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 Barb Baylor Anderson October 2000 E-BUSINESS TAKES TOP PRODUCT HONORS by Barb Baylor Anderson Editor's Note: Electronic business (e-business) may not fit neatly into a traditional agricultural product category, but then there's nothing traditional about anything on the Internet. Yet its merits in fostering the exchange of agricultural inputs, outputs and information justify its selection as Agri Marketing's product of the year. Like tractors, artificial insemination, biotechnology and other advancements, e-business and e-commerce will revolutionize agriculture. In fact, nearly all of the interviews and related work done for this special segment were completed through e-mail and Web-site research to illustrate how integral this technology has become in conducting agricultural business on a daily basis. While this section provides a snapshot of e-business today, it barely scratches the surface of its potential. The W.K. Kellogg Foundation in Battle Creek, Mich., recognized the widespread potential of the Internet in an issue paper released in July. Sections of "The Impact of E-Commerce on Agriculture, Issues for 21st Century Food Systems," authored by Dr. Richard Foster, vice president, programming, for the Kellogg Foundation, appear in this special magazine segment. Internet access and e-commerce promise to revolutionize the landscape of business, including agribusiness. Already e-commerce is clearly beginning to have a major impact on farming and food distribution. From new portals aimed at farmers buying inputs and selling raw materials to Web-based niche market food product sales and home delivery grocery services, the Internet is increasingly central to the entire food systems chain. Sparks Companies, Inc., Washington, D.C., is monitoring those changes and their potential implications for agriculture and the food industry. Vice president Beth Bechdol characterizes agriculture as an industry of "rapid consolidation, policy upheaval and a wave of sweeping new technologies." As such, she says e-commerce is well positioned to weave into that fabric. With consolidation occurring in all components of agriculture, Bechdol explains that globalization and competitive pressures are forcing change and making unit cost reduction a goal across the system. In addition, issues such as NAFTA, biotechnology, China's accession to the World Trade Organization and domestic farm policy are affecting agricultural commerce. "E-commerce can improve the flow of information, provide more effective allocation of resources to core value-added activities, and lead to leaner operations, cost savings and transactional efficiencies," says Bechdol. "Shortening the value chain and integration with business partners can lead to substantive operational and financial improvements." Already, Bechdol says, more than 1,000 agricultural and food "e-companies" exist. More than 100 are significant ag and food e-commerce companies that have sites up and running, under construction or still to come. Bechdol divides sites into one of four categories: those that offer ag news and information, those that house data, those that conduct agricultural e-commerce and sites that offer a combination of those services. "Most major agribusinesses are now involved, although companies are still shaking out," she says. "The technology is constantly improving, and business and consumer response (to e-commerce) is positive. But consolidation (within e-commerce) is inevitable." Bechdol anticipates that as consolidation and other changes occur, new business models will emerge and the food system will see some restructuring. In addition, Bechdol says, new issues will develop that could challenge the e-commerce landscape. "The technology is still in very early stages," she sums. "There is an enormous shake-out coming soon, and more money likely will be lost than earned in the near-term. Benefits will go to the early adopters." AM NEW SITES OFFER MORE THAN HEADLINES Publishers and advertisers have wasted no time in reaching out to farmers by adding Web sites to their arsenal of daily news and market information sources. But not all of them are taking the same approach to providing information to readers. One of the primary ways to reach farmers with news, information and e-commerce opportunities is through what Sparks Companies' Bechdol refers to as multi-purpose Web sites. Such sites typically provide news, weather, market information, chat rooms, trading and retailing. One such site is AgWeb.com from Farm Journal. Roger Randall, chief executive officer of the service based in King of Prussia, Pa., describes AgWeb.com as an "integral tool providing targeted community-based information, business tools and e-commerce opportunities." He says AgWeb.com delivers a variety of information products, which farmers and ranchers customize through registration for their "communities" of interest. AgWeb.com includes such items as targeted news, market reports, closing daily commodity prices from local elevators and weather. Farmers can access marketing advisory services and an Internet-based training module on farm safety. They can also obtain customized wireless alert products from a menu of options that include market prices and weather conditions. @griculture Online, from Successful Farming magazine, has another approach. Jim McGough, business manager, @griculture Online, Des Moines, Iowa, says, "Creating the Web site was a natural extension of our service journalism mandate." @griculture Online provides ag news, weather and