Digital transformation and our role as a supplier of crop inputs and technology for farmers
Jun. 11, 2020
Digital transformation is a path of no return for Brazilian agriculture, especially in these pandemic times. We were forced to reinvent ourselves and look for ways to serve the farmer, and this meant that we had to reinvent our business.
We built a business model where face-to-face service would be our differential, where our demo plots and fields were spread through our regions and that could serve as a reference for farmers. Our product placement is consciously different from that of our competitors. In our case, we created a different model from the cooperatives that have a more verticalized business model with multi-brands and with all options for the farmer. Unlike cooperatives, we focus on a few brands and increasingly train and empower our team of agronomists and technicians to be a reliable consultant for our customers/farmers.
How does one react to this pandemic, where face-to-face meetings are not possible? The pandemic has shown us that we can continue to offer these services but in a different and much more objective way. We doubled our visits to the farmers and did several virtual field days where we showed our farmers the solutions in video form with high scalability. If we previously had field days with 20 to 30 farmers, our scalability went up to hundreds and thousands. Our recommendations were transmitted via digital and the deliveries were staggered according to the farmer's needs. With that, we maintained our operations and the operations for our customers.
The way that our suppliers are accessing customers is changing more and more. Today industries access customers directly with 27% of the Brazilian market served directly by industry, while the other 73% is served through cooperatives and distributors. Some movements promise to change this dynamic, but it will require everyone to change their mindset and build alliances.
Some industries are building their own farmer service network, many are looking to build distributors with more loyalty, while others are accessing them through digital platforms, or the famous Market Places.
With the farmer becoming more and more digital, and the Brazilian farmer being much more digital than others, 36% of them have already purchased inputs online against only 24% of American farmers. Currently, 85% of Brazilian farmers use WhatsApp as a communication tool, to do business, as well as to receive information. However, we still have a huge limitation in Brazil with only 23% of the properties connected for the entire agricultural operation.
Based on this, I see more and more companies looking to enter the digital space, be it to offer management tools such as precision agriculture, remote sensing, financial management or through offering equipment such as drones, autonomous equipment etc., while there are companies that are going straight through Market Place or alliance programs.
What would be the positive and negative consequences of such an action? Below are some of my considerations as a crop input distributor:
• There is greater control of the farm gate price, today due to Brazil’s size. There is diversification of crops, and depending on how big the farmer is, the price dispersion can reach 50%. What that means is that some farmers pay up to 50% of the price of a crop input below that the others. An online platform would balance this out, as a small farmer in southern Brazil can see how much a farmer is paying for the same product in the cerrado. Today, the farmer blames us for this difference, but with the Market Place, he will know who causes this dispersion. As in the sale of home appliances, the price will vary only due to the freight charges.
• Better connectivity and interaction between the farmer and the companies will compel distributors to choose better partners. Multi-brand companies will have more difficulty with this system because online platforms do not respect areas of expertise.
• We will become more assertive with our charges for the services we provide. Today, we are not remunerated for generating demand, for after-sales, or for the recommendation and technical assistance that we provide. So, services will be a true source of revenue.
• The confusion between digital transformation and smart sales, and not knowing the customer, will lead to the commoditization of products. One-click selling will destroy the value of products, and the price will be the main driver being the main value proposition the discounts.
The cycle of innovation will be getting shorter and shorter. We have seen this happen when direct sales started here, and we are seeing this with fungicides where less than two years after its launch it has already destroyed their value.
• Commoditization of agronomic knowledge: Today we sell products that require knowledge of genetics, soil, climate, market conditions. Commoditization will be a gain for large farmers who will have the scale and resources to pay for more differentiated services but it will be a real risk for farmers who cannot pay for it, due to the cost of service. The role of cooperatives will be the key in this process as it will prevent the farmer from an incorrect application of technologies. We are all seeing in the US, how harmful the use of technology can be to the environment. Imagine it here in Brazil, with our diversity of crops, fauna and flora.
• The gain in scale will be key for the business to survive. This will lead to a major consolidation of the market, leaving the medium and small companies with the need to build an alliance with these large companies or specialization in sales of specialties and services.
It is worth reflecting on which products we want to sell on value or simply volume and price. Some of our suppliers invest heavily in Research and Development, take 5 to 10 years to bring new technology to the market and take the risk of seeing the product cycle destroyed shortly. Agricultural products are not like televisions or the iPhone where you can launch a new product every six months.
This path is inevitable and companies that are not prepared for this change will disappear or be found lagging. We will have in Brazil a strong consolidation. In my opinion, in less than five years, we will have 10 companies dominating 40 to 50% of the Brazilian market, including advancing on the territory of direct sales, five cooperatives and five distributors, who will be able to build digital platforms for this new phase, to have capillarity for the Brazilian territory and economic strength to bring new input players to Brazil.
With all these transformations, it is up to us as distributors, to invest more and more in getting to know the customer, offer customized and differentiated solutions and services, as well as integrating the digital facility with our agronomists who interact with the farmer every day. We are a means of bringing not only the wonder of modernity but also the Brazilian way of cordiality and relationship to increasingly make our customers produce efficiently and profitably.
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