Enabled Ag: Out Standing in its Field

[From iSource Business, April 2001] Don't let Jimmy Sanford's warm, southern drawl and down-home, country charm fool you. He is as much a Prattville, Ala.-based cotton farmer as he is a card-holding member of today's tech-savvy agricultural community.

Last year alone, Sanford spent more than $125,000 over the Internet on chemicals for his 4,000-acre farm. Through Quickfarm.com, an e-marketplace that peddles seed, fertilizer and chemicals, Sanford says he saved an estimated 10 to 15 percent on purchases and countless hours that would have otherwise been spent negotiating with local dealers.

Say goodbye to the antiquated stereotype of the straw-chomping, overall-adorned, all-American farmer. Today's crop producers are becoming increasingly tech savvy as e-marketplaces and precision farming tools promise to chop prices, boost productivity, streamline operations and modernize the supply chain.

In fact, according to a W.W. Kellogg Foundation study, 2 percent of 1999 ag sales were Internet-based, which amounts to $16.6 billion. The Kellogg report also cites industry estimates that suggest Internet-based ag commerce doubled in 2000. By the end of 2001 it will grow to 6 percent of all ag spending, representing approximately $50 billion in total sales.

Farmers have basically been technology-oriented. Those that have not are no longer farming that's been the nature of our industry, explains Sanford, who also happens to be a stockholder and board member of Quickfarm.com. In 1900, it took 60 people to produce food and fiber for 100 people. Today, that figure is less than 2 percent, and the American farmer could not have done that without adopting technology.

The pressure on farmers to produce is unprecedented. According to U.S. Census Bureau projections, the planet's population will increase from around 6 billion today to more than 9 billion by 2050. As it stands, farming is a $440 billion business in North America, encompassing 250,000 commercial farmers. Simply put, farmers can no longer afford to play victim to the inefficiencies that have long plagued the agribusiness supply chain, such as bundled products and services, dealer monopolies and bureaucratic red-tape. Instead, farmers are taking matters into their own hands circumventing local sales representatives, capitalizing on e-procurement tools, redefining the supply chain all in the name of ushering an age-old industry into the New Economy.

Let's Make a Deal

Leading today's industry-altering technologies are e-marketplaces. Quickfarm.com, DirectAg.com, Farmbid.com, Farms.com and XSAg.com are all one-stop-shops that enable farmers to purchase products, ranging from seed and fertilizers to farm equipment and cattle, in real-time. Even industry stalwarts are getting in on the act. In late October 2000, Cargill Inc., Cenex Harvest States and Louis Dreyfus Corp. formed Pradium, an Internet-based cash market for trading grains.

Within these hubs, grain and livestock producers, traders, input sellers, manufacturers, feedlots and service providers convene to name their price, negotiate freight costs, apply for financing, receive up-to-the-minute weather reports and unload surplus goods. Buyers generally shop for free and sellers are typically charged transaction fees ranging from 2 to 10 percent.

But it's the opportunity to score deals that is truly luring farmers to e-marketplaces. According to Fulton Breen, president of XSAg.com, an online forum for buying and selling chemicals, seed, fertilizer, animal health products and parts, the cost-savings presented by e-marketplaces can run as high as 30 percent. Founded in November of 1998 and owned by the Raleigh, N.C.-based parent company XS Inc., XSAg.com now boasts 50,000 registered users whose average online transaction amounts to about $10,000.

How do e-marketplaces enable farmers to receive bottom-basement prices on brand-name products savings that are typically reinvested in the supply chain? For starters, many e-marketplaces allow buyers and sellers to participate anonymously, enabling farmers to exercise their negotiating skills and suppliers to ease constraints on competitive pricing. And unlike local dealers' offerings, online prices do not include built-in fees for value-added services such as customer support and agronomic analysis. What's more, many agriculture hubs rely on third-party logistics companies to distribute goods, allowing buyers to also negotiate freight charges.

So powerful is the impact of an e-marketplace that farmers need not even complete an online purchase to reap its benefits. e-Commerce has precipitated the exchange of key market information, creating highly informed buyers who are able to use online prices as leverage when negotiating with local dealers.

Says Paul Kindinger, president of the Agricultural Retailers Association, a Washington, D.C.-based national trade organization: The Internet has democratized information, much like Henry Ford democratized automobiles. [Market information] is just much more available so it makes all of us wiser shoppers and wiser consumers.

Time is of the Essence

For every penny that e-marketplace participants save, they also spare themselves endless hours phoning local dealers, negotiating list prices, scheduling delivery dates, and establishing payment methods. But it's livestock farmers who stand to reap the greatest benefits from technologically driven auction platforms.

Just ask Patrick Van Haren, a Ridgetown, Ontario-based purebred livestock farmer. When it came time to liquidate his pigs, he turned to Farms.com, an Internet outfit that boasts a marketplace where swine can be actively traded seven days a week, 24 hours a day. Of the 109 animals Van Haren placed on the online block, 29 were sold at prices ranging from $1,000 to $4,000 per animal. And, thanks to the exposure he received by hawking his purebred pigs on Farms.com, Van Haren says post-auction interest in his animals has resulted in a total of $50,000 in sales.

