If you think the Internet won't impact what you buy, you had better reconsider.
A revolution has erupted in agriculture, with the potential to forever change the way ag products are bought and sold.
The revolution is the Internet. And the potential power of this digital wonder to reorganize agribusiness should not be ignored.
"Any grower who still thinks the Internet is a long way off and isn't convinced it is going to work, I'm here to tell you everybody is taking this very seriously," reports Ben Zaitz, founder of one of agriculture's first Web sites, Farms.com.
Prospecting for gold. One group that is taking a serious interest in ag Web sites is outside investors. Apparently, Wall Street's gaze has settled on agriculture's $80 billion marketplace. Investors are hoping to find the next Internet gold mine.
Web site developers estimate that outside capital investments in ag electronic commerce will reach $500 million by the end of this year. "The pace of change in agribusiness is unprecedented right now," reports Frank Beurskens, developer of Agribiz.com. "The capital coming into agriculture through research and development is at levels we have just never seen. It is exciting, but at the same time it creates a lot of uncertainty."
Zaitz agrees. "I see a completely different economic environment for agriculture that will blossom in the next 36 months," he says. "Every important ag company is looking at some sort of Internet strategy.
"This is a very important thing that is going to happen to agriculture," he continues. "There are a lot of people who want to play. You've got venture capitalists, companies in agriculture, input and trading companies."
All are hunting for the next hot e-commerce site in which to invest their money. They hope to find the Amazon.com of agriculture.
Hot sites. A year ago, XSAg.com was one of a few new Web sites to enter the ag e-commerce market. This site provided a platform for selling surplus ag chemicals. Owner and founder Fulton Breen worked with just two employees in a Cary, NC, office. Today XSAg.com is becoming a household name among farmers. The company's payroll has swelled to 30 employees, and Wall Street investors just chipped in $20 million to fund expansion of the site, which hopes to sell $100 million of product this year.
A quiet strip mall in Ames, IA, holds a similar story. A nondescript office with an E-Markets sign belies the booming business inside. The ag Internet company employs 75 people, up from five employees just three years ago. Kevin Kimle, vice president, says the company took on outside capital investors this past summer, and now Silicon Valley partners inhabit the modest Iowa offices.
Not left out of the hunt are DirectAg.com, Farms.com and NetSeeds.com. These well-traveled sites all report that venture capitalists and investors are knocking on their doors. Expect more announcements about new financial partners from these and other ag Web sites in the next year. Popping up like weeds. These ag sites will have plenty of company on the Internet. "Web sites are popping up like weeds now," Zaitz reports. "More and more players are wanting to get into the deal."
"In ag e-commerce, there are probably six to seven groups that are in it today," says Kip Pendleton, president of DirectAg.com. "My sense is there will probably be 100 by this time next year."
The new e-commerce sites face a tough battle. Buerskens believes that the advantage clearly is with established sites. He says it is like Amazon.com in the book world. Amazon was in early and dominates the Internet book market in spite of the appearance of many other new sites that are trying to compete.
"The Internet has many common characteristics of other businesses," Buerskens adds. "The main one is the advantage of being the first player out there.
"In crop inputs, if you're not in that business now, you're probably too late," he continues. "Two or three companies have marked their territories and are hard to beat. Anyone coming in now has to have a very compelling Web site...and provide something better than what the initial sites have done."
What's conspicuous is who is not in ag e-commerce right now: the manufacturers. Companies such as Monsanto and Dupont face big challenges selling directly to farmers.
"The manufacturers have broad distribution networks," Beurskens says. "If they go to direct selling on the Internet, they run a risk that dealerships will revolt against them. If they lose the support of dealers before their Internet site gains popularity, sales will suffer. That dilemma causes most companies to put off going direct to the consumer."
As a result, Beurskens says the door is open for new companies to fill the Internet opportunities. "That means the big names in crop input business will be names that don't exist in the industry today," he adds. "Who knew Amazon.com five years ago?"
Early adopters. Wall Street is banking on the belief that farmers will use the Internet because they tend to be early adopters of technology.
"It is counterintuitive to think farmers are so well connected," Breen reports. "But we've got a great history of innovation in our industry.
