The touted “revolution” of farmers buying goods online has instead become an evolution. While online business continues to consolidate, most surviving leaders talk of slow yet sustainable growth as they move e-commerce forward.
The initial vision — of computer screens hot with product orders and grain sales from farmers visiting ag Web sites in the wee hours — has changed. In its place are e-businesses retooled with clearer vision and common sense, not pipe dreams filled with unrealistic expectations.
Big player lost
With the recent demise of Rooster.com, e-commerce critics — and perhaps investors — may be quick to play “Taps” over what may appear to be a nongrowth industry. After all, Rooster was expected to be the e-commerce venture most likely to succeed, because of its backing from Cargill, Cenex Harvest States, ADM, DuPont and Louis Dreyfus.
In the end, Rooster's business model of online grain trading through hosted elevator Web sites could not derive enough sustainable revenue after 16 months to convince its investor partners to continue the venture, sharing a fate similar to that of its one-time competitor, CyberCrop.
Not the end
“Just because the dot-com bubble burst, it doesn't mean it's over,” says Joe Dales, vice president of business development for Farms.com. “A lot of great technology exists and it will continue to improve and gain adoption. In fact, producer adoption has been remarkable considering that four years ago there were few ag Web sites and few users.”
According to Scott Peoples, XSAg's vice president of sales and marketing, a USDA study last year reported that just 6% of farmers surveyed use the Internet to purchase products. “But if you look just at larger farmers as a group, their adoption rate is quite a bit higher than 6%, plus their buying power is greater,” he says.
Faster rural connections
Ask farmers who have switched from a slow dial-up modem to high-speed Internet access and they'll tell you that they spend more time on the Internet. “We switched to a local antenna-based wireless provider this year, and my time on the Internet is not nearly as boring,” says Gary Appleby, Team FIN farmer from Atwood, IL. “I find myself doing a lot more online every day, whether it's comparing prices, doing research or even buying and selling equipment and inputs.”
Tad Mozena, vice president of marketing for Ag Services of America (Powerfarm.com), sees producers rapidly getting connected and accessing the Internet, but not using it to transact business at the same pace. “Many producers today will search our site for products and services, place items in their carts, but still call to complete a transaction. It will still take time for most producers to get comfortable with what they can identify as their own brand of ‘value’ the Internet and e-commerce can bring them,” he says.
“I think the trend in agriculture is very similar to other industries in that many start-ups came out promising the world and are having a hard time delivering on their promises or delivering those promises profitably,” Mozena continues. “But we do feel e-commerce has tremendous benefits to add to this industry.”
Here is an overview of a few ag e-commerce companies and the benefits they are promising farmers.
Many farmers who are on the Internet praise www.xsag.com for adding price transparency to the ag chemical market, helping producers obtain better deals locally. This exchange site, which primarily puts ag chemical buyers and sellers together via multiple trading methods, continues to be one of the success stories in agriculture to date.
“Our traction in the marketplace has increased greatly this past year; we saw a 400% increase in the value of transactions during the first half of 2001 over 2000 [the traditional input buying period],” Scott Peoples says. In the last two years, sellers listed more than $1.6 billion worth of products (chemicals, animal health products, machinery/parts) on XSAg, “and 90% of that occurred in the past year, which proves our tremendous growth,” Peoples adds. “Now that we're into our fourth selling season, we firmly believe that a threefold to fivefold annual growth rate is achievable.”
Driving this growth, according to Peoples, is not only the company's longevity in the market and growing farmer comfort levels, but the multiple ways to buy on the site. “Even though the ‘name your price’ reverse auction choice comprises 80% of our trade now, we expect our new ‘buying groups’ purchase method will grow in the future as more farmers band together to gain additional savings,” he says.
The company claims to be on solid financial footing to survive a slower-than-anticipated farmer use of e-commerce. Morgan Stanley Dean Witter and Meredith Corporation back XSAg. “Given the capital we have from investors, combined with the 3% fee we receive for all successful transactions, our business is sustainable,” Peoples says. In addition, the company's other division, Nterline, is beginning to make inroads by taking its e-commerce platform into other industries such as the turf (golf course) market.
Peoples advises growers new to e-commerce to not consider online buying an all-or-nothing proposition. “We know this type of buying isn't for everyone, but we recommend that growers simply try the ‘name your price’ on 10 to 30% of their input needs to see if they can save money. There's no commitment unless your price is accepted, plus you can haggle on the price as well.”
DirectAg, one of the first e-commerce sites in agriculture, continues to survive with the help of a buyout by Chicago-based AgriStar Global Networks last summer.
AgriStar, a new satellite-based communications company, will incorporate DirectAg into its high-speed, premium agricultural information and business services.
Along with proprietary content and services, www.agristar.com plans to bring together a wide variety of e-commerce options for producers. “We will offer farmers the ability to do almost any kind of e-commerce they desire, whether it's purchasing inputs or moving product into proper food channels,” says Cliff Ganschow, chairman of the company.
“And we'll do this by forming different types of alliances with a large number of input suppliers and production end users, linking them together into the AgriStar network. However, our basic focus will be on premium, insightful and profitable information from both agriculture and the business world, delivered at the highest speed currently available.”