market information. The site has an international network where correspondents share perspectives about local agriculture, and the site has interactive features. "It has evolved into a 'community' of people who make agriculture their life," he says. In addition to creating a stand-alone news and information site, Farm Progress Cos., Carol Stream, Ill., developed a separate e-content division and currently provides different editorial content to two e-commerce sites, DirectAg.com and Rooster.com. "Selling Farm Progress editorial content is a successful way to leverage our brands," says Sara Wyant, editorial vice president, Farm Progress Cos. "It allows us to use our expertise to serve our readers in several formats." Wyant says creating daily editorial content is nothing new for Farm Progress editors because they have been contributing daily and weekly news bits for DTN and FarmDayta for more than a decade. Farm Progress provides DirectAg.com with such information as breaking news, market information and daily Washington, D.C., updates. Rooster.com receives targeted feature content, nuts-and-bolts articles and regional news. "I encourage our editors to go into the field and think multidimensionally every time they cover a story. That means determining at an event what can be used as a news feed, for broadcast or as background for a print feature," says Wyant. McGough says @griculture Online during the past 12 months has averaged more than 4 million page views per month. Great for business, McGough and others agree, but such volume also has its challenges. "This endeavor takes a different level of commitment. Providing fresh content is like milking cows every hour," Wyant says. "To be successful we must change our content throughout the day, every day, including holidays and vacations, for both sites." "We maintain a 'fresh information feel' for users that come to the site multiple times per day by generating more than 100 news stories per day," says Randall. "We also have ongoing market research to ensure the site is intuitive to navigate and easy to use within the constraints of rural connectivity." Generating a high volume of information also offers opportunity. "@griculture Online helps us keep our hand on the pulse of what is important to farmers and ranchers. Some print articles in Successful Farming enjoyed their birth as a result of online conversations," McGough says. "Our visitors have a passion for the site, and they feel like it is 'their' site." Likewise, Randall says their user feedback has been positive both qualitatively and quantitatively. "AgWeb.com is a neutral platform that producers receive very positively," he says. "Site metrics reflect positive growth in such measures as user sessions, registrations, page views and multiple-time visits." Such statistics attract advertisers. "Internet advertising provides marketers a variety of opportunities," says Randall. "The immediacy of the medium allows marketers to obtain quick customer response and dialogue between customers and suppliers." AM FARMERS TEST SWIFT E-COMMERCE WATERS The tidal wave of new electronic technology is taking farmers for quite a ride, and success for agrimarketers hinges on their attitude and acceptance. Observers generally anticipate that farmers will embrace e-commerce opportunities. But it appears likely that larger farmers may initially use the new technology to streamline input purchases while small and niche market farmers are more likely to first seek open sales doors. The Kellogg Foundation's Foster, in "The Impact of E-Commerce on Agriculture, Issues for 21st Century Food Systems," notes that people disagree on the impact e-commerce will have on farmers and farm structure. "Some believe these developments may spell trouble for smaller family farms. Others see this as an enormous opportunity for midsized producers to reassert control in the marketplace and for large farmers to increase efficiencies. Any outcome promises to greatly affect the future of food systems." Foster also quotes Gary Carlson, president and chief executive officer, Rooster.com, Bloomington, Minn. "'In a recent study, Internet access was highest among young, more-educated growers with large acreage. Currently 65 percent of farmers with gross sales over $500,000 have Internet access compared to 50 percent with gross sales under $250,000. But that trend is evolving,' he says. 'More growers are turning to computers for not only record keeping but also Internet access'." That fits with survey findings compiled by Lynxx Solutions, Inc., Newtown, Pa. President Barbara Hook says Lynxx conducted surveys with soybean growers and cattle producers to gauge their Internet use and interest in purchasing farm-related products on the Internet. Cattle producers in Missouri, Nebraska, Oklahoma and Texas were surveyed in January and February 2000. Responses were obtained from 195 operations, ranging from less than 100 head to 500 or more head. Illinois and Iowa soybean growers were surveyed from December 1999 to February 2000. Responses came from 200 growers with operations ranging in size from less than 100 to 500 or more soybean acres. While the surveys were sent to two very different markets in different geographies, Hook reports that: * Computer use for business rose as operation size increased in both cattle and soybean operations. Internet use was about one-third less than computer use in all markets and sizes. * While it seemed that soybean growers showed more current involvement in the Internet, the survey indicates use will accelerate in the cattle