Stage is set for revolution in ag buying

As an educator at the University of Illinois - an institution that was a prime player in the construction of the Internet - Steve Sonka was surfing before the term was in vogue. He was amazed then. And he is amazed now.

"I can remember just five years ago trying to tell people about the Internet," Sonka says. "They looked at me like I was drunk. For the technology to be taken for granted in such a short time ... well, it's just shocking."

As an information and communications tool, the Internet has no equal. From e-mail to library access to chat rooms, the Internet is a seamless international conduit that supplies near-instantaneous answers to questions. But it also is changing the face of business in America - and happening at a rate far faster than Sonka's five-year time line for routine acceptance.

Consider, for example, what happened at Farmbid.com, an e-commerce site based in Ft. Lauderdale, FL, that offers online auctions, farm equipment, seed and animal health and crop protection products. Company founder and CEO Ted Farnsworth says, "In March of 1999 I was looking for ag products on the Internet and there just wasn't much available. I thought there might be a niche there, and I commissioned Arthur Andersen to do the research. It was positive, so I hired some tech guys and launched the site four months later in July.

"In September, Goldman Sachs listed us as one of the top 75 companies to watch, and we took off. Today, we do about $300,000 to $400,000 worth of business each month and there are some interesting trends. Beginning in February, I noticed a lot of activity from overseas buyers, and now about 10% of our traffic is international. It's absolutely great that a farmer in Iowa can sell his tractor to a buyer in Costa Rica through our site. I had no idea Internet commerce would explode like this. It just happened."

What happened was a timely technological connection that brought buyers and sellers together - electronically - without regard for geographic location. It doesn't matter whether the buyer is in Texas or Iowa, whether the seller is in Florida or Canada, or whether the e-commerce company that facilitates the process is located in Kansas City or Hong Kong. The only thing that matters is that buyers and sellers connect. And the Internet is what made that connection possible. Once the process was possible, all it took was for a few entrepreneurial souls to recognize the possibilities and put the pieces together.

And those pieces have created nothing less than a new business model.

In the "old" business model - what often is referred to as a brick and mortar system - products reached consumers through a serpentine manufacturer-distributor-retailer pipeline. Communication between and among the participants was limited, and purchases were ultimately consummated in the buyer's local market.

Commerce on the Internet, however, explodes those notions. Marc Crawford, chief information officer of XS, Inc. (XSAg.com), explains: "First of all, our company provides a neutral trading floor because we don't own any of the products that are sold through our Web site. We simply facilitate transactions between buyers and sellers.

"Using our site, a buyer, for example, can check the price of glyphosate on any given day. And that price might be offered by any dealer or distributor - or even a manufacturer - from anywhere in the country. A farmer also can plug in his shopping list and receive bids for his business from anyone offering those products. In effect we've expanded the farmer's purchasing options from his local area to a nationwide audience.

"Market efficiency is what we are all about. We broaden market access for all parties, which significantly reduces the cost of inputs."

The same rationale applies to a farmer when it's time to sell his crops. Currently, farmers are virtually "price takers" - tied to a handful of buyers in a local market area. Scott Deeter, president and CEO of CyberCrop .com, aims to change that system.

"The current grain marketing system is cumbersome, at best," Deeter says, "and the real pain point is communications. To get a cash bid from two or three local buyers is time-consuming. You've got to get on the telephone repeatedly, and sometimes the person you need isn't available.

"We've created an electronic grain exchange that eliminates the telephone, eliminates the paper and gives the seller access to many more buyers. What takes a day on the phone will take 15 seconds on our site. And, when there are numerous buyers, then that farmer can get a better net price.

"Open access will level the field. What we are doing is bringing independence and neutrality to grain trading."

Certainly, what makes e-commerce so compelling is the concept of open access. In a perfect market, all players have equal access to information that affects the price of goods and services. But, of course, the traditional process of buying and selling agricultural products has been far from perfect. The Internet - by its very nature - reduces secrecy and opens the door to competitive pricing.

"What the Internet does is provide more vibrancy to the marketplace by increasing the quality and quantity of information," says Dave Krog, vice president of product development at e-commerce.com. "Our vision has always been that everyone in the value chain should be able to see what's going on. That's how opportunities come about. If Nabisco wants to buy a particular quality trait, growers need to have that information. If a livestock producer wants to buy a particular feed ingredient, suppliers need to know about the opportunity. The Internet expands the range of buying and selling, and eliminates secrecy and the artificial pricing that goes with it. The theme is to bring buyers and sellers together for profit in an open forum."

Still, it's a little unnerving that e-commerce could create such a startling change in such a short time. Some people are comfortable with it; others are not.

"I think we've had a much more rapid change in this area than most of us are comfortable with," says Mike Boehlje, professor at the Center for Agricultural Business at Purdue University. "Technological change is not new, but the speed with which this technology arrived and the influence it has had on traditional business models is new.

"Still, there are competitive forces out there. If one e-commerce company can be online in 10 months, another player with deep pockets can get there faster. It's all about quicker, faster, better. Brand value - being the dominant first mover out there - is what the race in e-commerce is all about."