Ganschow says the company is currently testing beta units in the field, with a launch of the AgriStar service scheduled for March. Hughes Network Systems (the world's largest provider of broadband satellite network solutions and owner of DirectTV) recently agreed to provide AgriStar with two-way, high-speed satellite communications services for the U.S. ag industry.
Ag Services of America, a brick-and-mortar company offering flexible financing to purchase crop inputs, started www.powerfarm.com two years ago. “It was never our intent to be a pure e-commerce company,” Tad Mozena states. He says the company uses e-commerce to further its mission of “selling and financing the highest quality inputs with exceptional customer service.”
Mozena reports that Powerfarm helped increase revenues 300% last year, and the site now has 10,000 registered users. “We have taken a very conservative approach to build out Powerfarm. Our goal is to wrap the customer service and order processing aspects of the site into our traditional business, while boosting site speed and ease of navigation and adding product categories and partnerships with other organizations,” he says.
Powerfarm offers an array of products — including financing tools, seed, chemicals, fertilizer, animal health products, machinery, parts and software — and the ability to track your account online. “We give customers access day and night, as well as the ability to make product or cash requests direct to their account manager,” Mozena says. “And our AgriFlex Credit financing product is by far the most popular, because we adjust and flex in ways many other lenders don't.”
Established in 1995, this Web business continues to evolve and change to survive. From its portal Web site, www.farms.com has refocused on swine and cattle. It claims to have active swine and cattle online marketplaces and business services for livestock and crop producers.
“Our swine business offers marketing services, through our subsidiary M&F Trading, which include cash trading of feeder pigs, early weans, cull animals and market hogs,” says Joe Dales. “And this business markets up to 20,000 head of swine per week.”
Farms.com also recently purchased the PigChamp knowledge management business from the University of Minnesota, a leading software provider to the swine industry with more than 5,000 producers using the system to manage more than 1.5 million sows.
Its Cattle Exchange provides a trading platform for the cattle industry, and, in conjunction with partners such as Producers Video Auction, holds increasingly popular cattle auctions. “In fact, two recent successful auctions moved $1.2 million and $400,000 worth of cattle,” Dales says.
Owned and operated by farmers, www.farmpage.com continues to survive. Its latest venture, a strategic alignment with well-known farm management guru Marty Thornton and Commerce Bank in Bloomington, IL, creates a members-only e-commerce section called Cyber Alliance.
“This alliance with Commerce Bank allows us to tap into Thornton's successful input-buying group while providing members with a searchable database of unbiased Illinois seed testing results,” says Steve Bremner, president of FarmPage. “For a $150 annual fee [with $75 of that applied to your first order], we provide corn and soybean products from 29 participating seed companies, giving small to medium-sized farmers a greater chance to get better discounts. Being a small farmer myself, I saved $8/acre on seed costs by using our service, while still using my local dealers.” The only terms that differ when using this discounted seed-buying service is the requirement of early pay and a no-return policy.
Currently, Cyber Alliance covers an initial sales geography of Illinois, Iowa, southern Minnesota and Wisconsin, northern Missouri, and western Indiana. “We'll also expand our seed research data beyond Illinois, to include Iowa initially in 2002, plus the remainder of the sales territory after that,” Bremner says. “In fact we just reached an agreement with the Iowa Corn Growers that will allow their 15,000 members full access to Cyber Alliance.”
Other benefits in this members-only section include an impressive herbicide selection guide and a new insecticide guide.
This e-commerce venture at www.forthefarm.com continues to survive because of its partnership with Select Publishing in Madison, WI. Marketing Director Jason Batton says its mission of targeting producers with medium-sized farms and offering ag products ranging from chemicals to toy tractors is right on track.
“Our key strength is ChemStore, where we're able to save farmers 20 to 30% off what they currently pay in chemical input costs. This year we introduced our You Pick the Price section to give farmers more control,” Batton says. “And all our posted prices include shipping costs.”
Batton says the Internet is providing strength for farmers with medium to large operations because “we can help them get the same discounts corporate farms can get. And as more farmers buy on our Web site, our prices will continue to go lower.”
One livestock e-commerce example, www.cattleinfonet.com, continues to survive thanks to its publicly traded owner eMerge Interactive. The company, which also has brick-and-mortar livestock marketing facilities, order buying services, and a network of salespeople, was able to obtain a successful initial public offering in February 2000 before the dot.com bubble burst, raising $107 million to build this business.
“Our goal is to help assist buyers in getting cattle when they need them and to help sellers get a better price,” says Chris Corsbie, director of marketing/media relations. “In 2000, we marketed 2 million head in total and 120,000 through our Web site. In 2001, we're close to marketing 500,000 solely through the Web site, so we're pleased with the growth.”
Corsbie says the company's e-commerce efforts allow it to reach a broader marketplace of buyers and help improve prices for producers with smaller farms, especially when marketing truckload lots.
Although space limits our ability to discuss the many other ag Web sites struggling to make a go of e-commerce, you can use a search engine like Google to find them. Also check out sites that are helping connect buyers and sellers but not participating in actual e-commerce, such as www.machinerylink.com, www.machinefinder.com, www.fastline.com and www.hayexchange.com.