market and the gap will narrow quickly. Within the next year, both groups will have approximately 40 percent of producers on the Internet. * Products of interest to buy over the Internet varied greatly. Farm equipment and parts are appealing to both markets. Cattle producers appear to have a stronger interest in buying farm-related products over the Internet than soybean growers. Based on responses, Hook offers agrimarketers these suggestions: * When looking at the marketplace and how to use the Internet and e-commerce, look at your customer base and consider how many of your current customers will access the Internet and how often they will log on. * This survey indicates that Internet use will continue to increase. While companies need to develop methods to service the e-commerce segment of their business, the majority of sales are still going through conventional channels. Hook says to be careful not to alienate such customers. Commodity sales also still largely go through conventional channels, but industry watchers again see tremendous potential for marketing such ag products through the Internet. The Kellogg Foundation's Foster notes: "As with any new technology, 'innovative' farmers are first to experiment with using the Internet for marketing commodities and food products. Some of the largest, initial users of the infrastructure are the groups of farmers interested in selling conventional or identity-preserved commodities. The Internet also provides a more level playing field for producers gathering information. Foster quotes Rooster.com's Carlson, who "adds that e-commerce will allow small farms to be as efficient as possible and to better compete with large operations to stay in business. 'The Internet allows producers to access timely information, agricultural trends around the world, new production methods, and crop and input alternatives. The Internet also provides real-time commodity prices and instant local news and weather, plus easier communication with ag companies and other farmers. With this information growers will be better-educated and prepared and have more options.'" AM NEW MEANING FOR "HOME" SHOPPING Order tractor parts without driving into town? Buy seed without stepping into a warehouse? Buy cattle without looking at live animals? With business-to-business (B2B) Internet sales, links to most inputs are just a click away, and agrimarketers are helping farmers get comfortable with the purchasing process so more can experience home shopping via the computer. Sparks Companies' Bechdol says B2B sites offer farmers tremendous opportunity for industry exchange and the purchase of goods and services. She says that generally inputs are traded through an auction of some type or through direct purchase. Likewise, Bechdol says B2B companies are finding they can add value through increased efficiency and reduced paperwork, as well as improve contact with buyers, track orders and update inventory instantly. "In the farm and food sector, the inputs market is a strong prospect for e-commerce because it appears to lend itself well to online business," she says. "(Input sales) have a large customer base, an extensive distribution network and very large transaction costs for information and inventory management." The Kellogg Foundation's Foster, in "The Impact of E-Commerce on Agriculture, Issues for 21st Century Food Systems," cites figures provided by Frank Beurskens, E-Markets.com director of product strategy, Ames, Iowa: In the area of facilitating transactions in 1999, Goldman Sachs estimated that 2 percent of ag sector sales were Internet-based. Beurskens notes the company estimates that total ag sector sales were $825 billion in 1999, so about $16.6 billion of sales went through the Internet. Goldman Sachs projects 4 percent of agricultural sales will go through the Internet in 2000, and 6 percent will trade in 2001.Agri Marketing that he expects an explosion in farmer Internet buying because farmers already have a 3:1 incidence of purchases on the Web, compared with consumers or small businesses. He associates this with producer history of catalog and telephone shopping, early adoption of new technology and the search for measures that boost efficiency. In addition, the Internet is convenient and available 24 hours per day and farmers want cutting-edge knowledge with competitive prices. "By going online, producers will have a range of options for buying ag products and services," says Rooster.com's Carlson. "Producers also will have more control over how they choose to do business while at the same time maintaining strong ties to dealers and cooperatives that they do business with today." "DirectAg.com's Baker, who is based in St. Paul, Minn., sees other benefits for producers, including increased productivity and profits through reduced input and production costs, greater convenience, and more and better information to cope with the increasing complexity in agriculture production. "DirectAg.com is building a space where farmers and agribusinesses can create or capture value through more effective and integrated procurement processes," he says. "Virtually all inputs will be available for sale online, but the most successful commerce opportunities will be those that bring value to the producer by way of improved profitability." Carlson agrees that any type of input can be sold successfully online, including seed, fertilizer, chemicals and equipment. "One-stop shopping isn't just a vague notion. It's an attainable goal that will connect all members of the ag community to the tremendous benefits