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Agricultural retailers, in an ever-competitive landscape, have yet to prove whether they can transition from distributor to partner. The question that will be debated in the next decade is whether they can make themselves essential in the digitized supply chain. If not, can we expect an “Amazon” for seed and crop-protections? And data-driven insights from a cloud-platform rather than a local agronomist?
“We are in an AgTech revolution,” says a Winfield VP. [1]
Although farming isn’t known for being cutting-edge, over $25B was invested in agriculture technology in 2015. [2] Many of the companies attracting investments are promoting the “Future of Farming”, aiming to digitize the value chain using cloud computing, the internet of things, and an army of sensors. Seeding these investments is the growing concern that modern farming techniques won’t be enough to feed the world’s population, projected to reach 9.7B mouths by 2050. [3] With an agricultural revolution upon us, retailers such as Winfield must adapt to new market conditions.
Focusing specifically on US row crops, there are three primary players in today’s value chain: (1) seed and chemical companies, (2) retailers and (3) growers. Traditionally, retailers have played the role of distributors, delivering seed and crop-protection to local growers. [4] Recently, however, retailers have been pressed to offer data-driven insights to their farmer-customers. This has largely been driven by two trends: consolidation and digitization.
Since 2000, a wave of supply-chain consolidation has swept the midwest. [5] Farms have been getting bigger. Between 2001 and 2011, “very large farms” (2000+ acres) grew in number by 29%. [6] As their customers have consolidated, upstream companies have followed suit. Growers increasingly rely on technology to manage fields they can’t see from their front window.
Farm digitization has been underway over the past twenty years. Planters and combines purchased today are self-driving and come equipped with advanced GPS systems and yield monitors. Over 70% of cornbelt farmers now use automatic steering. [7] Seed and chemical companies have also taken advantage of technology, improving warehousing and installing track and trace systems. [8] It seems that digitization of the farm will come in two phases, and most of the improvements to-date have been “Phase 1”. Within Phase 1, Retailers have been struggling.
The outcome of Phase 1 will be the exhaustive application of data analytics, cloud computing, and IoT for the purpose of improving planning and execution within each component of the supply chain.
Phase 2 will focus on Procurement 4.0, collaboratively forecasting, planning, and on-demand sourcing up and down the supply chain.
Phase 1 has taken place primarily outside of the retail business. Farmers have taken advantage of new OEM and software technologies. [7] Seed companies have built out a “connected” seed production system, and have focused on cutting down seed-loss throughout shipment. Every Monsanto seed truck is equipped with temperature, pressure, and geolocation sensors – data which is accessible in real-time on each manager’s iPad. [8]
Winfield’s digital investment has been in the development of two tools, AnswerPlot and R7, which are on the earlier end of the “Phase 1” spectrum. AnswerPlot is a benchmarking tool to track hybrid performance under various conditions, making data available to Winfield agronomists who can then add insights to build value with growers. R7 is a tool that marries AnswerPlot data with satellite imagery and soil data. Winfield halted investment in R7 in 2016. [1]
Many third party software platforms have questioned whether they should go direct-to-grower or sell through distributors. For retailers, whether selling their own software or a third-party, the catch-22 is that agtech solutions claim benefits through more efficient use of inputs. [7] Retailers are being pushed to promote a product that results in fewer sales for their core seed and crop-protection business.
The first signs of Phase 2 have come from a startup called Farmers Business Network, which aims to bring transparency to input pricing and performance, arguing that in today’s system the retailer who sells these products is a biased and imperfect advisor. [9]
In the next 10 years, retailers will fight to hold on to their position in the supply chain by adding insight-based services that require a local advisor. With consolidation projected to continue, it’s unclear whether farmers will value an agronomist relationship, hire their own data scientists, or trust a software platform.
Perhaps Winfield should press towards Phase 2. As a nationwide distributor, they’re uniquely positioned to foster transparent demand forecasting across growers and seed companies. Winfield’s current business is full of complex logistics and long lead-times, placing orders pre-season, selling and delivering to growers in time-and-weather-sensitive windows, and processing returns.Their business model would greatly benefit from the improvement of planning and sourcing, and it may help them maintain a position between growers and seed companies.