However, such figures only scrape the surface of the perks presented by e-marketplaces. After all, alternatives such as live auctions practically guarantee the transmission of disease, which can wipe out an entire herd in one fell swoop. Not to mention the cost of transporting swine to events such as Indiana's World Pork Expo, which Van Haren estimates can cost upwards of $3,000 for every 10 animals in transportation, hotel, entry and labor expenses. Online auctions, on the other hand, not only prevent the possibility of the spread of disease, but also eliminate interruptions in the supply chain.

Says Van Haren: A live auction ... would have been a huge investment in terms of personnel and time. With the Internet, basically, the following day we were able to get back to our activities and, because none of the animals had been transported, we now only had to move 29 animals once instead of 109 animals twice. In that sense, we saved a lot on logistics.

This ability to focus on core competencies is appreciated by crop producers and livestock farmers alike. No longer must farmers play a minor role in a grand scale production involving bottom-line seeking suppliers, overextended dealers and far-removed distributors. Instead, ag producers can both hawk their wares and place bids for everything from seed to tractor parts on their own time rather than at the expense of everyday operations.

Death of the Middlemen?

Nevertheless, agriculture e-marketplaces still possess their fair share of shortcomings. Cattle procurement is, for the most part, a tactile experience that requires farmers to use hands-on techniques to determine the soundness of legs and overall health. Online compilations of carcass information and performance data, as well as videos, remain rudimentary means for determining an animal's value. And let's not forget the agricultural community's middlemen local dealers who have spent years forging strong, personal relationships with their customers. Can loyalty displace the lure of the Internet's wholesale prices?

Says Darin Egert, a Biggar, Saskatchewan crop farmer: I'm still going to use the Internet, but I wouldn't use it for everything. I'm still going to go to my local supplier, unless there's a big cost savings.

Egert recently saved $1,000 when he purchased seed through AgriPlace.com (as of mid-February, the latest B2B casualty to no longer be in operation), an e-commerce hub whose online markets, GrainPlace and InputPlace, peddled everything from grain to fertilizers. Launched in March of 2000, AgriPlace.com laid claim to a database brimming with over 8,000 people. It took Egert a total of 15 minutes to complete his order through the fledgling hub. Meeting with his local sales representative to seal the same deal would have meant a 25-minute drive in favorable weather conditions. It's worth noting that Saskatoon, the province's capital, receives an average annual snowfall of 44.3 inches.

Customer Support in the Face of Consolidation

Whether or not e-marketplaces herald the death of middlemen pivots as much on farmers' acceptance of the Internet as an e-procurement tool as it does on dealers' willingness to redefine their role in that space. Dealer prices have long included built-in fees for services, such as agronomic analysis, credit terms, soil testing and sprayer calibration. But now all that stands to change.

Predicts Bruce Babcock, director of the Center for Agricultural and Rural Development, a policy and research and teaching center within Iowa State University's College of Agriculture, and a professor of economics at Iowa State University: What you're going to see is a greater debundling of those services and a lot more information about what actually is a fair price just for the chemical and then what are the prices for these other services. So there is a role to play for the ag input supplier in providing these other services.

As for customer support, many farmers claim that widespread consolidation in the ag industry has swallowed countless dealers and suppliers, resulting in the erosion of farmer-dealer relationships, reduced competition and the compromised quality of customer support.

Laments Larry Gerling, a Winfield, Iowa-based corn and soybean farmer: In our local area, there used to be one rep for a quarter of Iowa, and now there's one rep for half of Iowa because of consolidation, so you're not getting the service anyhow.

Between March and June of 2000, Gerling purchased $9,000 worth of chemicals through AgWeb.com, a neutral auction site for sellers and buyers of chemicals, seeds, parts and equipment. In the end, Gerling's cost-savings amounted to approximately $2,000. But it was the customer support he received that has convinced him of XSAg.com's excellence as an e-procurement tool. After placing a low-ball bid for a product online without receiving so much as a single bite for two months, an XSAg.com representative contacted him via telephone to discuss the variants affecting suppliers' inability to meet his price and to offer advice. In fact, many e-marketplaces provide access to agronomic experts who are not beholden to a particular manufacturer or distributor.

Most farmers are also pleased with e-marketplaces' promises of crop damage settlements, refunds and returns features that can mean the difference between a seamless supply chain and one that is riddled with excess inventory and shipment delays. It's for this reason that AgriPlace.com provided full clearing and settlement to ensure that everyone got paid and assumed the delivery risk and quality risk. As a result, the online outfit was able to until recently cover any potential losses and delivery issues with respect to replacement products.

Enhancing Productivity Without Sacrificing Quality

Nor is the quality of the final product compromised through the use of e-marketplaces as online outfits recognize the importance of creating quality-control programs. In fact, Ag marketplaces have signed agreements with SGS Canada that make independent quality verification available to farmers. SGS inspection services can include grading and analysis, dockage sampling, moisture probing, seed analysis, bushel weight and damage surveys.

