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Agricultural trading 4.0 – or only hot air?

Remember, back in 2001, when there was much talk about online platforms such as Farmpartner, Agrenius, AgriExchange Network and others? Their target at that time: new ways of marketing for farmers and their suppliers. But within a relatively short time they had all sunk into oblivion. Was the timing simply just too early? And are the required conditions any better now? Or do online market places for farming simply not function? At any rate, interest has certainly revived over the last few years. In Germany interest has grown particularly in the last year with a jump in trading platform start-ups aiming to revolutionise the market. Partly, these are purely online mail order suppliers. But behind some of the addresses lie attempts to introduce completely new approaches to agricultural trading and other farm services.

Online mail order

Mail order catalogues or platforms in Internet are naturally nothing new. Who hasn’t, for instance, ordered replacement parts in Internet or trawled the websites for best-priced fasteners? In this sense, the principle of all the players in this sector has been applied for 20 years and more. The only thing new is the range of products.

Crop sprays in large agricultural-size containers have only been available online for some two years. The first vendor was myAgrar, online trading daughter of ATR Landhandel, that started with sprays and now includes seeds and feed.  The advantage of such platforms (including agsupply or myfarmvis) includes, above all, price transparency. In Internet the highest price is clearly shown and can be quickly compared with local agri-trader offerings.

In end-effect, all these outlets share a single business: products offered comprise highly standardised ware that are high-priced when sold in limited volumes or weights. Only then can the freight involved be covered. If a trader works from own branches countrywide (or is integrated with a large agricultural dealership) than commodities such as fertiliser can be bulk-bought with the local outlet handling the transaction. Although it’s questionable whether fertiliser can be described as standardised. The content perhaps, but there remain sky-high differences between storage and spreading characteristics.

Online market place

Completely different is the business model of the currently trending online trading platforms. Their ambition (as with their predecessors almost 20 years ago) is to bring together buyer and seller through new marketing channels– quasi an extended »eBay« for agriculture. But for most, this involved more with not only agricultural inputs sold, but also (and sometimes only) farm products or harvested goods bought. Hand-in-hand with this, and mainly concerning trading aspects, comes automation of transactions. Cost reductions through personnel savings in this area are currently a theme for all trading houses. As well as with transactions, automation also offers savings in external services with at least some aspects capable of replacement through platforms.

Eight trading platforms

Agrando, Agrarconnect, Agrar2b, Agrimand, Agrora, Cropspot, House of Crops und Unamera. The principle is the same with all of them, although there are differences with a few in application or orientation. The longest in business so far (since the beginning of 2018) is Agrando. This trading platform offers farmers only the purchase of inputs and/or feeds. Purchase methods stretch from issuing tenders through to outsourcing the entire input purchasing, including negotiations with potential suppliers, onto the platform. Cropspot can be seen as the obverse. This start-up, planning to launch in the beginning of next year, will focus exclusively on the sale of grain (including niche products such as spelt) as well as of oilseed rape. Through this platform, farmers and traders will be able to negotiate prices directly, with Cropspot acting as a type of agent. Through House of Crops too, farmers will be trading only their grain whereby (contrary to Cropspot) vendor and buyer remain anonymous until contract competition.

This is also the case with Agrimand, a platform aiming to target larger farms mainly. Only when an offer is accepted does the buyer become visible, comparable with the procedure with a trading agent. However, this tendering platform also enables searches/offers for seed, plant protection substances and fertilisers. An interesting aspect of Agrimand is the price barometer, supplied through price reporting by farmers and (if sufficient farms register) producing a classification as to whether respective prices are acceptable or too high.

Agra2b specialises in farm input materials, although wheat sales can be arranged. Agrarconnect offers both: input purchasing as well as produce sales. Not much is known so far about Unamera, which is supported by BayWa, the Gerteide AG and ATR Landhandel, nor about Agrora. These platforms, along with Agrimand and Cropspot, will probably be accessible first in 2020.

