Two years ago, e-commerce executives salivated like puppies in a pile of pork chops at the potential for agricultural business on the Internet.
Who could blame them? Farmers had rapidly bought personal computers. Why wouldn’t they go one step further and buy major inputs, such as chemicals and seeds, online?
“A lot of folks in agriculture went out of the gate thinking direct business to farmers existed because it worked for eBay and Amazon.com,” says Bill Belzer, e-business manager for Pioneer Hi-Bred International. “They figured that it would be a slam dunk.”
Farmers have not flocked to the Internet as expected. Although some farmers use the Internet, their adoption of it lags behind that of the general population. A survey conducted by the Gallup Organization in 2000 revealed that just 41% of farmers used the Internet in a one-month span, compared to the U.S. average of 63%.
Nor are most farmers ready to click their way to purchases of major inputs, says Jon Setala, a marketing communications consultant from River Falls, WI.
“They may go online for items with relatively low risk and monetary savings like airline tickets,” Setala says. “But farmers tend not to buy items that don’t meet those criteria.”
Why not? At first glance, high-dollar Internet purchases make sense. Farmers may garner 10 to 40% discounts by buying major inputs such as seed and chemicals off the Internet. Over many acres, farmers may save tens of thousands of dollars.
“I think there is still a sizable segment of the farm population that is price-focused,” says Mike Boehlje, a Purdue University agricultural economist. “Service, information and attributes that are put into the product aren’t as important as the best price.”
Yet price is just one component of the buying equation. “Farmers see risks associated with buying chemicals, seed and machinery over the Internet,” Setala says. “When your livelihood is at stake, you want to know you’ll have the right product arriving in the right place at the right time.”
This hasn’t always been the case, Boehlje says. Farmers who buy seed and chemicals online may want to exchange product if weather delays occur.
“Some Web sites will argue, ‘That’s not what we do,’” Boehlje says. “If the product didn’t work, returns are also sometimes questionable.
“Local retailers still hold a delivery advantage,” he adds. “In many cases, good rapport built up over years with the customer has strong value. Farmers cannot only count on local retailers to deliver, but also to exchange goods.”
Nor have many farmers used the Internet to negotiate better buys with dealers. “The thinking was that if farmers could get that kind of price information, they could use it as leverage,” Setala says. “Dealers told farmers they couldn’t match that price. And farmers still bought from them. They valued their relationships with dealers.”
The security that these relationships bring is one reason why Jon Brower, a Claremont, MN, farmer, has not yet purchased chemicals online.
“I’ve obtained quotes on chemicals, which I haven’t used yet,” he says. “I’ve shied away from that because I’m concerned about not getting product guarantees. On the other hand, I need to get involved more because I think you can get some good buys and information online.”
Baby steps. To tap this interest, Internet companies have adapted their sales strategies. “The greatest use we see by our [business owner] customers are electronic tools that enhance their relationship to growers,” says Mike Etzel, national sales manager for Rooster.com. “They want to use tools like more effective communication and targeted marketing as opposed to the actual completion of the sale. We offer 10-minute-delay quotes, weather, news feeds and other services, depending on what the business owner wants to deliver to the customer.”
For example, a feed company could supply information online that its customers might want, such as how to manage livestock through hot weather. Although this service does not close the sale online, it is a tool the company can use to eventually make the sale.
“Ag retailers use it more as a tool to enhance the relationship, and they’re very much comfortable with letting the grower migrate there at their own pace,” Etzel says. “I believe that in four to five years down the road, there will be more chance to do business online. But for now, we’re taking baby steps toward that direction.”
Some Web sites also combine price discounts with service to alleviate farmer apprehension about online purchases. “When we had the first sale on the Internet in August of 1999, everyone was really excited,” recalls Bill Gass, vice president of sales and marketing for Landec Ag, a Monticello, IN, firm that sells a share of its Fielder’s Choice brand seed online. “But when we called the customer back, we found that he had picked three wrong hybrids for his farm.”
