That is the draw of an online marketplace, it’s a more efficient way to conduct business and should lower costs for retailers.
In an ideal world, how would you buy your inputs?
Ideally, I would put out a detailed Request For Quotes on an online platform, multiple vendors would go bid, and I would award the winning bid. Then the product is shipped to my warehouse on the date I specify. I don’t need visits from a salesman; I don’t need to go on the hunting trip or ballgame. Send me the bill, and I’ll pay in an extremely fast timeline.
Which agribusiness marketplace startups offering ag retail technologies, disruptive or not, do you think will succeed and why? Do you use any of them?
Well, I’ve looked at them all and have spoken or emailed a few. Farmers Business Network is by far the most polarizing when talking to traditional ag retailers. However, I found I am currently buying for inputs for less than the prices they quote; FBN won on two products out of 96 I sent out to bid. There are only two others currently operating in California, HarvestPort and Inputs.ag. Inputs.ag just launch, and I haven’t had a chance to meet them yet. I saw their booth at a recent Mixing Bowl Food IT event, but I didn’t have a chance to meet them.
The one I’ve worked with the most has been HarvestPort. [Garner is now an advisor to the startup.] Through the process of getting organized and bidding out all products in advance, I am roughly on track to save 10% with HarvestPort, which is a decent amount considering the size of the spend. Bidding in advance also gave the retailers a chance to procure the material better and pass on those savings. It pays to be organized, transparent and operate in the spirit of partnership. We are in a symbiotic relationship with retailers. HarvestPort also has enough acres under contract to turn the ag Retailers’ eye. HarvestPort is the most unique of these startups because they work for the growers exclusively and do not take money from the retailers they work with, so they are not vulnerable to the collision that has historically occurred in the channel.
Other startups compete with the retail brick & mortar stores, whereas HarvestPort isn’t in direct competition. Nor is HarvestPort being a middleman in the transaction; they’re more of an augmentation to brick and mortar, servicing the needs of both growers and retailers. HarvestPort is helping the farmer operate more efficiently by acting as a procurement advocate, doing the work farmers do not have the time to do well or are hindered by their friendship with a sales rep. HarvestPort is also helping the retailer save money on sales and marketing expenses and play referee during disputes. It is helping the growers with the convenience piece while working to protect cost overruns of the retailers.
Farmers should understand there may be a very valid reason you are getting charged more than your neighbour. Maybe you cost the retailer more to service than others. Do you take delivery of products all at once to one location or do they make seven small drops to seven different locations? Do you ask the retailer to open up after hours or on Sundays when they are normally closed? How quickly do you turnaround payables? HarvestPort has taken the position to help the retailer mitigate some of those costs. All the reasons above are why I think HarvestPort will win the race.
Other agribusiness marketplace startups I’ve come across include Agroy, CommoditAg, AgVend, Agrellus, The Farm Element, InCeres in Brazil, Agriconomie in France, Yagro in the UK, and Agrofy in Argentina.
What are the potential risks to the industry of these various startups cropping up?
I’m not so sure there are a ton of risks the retail industry is facing from startups; the risks are from themselves. The risk is they do not see they are the frog in hot water. Retailers would be wise to see the changing tide in business, think Blockbuster vs Netflix. The customers have changed, their communication preferences are different, and how we would like to transact business is different. Young people are bombarded with information, obligations, different daily items that pop up and take time, what the younger generation needs the most is time, which equals to convenience. The retail industry really needs to figure out the convenience piece for their customers.
The other risk is to unbundle services. As farms keep getting larger, the more they will move to having an independent PCA that has a fiduciary duty to the farm. Currently, a lot of retailers are relying on the high margin advisory services they provide to customers. But as a customer, do you think an ag retailer employee has the fiduciary duty to tell you to spray less or this other product not manufactured and not carried by his employer is probably a better fit for the solution you need. No, the ag retailer employee’s fiduciary duty is to his employer and his own wallet as his commissions are tied to the products and volume he personally sells.
For more agrifood tech news, go to AgFunderNews.com