"I love to sit in front of Wall Street investment bankers and explain who was buying direct out of catalogs 50 years ago," he continues. "Or where was the very first network? It was a rural telephone network. Where were the first satellite dishes and GPS technology? On farms. Roundup Ready soybeans were adopted by 40% market share within two years. If technology makes sense, farmers are very quick to innovate."
Surveys about ag Web sites show that farmers have dabbled on the Internet at a rate higher than the general public's rate of use, according to Breen. He estimates that more than 77% of XSAg.com's farm customers own computers and most have Internet access.
Kimle with E-Markets says that his company's surveys show similar results. About 70% of full-time crop farmers in the Midwest report that they have Internet access. Half of those use the Internet weekly.
Boom ahead. Most ag e-commerce experts expect that the number of farmers using the Internet will greatly increase in the next few years, just like this past year. The number of site visitors and registered buyers and the amount of time spent on a Web site all grew in 1999, according to figures from the ag e-commerce sites. The increased traffic may be due to the ability to conduct e-commerce on these sites.
"We have found if you give growers a business reason to be on the Internet, they will be on it doing business," Kimle says. "You have to give them something besides just the generic content that is out there on so many sites. They need something to execute or an opportunity to lock in deals they couldn't find elsewhere."
The ability to make deals characterizes the e-commerce Web sites now on the Internet. The sites are ready for farmers to log on and lock in purchases.
E-commerce experts such as Beurskens think that in the future this will be the only way to buy.
"A farmer who is not integrating the Internet into daily life will not be a part of the future of agriculture because he won't be able to be competitive," he predicts. "Those farmers using the Internet to purchase inputs are buying them far cheaper than farmers who are not. And growers will find more production opportunities than those not on the Internet."
The internet provides immediate price information ands marketing opportunities. Internet commerce in agriculture is expected to change how growers buy for the farm.
Price discovery."The Internet will bring farmers a new tool for discovering price," reports Bill Gass, director of sales and marketing for Fielder's Choice, a direct seed marketing company.
Instead of relying on retailers and printed materials for price information, farmers can find prices for inputs on Web sites. These prices are determined by supply and demand on trading sites and will not include dealer costs.
"Now farmers can print off a Web page and walk into a dealership and say this is what I want to pay," reports Fulton Breen, president of XS Inc. "And I understand many farmers are doing it, too. The Internet gives incredible power to buyers.
"In the golden age of the buyer, it's all about the Internet as the great equalizer," he adds. "It gives you as an individual the same buying power as anybody."
Real-time information. Growers will be able to obtain immediate information from the Internet. Just as they have grown to rely on real-time market information from the Chicago Board of Trade, they will want real-time supply and price information.
"Farmers are going to demand real-time information from suppliers about availability of different seeds, pricing on certain technology and current production contracts," Gass suggests.
Dealers change. Buying on the Internet will allow farmers to bypass local dealers and retailers, which usually price products with services. When this happens, dealers and retailers will have to modify their businesses and pricing methods to compete with the Internet.
Breen suggests that dealers and retailers will need to change in the manner that auto service stations did when convenience stores started selling gas. They will need to specialize in services, such as chemical applications and agronomic advice, instead of depending on product sales.
"They can't price things all bundled up anymore," Breen says. "They're going to have to compete on what they really bring to the table. They won't be able to hide behind product margins to make money."
This scares many dealers, Breen says. But it also provides an opportunity for them to build business based on service.
"I don't see dealers going away," he adds. "Their services are extremely important." Warehousing and delivery services also will stay with dealers and retailers.
Bundled inputs and outputs. Rather than offering deals that bundle purchases with services, Web site companies will offer deals that bundle purchases with marketing.
"Producers of ag input products can offer targeted bundles to growers and bundle those with market opportunities," Kevin Kimle, president of E-Markets, says. "So a farmer can buy a bundle with everything he needs to plant the product as well as to market it."
The bundle will include several suppliers that will share information about the bundle and the grower on the Internet. "All that information passes seamlessly to all the people involved in the deal," Kimle adds.
The Web site Farms.com hopes to handle this type of bundling soon. "We can have a rancher buying feeder cattle online and simultaneously lock up the feed," reports company president Ben Zaitz. "We haven't had anyone do that yet, but the potential exists for it to happen. This whole thing is in its infancy, no question about that."