Serving Your Customer Of The Future
One of the most important considerations for any business that’s planning for its own long term sustainability is figuring out who his customer will be, and what they will want. On this point, ag retailers arguably have as difficult a task as any group of businesses in any industry.
How the row crop grower will evolve over the next decade is a subject of great study, debate and uncertainty. Generational changeover, industry globalization, increasing demand for crops and inputs and wild market volatility each are impacting how growers are changing to sustain their own operation for the future. This, in turn, is going to significantly impact how retailers must prepare to meet the needs of these farmers of tomorrow.
We turned to a couple of individuals who have been watching and thinking about the evolution of the row crop grower for several years. Terry Kastens, a long time Extension ag economist at Kansas State University who now is an independent consultant and researcher working from his Kansas farm, and Moe Russell, a grower and president of Russell Consulting based in Iowa, both feel we are at a tipping point as far as grower size, but diverge on where they feel the retailer fits in the picture.
The slow and steady increase in average farm size has been reported ad nauseam in agriculture and popular press for many years, but both Kastens and Russell see signs that we are in the early years of a period of exponential growth.
“I can’t say exactly how fast or how large farms are going to get,” says Russell. “But the average size of farm that I consult for is probably 2,500 acres, and that could easily double over the next five to seven years.”
Ripe For Consolidation
The upbeat farm economy and positive prospects for agriculture for the foreseeable future will mean less fear of risk and an embracing of growth for progressive farmers. Kastens has seen it happening in recent years in Kansas, and believes that the trend will spread. He illustrated his point with a story.
“A few years ago, I was talking to a progressive 10,000-acre grower,” he recalls. “I asked him, if someone offered you an additional 10,000 acres, could you take it on? And he said, ‘Yes.’ So I asked him, if somebody offered him an additional 20,000 acres, could he take it? And he answered, ‘Give me one year.’ Sure enough, that grower today is farming over 30,000 acres. It can happen very quickly, and the Corn Belt is not immune.”
By “not immune,” Kastens is referring to the tidal wave that consolidated the poultry, pork and dairy industries. He believes a similar consolidation could occur among row crop growers and, like dairy, would be driven from the ground up by aggressive growers.
Kastens believes that growers could easily grow to the point of self sufficiency, and it’s possible that despite best efforts, retailers might not have anything to offer mega-growers if they establish their own relationships with suppliers, hire their own consultants and do for themselves what the retailer once did. Taking on risk is an enormous wild card in this scenario, but Kastens notes that some of the growers he works with are larger than any of the retailers in their areas.
Taken to its full conclusion, Kastens says that farming will move into a “bimodal” distribution, with a relatively smaller group of farmers working 80% of the land, and the remaining 20% being worked by smaller, part-time farmers. In this scenario, retailers will need to be geared up to service the two segments of growers separately.
Russell is more upbeat about the role of the retailer based on his work with growers because of what he says retailers bring to the table in risk management and service. “We have been encouraging our growers for years to develop long-term symbiotic relationships with input retailers,” he says. “With manufacturers pushing risk down the channel, and so much of the supply of products beholden to international markets, gone are the days when a grower can call a retailer for additional product on the fly and expect to have it delivered immediately.”
Russell asserts that it’s not exclusively the large growers that are most ripe for developing these sorts of partnerships, and that retailers should seek to work with growers of all sizes who are willing to be partners with them. In Russell’s scenario, there is a place for retailers both large and small if they focus on a few very key aspects of their business.
The first is transparency. Russell says that retailers need to make growers fully understand the background for pricing and for service to gain the grower’s trust. “Retailers need to provide detail on what they pay for product, what margins they need to cover overhead,” says Russell. “Farmers understand that, and they do not like feeling like they are playing in a poker game. It does not promote compromise and trust in a work relationship.”
The second is financial stability. With so much riding on the inputs and service they order, growers need to feel they are working with a financially solvent partner. “They are concerned about third party risk,” says Russell. “If they prepay for input will it get delivered, or could the supplier go bankrupt?”
Finally, it’s important to identify progressive growers and work to establish higher level relationships with them. Making yourself as relevant to the grower’s needs as possible will give you the best chance to sustain your business over the next decade and beyond.