Betting the Farm
Farmers have always practiced their own variety of Customer Relationship Management. Business relationships in this industry are typically just that--relationships--with the majority of deals carried out on a local or regional level, through established, long-standing channels. Whether buying or selling, people in agriculture know the value of personal contact in any deal.
This conservative, traditional way of operating presents a unique challenge to a group of newly formed Web companies that hope to redirect some, if not all, business transactions in the agriculture industry to the notoriously impersonal Internet.
Their offerings are in many ways a farmer's dream come true: flexible hours, access to international markets, greater transactional control. However, such convenience requires the replacement--or at least alteration--of traditional business methods and some of the seller/buyer relationships upon which they rely. This necessary transformation leads some to predict that migration of agribusiness to the Web will be slow--but inevitable.
"The agriculture business is very conservative," says Andre ESteve, a California almond grower who began selling his crops four months ago on Agex.com (see "Farm e-Quipment," this article). "I think you are going to see a slow process of the penetration of e-trade. On the user side, you have people who deny the entire process. They are making a big mistake. It is a question of time, but I think agriculture will ultimately embrace e-trade. It will be a tremendous tool for the future."
The operators of these new ag-centric sites are keenly aware of the unique requirements of their target markets and are adjusting their business plans accordingly to accelerate the "penetration of e-trade." In an industry that, for a number of reasons, has yet to embrace fully traditional CRM techniques and solutions, these Web entrepreneurs, many with years of experience in agriculture, are creating a unique variety of CRM practices that use the Internet as their principal tool, and traditional agribusiness relationships as their method.
"We are not blind to the fact that one of the most important parts of the agriculture industry is relationships," says Jon Kirkham, customer service manager at Agex.com in Sacramento, Calif.
According to Bernie Napolski, manager of customer care for st. Paul, Minn.-based DirectAg.com, there is no shortage of upstart Web companies trying to forge these new relationships within agribusiness. "When this was a new idea last spring, the competitive landscape was virtually flat. Now there are at least 100 of us. Every day another one pops up."
Why are there so many new sites trying to fill this niche? Simply put, it has enormous potential. For starters, agriculture in America is a $300 billion, very stable market. Electronic gadgets and sports cars come and go, but food is always in fashion. In a market this size, the potential for B2B online commerce is huge, even with the unique requirements of buyers and sellers. This potential led investment banking giant Goldman Sachs to predict that by the year 2004, agriculture will account for 8.25 percent of the Internet B2B economy--the fifth largest segment--with anticipated sales reaching over $123 billion.
There is another factor that leads Goldman Sachs and
others to see a rosy online B2B future: connectivity. The agriculture industry does not have the reputation for operating at the technological vanguard, but nothing could be further from the truth. According to statistics from the U.S. Department of Agriculture, in 1999:
Seventy-seven percent of U.S. farms with sales of $250,000 or more had access to a computer
Seventy-two percent owned or leased a computer
Sixty-five percent used a computer for their farm business
Fifty-two percent had Internet access
While smaller farms have slightly lower connectivity rates, it is this market--farms with $250,000 or more in sales--that is the object of all agricultural B2B Web-site desire. "DirectAg.com is targeting the same group of growers a lot of people are," says Napolski. "There are about 154,000 farmers in America that produce 80 percent of all outputs and consume 75 to 80 percent of all inputs. It is a very select group, and their operations grow in size every year."
Finally, there is one last point concerning this very select group that leaves Web companies licking their chops: Because of the way they work and the hours they keep, farmers desperately need 24/7 access to markets and suppliers.
"Farmers live in rural America," explains Bill Pool, director of brand marketing at Rooster.com in Bloomington, Minn. "It is often not easy to access the information they need. What's more, farmers work extremely long hours. They are doing more and more business management of their farms after hours. Sites like ours provide immediate, round-the-clock access to products and solutions."
Buy, Sell or Trade
According to Napolski, these new ag-related Web companies vary in focus, but generally fall into one of three categories:
Trading Floor sites: A "virtual trading floor" where agricultural commodities are bought and sold. Example: Agex.com (which also offers content and services).
Auction/Sales sites: These bring sellers of product together with buyers. Typically used by distributors and farmers who have excess product, or established manufacturers and farmers. Examples: Excessag.com, Powerfarm.com.
Comprehensive sites: These sites provide an online retail space where buyers and sellers come together, plus pertinent information and services. Examples: Directag.com, Rooster.com.
Each of these models focuses first and foremost on selling. While some offer information and services, and different sales modes (such as auctions, retail sales and virtual trading floors), each provides an online forum for growers, brokers and vendors to buy and sell inputs (those things required to make a farm produce, like seeds and pesticide) and outputs (the product, like crops).