That’s why the firm’s 30 agronomists track all Internet sales. “We make sure farmers know what they are ordering,” Gass says. “You can have the best hybrids, but if you plant them in the wrong area, they won’t perform.”
Other Internet firms have exited direct sales of major inputs. Farms.com has branched out from livestock exchanges to include news, weather and decision-making software. Meanwhile, the firm severed its strategic alliance a year ago with Agchemical.com, an online chemical business.
“We wanted to refocus into information software and marketplace exchange activities,” says Joe Dales, Farms.com vice president. “It was easier for us to differentiate our product in that market because there were fewer players. Chemical and seed companies are pretty concentrated, and they dictate how to distribute their products. It’s hard for us to add value to a jug of Roundup.”
Yet some firms still manage to tap online sales. For example, XSAg.com links buyers and sellers of chemicals, parts and animal health supplies. Approximately 80% of the sellers are dealers, and the remaining 20% are manufacturers and distributors. About 60% of the buyers are farmers, and the other 40% are dealers and distributors.
“Farmers who use XSAg.com may be buying from their local dealer without even knowing it,” says Fulton Breen, XSAg.com founder. “Of the two million farms in the U.S., about 350,000 consume 90% of inputs. It’s these farmers who are very connected and use the Internet to buy online. Between 5 to 15% of all chemical sales will eventually go through an exchange.”
Shakeup strategy. Even if you don’t currently purchase products online, you may still use the Internet to be a better buyer. Suppose that you wish to find out if your fertilizer dealer is competitive on price. “It used to be if I wanted to see what other dealers were charging for fertilizer, it would take some effort,” Boehlje says. “Rather than drive around in the car or get on the phone, you can just get on the Web and quickly find quotes. Maybe only one out of those 30 is substantially different. But that’s all you need to find out.”
Farmers who use the Internet also are better informed about prices, services, features, attributes, characteristics and performance, Boehlje says.
“You could go into your dealer and say, ‘I’ve been thinking about doing this and this, what do you think?’” he says. “You may also find out that you’re better informed than your dealer and use the Internet to find another dealer who is more knowledgeable. One farmer told me, ‘I don’t want to buy fertilizer from someone who knows less about fertilizer than I do. I want someone who will help me improve my business.’”
You may use the Internet to scout for Web sites that have good relationships with local dealerships.
“Some Internet companies understand fulfillment strategy,” Boehlje says. “They now build strategic alliances with a local dealer who can provide those services and get compensated for them.”
Familiarizing yourself with the Internet now may also help you capitalize on future developments that may increase profits.
“I think the real advantage for the farmer in this whole shakeup is new technology and new capabilities that will allow companies to deliver more timely information based on site-specific information,” Belzer says. “The technology will be based on a centimeter, as opposed to the entire northern half of Iowa.”
Remember Henry Ford. The Internet also will be easier to use as computers, Web sites and connection speeds improve, Dales says. “Just because farmers didn’t use the Internet overnight the way the stock market thought they would doesn’t mean this trend will slow down,” he says. “When it comes to adding value to rough knowledge, the Internet will influence the decision-making process.
“We had very unrealistic expectations,” Dales continues. “But I’m sure Henry Ford heard things like there are no gas stations, they’re noisy and I want to stay with my horse with his invention. The Internet is a fabulous enabler and tool, but you still have to be good at business and educate your customer.”
Put it in my office
Farmers would use the Internet more often if they could use it in their offices — their real offices, says Jon Setala, a River Falls, WI, marketing consultant.
“Research that was done over 10 years ago revealed how farmers feel about their tractors and combines,” Setala says. “It wasn’t what people expected. Instead of vehicles, farmers saw their tractors and combines as their offices where they went to work. One farmer told me, ‘If you want me to visit your Web site, put it in my tractor! That’s where I have the most time.'”
Setala is confident wireless technology will enable farmers to one day use the Internet in their machinery cabs. “I believe use of the Internet among farmers will remain limited until some type of affordable, high-speed wireless technology is put in place for them,” he says.