The Brazilian distributor needs to retake the Services space into its business
Nov. 13, 2020
By Renato Seraphim
In 2019, the sum of goods and services generated in Brazilian agribusiness reached R$ 1.55 trillion reais (US$ 284 billion) or 21.4% of the Brazilian GDP. Among the segments, the largest share is in the agricultural sector, which corresponds to 68% of this value (R$ 1.06 trillion / US$ 194 billion), livestock corresponds to 32%, or R$ 494.8 billion (US$ 90 billion).
It is estimated that the Brazilian Crop Inputs market in 2020 will close at R$ 143 billion reais (US$ 26 billion, table below prepared by P&P consultancy), that is approximately 9% of the total agribusiness GDP, growing year by year and mainly in the segments of greater investment in research and development such as biological products, special nutrients, biotechnology and crop protection.
Just to have an idea, the retail food market in Brazil is estimated at R$ 400 billion reais (US$ 73 billion, ABRAS). The size and the market attractiveness means that several market consolidation movements are taking place in Brazil, as well as the entry of new global players. My hypothesis is that in the next 5 years, 10 distributors / cooperatives will be responsible for 30-40% of the market, excluding direct sales. This movement has already occurred in the food retail sector and in drug retail.
More important than the strength of the Crop inputs sector is also to look at the services sector within the agribusiness GDP. It is estimated that almost 45% of the agribusiness GDP is the services segment, which ranges from logistics, storage, technical Assistance, labs and provision of basic services such as administrative, legal, accounting and IT systems. The service sector within Agribusiness is huge and the distributor/cooperative has been excluded from this segment.
The great provocation of this text is to alert the distributors/cooperatives of crop inputs for this segment, which is gigantic and growing and that in recent years they had been this market to other players. Retaking this space is fundamental for the distributor's success in this new scenario of consolidation and greater competitiveness.
Several companies from other sectors occupied this space and today we see a lot of giants in the sector, ranging from specialized logistics companies, technical assistance companies, purchasing pools, precision agriculture companies, in addition to the number of new companies that are emerging to grab this space.
Brazil is today one of the countries that have the most startups in the agricultural sector and the vast majority of them are focused on providing services for the farmer. Some of them can be seen in the table below with companies ranging from software for farm management to full entry as next generation farms. Many of them are in an early stage of life; others have already been incorporated into multinationals of the Agro.
Given this big market, what should the distributor do? Which sectors can the distributor be most successful? Which ones is he most likely to retake his position?
These are difficult questions that need to be addressed immediately by distributors / cooperatives so that they can extract greater value capture and greater customer loyalty. The main asset of the crop input distributor / cooperative is its customer, so understanding the customer journey is essential to know which service areas to focus on, understanding the degree of technology, size of the property, and behavioral profile of the farmer is another characteristic to be analyzed.
It is useless to offer last generation software to a farmer who does not have the basics, nor to offer an applied sale of pesticides to that farmer who has latest generation equipment on his farm. Some services are basic and need to be on the distributor's offer map and others are more sophisticated that need to be on the future offer menu.
Here, we are going to make a basic journey of this proposal for the resumption of the distributor / cooperative in this segment divided into three phases that can be carried out according to the growth appetite of the distributor or cooperative.
Just to give you an idea, a large distributor in the USA, 5 to 10% of its revenues already comes from offering services, In Brazil we have a long way to go.
Services that the distributor must implement immediately:
- Technical Assistance: The crop inputs sold by dealers and cooperatives are highly technical and need to be well recommended, poor assistance makes your products more and more commoditized and the consequence is what is already happening with lower value capture and tight margins. Investing in your technical team is essential and in order to have the best professionals, a great effort in training is necessary to fill the gaps and adapt to the region of operation. Some companies today charge 0.5 to 1 bag of soybeans per hectare for all technical assistance provided, the distributor and cooperatives give it for free.
- Product delivery logistics: The farmer wants to have the product in good condition and at the right time for planting, sometimes the imponderable happens and few distributors have the flexibility to meet this basic condition. Another point of attention is how much the distributor does the planning for the delivery of the products, I have seen several times a total disconnection in this planning which increases costs and reduces operational efficiency. In addition to all this, there is a risk of theft of these products and a large space to capture synergies with the farmer.