Perhaps the most intriguing--and potentially lucrative--online function is the virtual trading floor. Brian Tormey, president and co-founder of Agex.com, says that an easily accessible, neutral place to trade agricultural products is long overdue, particularly in light of the globalization of markets. "In California, we have over 100 almond processors that ship product to over 90 countries," he says. "You can see a fragmentation out there. There are time differences. What our site does is give processors global access to markets, and they don't have to spend millions of dollars, either."
Agex.com's members log on to the almond site (the company is in the process of creating trading floors for every commodity from alfalfa to zucchini) where they can list their crops for sale or where processors and brokers can buy listed crops. "This is a tool for buyers and sellers," says Tormey. "We are trying to create a neutral platform where traders can go to do business."
Not all sites are quite so neutral. Rooster.com, for instance, is an online marketplace owned and operated by three of America's largest agriculture companies, Cenex Harvest states Cooperatives, Cargill and DuPont. According to Rooster.com's Bill Pool, the company hopes to leverage existing buyer/seller relationships by helping local agricultural cooperatives increase their Web presences.
Other sites focus primarily on selling manufactured goods. DirectAg.com brings manufacturers of agricultural inputs (anything from tractor parts to animal health products) together with farmers. This model follows more familiar e-commerce trends, offering comparison shopping to buyers, and, for sellers, new sales channels in a market that hasn't fundamentally changed its structure in over 100 years.
When discussing the role CRM plays in all of this, it is important to understand that traditional CRM solutions focusing on sales, marketing and customer service have, to date, made only limited inroads into agribusiness (see "Seed-RM," this issue). "This is an industry that sells through third parties," explains Judy Andaloro, senior research analyst at AMR research. "The first evolution of CRM focused on internal employees. CRM vendors did not support channels for people outside the organization.
"But," she adds, "There's definitely a movement right
now toward a much broader application." That "broader
application" requires a much broader definition of CRM, one encompassing tools such as B2B or B2C Web sites that complement and enhance existing buyer/seller relationships. In a conservative industry built on long-standing business relationships, the new agribusiness Web sites are using such contemporary Web concepts as community, along with more
traditional methods such as customer service, to redefine the way sellers manage their business relationships.
"How do you get members of a conservative industry to take their business to the Internet? By making them part of a community," says Tormey. "Loyalty to this site and to one another is accomplished through community."
Tormey is referring to a buzzword popular in e-commerce right now. In Internet terms, "community" refers to a place online where people share common ground. The theory is, if a user feels that he or she is a part of a group of like-minded people who gather at the same Web site to do business or socialize or ask each other questions, then these users will return time and time again--and buy things.
Since its e-world debut last year, the concept of community as a business tool has, more often than not, failed miserably. What utopian strategists see as common ground for users is often not enough to get these users to spend time on a Web site as a regular part of their business day.
But then, most businesses are not like agribusiness. With its reliance upon relationships and clearly defined vertical identities, this industry has pre-established "communities" that appear tailor-made for migration to the Web. Ag Web sites become, then, very convenient tools that enhance existing business methods. Almond farmers will use Web sites to deal with other almond farmers. Growers will use them to buy the same products from the same manufacturers, only rather than driving to town, they will complete the transaction online.
Of course, "nothing replaces the face-to-face," says Pool, "and existing relationships will remain very strong."
Companies, both Web-based and traditional, hoping to profit from the enhancement of these relationships face an uncertain future. Agribusiness, with its meandering sales channels, brokers and local focus, does not offer the same fertile business terrain as, say, many types of online B2C industries.
"Probably the biggest obstacle these companies face is that there is a lot more channel conflict in agriculture than in many industries," says Ryan Kelly, senior manager of business development at Agribiz.net, a Canadian Internet consulting and design firm that specializes in designing Web solutions for the agriculture industry. "For instance, manufacturers traditionally sell through retailers, and they have a lot of apprehension in going directly to farmers with their products."
But, he says, manufacturers themselves are already getting into the business--consider Rooster.com and its major-league partners--and will compete either directly or indirectly with many of the new dot com start-ups. "You will see manufacturers owning the customer relationship more, and they will specifically support a number of models. You will also see a major consolidation of dot com start-ups."
As for commodity trading sites, like Agex.com with its planned vertical-specific trading floors, the future looks bright. "You are seeing a lot of niche verticals now," says Kelly. "At the start, Web companies were going for broad coverage, but now you are seeing sites for specific verticals, like cauliflower or tomatoes."
Web companies and manufacturers alike hope that online solutions custom-tailored to the needs of those operating within these verticals will provide an effective--and
lucrative--enhancement of agriculture's all-important established business relationships.
But for these agribusiness Web sites ultimately to succeed, says Napolski, "Users need to know that we are just as committed to the relationship as the people they were doing business with before."