Retailers, in an ever competitive landscape, have yet to prove whether they can transition from distributor to partner. The question that will be debated in the next decade is whether they can make themselves essential to Phase 2 in the digitization of the supply chain. If not, can we expect an “Amazon” for seed and crop protections, and data-driven insights from a cloud-platform rather than a local agronomist?
Digital Agriculture doesn’t help with forecasting, yet
Word Count: (798) | Digitization
Sources:
[1] Smith, R. 2016, “Ten ways technology will change the way retailers support farmers”, Southwest Farm Press, .
[2] “Boston Consulting Group and AgFunder: Agricultural Tech Investment Rises to Record $25 Billion”, 2017, Professional Services Close – Up, .
[3] Fields of the Future: Demystifying the Modern Farmer 2016, , New York.
[4] “THE EVOLUTION OF WINFIELD”, 2013, AgriMarketing, vol. 51, no. 2, pp. 24-25,27.
[5] Drabenstott, M. 1999, Consolidation in U.S. Agriculture: The New Rural Landscape and Public Policy, Federal Reserve Bank of Kansas City.
[6] MacDonald, J. 2013, “Cropland Consolidation and the Future of Family Farms”, Amber Waves, , pp. 4-10.
[7] Meersman, T. 2014, Precision agriculture becomes mainstream in Minnesota, Washington.
[8] McGowan, B. 2017, “Data science key to Monsanto improving its supply chain”, Cio,
[9] Farmers Business Network; Farmers Business Network Raises $15 Million in Funding Led by Google Ventures; Company Taking the First Farmer-to-Farmer Network National 2015, , Atlanta.
I have a new perspective to add to your article. I’m concerned about the security for all of these internet of things devices in our farm system. Having worked on an IoT startup I can tell you the difficulties of implementing security the right way.
I’m not sure what a malicious actor could to do with a self-driving tractor, but I don’t want to find out. We should be pro active in mitigating possible attack vectors. We need regulation to encourage all IoT companies to take security seriously. Today hackers are causing havoc with baby monitors. Tomorrow hackers are infecting our food supply. Let’s be cognizant of the risks we take when we plug all our livelihood into the cloud.
Winfield, being one of the leading players in AgTech (along with their merger with United Suppliers) definitely holds a competitive advantage when it comes to incorporating digitization to their supply chain. It gives them a position where they have the luxury of evaluating different projects (like AnswerPlot and R7) as you mentioned in the essay.
Along with the concerns that you mentioned, I have another thing that worries me. The number of AgTech companies in the US has increased from 20 in 2010 to 503 in 2015 [1]. So along with very fundamental issues that you mentioned, I think that outcompeting new and upcoming companies will add to their pressure.
Also, the tricky situation that you mention about “Retailers are being pushed to promote a product that results in fewer sales” is a big motivation factor to move to make themselves essential in the Phase-2 and in a way, diversify their offerings, in my opinion.
One possible solution that I can think of that can facilitate their shift to Phase 2 is to collaborate with other key players (something like a cartel) and use that common data for collaborative planning, pricing etc. This would help push the industry to advanced digitization.
[1] – Rob Lecrec, 2016 “The next phase for agriculture-technology”, Forbes.
Great article, Katie! The point you raise on how sustainable is the role of traditional middlemen in the agribusiness valuechains is key in the context of digitalization. Traditionally, this players have added value in three main ways: connecting a fragmented base of growers with consumers, handling the physical flow of agricultural products, and leveraging their full visibility of the supply chain to gain efficiencies.
While the management of the physical flow will continue to be a barrier of entry for new players, digitalization is already eroding the value of connection and visibility that these players have traditionally enjoyed, since, as you suggest, a new “Agribusiness Amazon” could perfectly take their role. However, I think this is mostly true for the largest agricultural value chains, like soybean, corn and wheat. Smaller value chains in non-traditional markets, on the other hand, will still involve a complex flow of information and growers with limited access to resouces and technology. This will let traditional agricultural retailers to continue to add value in this kind of markets. In my article “Olam: sustaining supply-chain competitive advantage in agribusiness through digitalization”, I described how Olam’s competitive advantage lies in fully managing 47 of this smaller supply chains, mostly in emerging markets (e.g. cashews, peanut). Even when its competitive advantage will be eroded with digitalization, the intrinsic complexity of these value chains will still create opportunities for Olam to add value in ways that an “Agribusiness Amazon” could not.