- Precision agriculture: it is inevitable to take back and recover this space, today it is impossible to manage agriculture without having the products involved in the recommendation, and the same is true of the regulation and precision of the crop inputs application. The Distributor needs to use this tool to reduce costs, increase operational efficiency and assertiveness in the recommendation. The offer of these services today is totally disconnected from the offer of products. The more you use these tools, the healthier your offer will be.
- Crop Insurance: Our production will increasingly be impacted by climate change and other factors. The distributor needs to connect crop insurance with his offer and this is the best way to manage his own risk and that of his client. Companies with rewards program and others with easy access platforms can now be easily worked by the distributor. Agristamp in Brazil developed an excellent solution for dealers.
- Weather Stations: Today there are several weather stations on the market that can be offered by the distributor, but the most important thing is not the sale of these stations, but the sale of information that these stations can offer. Connecting information between the distributor and customers is an excellent way to mitigate risks and capture value.
Services that the distributor needs to consider offering in phase 2:
- Soil and tissue sampling and labs: Essential service for tropical agriculture where we grow 2-3 crops a year, understanding the behavior of the soil and leaves is essential to have productivity. Alliances or associations with companies that provide this service may be an option if they do not want to immobilize capital.
- Custom Application: I do not believe in custom application through traditional crop equipment. The Brazilian farmer likes to have his own machines, but I see opportunities in aerial applications and mainly through drones that can be very effective as it increase efficiency and fixes flaws in traditional applications.
- Administrative and financial management tools: The distributor is a financier of the system, therefore having a system of interaction with its customers with credit / debit information and delivery planning is essential for better service and an exit barrier for customers. Think about how dependent we are on banks.
- Commercialization Services: Selection, classification, standardization and help in the commercialization of products needs to be linked to the business. Excellent form of loyalty and risk management, this is the main reason that cooperatives are more vertical and growing year by year.
After doing phases 1 and 2, I consider the basics, time to think about Services that the distributor needs to appropriate and build alone or in partnerships.
- Market Place: Many of the products that the distributor sells are commodities and widely known by the farmer, having a platform that offers convenience where he can make transactions will be of fundamental importance. Knowing which products to sell on this platform is very important to capture value; I have seen several e-commerce offering everything to the farmer, including products that should be recommended with greater technical and agronomic rigor. This is a growing market and needs to be quickly occupied.
- Services for intelligent irrigation: Water will be a critical problem for world agriculture and even Brazilian agriculture, managing this resource efficiently will be fundamental to the success of agriculture, several companies are standing out and still without consistent access to the farmer and will need to use the go to market existent.
- Services for certification, traceability, and sale of carbon credits: This will be a growing and opportunistic market, Brazil will suffer a lot due to the trade barriers and one of the pillars that Brazilian agriculture will be attacked will be sustainability. Developing tools that demonstrate and prove that our production is sustainable will be critical and will have value for the farmer and the distributor.
- Sensors and Instruments for predictive analysis: These tools will be of fundamental importance to increase productivity, risk management and increase sustainable efficiency. Offering these services will be a huge opportunity.
These are just some of the services that in my opinion need to be on the menu of any distributor and cooperative that wants to compete and capture value in the years to come. I strongly believe that we need to change the mindset from a product offering to service offerings, other industries are already experiencing this and having success in their strategy. There are others services and opportunities that need to be evaluated, this is a market without end value.
For all this to happen I recommend some actions:
- Understand your customer, his journey and his buying habit: What does he prefer? Technology? Convenience? Relationship? Or cost?
- Alliance with suppliers: I do not believe in multi-brand strategy for our segment, we have to focus on consultative sales and guided by technicians and for that the choice of good suppliers will be essential for your success.
- Approach to Startups: They will need who knows the customer and who understands the customer, and the distributor will need who knows the product / service to be offered. Establish a win-win relationship and take advantage of the speed of these companies.
- Change of mind set and creation of a service unit: a team that thinks about services and constant improvement is fundamental. Building expertise and training are key for the success.
P&P: Ponchio & Polido Consultants
ABRAS: Associação Brasileira dos supermercados
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