E-commerce in ag retail vs e-commerce in grain marketing
Are grain marketing and ag retail on the same trajectory when it comes to e-commerce? I don’t think so. But technology has a role in both.
Steve Watt’s May article in Croplife: E-commerce in Ag Retail: Big New Trend or Flash in the Pan? presented a really interesting perspective about the agriculture industry. He talks about farm retail and the potential for a steady transition to e-commerce-based “transactional” farming where the need for value-added services at the retail level begin to diminish. It’s a variety of factors really – which Watt defines as “…a combination of economic pressures, demographic changes, access to technology, and the need for cost containment down on the farm is driving change and will further concentrate the land in the hands of fewer farmers.”
Watt predicts that the most successful retailers will be the ones who take an e-commerce strategy to secure market share “while simultaneously reducing their operating costs as a percentage of their overall sales revenue.” Owners who maintain a service-based or value-add approach will need the courage to convey the benefits of the services and their value – and at a profitable price, not just cost recovery.
What about grain sales?
Isn’t there an irreplaceable reliance on service in grain marketing? Won’t the tech revolution look different?
In my opinion – yes. Technology will have a different impact on grain marketing than it will on ag retail. There is no network of technologies today that can create a system to replace the network of services that are fundamental to grain sales. That’s different than ag retail. E-commerce has already changed how retail industries work (think Amazon). Ag retail is just the next in a line of industries adjusting to the role of technology.
Western Canada’s grain supply chain relies on service whether it be grain movement from farm to inland terminal, to port or to a processor. There is also a strong service element to grain grading which includes visual characteristic not yet “automated”. Then there are the various grading characteristics that can be met through blending a specific quality and quantity of grain. Grain drying doesn’t happen in large quantities on-farm so there is a need for services there. And most farm operations look for third-party services for logistics, contracting, and cash settlements.
Grain is not standardized. There isn’t really a “homogenous” commodity out there. The closest we’d get in Western Canada is canola where most of what we grow is a good quality 1 Canada Canola. For the most part it’s treated uniformly for a general crush process. Corn is also somewhat of an exception. A big portion of what’s grown is Number 2 Yellow Corn which can be used for food, feed, or ethanol. But for most grains, there is great diversity in classifications and quality which dictates it’s usage. And that process of grading and getting it to the right end use is a fundamental service to the industry.
On the backs of the loyal following
Watt talks about the farms that are early adopters/ loyal followers of an e-commerce approach to retail. They are the larger operations that are “more sophisticated and more self-sufficient” vs the traditional farms who will continue to look for services from retail. Those larger operations are gradually becoming more common and representing an increasingly larger percentage of farmland. So, they can represent a majority to some extent – whether in number or in purchasing power (or both). And that means that they can influence a wide-spread change.
And that’s an ideal scenario for a significant shift towards e-commerce. A few entrants – held up by the purchasing power of those loyal followers – inevitably creating a broad change to the entire industry.
For grain marketing, this isn’t likely to be the case. There are simply too many different levels and stages of service for this to happen easily or quickly. There’s unlikely to be a push from a large majority to see a unanimous change to a low-service, e-commerce approach to the entire grain marketing network. Imagine the whole-scale change that would be needed to the industry for this to happen.
Learning the same lessons
The fact that grain marketing and ag retail are on different trajectories, doesn’t mean they can’t both learn similar lessons. Regardless of industry, service-based approaches always have higher costs. Technology inevitable helps streamline processes and create efficiencies. E-commerce based ag retails can thrive because they have a lower cost operating model. The different points in the grain marketing network can also look to technology to help streamline operations and reduce costs.
There is a role for technology in grain marketing
We’re already seeing grain marketing change with technology. It’s still relatively early, and each technology is being weighed on it’s merits. Some entrants are looking to disrupt the entire supply chain while others are designed to provide a win and a loss for the parties involved. There are options that are designed to bring efficiency but want a bite from the piece of the pie. And others, like CXN360, are more collaborative to bring efficiency to both growers and buyers inside their service model – with a particular emphasis on reducing costs in the system.
Over time, technology will find it’s places throughout the grain marketing cycle. Each change has the potential to shorten the adoption curve for technology that follows it. But, each will sink or swim based on its merits, motives, and loyal adopters.
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Source: Ag Exchange Group