One key way in which traders can stengthen their competitive advantage to differentiate themselves in this digital context is by adding more value to farmers and letting them go through “Phase 1” and “Phase 2” innovations in ways that an “Agribusiness Amazon” could not. Olam has launched a system called OFIS that connects its base of growers, helps them manage their inventory, provides them with personalized best practices based on the agricultural data they input, and even enables virtual payment and transactions (“Phase 2”). They will also be key in enabling growers to implement “Phase 1” innovations in the future, as they would be able the ones with the financial capability to invest in drones, sensors and other technologies which are currently not in use in the value chains they work with.
I have a new perspective to add to your article. I’m concerned about the security for all of these internet of things devices in our farm system. Having worked on an IoT startup I can tell you the difficulties of implementing security the right way.
I’m not sure what a malicious actor could to do with a self-driving tractor, but I don’t want to find out. We should be pro active in mitigating possible attack vectors. We need regulation to encourage all IoT companies to take security seriously. Today hackers are causing havoc with baby monitors. Tomorrow hackers are infecting our food supply. Let’s be cognizant of the risks we take when we plug all our livelihood into the cloud.
Winfield, being one of the leading players in AgTech (along with their merger with United Suppliers) definitely holds a competitive advantage when it comes to incorporating digitization to their supply chain. It gives them a position where they have the luxury of evaluating different projects (like AnswerPlot and R7) as you mentioned in the essay.
Along with the concerns that you mentioned, I have another thing that worries me. The number of AgTech companies in the US has increased from 20 in 2010 to 503 in 2015 [1]. So along with very fundamental issues that you mentioned, I think that outcompeting new and upcoming companies will add to their pressure.
Also, the tricky situation that you mention about “Retailers are being pushed to promote a product that results in fewer sales” is a big motivation factor to move to make themselves essential in the Phase-2 and in a way, diversify their offerings, in my opinion.
One possible solution that I can think of that can facilitate their shift to Phase 2 is to collaborate with other key players (something like a cartel) and use that common data for collaborative planning, pricing etc. This would help push the industry to advanced digitization.
[1] – Rob Lecrec, 2016 “The next phase for agriculture-technology”, Forbes.
Great article, Katie! The point you raise on how sustainable is the role of traditional middlemen in the agribusiness valuechains is key in the context of digitalization. Traditionally, this players have added value in three main ways: connecting a fragmented base of growers with consumers, handling the physical flow of agricultural products, and leveraging their full visibility of the supply chain to gain efficiencies.
While the management of the physical flow will continue to be a barrier of entry for new players, digitalization is already eroding the value of connection and visibility that these players have traditionally enjoyed, since, as you suggest, a new “Agribusiness Amazon” could perfectly take their role. However, I think this is mostly true for the largest agricultural value chains, like soybean, corn and wheat. Smaller value chains in non-traditional markets, on the other hand, will still involve a complex flow of information and growers with limited access to resouces and technology. This will let traditional agricultural retailers to continue to add value in this kind of markets. In my article “Olam: sustaining supply-chain competitive advantage in agribusiness through digitalization”, I described how Olam’s competitive advantage lies in fully managing 47 of this smaller supply chains, mostly in emerging markets (e.g. cashews, peanut). Even when its competitive advantage will be eroded with digitalization, the intrinsic complexity of these value chains will still create opportunities for Olam to add value in ways that an “Agribusiness Amazon” could not.
One key way in which traders can stengthen their competitive advantage to differentiate themselves in this digital context is by adding more value to farmers and letting them go through “Phase 1” and “Phase 2” innovations in ways that an “Agribusiness Amazon” could not. Olam has launched a system called OFIS that connects its base of growers, helps them manage their inventory, provides them with personalized best practices based on the agricultural data they input, and even enables virtual payment and transactions (“Phase 2”). They will also be key in enabling growers to implement “Phase 1” innovations in the future, as they would be able the ones with the financial capability to invest in drones, sensors and other technologies which are currently not in use in the value chains they work with.