E-commerce's impact isn't known yet
Will this new business model cause sweeping change or just a ripple? To be sure, the jury is not out on the changes e-commerce will bring to farm country. In fact, the jury hasn't even heard the evidence yet.
Still, the debate is on and emotions are running high. Some onlookers claim e-commerce will decimate local dealers and distributors and accelerate the countryside's economic downward spiral. Others say e-commerce is clearly an inspirational booster shot for a flagging industry that desperately needs change.
Who's right?
"I think there is one area that everyone can agree on," says Steve Sonka, director of the National Soybean Research Laboratory at the University of Illinois. "E-commerce will cause considerable change.
"There will be more competition. Local outlets will have to decide what business they are really in. And the entire system, from transportation to storage to services, will be altered.
"With that said, however," Sonka continues, "it's clear that when you look at the technology as a whole, it has created jobs across the economy. I think what's causing such consternation is that when a local business closes, it's visible and painful. At the same time, when a local business adapts to new technology and is really going good, no one notices. In sum, proponents of both sides of the debate are right."
Mike Boehlje, professor at Purdue University's Center for Agricultural Business, also sees a middle ground. The most profound change, he says, is that e-commerce alters the definition of a market boundary. Deals can now be struck without regard to geographic location. However, he says, other functions have to be performed. For example, anyone can sell a new piece of equipment, but there's still transportation, set-up and service that someone has to do.
"And who is in the best position to do that?" he asks. "The local dealer. Keep an open mind. Everything doesn't happen in the virtual world."
Two things are certainties, though, Boehlje says. There will be a higher level of price competition that reduces dealer margins; and savvy dealers and retailers will adapt.
"Maybe a local dealer doesn't take the attitude that business will be hurt," he says. "Maybe he realizes that his competitive advantage lies in fulfillment, delivery, set-up, application and service. Maybe he decides that rather than compete head-on with an e-commerce site, he'll link with the site and provide service. It's a way to add to his portfolio - a way of offering more services to his customers."
Even so, some areas of the ag economy are more exposed than others. Mark Porter, sales manager at NetSeeds.com, says, "There is a revolutionary change going on and it will grow. In the seed business alone, $750 million is tied up in support of the traditional infrastructure. By restructuring the seed business and eliminating a lot of unnecessary overhead, we are reducing costs and sharing it (dollars saved) with the farmer."
Ted Farnsworth, founder and CEO of Farmbid.com, agrees: "The distribution channel is what is at greatest risk. Goldman Sachs (the investment giant) says e-commerce will be a $1 trillion marketplace in the U.S. by 2004. The firm also says that 12% of agricultural business will be online. That will be disruptive. With that timeframe, it looks like $120 billion will come out of the supply chain."
As the founder of eHarvest.com, which has since merged with Farms.com, Joe Dales helped build the technology's ground floor. And he is certain that this technology offers a strategic opportunity rather than a strategic threat.
"I don't deny that there will be major change, but this is not going to hurt local economies," says Dales. "On the consumer side, farmers are just like me. They hate buying and selling products without knowing accurate costs and returns. But with the Internet, they have the information they need no matter where they are. They can clearly define the cost of goods and services and how they get paid.
"And on the supply side, the dealers and retailers have as big an opportunity as anyone. With the Internet we can build a sustainable business model that will help farmers build sustainable farms. That's my vision."
At Rooster.com, grain marketing manager Joe Stone says that's precisely what he and his colleagues are building - an "agricultural mall" that includes all parties. He says mainline agribusiness companies, cooperatives, dealers and farmers all will interact on site and increase overall efficiencies.
"I believe the Internet is going to become the business tool we use most," he says. "Open access, information and expanding choices will help everyone become more efficient in this global marketplace. And I don't see an upheaval in the existing infrastructure. Any party that adds value in the chain will have a place."
Marc Crawford, chief information officer of XS Ag.com, says it's already happening on that site.
"We have thousands of small town dealers who list products on our site, and they've been here over a year," he says. "They now have access to markets they could never reach before. Customers are here, so the dealers are here. They can use us to their advantage." F