CoBank looks at challenges of moving agriculture industry into the digital age
As the world becomes smaller and smaller as a result of technology, agriculture must keep pace with the digital age, and CoBank said, “Online competition will continue to intensify and pressure margins for traditional ag retailers in the years ahead.”
Will Secor, grain and farm supply economist with CoBank, noted agriculture must embrace e-commerce, increased competition and price transparency to continue to be successful.
“Traditional ag retailers that successfully embrace the challenges introduced by e-commerce will succeed as tomorrow’s cutting-edge ag retailers,” Secor explained in a recent publication from CoBank.
At the same time, Secor said e-commerce platforms present many challenges for farmers.
Challenges of e-commerce
E-commerce platforms lack a physical footprint, said Secor, which is a challenge for farmers, particularly since the industry operates under tight, uncertain timeframes.
“Some traditional ag retailers have already begun responding to the challenge by doubling down on their service and distribution capabilities while building their online presence,” he continued. “Traditional ag retailers are undergoing a transformational change from manufacturer mergers, farmer consolidation and technological advancements along the agricultural supply chain.”
Further, the changes have forced these traditional retailers to adopt new practices in online markets.
“However, it will not change the basic business model of ag retailers, which is grounded in product distribution and service provision,” Secor said. “Instead, e-commerce will pressure traditional ag retailers to add online options for their customers while better differentiating themselves from online-only retail outlets.”
At the same time agriculture retailers are being forced to expand online, farmers are looking to e-commerce for their purchases, as well.
“In 2017, USDA figures show 25 percent of crop farmers purchased inputs online, up from just 16 percent in 2013,” Secor explained. “The total number of farmers purchasing inputs online increased by 40 percent over these four years.”
“The trend is likely to continue,” he added.
In particular, larger farming operations have moved toward online purchasing, with data showing 39 percent of farms with $250,000 or more in sales have leaned towards online purchase of their inputs, compared to only 24 percent of farms with sales of $10,000 to $99,999.
“Research by Purdue University indicates, on average, a new generation of farmers will be taking over decision control of the farm in the next eight years,” Secor said. “These younger farmers will likely be more comfortable with technology and may prefer e-commerce options.”
Threat to brick-and-mortar
E-commerce also threatens brick-and-mortar establishments, CoBank emphasized.
“First, any new competitor will erode sales and margins to some degree, and second, e-commerce sites increase transparency for product prices,” Secor noted.
E-commerce sites encourage easy price comparisons farmers can leverage in brick-and-mortar retail outlets. However, the e-commerce outlets don’t have to account for costs that brick-and-mortar stores do.
“The e-commerce channel allows cost-sensitive farmers to eliminate service costs like custom application and product warranties,” he said. “Traditional ag retailers that bundle products and services together under the product price are losing some customers to e-commerce sites that provide only the product.”
Secor continued, “To remain profitable and respond to this price pressure, traditional ag retailers will need to better communicate the value of services they provide with the product, or separate the service offerings from the product and lower the product price.”
However, traditional ag retailers are not at a complete disadvantage to e-commerce.
As an example, online retail stores can’t provide immediate solutions to unexpected challenges on the farm or ranch, and they aren’t equipped to provide support as a result of pest pressure and weather.
“However, an omnichannel strategy will likely be necessary for traditional ag retailers to succeed and grow in the digital age,” Secor said. “This strategy provides farmers multiple avenues to interact with an ag retailer.”
“Focusing on the competitive advantage traditional ag retailers have in distribution and service, as well as investing in their own online services, will allow them to succeed in the changing environment,” he added.
Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at firstname.lastname@example.org.