Such quality control is music to the ears of today's farmers who simply cannot afford to shut down feed mills as a result of goods that fail to meet expectations. But all parties involved stand to reap the benefits of a farm buttressed by e-marketplaces and their commitment to quality assurance, customer support and a seamless supply chain.

Says Kindinger of the Agricultural Retailers Association: There will actually be more emphasis on quality [through e-marketplaces]. The Internet ... will help us do a better job of what I call track and trace. We'll be able to track from the actual order through the development of the seed or the animal and all the way to production and processing and distribution channels.

It's precisely this enhanced productivity that experts say will create an unbreakable link between those who harvest wheat and those who put shortbread cookies on the shelves of today's leading grocery stores.

Does it help the supply chain if farmers become more productive? questions Breen of XSAg.com. Absolutely, because Pillsbury would rather have the most competitive source of soybeans, flour or wheat here, [rather than in Brazil].

Funding a Cash Crop

Still, there's no denying the fact that it's the all-American dollar, rather than strong relationships, that truly fuels a healthy supply chain. Which is why Breen put his money where his mouth is, offering XSAg.com users access to escrow services through the Bank of America, credit facilities and wire transfers.

Powerfarm.com, a spin-off of the Iowa-based Ag Services of America, has taken matters one step farther. Not only does Powerfarm.com grant users access to a credit line to cover expenses such as fertilizer, fuel, cash, rent and irrigation costs, but the site unites both price advantage and personalized service by allowing customer support to be handled by the normal dealer network.

Says Tad Mozena, vice president of marketing at Powerfarm.com: Even though a farmer has the convenience of ordering that seed 24 hours a day from a variety of manufacturers, using the financing programs available to finance that seed, he can still have delivery of it through his local dealer. So from the standpoint of impacting his normal supply chain, it's uninterrupted.

There are those, however, who argue that the cost-savings made possible through e-marketplaces are all too often gobbled up by freight charges. Experts say that this is often the case when it comes to purchasing bulky, high-density, low-value items such as fertilizer. But Mason Pope, president of Quickfarm.com, insists that the third-party logistics companies employed by many e-marketplaces can still trimcosts, despite such purchases. A lot of supply companies have trucks that will sit unused on the premises during the off-season so, by introducing a logistics company, we're able to provide a savings that normally goes toward unused trucks during the off-season, he says.

What's more, many exchanges supported by third-party logistics ompanies allow farmers to track supplies 24 hours per day and change orders in real-time rather than call local dealers and distributors during precious daylight hours. In fact, these days, the harvest process requires farmers to track several components simultaneously to ensure that the arrival of a particular type of seed is accompanied by the arrival of a complementary pesticide or fertilizer a process that renders the Internet a perfect fit.

Other Than e-Marketplaces

e-Marketplaces aren't the only technological factors poised to forever-alter the agriculture industry and its age-old supply chain. Precision farming tools also enable crop producers to save money and streamline operations. Take AgLeader Technologies, for example: The Iowa-based company has nine major products that support a wide array of precision farming practices, including grain and cotton yield monitoring, application rate monitoring and controlling, site-verification, and global positioning. Through these highly advanced products, farmers can maximize crop outputs, improve production planning and minimize the number of hired hands.

Dave Craig, sales and marketing manager at AgLeader, says, [A farmer] can put down a little less inputs be it fertilizer or corn and save a little bit on crop and inputs there, and maybe put down a little bit more on high potential ground that has greater yield.

In fact, global positioning systems that can aid in crop rotation, mapping software solutions that can generate color-coordinated contour maps of productivity levels, and sensors that can transmit data back to a farm's central computer system are all cutting-edge technologies that promise to compress the supply chain and trim costs.

AgLeader sells its basic yield monitor system at a list price of $4,100. Global positioning technology can run up the tab by $3,000 to $4,000, and mapping software can translate to an additional $500. The company also boasts a 12-member strong technical support team to field questions and concerns. And AgLeader estimates that more than 55 percent of its yield monitors are purchased by farmers with over 1,000 acres of corn and soybeans, which is a practically even split between fledgling and hardcore crop producers.

Such leveling of the playing field guarantees greater flexibility for farmers, according to Doug Harford, a Mazom, Ill.-based corn and soybean farmer and an advisory board member of Rooster.com, a nascent online marketplace that will soon begin trading seed, fertilizer, crop protection products and equipment.

Says Harford: There are a lot of decision aids out there and, in a way, that changes the supply chain because some of these precision farming pieces ... limit my reliance on a dealer to help me make [purchasing] decisions.

Home of the Brave

While it's still too early to ascertain whether today's e-marketplaces and precision farming tools can increase profitability, one thing is for certain: Farmers can no longer afford to idly sit by while suppliers consolidate, dealers bundle prices and distributors search overseas for bargain-basement prices on quality crops. Without a doubt, modern technology threatens to reinvent the role of the middleman and displace techno-phobic farmers. But the benefits of agriculture-oriented e-procurement tools increased productivity, a seamless supply chain and streamlined operations are simply too important to ignore.

Opines Breen of XSAg.com: It might sound cold and ambitious but [technology breeds] the kind of independent, cowboy, yahoo mentality that built [America]. It's very much about self-reliance, independence and freedom of choice.

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