of e-commerce," he says. RESEARCH RESULTS CONFIRM GROWING USAGE Survey findings compiled by Lynxx Solutions confirm such ideas. Hook says Lynxx conducted surveys earlier this year with soybean growers and cattle producers to gauge their Internet use and interest in purchasing farm-related products on the Internet. Responses from 195 cattle producers in Missouri, Nebraska, Oklahoma and Texas, with operations ranging from less than 100 head to 500 or more head were obtained. Nearly all cattle producers interested in accessing the Internet also are interested in purchasing farm-related products via the Internet. Hook says 36 percent either currently use or plan to use the Internet over the next year, and 32 percent are interested in purchasing farm-related products over the Internet. Interest to purchase products was fairly consistent between the product categories, between 20% to 25% across all categories. Size of operation did not seem to influence the level of interest in purchasing products. Hook says 200 soybean growers in Illinois and Iowa were also surveyed, whose soybean acreage ranged from less than 100 acres to 500 or more acres. About 40 percent plan to use the Internet over the next year, but only 30 percent are interested in purchasing farm-related products as such. Interest in buying products on the Internet was influenced by farm size. Only 13 percent of small acreage growers were interested, while farmers with more than 100 acres were nearly three times as interested. IMPACT ON CHANNELS "Doing business online is all about giving producers and retailer/dealers additional options for how they want to do business," Carlson says. "The advantage to dealers and cooperatives is that they can shift their businesses into the Internet economy. It gives dealers the opportunity to grow their business online without giving up decision-making control or diluting their brand, reputation or visibility." Retailers and distributors can also receive marketing support tools, technology services and support for customer relationship management by going online with business. "We complement and supplement the current distribution system," says Baker. "Local dealers and retailers supply needed service and product support, and they are part of how we serve customers. Through the Internet, DirectAg.com builds upon these services by, among other things, providing convenience, allowing product comparison and providing additional and detailed technical information and advice. We focus on creating value, not just reducing costs. We also team up to create marketing programs." "Producers rely on local dealers for technical support and recommendations. They want to be reassured that if a problem arises with a product or service, they can call their local dealer for one-on-one help," Carlson confirms. "Maintaining this type of commitment to 'customer-friendly' service is absolutely critical to the overall success of ag e-commerce. It has to go hand in hand with buying products and services over the Internet." As more producers check the Internet for products and services, Carlson says Rooster.com's "virtual storefront" will enable dealers to connect with other segments of the ag supply chain, too. "As we've seen, the ag supply chain industry is replete with inefficiencies, including excess inventories, increasing customer service costs, ineffective price discovery mechanisms, unfocused marketing efforts and unbundled product and service offerings," he says. "E-commerce provides a dynamic platform to eliminate inefficiencies and create value for participants." "The agriculture industry has changed over the last 100 years," adds Baker. "However, the supply chain has not been as quick to change and remains highly fragmented with many inefficiencies. Manufacturers, distributors and retailers need improved, cost-effective ways of attracting, retaining and serving customers." MARKET INTELLIGENCE FOR SALE: JUST ABOUT ANYTHING Crops, livestock and food products for sale via Web sites are limited only by the imagination. From pygmy goats to popcorn to petunias, farmers and the agrimarketers that manage sites that farmers use for commerce are finding that posting products on the Internet may be a boon for business. Business-to-business (B2B) and business-to-consumer (B2C) sites can cut costs, add value, streamline distribution channels, expand customer bases, track consumer needs through data mining and foster business/client relationships, says Sparks Companies' Bechdol. Similar thoughts are reflected by Dr. Richard Foster in the Kellogg Foundation's, "The Impact of E-Commerce on Agriculture, Issues for 21st Century Food Systems." In the paper he notes: 'Commodity producers have long been price takers, given the nature of competition in agriculture. But Gary Carlson, president and chief executive officer, Rooster.com, Bloomington, Minn., says, 'Several companies supply trait-identified seeds for producers to grow specialty crops under contract. More and more companies are looking to match up those specialty crops for use within the food chain. The Internet may permit a larger cross-section of producers to participate in these growing markets.' Other e-commerce companies are experimenting with marketing No. 2 yellow corn and other bulk commodities to see how those product sales can also benefit from Internet transactions. CyberCrop.com, for example, offers the Grain Exchange, which is an electronic way to bring buyers and sellers together with the purpose of increasing productivity and profitability. Essentially, farmers interested in