The State of Agricultural Net Markets

Yet another industry to go B2B is the agricultural marketplace. On some fronts the agricultural exchanges have plenty in common with the rest of the B2B world.


"A ton of Web sites have developed in the agriculture industry, but what we have concluded is that there isn't much trading going on in these sites," says Glenn Grimshaw, an analyst with Promar International, an Alexandria, Va.-based agri-business consulting firm that recently finished a report on e-commerce in the agriculture industry. Users tend to post their bids on these sites, he says, and go offline to complete the transaction.

Cell Phones in the Field

Promar held four focus groups among farmers in California, Mississippi, Illinois and Oklahoma to find out why. The relatively lower level of high-speed Internet connections available in rural areas was one obvious factor. Another was security: Many farmers "are highly concerned with the security of information online, even if they feel comfortable with the company they are conducting business with on the Net," Grimshaw says.

Also, for many farmers who value the long term purchasing relationships that have been developed over the years, the anonymity of the Internet was not appealing. However, the glut of information and services available did prove to be a source of interest. "A lot of the farmers were shocked by how much information and services directly relevant to their industry was available," Grimshaw says. And indeed, on many of these sites the service offerings are often far more sophisticated than on manufacturing-related counterpart sites. For example, on Citrustrader.com (recently acquired by eFruit.com) growers, processors and packers are able to negotiate contracts, hauling and schedule delivery online.

Also important to this group were the sites' efforts to streamline the distribution inefficiencies that are inherent in the agriculture industry. Farms.com, for example, has earned kudos for its strategy of pooling the purchasing and supply capabilities of geographically isolated buyers and sellers. Nor is AgriPlace the only site that has partnered with an independent testing house to provide quality control services. Naturebid.com, a "nutraceutical" exchange, recently signed an agreement with WorldwideTesting.com and Eurofins Scientific Inc., both providers of testing services.

Farms.com has also taken steps to address the connectivity problem among its suppliers by developing technology that allows part of its Web site to be accessible via digital cellular phones or palm pilots portable devices essential for men and women who spend most of their days in the fields.

To be sure, other industries have developed innovative services to ease distribution and connectivity problems. Yet, it's hard to find an industry more receptive to such improvement than agriculture.

These Net marketplaces, predicts Blair Richardson, vice president of auction services for AgEx.com, "will create cooperative communities where the exchange of information and ideas is more readily facilitated as well as the exchange of goods. This will be important as this industry moves to catch up with other industries that have already evolved and become more efficient over the past few decades."

At the bottom line, of course, these Net marketplaces do serve as a site to buy and sell produce. On AgriPlace, for example, there are some 600 farmers, grain resellers, processors, feedlots and brokers trading daily on the site. In a typical month, some 60,000 to 70,000 metric tons of grain are bought and sold. All told, this year some $35 billion in farm sales will be completed online, according to Goldman, Sachs & Co. By 2004 that number is expected to surge to $124 billion. Indeed, most of the sites have developed some fairly sophisticated catalogs. Exchange platforms in which buyers and sellers bid and rebid until a mutually acceptable price is found are also common although the auctions tend to be less common in this particular industry, Grimshaw says.

Yet, because of the relatively low transaction volumes that register on many of these sites (at least compared with other industries), two polar views relating to fee structure are emerging among the agricultural exchanges, Grimshaw says. "On the one hand, Cybercrop and others are claiming the merits of transaction fees." On the other, "there is a large and growing number of dot-coms who argue that transaction fees cannot generate revenue, either because of lack of trading, and/or because these fees are effectively a "sales tax" that will deter online transactions even if farmers and elevators want to conduct business over the Internet."

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