Lon Swanson, Wells Fargo Sector Manager, Crop Inputs, Feed
Brad Rubin, Wells Fargo Sector Analyst, Specialty Crops

June 5, 2019

eMarketer estimates that $3.4 trillion will be spent online in retail sales worldwide in 2019. That number equates to 13% of total worldwide retail sales with an annual growth rate of 19.5% for e-commerce sales. In 2020, projections for online sales are $4.1 trillion, an additional 19% growth rate.¹ Despite significant e-commerce growth, the percent of adoption within the farming sector is lagging.

According to the USDA, only 25% of U.S. crop farmers purchased inputs online in 2017. However, that represents an increase from 16% in 2013, and between the years 2013-2017, the total number of farmers purchasing inputs online increased by 40%.²

Savings of both time and money would seem to make online shopping a simple decision for farmers. This not being the case, we are examining why farmers are not taking advantage of today’s modern, online shopping experience to gain efficiencies within their businesses. In its 2017 Census of Agriculture, USDA found that 75% of U.S. farms have Internet access. Though three out of four farms are Internet capable, farmers are just beginning to leverage Internet and App technologies to help optimize their business strategies.

Where’s the bandwidth?

The below chart depicting Internet access by type begins to explain why e-commerce purchasing has experienced a slower adoption rate on rural farms across America. Bottom line, the high bandwidth required for efficient and comparative Internet shopping has been slow in reaching rural America where most farms are located.

Source: USDA National Agricultural Statistics Service, 2017 Census of Agriculture

So, what will impact available bandwidth? There’s a good chance that other industry drivers may provide communication carriers with incentive to increase bandwidth to major farming communities. With large amounts of capital being invested in precision agriculture startups and online agriculture marketplaces, farmers are being introduced to technology and agronomic practices that can improve yield and productivity, while also lowering costs. Technology infrastructure will be required to enable farmers’ adoption of these emerging agribusiness technologies designed to help them farm more intelligently.

The lack of high-quality, broadband connections is certainly one reason that e-commerce among farmers has not kept pace, but there are other reasons tied to the supply chain as well.

Local advisor relationships

Farmers make high-dollar decisions on a daily basis, including crop rotation, seed and fertilizer selection, chemical inputs, and marketing. Established farmers have traditionally relied on “trusted advisors” for ideas and guidance to improve farming operations. This advisor may be the agronomist at the local crop input supplier, or it could be a county agent. Since farmers place great value on relationships, particularly in smaller communities, minimizing these relationships can be complicated.

Yet, while older farms have relied on their trusted advisors, today’s younger farmers have grown up using technology. So, as farms are passed down through families, the new generations are adopting technology for things like soil sample readings, irrigation optimization, and data analysis, and relying less on advisors to intelligently and efficiently manage their businesses.

Only one chance to get it right

Most online shoppers make purchases to accommodate their ongoing lifestyle needs. Contrast this with the professional farmer who must make an annual purchase decision for the spring planting season, and only has one chance to “get it right.” The comfort level with Amazon, or any major online retailer, delivering the latest electronic gadget, or a monthly supply of pet food is certainly much different than the comfort level with ordering urea fertilizer online to facilitate the annual planting season.

In 2019, U.S. farmers are expected to plant over 92 million acres of corn, with the vast majority of planting taking place in a single 7-10 day window. So, a delayed or inaccurate input order can be very costly for a farmer when there is limited time to get the crop in the ground. Those younger farmers willing to accept the risk and adopt e-commerce for input ordering are paving the way for e-commerce to become far more prominent in farming.

Added value

Agricultural e-commerce companies such as Farmers Business Network (FBN), Agroy, CommoditAg, and AgVend all sell crop inputs online. All of these companies have leveraged more mainstream business models, such as Amazon and Priceline, to create online marketplaces for U.S. farmers. In effect, these online order sites have created an online “farming community” by delivering price transparency, third-party seller networks, and pairing of buyers and sellers. In the end, these agriculture marketplaces are able to improve convenience, increase cost savings, and facilitate product delivery within windows of time acceptable to farmers.

As shown in the below image of the CommoditAg site, farmers can filter by crop and type of input, then compare product options based on active ingredients, brand, price, rating, and usage restrictions.

Source: CommoditAg website

Conclusion
While all risk will never be eliminated, farmers are warming up to the array of benefits realized through e-commerce. And, since the greatest concern is on-time arrival at the farm, some e-commerce players are lessening this barrier by enabling “in-store pickup” using a network of retail outlets, like regional cooperatives, to receive and hold inputs purchased online.

As with all technologies, e-commerce within farming may start slow, but farmers’ successful completion of smaller, less critical purchases will heighten trust and enthusiasm for online sourcing of larger orders. With increased confidence, and recognition that an herbicide can be ordered and delivered a month ahead of spraying season, or that urea can be ordered and delivered a week prior to application, look for farmers to become more active online shoppers as agriculture marketplaces continue to evolve. And, it stands to reason that the online purchase of inputs should only increase as farmers adopt precision agriculture technologies. Once deficiencies in growing practices are identified and understood, e-commerce will enable efficient input purchases inputs to resolve problems. It may not be long before e-commerce becomes a way of life for the American farmer.

1. SmartInsights.com, Online Retail Sales Growth
2. USDA via Ag Pro https://www.agprofessional.com/article/ag-retailers-adapt-digital-age