marketing grain through the exchange can register for a trading password and then use the secure Web site 24 hours a day to look for a palatable sales opportunity. Farmers can view the real-time local cash bids of participating merchandisers in their area and beyond and accept an offer through a legally binding contract. CyberCrop.com generates revenue through transaction costs paid by registered buyers, explains Kari Flatlie, assistant manager of product marketing, Grain Exchange. "Buyers receive improved profitability from increased volume and reduced transaction costs, our automated, streamlined bidding process and secure electronic contracts," she says. "Merchandisers get immediate access to new customers, access to more bushels directly from the producer and easy entry into e-commerce." "The Internet will be an extremely powerful tool to introduce new technologies and product lines, and it will become a primary mechanism to introduce products and services related to value-added and identity preservation programs," says DirectAg.com's Baker. AM E-COMMERCE CRYSTALBALL.COM Predicting future use of e-commerce within the agriculture industry is no easy feat. But agrimarketers are gazing into crystal balls to find the key to successful participation. The Kellogg Foundation's Foster, in "The Impact of E-Commerce on Agriculture, Issues for 21st Century Food Systems," notes, "Given the fast-paced fluidity of e-commerce, opportunities and barriers are difficult to gauge accurately. But one thing is certain - whether large or small, producers who enter e-commerce will be challenged by the pace at which changes occur. These changes also will offer opportunity for those who can keep pace with the trendsetters." Foster cites the March 2000 issue of Agri Marketing, in which editors recommended: 'Whether you use the Internet for e-commerce, relationship building or information exchange, the challenge is to do a good job of managing the basics while adjusting to the speed of change.' The dot.coms must learn how to market their sites, keep them and track them because that information can benefit farmers as buyers or sellers. Other issues likely to represent initial barriers include privacy and security, given the ability of e-commerce companies to collect, store, transfer and analyze data from and about users. Liability, contracts and transactions, taxation and interstate and international trade, government regulation and anti-trust may also present roadblocks. Sparks Companies' Bechdol says the Meat Alliance pursuing Internet commerce opportunities has already been challenged on industry consolidation concerns. E-commerce observers say such issues will be resolved as the industry evolves. The key is to remember that e-commerce will not answer every industry challenge, nor will every agricultural business or farmer or rancher embrace its potential. According to Foster's white paper: 'E-commerce is not for everyone. However, producers who learn to use the Internet as a management tool will have unlimited advantages,' says Gary Carlson, president and chief executive officer, Rooster.com, Bloomington, Minn.AM FARMER NOTES PRIVACY AS KEY TO ADOPTION by Sarah Vacek, Contributing Editor Despite being online only three years, Curtis Miller, a grower in Rice County, Kan., did not hesitate to make a grain trade over the Internet. His trade was the very first grain trade made online ever. He traded corn online July 11. Miller has farmed more than 25 years and holds a degree from Oklahoma State University. He now grows corn, soybeans, wheat, grain sorghum and sunflowers. Like most, Miller started using the Internet for e-mail and to cruise sites. Now he means business. Miller quickly learned the advantages of working online and adopted the technology almost wholeheartedly. Privacy is a big issue with Miller, and he suspects it is an issue with most farmers. He lists two keys to gaining his trust online: * "I don't want a large grain company watching my trades." * "I don't want my e-mail splattered across cyber space." "I investigated CyberCrop.com and learned that my privacy wouldn't be violated," he says. He received a password and electronic signature and was assured that CyberCrop.com wouldn't reveal his information to anyone. He likes the fact CyberCrop.com is privately held. "Large grain companies could care less about Curtis Miller, but they do care about the compilation of trades," he says. In this, he implies that a grain company overseeing a Web site could learn market data that Miller sees as a competitive advantage - one that he's not ready to hand to a grain company. "I think people like the convenience and the speed of using the Internet," Miller says. "There is a lot of fear about using the Internet to trade. As soon as I made my sale I got an electronic contract. I know that CyberCrop.com investigates all registered users. Delivery isn't an issue because I traded with my local elevator, and we have a legally binding contract specifying delivery." Yet one hurdle remains to be cleared. Miller sees the value in selling his product on the Internet, but he has yet to recognize how buying inputs online for his operation would be valuable. Meanwhile, he believes trading online will gain popularity. "I really think it will take a year to be adopted and once growers see the ease of using the system, they will gravitate quickly to using it," he predicts. "I just need to get my wheat elevator online now." AM Sarah Vacek is a communications consultant in St. Louis, Mo. Tweet |
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