Important for all platforms: sufficient liquidity

The system functions only when enough farmers and traders participate – and not just sporadically, but regularly. The numbers needed depend on the business model. Where, as with Agrarconnect, a monthly subscription payment is involved, something in the order of 4000 farmers and 30 to 40 traders are required. These are fairly large numbers and not be so easy to achieve – particularly when it’s assumed that the traders and farmers wishing to follow this marketing route will probably each register with a number of platforms.  Where, as with Agrimand, mainly larger farm businesses are targeted, then ten traders and 600 farmers would be sufficient because this type of business model calculates provision and therefore depends more on turnover than on the number of participants.

An interesting question relates to the security of grain, oilseeds, feed or, for instance, potato trading via such platforms. Certainly, when considering transaction or payment, there’s no question that this can be regulated for. But can we be as certain where determination of quality is concerned? Many potential problems lurk here. What happens when protein content or hectolitre weight is borderline? What if the buyer rejects potatoes because of scab? Admittedly, this can occur with trading participants in the classic markets. But will it be possible to negotiate contracts satisfactorily in this respect with participants who have never known each, other without one or the other losing out?

Robust legal frameworks could take care of all this in so far as one is prepared, with some platforms, to go into miniscule detail regarding the quality requirements. And the devil lies in such details. If, for instance, the haulier delivers wheat to the mill and quality (correctly or not) is claimed to be below contracted standard. The load then has to be transported elsewhere or unloaded at the mill with a price penalty. Usually, such a situation is dealt with much more smoothly when business participants are on the ground and know each other. With Internet-based traders, resolution could be more complicated. For this reason, one platform has already in planning a »damages reserve« for meeting such demands rapidly and without complication, although naturally involving high price penalties.

Quality testing location: already a problem with mills

Is the hectolitre weight to be determined before or after screening? How should impurities be evaluated – variations on the current continental standard of 2%? For such factors, there are advantages for business relationships developed over time. With a long-term working relationship behind participants, their ensuing give-and-take can be negotiated much better than a once-only trading deal between platforms.  On the other hand, platforms open the way to new market partners, clients once too far away to have been even considered. It might be very hard to find a buyer for a special quality in the immediate locality. But  somewhere there is someone searching for the exact specification you offer. And long-distance freight needn’t put people off either: hauliers are often more cost efficient over long hauls than for local transport because of the greater chance of return loads.

Oilseed transactions are simpler. One, there’s less variability and two, more detailed regulation on quality and related penalties or premiums.  In fact, with oilseeds it’s almost unknown to have quality classification problems and resultant rejection.

Summary

Trading platforms are worth a try. Particularly so for larger farm businesses already equipped with own weighbridge, storage facilities for separated grain qualities and rapid loading plant. For such participants, new business relationships in other regions could certainly be interesting. Whether such an approach would always pay remains to be seen. For farmers, savings in transactions and costs are less important in this respect. After all, it’s just as quick to phone the local trader than to spend time checking tenders placed in the Internet.

More market transparency forces structural change

Will trading platforms force conventional agricultural merchants out of business? Probably not. After all, in the end there has to be someone to transport the many millions of tonnes of agricultural produce, provide the appropriate storage facilities, not forgetting offering and supplying farm inputs. So we’ll mostly still be seeing  buyer and a seller completing a deal between themselves with an online platform mediating.

Prices will become more transparent, marketing possibilities greater. This is without doubt no disadvantage for farmers. For agricultural traders, though, it brings increased pressure on margins which can only speed-up the already existing and marked structural change affecting their survival. The bigger agricultural trading businesses, and those that either buy directly from the industry or have business connections with the agricultural merchant wholesale organisations such as RWZ, Agravis, BayWa or Beiselen, can all profit from developments. They are in the position to offer crop sprays and fertiliser  at borderline costs, if they can thus achieve target amounts  with the manufacturers  and slide into higher discount categories. A trader that, for instance, is able to sell an additional 20 000 t of CAN (calcium ammonium nitrate)  and though this receive a higher discount  for the total turnover of, say, 300 000 t CAN, can complete a great deal every time.  In total, however, little is altered for farm inputs. Even now, these are traded by the larger online shops countrywide and no trading platform is needed.  But neither of these two are in the position to offer pre-financing with harvest contracts. And this remains a very important theme for some farm businesses, particularly in the light of the preceding two poor harvests with very average grain prices.